Tag Archives: economy

5 Taxable Bond Funds To Invest In Despite Record Outflows

Taxable bond funds are debt securities whose interest payments are taxable at the local, state or federal level. Concerns about higher interest rates resulted in a massive sell-off in taxable bond funds in the third quarter of this year. Federal Reserve Chairwoman Janet Yellen indicated that the lift-off option is very much on the table later this year provided the economy is strong enough to boost employment and inflation touches the desired level. Moreover, worries about global growth, mostly in emerging economies, led to the outflow in taxable bond funds. Nevertheless, these type of funds showcased strength in an otherwise punishing market environment. They posted steady returns amid the stock market sell-off. They are even poised to yield better results banking on stepped-up economic activity, rising business and consumer confidence, improving housing market and continued job creation. Hence, investing in these funds should be a prudent idea. Taxable Bond Funds Suffer Huge Outflows Investors have pulled $36.2 billion out of taxable bond mutual funds in the third quarter of this year, according to the preliminary Lipper data. This represents the biggest outflow from this fund type since the fourth quarter of 2008. In fact, taxable bond mutual funds continued to bleed in the week ended October 7. During the week, investors pulled $2.3 billion out of taxable bond mutual funds, registering its 11th continuous week of net withdrawals. This dismal performance came in after taxable bond mutual funds posted their second-largest weekly outflow on record for the week ending September 30. In the first half of the year, however, taxable bond mutual funds had posted an inflow of more than $23 billion. But if this current outflow continues for the rest of the year, taxable bond mutual funds will mark their first annual net outflow since 2000. According to Jeff Tjornehoj, head of Americas research at Lipper, outflow from this type of funds was broad-based as it was spread across all types of categories and companies. He added: “Investors are getting out of these bond funds because of fear. An unfounded fear, in my opinion, of higher rates and a global recession.” Higher Rates, Global Growth Concerns Concerns about higher interest rates in the near term resulted in outflows from taxable bond mutual funds. Last month, the Fed Chairwoman Janet Yellen said that the Federal Open Market Committee (FOMC) members “expect that the various headwinds to economic growth … will continue to fade, thereby boosting the economy’s underlying strength.” She added: “Most FOMC participants, including myself, currently anticipate that achieving these conditions will likely entail an initial increase in the federal funds rate later this year, followed by a gradual pace of tightening thereafter.” Worries about global economic growth, especially in the emerging economies including China, also led to outflow from bond funds. Markets across the world took a beating in response to the slowdown in China’s economic growth and its surprise move to devalue its currency. Weak Chinese trade data also raised concerns about the country’s growth outlook. While its exports were down 3.7% in September from the same period last year, its imports plunged 20.4% last month from a year earlier. Separately, other emerging markets also face the threat of instability, since their debts are vulnerable to rising interest rates in the US. Overall, the International Monetary Fund downgraded its global growth forecast for this year to 3.1%, which will result in the weakest growth performance since 2009. 5 Taxable Bond Funds to Buy as it Shows Signs of Stability Despite the outflows this year, taxable bond mutual funds are holding up a lot better than the stock markets. Amid volatility in the financial markets, returns from this type of funds remain more or less stable for the year, while the S&P 500 is down 2.7% year to date. Additionally, taxable bond mutual funds have given a steadier average annual return of 4.3% in the last 10 years. Moreover, flows are a result of economic events. A gradual recovery in domestic housing and manufacturing sectors, steady improvement in labor market conditions and lower gasoline prices are expected to boost the US economy in the near term. These factors are likely to have a positive impact on the fund’s performance. Several taxable bond mutual funds are excelling this year. Below we present five such bonds that have given steady returns, possess a relatively low expense ratio and boasts a Zacks Mutual Fund Rank #1 (Strong Buy) or Zacks Mutual Fund Rank #2 (Buy). Buffalo High-Yield (MUTF: BUFHX ) invests a major portion of its net assets in higher yielding, higher-risk fixed income securities.BUFHX currently carries a Zacks Mutual Fund Rank #1. BUFHX’s year-to-date and 1-year total returns are 3.2% and 4.7%, respectively. Annual expense ratio of 1.02% is lower than the category average of 1.06%. Vanguard Intermediate-Term Investment-Grade Investor (MUTF: VFICX ) invests in a widely diversified group of intermediate-term bonds, most of them issued by corporations with good credit ratings. VFICX currently carries a Zacks Mutual Fund Rank #2. VFICX’s year-to-date and 1-year total returns are 2.1% and 2.2%, respectively. Annual expense ratio of 0.20% is lower than the category average of 0.84%. Columbia Strategic Income Fund Class A (MUTF: COSIX ) invests in debt securities issued by the US government, including mortgage-backed securities issued by US government agencies. COSIX currently carries a Zacks Mutual Fund Rank #1. COSIX’s year-to-date and 1-year total returns are 1.2% and 1%, respectively. Annual expense ratio of 1.04% is lower than the category average of 1.27%. SEI Daily Income Trust GNMA Fund Class A (MUTF: SEGMX ) invests primarily in mortgage-backed securities issued by GNMA. SEGMX currently carries a Zacks Mutual Fund Rank #1. SEGMX’s year-to-date and 1-year total returns are 1.1% and 2.2%, respectively. Annual expense ratio of 0.63% is lower than the category average of 0.91%. Performance Trust Strategic Bond (MUTF: PTIAX ) invests a major portion of its net assets in fixed-income instruments. PTIAX may also invest in derivative instruments. PTIAX currently carries a Zacks Mutual Fund Rank #1. PTIAX’s year-to-date and 1-year total returns are 2.3% and 3.1%, respectively. Its annual expense ratio of 0.94% is lower than the category average of 1.03%. Original Post

