Tag Archives: etf

Bank ETFs Surge: Will The Momentum Last?

Finally, the battered banking stocks found reasons to turn around. As soon as the April Fed minutes hinted at a June rate hike possibility, banking, along with many other financial stocks, rallied on May 18. The going was tough for bank stocks and ETFs for quite some time, mainly due to the twin attacks of a delay in any further Fed rate hike after a liftoff in December and the energy sector slump. But things are now falling in space for this woebegone sector. Hawkish Tone in Fed Minutes Citing plenty of positive drivers in the market, including a healing labor market, a bullish inflation outlook, strong retail, consumer sentiment and housing data, the Fed minutes brought back the sooner-than-expected rate hike talks on the table. The yield on the 10-year U.S. Treasury note jumped 11 bps to 1.87% on May 18, while the yield on the 2-year U.S. Treasury note rose 8 bps to 0.90%. This steepening of the yield curve was a tailwind for banking stocks, as these improve banks’ net interest margins. This is because the interest rates on deposits are usually tied to short-term rates, while loans are often tied to long-term rates. Revival in Oil Prices U.S. banks have significant exposure to the long-beleaguered energy sector, where chances of credit default are higher. In February, the S&P cut its outlook on several regional banks with substantial energy sector exposure, citing a likely increase in non-performing assets. Among the biggies, Wells Fargo (NYSE: WFC ) reported around $42 billion oil and gas credit in February. The situation was the same for JPMorgan (NYSE: JPM ), whose energy loan accounts for 57% of the investment-grade paper . JPMorgan’s $44 billion energy sector exposure was a cause for concern given the below-$30-oil-per-barrel mark a few months back. However, those days of crisis seem to have passed, with oil prices showing an impressive rally lately and hovering around a seven-month high on falling supplies and the possibility of rising demand. Political imbalance in countries like Nigeria and Venezuela and expected moderation in the shale boom should put a brake in the supply glut. This increased hopes for a revival in the energy sector, which, in turn, is likely to benefit the banking sector too. JPMorgan Ups Dividend This leading financial firm announced a dividend hike on May 17, 2016, after the market closed. The company declared a quarterly cash dividend of $0.48 per share, representing a more than 9% rise over the prior payout. Per analysts , the strength in its consumer businesses helped the bank to opt for this. JPM shares jumped about 3.9% in the key trading session of May 18, benefitting the ETFs that invest heavily in the company. Notably, JPMorgan’s first-quarter 2016 earnings of $1.35 per share beat the Zacks Consensus Estimate of $1.26. Net revenue of $24.1 billion was also ahead of the Zacks Consensus Estimate of $23.9 billion. Needless to mention, this announcement uplifted the big banks’ financial image. All these showered ample gains in banking stocks on May 18. Below, we highlight a few (see all Financial ETFs here ): SPDR S&P Regional Banking ETF (NYSEARCA: KRE ) – Up 4.24% SPDR S&P Bank ETF (NYSEARCA: KBE ) – Up 4.15% PowerShares KBW Regional Banking Portfolio ETF (NYSEARCA: KBWR ) – Up 4.14% First Trust Nasdaq ABA Community Bank ETF (NASDAQ: QABA ) – Up 3.87% PowerShares KBW Bank Portfolio ETF (NYSEARCA: KBWB ) – Up 3.76% iShares U.S. Regional Banks ETF (NYSEARCA: IAT ) – Up 3.73% Apart from banking sector ETFs, other financial ETFs also shined on May 18. Among the lot, the iShares U.S. Broker-Dealers ETF (NYSEARCA: IAI ), up 3.11%,deserves a special mention. Notably, this ETF is also a beneficiary of the rising rate environment. Going Forward Since all the drivers are likely to remain in place for some time, the road ahead for banking ETFs should not be edgy. Even if the Fed does not act in June, it should act by September. Moreover, after two years of struggle, tension in the oil patch is likely to take a breather, as supply-demand dynamics look favorable for the near term. However, if bond yields decline on risk-off trade sentiments emanated from global growth issues, financial ETFs might come under pressure. Original Post

