Tag Archives: etf

Best And Worst Q1’16: Materials ETFs, Mutual Funds And Key Holdings

The Materials sector ranks fourth out of the ten sectors as detailed in our Q1’16 Sector Ratings for ETFs and Mutual Funds report. Last quarter , the Materials sector ranked seventh. It gets our Neutral rating, which is based on aggregation of ratings of nine ETFs and 15 mutual funds in the Materials sector. See a recap of our Q4’15 Sector Ratings here . Figure 1 ranks from best to worst the eight Materials ETFs that meet our liquidity standards and Figure 2 shows the five best and worst-rated Materials mutual funds. Not all Materials sector ETFs and mutual funds are created the same. The number of holdings varies widely (from 26 to 121). This variation creates drastically different investment implications and, therefore, ratings. Investors seeking exposure to the Materials sector should buy one of the Attractive-or-better rated ETFs or mutual funds from Figures 1 and 2. Figure 1: ETFs with the Best & Worst Ratings – Top 5 Click to enlarge * Best ETFs exclude ETFs with TNAs less than $100 million for inadequate liquidity. Sources: New Constructs, LLC and company filings The Fidelity MSCI Materials Index ETF (NYSEARCA: FMAT ) is excluded from Figure 1 because its total net assets are below $100 million and do not meet our liquidity minimums. Figure 2: Mutual Funds with the Best & Worst Ratings – Top 5 Click to enlarge * Best mutual funds exclude funds with TNAs less than $100 million for inadequate liquidity. Sources: New Constructs, LLC and company filings The iShares U.S. Basic Materials ETF (NYSEARCA: IYM ) is the top-rated Materials ETF and the Fidelity Select Materials Portfolio (MUTF: FMFEX ) is the top-rated Materials mutual fund. Both earn an Attractive rating. PowerShares S&P SmallCap Materials Portfolio (NASDAQ: PSCM ) is the worst-rated Materials ETF and the Rydex Basic Materials Fund (MUTF: RYBMX ) is the worst-rated Materials mutual fund. PSCM earns a Dangerous rating and RYBMX earns a Very Dangerous rating. 161 stocks of the 3000+ we cover are classified as Materials stocks. Monsanto Company (NYSE: MON ) is one of our favorite stocks held by IYM and earns an Attractive rating. Over the past decade, Monsanto has grown after-tax profit ( NOPAT ) by 16% compounded annually. Over this same time, the company has improved its return on invested capital ( ROIC ) from 7% to 14%. Despite the long-term profitability of the company, shares remain undervalued. At its current price of $88/share, Monsanto has a price to economic book value ( PEBV ) ratio of 1.1. This ratio means the market expects Monsanto’s profits to grow by only 10% over its remaining corporate life. If Monsanto can grow NOPAT by just 5% (under a third of historical rate) compounded annually for the next decade , shares are worth $140/share today – a 59% upside. Vulcan Materials (NYSE: VMC ) is one of our least favorite stocks held by Materials ETFs and mutual funds and earns a Dangerous rating. Vulcan Materials business has yet to recover from the global recession in 2008. Since 2007, the company’s economic earnings have fallen from -$88 million to -$463 million on a trailing twelve months basis. Over this same time, its ROIC has declined from 8% to a bottom quintile 3%. Despite the deterioration of the business, the stock trades at the same prices it did prior to the recession, which leaves it significantly overvalued. To justify its current price of $82/share, Vulcan must grow profits by 14% compounded annually for the next 25 years . This expectation is awfully optimistic given that since 1998, Vulcan’s NOPAT has actually declined by 1% compounded annually. Figures 3 and 4 show the rating landscape of all Materials ETFs and mutual funds. Figure 3: Separating the Best ETFs From the Worst ETFs Click to enlarge Sources: New Constructs, LLC and company filings Figure 4: Separating the Best Mutual Funds From the Worst Mutual Funds Click to enlarge Sources: New Constructs, LLC and company filings D isclosure: David Trainer and Kyle Guske II receive no compensation to write about any specific stock, sector or theme. Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Japan ETFs To Tap On Renewed Stimulus Hopes