Trans-Pacific Partnership Deal: Time For Vietnam ETF?

It looks like time has come for Vietnam to disentangle from the heavy reliance on China as a trading partner. The recently enacted Trans-Pacific Partnership (TPP) trade pact, reached after more than five years of negotiations between the member nations, will make Vietnamese goods reach the global market. TPP is the biggest trade agreement in history aimed at reducing tariffs and setting common trading standards for the 12 Pacific Rim nations, including the U.S., Canada, Japan, Australia, Brunei, Chile, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam. According to Vu Huy Hoang , Vietnamese Minister of Industry and Trade, TPP will enhance Vietnam’s GDP by $23.5 billion in 2020 and $33.5 billion in 2025. In addition, it will boost the country’s exports by $68 billion in 2025. Currently, TPP member nations represent about 40% of global GDP and 30% of global trade. The deal will open up trading avenues for key export products of Vietnam such as textile, garment, footwear, and seafood in broader market such as the U.S., Japan, and Canada due to their ultra low import tariffs. So far, Vietnam’s trade balance was heavily biased toward China. In the first nine months of the year, China remained the country’s largest trade partner with trade revenues of approximately $50 billion, per Vietnam’s General Statistics Office. However, Vietnam is experiencing weakening demand from China due to its economic slowdown. Therefore, the deal comes at a perfect time. The deal is yet to be ratified by lawmakers in member countries. It is expected to easily pass through Vietnam’s legislature due to its favorable impact on the economy. Vietnam Economy Vietnam’s economy has already been benefiting from low energy costs and very low inflation. Last month, inflation dipped to zero for the first time ever, as per General Statistics Office. Average price gains were less than 1% in contrast to a five-year average of more than 9% till 2014. Lower energy costs led to a 29% rise in new businesses to 68,347 units in the first nine months of the year. Inexpensive labor and devaluation of the Vietnamese dong for the third time in a year by the country’s central bank have also been boosting the country’s exports and attracting foreign investments. Bloomberg data showed that the country’s exports went up 9.6% year over year to $120.7 billion in the first nine months of the year. In the same period, pledged foreign investment soared 53.4% while disbursed foreign investment rose 8.4% from year-ago levels. General Statistics Office estimates revealed that Vietnam’s GDP grew at the fastest pace of 6.3% since 2008 during the first half of the year. The growth is higher than 5.2% in the same period last year and 4.9% in 2013. The government is on track to reach the four-year high GDP growth of 6.2% this year. According to Asian Development Bank, Vietnam is likely to record the fastest growth in 2015 among the five major Southeast Asian countries tracked by the bank. Thanks goes largely to burgeoning private spending, export-led growth and increasing flow of foreign direct investment. Buoyed by the growth potential, World Bank has predicted that Vietnam’s extreme poverty rate (people living under the income level of $1.9 per day) will decrease to only 1% in 2017 from 2.8% in 2012. Moreover, people living under the income level of $3.1 per day are expected to decline to 6.7% in 2017 from 12.3% in 2012. ETF in Focus The TPP deal as well as the recent spate of optimistic economic data definitely turns our attention to the sole ETF focused on Vietnam (nearly 80%), Market Vectors Vietnam ETF (NYSEARCA: VNM ). VNM seeks to match the performance and yield of the Market Vectors Vietnam Index, measuring the performance of stocks listed in the Vietnamese stock index which generate at least 50% of their revenues from within the Vietnamese economy. The ETF holds 32 stocks, mostly from the financial sector (44%), followed by energy (16.3%) and consumer staples (14%). Its top three holdings include Vincom, Bank for Foreign Trade of Vietnam and Saigon Thuong Tin Commercial. The fund has amassed $425 million in assets and trades in a volume of 450,000 shares per day. It charges 76 bps in fees and returned about 8% in the last one month. Original Post