Confused About Market Trend? Buy These Balanced Funds

A portfolio that offers a mix of both equity and fixed-income investments may be ideal for those who are confused about the market trend in the near future. With the first-quarter earnings season nearing its end and uncertainty over rate hike taking the front seat, investing in balanced mutual funds may prove profitable. Balanced mutual funds that invest 30-50% of their assets in equity securities have registered an average return of 2.2% in the year-to-date frame, the highest among the allocation mutual fund categories, according to Morningstar. Also, this was the best-performing segment among the allocation mutual fund categories over the past one month. So, favorably ranked mutual funds form the above-mentioned category may be lucrative investment propositions. June Hike in the Cards The minutes from the Fed’s policy meeting in April that released yesterday showed several Fed officials’ verdict of a hike next month if the U.S. economy continues to show signs of improvement. The minutes stated: “Most participants judged that if incoming data were consistent with economic growth picking up in the second quarter, labor markets continued to strengthen, and inflation making progress toward the committee’s 2 percent objective, then it likely would be appropriate for the committee to increase the target range for the federal funds rate in June.” Separately, San Francisco Fed President John Williams recently said that following continued moderate growth, two to three rate hikes this year “makes sense.” “The data” he added, “are lining up to make a good case for rate increases in the next few meetings, not just June.” Also, Atlanta Fed President Dennis Lockhart said that the recent “encouraging” inflation data showed a growth in U.S. economy. High-quality global journalism requires investment. He added that “if the data continue to be encouraging” he would “certainly entertain some policy move in June.” Though some of the Fed officials showed concerns over sluggish first-quarter growth and weak global growth conditions, most of pointed to “the steady improvement in the labor market as an indicator that the underlying pace of economic activity had likely not deteriorated.” The significant rise in possibilities of a raise in June led investors to doubt market movement. Oil Price Fluctuations Persist As the first-quarter earnings season is almost over, oil price movement and economic data are likely to set the market trend in coming days. Despite the recent rally, oil prices continued to witness fluctuations as major oil-producing nations failed to reach an agreement on production freeze. Russia’s Energy Minister Alexander Novak’s discouraging comments weighed down on oil prices. Novak recently said that as the global crude surplus remained at 1.5 million barrels per day (bpd), “(the outlook that the market won’t balance until the first half of 2017) is an optimistic forecast as oversupply persists.” However, the recent positive outlook from Goldman Sachs Group, Inc. gave a boost to oil prices. Goldman Sachs said that oil market encountered a deficit in crude output following production disruptions in Nigeria and Canada. Goldman also said that “the oil market has gone from nearing storage saturation to being in deficit much earlier than” it expected. The firm also projected that WTI crude may reach $50 per barrel in the second half of this year and register modest increases in 2017. Thus, uncertainty regarding crude price movement in the coming months also raised doubts over market movement in near future. 4 Balanced Funds to Buy In this scenario, we have highlighted four Balanced Mutual Funds that carry a Zacks Mutual Fund Rank #1 (Strong Buy) and allocate between 30% and 50% of their assets in equity securities. We expect these funds to outperform their peers in the future. Remember, the goal of the Zacks Mutual Fund Rank is to guide investors to identify potential winners and losers. Unlike most of the fund-rating systems, the Zacks Mutual Fund Rank is not just focused on past performance, but also on the likely future success of the fund. Moreover, these funds have encouraging year-to-date, three-year and five-year annualized returns. The minimum initial investment is within $5,000. Also, these funds have a low expense ratio and carry no sales load. Vanguard Wellesley Income Fund Inv (MUTF: VWINX ) invests 60-65% of its assets in investment-grade debt securities issued by corporate, U.S. Treasury, and government agencies. The fund allocates the rest of its assets in common stocks of companies with a solid track record of dividend payments. VWINX has year-to-date, three-year and five-year annualized returns of 4.7%, 5.5% and 7.4%, respectively. Annual expense ratio of 0.23% is significantly lower than the category average of 0.80%. Berwyn Income Fund Inv (MUTF: BERIX ) invests in both equity and fixed-income securities. While the fund invests in fixed-income securities including debt securities of both the U.S. government and corporate entities, and mortgage-backed securities, it also invests in undervalued common stocks of companies that pay dividends. BERIX has year-to-date, three-year and five-year annualized returns of 3.6%, 3.6% and 5.2%, respectively. Annual expense ratio of 0.64% is significantly lower than the category average of 0.80%. American Century One Choice Portfolio Conservative Inv (MUTF: AOCIX ) allocates 45%, 49% and 6% in underlying funds, which in turn invest in stocks, bonds and cash equivalents, respectively. AOCIX has year-to-date, three-year and five-year annualized returns of 2.5%, 3.9% and 5.4%, respectively. Annual expense ratio is 0% compared to the category average of 0.80%. T. Rowe Price Retirement Balanced Fund Adv (MUTF: PARIX ) invests in both stock and bond funds of T. Rowe Price. PARIX created a diversified portfolio by investing 60% in underlying bond funds and the rest of the assets in underlying stock funds. The proportion of asset allocations is considered ideal for investors’ retirement years, according to T. Rowe Price. PARIX has year-to-date, three-year and five-year annualized returns of 2.5%, 2.7% and 4.2%, respectively. Annual expense ratio is 0.25% compared to the category average of 0.80%. 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Yen Gain Seems Overdone; Time For Japan ETFs?

