Tag Archives: economy

3 ETF Winners Post Fed Rate Hike

For the first time in nearly a decade, the Fed opted for a lift-off last week indicating that the economy has gained enough strength to bear future increases in borrowing costs. Significant improvements in the key sections of the economy including that in the labor market were the main reasons behind the hike. Expressing confidence in the U.S. economy, Fed Chair Janet Yellen announced the beginning of a slow-but-steady series of rate increases. The Fed increased its short-term borrowing rate to a range of 0.25% to 0.50% as policy makers unanimously voted in favor of a hike. The long wait for the hike was what Janet Yellen labelled an “extraordinary period.” During this period, ultra-low interest rates aided economic recovery, lending a bull run to the markets. Following the lift-off decision, Yellen stated that the decision “reflects our confidence in the U.S. economy.” The Fed also indicated that “solid” consumer spending, a rebound in the housing market and strong business fixed investment played an important role in the decision. How the Markets Moved Post Hike? Though the highly anticipated hike helped the broader benchmarks to move northward, markets failed to extend the gains due to concerns including the slump in oil prices. Despite yesterday’s gains, the Dow, S&P 500 and Nasdaq lost 2.4%, 1.8% and 1.3%, respectively. Oil was the main reason behind the benchmarks slipping into negative territory following the rate-hike decision. Concerns regarding weak global demand, absence of production cuts from OPEC and North American shale suppliers, and a stronger dollar continued to weigh on oil prices, which in turn affected energy shares during the period. The broader energy index – Energy Select Sector SPDR ETF (NYSEARCA: XLE ) – declined nearly 5.4% in this time frame. However, the alternative energy sector moved in the opposite direction thanks to some important developments. The historic Paris Climate Deal and news on tax credit extension boosted the sector during this period. The Paris deal, in which about 195 countries agreed to a landmark treaty to curb global warming to a significant extent, will invariably motivate renewable energy companies to step up their investments in new technologies, boosting the industry’s growth prospects. Meanwhile, the unexpected approval of a five-year extension to the Investment Tax Credit (ITC) and Production Tax Credit (PTC) for solar and wind companies by the U.S. government also boosted the stocks. 3 ETF Winners In this scenario, we have highlighted three ETFs that registered healthy gains in the post rate-hike period. Guggenheim Solar ETF (NYSEARCA: TAN ) This ETF follows the MAC Global Solar Energy Index, holding 31 stocks in the basket. American firms dominate the fund’s portfolio with nearly 50.9% share, followed by Hong Kong (19.8%) and China (17.5%). The product has amassed $323.8 million in its asset base and trades in moderate volume of around 226,000 shares a day. It charges investors 70 bps in fees per year. The fund has returned 7.7% in the post rate-hike period. Market Vectors Mortgage REIT Income ETF (NYSEARCA: MORT ) The ETF tracks the Market Vectors Global Mortgage REITs Index, measuring the performance of companies primarily engaged in the purchase or service of commercial or residential mortgage loans. The fund consists of 24 stocks and charges 41 bps in investor fees per year. The fund is relatively less popular with an asset base of $102.2 million and average volume of roughly 31,000 shares per day. The commitment of a gradual increase in the key interest rate helped the fund to return 4.6% in the post rate-hike period. SPDR S&P Biotech ETF (NYSEARCA: XBI ) This ETF follows the S&P Biotechnology Select Industry Index, holding 105 stocks in the basket. The fund has a well-diversified portfolio as none of the firms has more than 1.7% of assets. The fund is quite popular with an asset base of $2.8 billion and strong average volume of more than 4 million shares per day. It charges investors 35 bps in fees per year. The fund has returned 4.7% in the post rate-hike period. Original Post