5 ETFs Up At Least 10% This Year

Volatility has been calling shots in the investing world this year as hard landing fears in China, return of deflationary worries in the Euro zone despite easy policy measures, vulnerable emerging markets, slumping commodities and the nagging hearsay about the timeline of Fed lift-off dampened the risk-on trade sentiments on several occasions. Though the most part of the year saw decent trading, the global market went ballistic in Q3 on the Chinese market crash. Sudden currency devaluation, multi-year low manufacturing data and some failed but desperate policy measures to rein in the slide led the Chinese stocks to hit the dirt in Q3 and see the worst quarter since 2008. Needless to say, such a massacre in the world’s second-largest economy did not spare other risky asset classes. The most key global indices also endured the worst quarter in four years and the leading U.S. indices tasted correction in August. Also, emerging market fund flows are now likely to turn negative this year for the first time since 1988 (read: ETFs to Watch as Emerging Market Asset Outflow Doubles ). Agreed, a dovish September Fed meeting and a soft job report for that month finally pushed back the speculative timeline for the U.S. policy tightening to early next year. This also brought the risk-on sentiment back on the table. Yet it definitely does not ensure seamless trading till the end of the year. These may give enough reasons for investors to panic and look for equity survivors this year. For them, we highlight five ETFs that have gained over 15% so far this year. China – Market Vectors ChinaAMC SME-ChiNext ETF (NYSEARCA: CNXT ) After a lot of tantrums, the China stocks and ETFs finally seem back on track. Compelling valuation after a bloodbath, some decent factory data in September, continued momentum in China’s service sector, persistent rollout of accommodative government measures (though at a petite dose) and an accommodative Fed led this China A-Shares ETF to build up gains in the year-to-date frame. The Zacks Rank #3 (Hold) fund is up over 25% so far this year (as of October 5, 2015) and also added close to 20% in the last one month. However, the point to be noted here is that China investing stands at a critical juncture this year and the economy is far from being steady. So, A-Shares investing needs a strong stomach for risks (read: Correction Seems Over: Time for China ETFs? ). Long/Short – QuantShares U.S. Market Neutral Momentum Fund (NYSEARCA: MOM ) Since volatility has been at its height so far this year, this long/short ETF had to emerge as the winner. The underlying index of the fund is equal weighted, dollar neutral and sector neutral. The index takes the highest momentum stocks into account as long positions and the lowest momentum stocks as short positions. MOM is up 20.8% this year and gained 3.3% in the last one-month period. With volatility refusing to backtrack even in Q4 on global growth issues, MOM is likely to prevail ahead (read: 3 Hit and Flop Zones of Q3 and Their ETFs ). Japan – WisdomTree Japan Hedged Health Care ETF (NYSEARCA: DXJH ) Since the Japanese economy shrank 0.3% in the second quarter of 2015, marking the first contraction since the third quarter of 2014, and the third quarter output is also seemingly flat; hopes for further policy easing are doing rounds. The Japanese economy is already undergoing a gigantic stimulus measure. Thus, hopes for further easing amid a slowing economy gave the justified boost to this currency-hedged ETF. DXJH is up about 21% so far this year (as of October 5, 2015). However, the product was flat in the last one-month period. The fund has a Zacks ETF Rank #1 (Strong Buy). Denmark – i Shares MSCI Denmark Capped Investable Market Index ETF (BATS: EDEN ) The Danish economy expanded 0.2% in Q2 and carried on the longest stretch of incessant growth in 25 years. Moreover, the economy wiped out fears of a lull in Q2. All these stirred optimism around the nation. This Zacks ETF Rank #3 fund has added over 17% in the year-to-date frame and gained about 2% in the last one month. Internet – First Trust Dow Jones Internet ETF (NYSEARCA: FDN ) This branch of the U.S. technology sector has been a smart survivor in the recent global market sell-off. The usage of Internet has been gaining popularity. While its surge has saturated in the developed economies, scope for growth is huge in the emerging markets. Investors should also note that tech stocks normally perform better in the final quarter of the year. Thanks to this burgeoning trend, this Internet ETF has advanced 13.7% this year and added 4.7% in the last one month. The fund has a Zacks ETF Rank #2 (Buy). Link to the original post on Zacks.com