It seems that the dark cloud hanging over Japan investing has started dispersing. After witnessing a tumult this year on a rising yen, Japanese shares have lately turned their course. The weakness in the Japanese currency, yen, was behind the recent surge in shares. Two things made yen soggy. First, Japan indicated that it may intervene in the currency market to contain the strength in yen, which bothered exporters. Following this rhetoric , yen dropped about 3% from its 18-month high. Second, the greenback is rallying and is now on its way to log the first monthly gain against the yen since January. The greenback gained its lost ground on a flurry of upbeat economic data released lately, which in fact brought the Fed hike back on the table. The PowerShares DB USD Bull ETF (NYSEARCA: UUP ) added about 1.7% in the last 10 days (as of May 17, 2016). Overall, the greenback weakness and yen appreciation seem overdone and may fuel Japanese shares. Moreover, oil’s ascent to a six-month high charged up energy shares. Notably, oil prices shored up on supply disruption in countries like Nigeria and a bullish call by the renowned brokerage house Goldman Sachs. If global markets remained relatively steady ahead on rising oil prices, yen may not gain strength on safe-haven demand. How Important Are Yen Moves? Investors should note that Japan’s corporate profits (pretax) dropped 24% year over year in the March quarter and 40% sequentially, representing the worst quarter since the September quarter of 2012. However, it is not entirely because of yen as asset write-downs are incurred by Japanese companies in their final quarter of a fiscal year, as per analysts. Still, the impact of yen is huge as export-oriented automobile companies bore the brunt of a stronger yen, and recorded 472 billion yen in profit losses. All in all, the government is wary of yen’s strength and is likely to lower the value of yen if it spikes to the 90-95 per dollar range, as per a key economic adviser to Prime Minister Shinzo Abe . Moreover, nothing has yet been decided on a sales tax hike slated for next year. Upbeat GDP Data Meanwhile, the Japanese economy grew in Q1 at the quickest clip in a year, logging an annualized 1.7% growth rate against economists’ expectations of a 0.2% rise. The latest growth was realized after a 1.7% revised annualized contraction in the fourth quarter of 2015, snapping the possibility of a technical recession. Sequentially, the economy expanded 0.4% compared with a 0.1% quarterly gain. The best part is that domestic demand contribution to GDP grew 0.2 percentage points as consumers splurged on discretionary items. The data definitely explains that the economy is heading toward a positive direction. Though weaknesses are there in the economy in the form of soft capex and consumer confidence data, things may improve in the coming days. Analysts indicated that a decline in capital expenditure was the result of weak exports. Japan exports capital goods to Asian economies and bears the brunt of a muted business environment worldwide, which hurts corporate profitability as well as the business investment. Yen or GDP: What to Watch Ahead? The first-quarter performance shows that stock moves in Japan are reliant mainly on yen, not on GDP. During Q1, yen gained about 7.23% against the U.S. dollar and the ultra-popular fund iShares MSCI Japan ETF (NYSEARCA: EWJ ) – a guide to the Japanese stock market – responded to the yen strength by diving about 4.4% during this frame. So, the prospect of no/less gains in yen can be a good entry point to Japan. Plus, a solid GDP reading can act as another tailwind. If yen spikes on upbeat GDP data, scope for currency intervention will likely open. The CurrencyShares Japanese Yen ETF (NYSEARCA: FXY ) is up about 10% so far this year (as of May 17, 2016). ETFs in Focus Below, we highlight some Japan-focused ETFs that could be in watch in the coming days. Regular ETFs Among the regular ETFs, there are the First Trust Japan AlphaDEX ETF (NASDAQ: FJP ) and the iShares JPX-Nikkei 400 ETF (NYSEARCA: JPXN ). These are the bets to play in a falling dollar environment. Currency-Hedged ETFs These are, namely the WisdomTree Japan Hedged Equity ETF (NYSEARCA: DXJ ), the Deutsche X-trackers MSCI Japan Hedged Equity ETF (NYSEARCA: DBJP ) and the iShares Currency Hedged MSCI Japan ETF (NYSEARCA: HEWJ ). If the yen falls and the greenback rises on possibilities of further Fed hikes, these currency-hedged ETFs may get a boost. Small-Cap ETFs There are also options – the iShares MSCI Japan Small-Cap ETF (NYSEARCA: SCJ ), the SPDR Russell/Nomura Small Cap Japan ETF (NYSEARCA: JSC ) and the WisdomTree Japan SmallCap Dividend ETF (NYSEARCA: DFJ ) – to bet on Japanese domestic demand. Since small-cap companies are less exposed to the international economies, investors can wipe out the impact of yen as well as the struggling export sector by investing in these ETFs. Notably, SCJ (up 1.5%) has outperformed EWJ (down 4.2%) and DXJ (down 14.8%) in the year-to-date frame (as of May 17, 2016). Original post