Yen ETF Gains On Bank Of Japan Stimulus Changes

Unexpected modifications in the quantitative easing program by Bank of Japan (BOJ) on Friday helped the Japanese currency yen to move higher against the U.S. dollar. BOJ took some moderate steps to boost the sluggish Japanese economy and achieve its inflation target rate. Following the announcement, the yen gained nearly 1.2% against the dollar. BOJ’s New Steps in Focus Japan’s central bank announced a number of judicious changes without expanding the volume of its annual asset purchasing program it has been following for the last three years. Though it maintained the volume of bond purchasing at around 80 trillion yen ($660 billion) per year, the bank opted for raising the Japanese government bonds’ (JGBs) average maturity from 7-10 years to 7-12 years. The bank also revealed its plan of purchasing all JGBs to be issued next year. BOJ also announced that under this program, it will allocate 300 billion yen of assets annually in purchasing ETFs that seek to follow the JPX-Nikkei Index 400, which comprises companies that carry out operation without violating the corporate-governance criteria. The central bank’s intention was to boost capital expenditure and wages – an important parameter of an economy – through this step. This was in addition to the BOJ’s annual allocation of 3 trillion yen in ETFs, which started in late 2014. Will It Work? The changes in economic stimulus came on the back of concerns that BOJ’s quantitative easing program that started three years ago has done little for the economy. Despite the bond purchasing program – popularly known as Abenomics – that had aimed at achieving economic growth, the economy slid into contraction territory in the second quarter with a year-on-year GDP decline of 0.5%. However, according to the latest estimate, the economy rebounded strongly in the last quarter to witness a GDP growth rate of 1%, contrary to the earlier estimate of a contraction of 0.8%. Meanwhile, it was reported that the output expanded at an annual pace of 1.6% in the last three quarters. Also, spending by households in the last quarter saw an increase of 0.5%, indicating that the QE program is not a complete failure. Though the bank’s inflation target of 2% has not yet been achieved, BOJ indicated that it will do whatever it takes to reach the goal. Haruhiko Kuroda, Governor of BOJ said: “I’d like you to understand that we have taken those measures so we will be able to quickly adjust policy if we ever reach a conclusion that [further] action is needed to achieve the price-stability target at an early time.” He even added: “If risks to growth and price rises materialize, and if additional easing becomes necessary as a result, I certainly think we will have to undertake bold measures.” Yen ETF – FXY Gains Divergence in economic policies between the two major economies, the U.S. and Japan, played an important role in boosting the yen against the U.S. dollar on Friday. Last week, the Fed announced the first rate hike in almost a decade. The Fed finally pulled the trigger, raising benchmark interest rates by a modest 25 bps to 0.25-0.50% for the first time since 2006. Like the yen, CurrencyShares Japanese Yen ETF (NYSEARCA: FXY ) that tracks the value of the yen against the price of the greenback also gained 1.2% on Friday following the BOJ announcement. This $252.8 million fund charges 40 basis points as fees. FXY also returned 0.9% in the past six months as the yen, which is considered a classic safe haven asset continue to attract investor focus. FXY has a Zacks ETF Rank #3 (Hold) with a High risk outlook. Apart from FXY, popular Japanese ETFs such as iShares MSCI Japan (NYSEARCA: EWJ ), WisdomTree Japan Hedged Equity ETF (NYSEARCA: DXJ ) and Deutsche X-trackers MSCI Japan Hedged Eq (NYSEARCA: DBJP ) will also remain on investors’ radar in the coming months as they will track the prospect of the changes in economic stimulus. However, EWJ, DXJ and DBJP declined 1.3%, 2.7% and 2.6%, respectively, following the yen’s gain.

WisdomTree Going Beyond Hedged International ETFs

WisdomTree Investments (NASDAQ: WETF ), the industry’s fifth largest ETF provider, has a long list of successful products, be it currency hedged, pure domestic or international equity funds. In fact, WisdomTree has been the king in the currency hedged ETF world with blockbuster funds – Europe Hedged Equity Fund (NYSEARCA: HEDJ ) and Japan Hedged Equity Fund (NYSEARCA: DXJ ) – having AUM of $19.4 billion and $16.2 billion, respectively. Encouraged by the incredible success of these two funds, WisdomTree now plans for their unhedged versions. These ETFs will simply provide exposure to the export-oriented dividend-paying European and Japanese stocks excluding the currency derivatives, making them WisdomTree’s first unhedged international ETFs. While a great deal of the key information – such as expense ratio or ticker symbol – was not available in the initial release, other important points were released in the filing. We have highlighted those below for investors, who may be looking for a new income play targeting Europe and Japan from WisdomTree should it pass regulatory hurdles: WisdomTree Europe Equity Fund in Focus The proposed ETF looks to offer exposure to European equity securities, particularly shares of European exporters, which tend to benefit from the falling euro. This could easily be done by the WisdomTree Europe Equity Index, which consists of dividend-paying companies that derive at least 50% of their revenue from countries outside of Europe and have at least $1 billion in market capitalization. Though this planned fund will likely get first mover advantage due to the inclusion of export-oriented, dividend paying companies, it will face stiff competition from FTSE Europe ETF (NYSEARCA: VGK ) and First Trust STOXX European Select Dividend Index Fund (NYSEARCA: FDD ) . VGK is the most popular and liquid ETF in the European space with AUM of over $14.9 billion and tracks the FTSE Developed Europe Index. It charges 12 bps in fees per year from investors. On the other hand, FDD follows the STOXX Europe Select Dividend 30 Index, providing exposure to high-dividend yielding companies across 18 European countries that have a positive five-year dividend-per-share growth rate and a dividend to earnings-per-share ratio of 60% or less. It has amassed $158.7 million in its asset base and has an expense ratio of 0.60%. Further, the success of the proposed ETF depends on European economic prospects, which look bright at present. This is especially true as the economy is on the mend with the rounds of monetary easing. The European Central Bank (ECB) is pumping trillions of euros into the sagging Eurozone economy, courtesy its QE program that began in March and will run through September 2016. Additionally, cheap oil, higher exports, and weak euro are providing a further boost to the region. If the current trends continue, the WisdomTree proposed fund, if approved, will not find it difficult to attract investor attention. WisdomTree Japan Equity Fund in Focus This proposed ETF looks to target export-oriented, dividend-paying Japanese equity securities by tracking the WisdomTree Japan Equity Index. The Index consists of dividend-paying companies incorporated in Japan and traded on the Tokyo Stock Exchange that derive less than 80% of their revenue in Japan. Similar to its Europe counterpart, this fund will also get first mover advantage but iShares MSCI Japan ETF (NYSEARCA: EWJ ) could pose a major threat. EWJ is an ultra-popular fund targeting the Japanese economy with an AUM of over $19.9 billion and charging 48 bps in fees per year. Currently, the Japanese economy is experiencing a slowdown despite the slew of monetary easing measures and the Prime Minister Shinzo Abe’s reform policy popularly referred to as Abenomics. However, earnings of Japanese companies have improved since the launch of Abenomics and a weaker currency is making its exports more competitive leading to higher exports. This lethal combination will drive stock prices higher for exporters, making the proposed ETF a compelling choice, once approved. Original Post