After logging in the biggest weekly drop of 11% in more than seven years on a rising yen, fears of a global slowdown and the sell-off in banks, the Japanese stocks bounced back strongly at the start of this week. Notably, the Nikkei 225 index jumped 7.2% in Monday’s trading session, representing the biggest daily gain since September, and extended gains of nearly 0.2% in today’s trading session. With this gain, the index has reversed the bearish trend it saw last week. Impressive two-day gains came on the back of bargain hunting and hopes for further stimulus from the central banks in Europe and Japan. In particular, renewed contraction in the Japanese economy brought back the need for more easing measures to stimulate the economy. Additionally, the yen has weakened from the highest level of ¥110.98 reached last week against the greenback that will benefit exporters and the manufacturing industry. This is because Japan is primarily an export-oriented economy, and a weaker currency makes its exports more competitive. More Stimulus in the Cards The economy contracted 1.4% year over year in the final quarter of 2016, worse than the Wall Street expectation of a 1.2% contraction. A drop in consumer spending, weak exports and lower private consumption continued to weigh on the growth of the world’s third-largest economy. The persistent slump in Japan’s biggest trading partner – China – added to the woes. The slowdown is the major setback for Prime Minister Shinzo Abe and his reform policy, Abenomics, which is aimed at pulling the country out of deflationary pressure and putting it back on the growth trajectory. Sluggish growth has raised speculation over additional fiscal stimulus by the central bank. Earlier this month, Bank of Japan (BoJ) adopted measures similar to the European Central Bank (ECB) by pushing interest rates to the negative territory. Additionally, the central bank maintained its bond buying program of 80 trillion yen ($675 billion) per year and invested in exchange-traded funds and real estate investment trusts. Now, an analyst at J.P. Morgan expects BoJ to cut interest rates further to minus 0.5% from the current minus 0.1% anytime soon, plus increase its Japanese government-bond purchases. Further, many economists expect Japanese growth to rebound in the coming months. As per the survey by the Japan Center for Economic Research, 38 analysts project that the economy would expand by an average of 1.4% in the first quarter, which would mark the best growth in five quarters. Given this, Japanese ETFs are poised for a rebound, especially in the session right after the Presidents’ Day holiday in the U.S. As a result, investors could tap the current opportune moment by investing in Japan ETFs. ETFs in Focus Currently, there are several Japanese equity ETFs trading on the U.S. market. While there are a handful that are relatively specialized, either tracking small-cap benchmarks or dividend-focused indexes, the most encouraging funds right now are the ones that are not confined to one segment, but provide exposure to the broad Japanese equity market. Below, we have highlighted some of them that could fetch substantial returns in the coming days on the expectation of additional stimulus. Of these, the ultra-popular fund is the iShares MSCI Japan ETF (NYSEARCA: EWJ ), with a total asset base of $17.7 billion. This fund tracks the MSCI Japan Index and holds 318 stocks in its basket. Though it is slightly skewed toward the top firm – Toyota Motor (NYSE: TM ) – at 5.8%, other firms do not account for more than 2.12% of assets. It trades in heavy volume of 50.3 million shares per day and charges 47 bps in annual fees. Another fund that provides a similar broad exposure to the Japanese stock market is the Precidian MAXIS Nikkei 225 Index ETF (NYSEARCA: NKY ). This fund does not have the same level of AUM or volume as EWJ, having nearly $41.6 million in assets and exchanging 40,000 shares a day. But it follows a much more widely known index – the Nikkei 225. Here, Fast Retailing ( OTCPK:FRCOF , OTCPK:FRCOY ) makes the top firm with 8.4% share, while other securities hold less than 4.3% share in the portfolio. The ETF has a slightly higher annual fee of 50 bps. Investors should note that both EWJ and NKY are large-cap centric funds with minor allocations to mid and small caps, and having consumer discretionary and industrials as the top two sectors. The products also have a Zacks Rank of 3 or “Hold” rating. Apart from these, Japan hedged funds – 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 ) – seem excellent picks. These ETFs offer exposure to the broad Japanese stock market, while at the same time provide a hedge against any fall in the Japanese yen. The trio has a Zacks ETF Rank of 2 or “Buy” rating, suggesting that they will outperform the markets in the coming months. Risk-aggressive investors seeking to make big profits from the bullish sentiments in a very short period could go long on either of the three leveraged products, namely the ProShares Ultra MSCI Japan ETF (NYSEARCA: EZJ ), the Direxion Daily MSCI Japan Currency Hedged Bull 2x Shares ETF (NYSEARCA: HEGJ ) and the Direxion Daily Japan Bull 3X Shares ETF (NYSEARCA: JPNL ) – available in the space. EZJ provides two times (2x, or 200%) leveraged exposure to the daily performance of the MSCI Japan Index, while JPNL creates a triple (3x, or 300%) leveraged long position in the same index. Meanwhile, HEGJ seeks two times leveraged exposure to the MSCI Japan US Dollar Hedged Index. Original Post

What Is Bothering Global Financial ETFs?

The global financial sector has been under stress lately. The crash was mainly brought about by the European banks, which have shed a quarter of their market value so far this year and are running the risk of further losses. While the long-standing woes in the energy sector and the Chinese economy were already there to spoil the financial market sentiments, the latest sell-off in banking stocks was spurred by UBS Group AG’s (NYSE: UBS ) moderate earnings for the fourth quarter of 2015. The bank’s outlook was more worrisome as it indicated several macroeconomic headwinds and geopolitical issues that would bother operations in the near term. UBS talked about ” very low levels of client activity and pronounced risk aversion.” The bank reported 3.4 billion Swiss francs ($3.3 billion) of outflows from its wealth management division. All in all, fears of a broad-based global slowdown spooked investors, who rushed to dump banking stocks. This was because of the fact that a slowing global economy means reduced capital market activity, lower loan growth and high chances of credit default, especially from the energy sector. All these stirred speculation about a global banking sector meltdown. If this was not enough, negative interest rates have been playing foul in the European banking sector and may also leave a scar on the Japanese banking sector. Central banks of both regions are presently pursuing negative deposit rates. Such rock-bottom interest rates dent banks’ net interest margins. The apprehension was so quivering that “in its annual stress test for 2016, the Fed said it will assess the resilience of big banks to a number of possible situations, including one where the rate on the three-month U.S. Treasury bill stays below zero for a prolonged period,” per Bloomberg . In the stress test, banks need to tackle three-month bill rates going into the negative zone in the second quarter of 2016, then falling to negative 0.5% and finally staying there till the first quarter of 2019. Outflow from Financials ETFs The Bloomberg World Banks Index has lost over 16% year to date (as of February 9, 2016). As risks over the space are front and centre, investors are dumping financial ETFs at the fastest rate since 2010 . Global financial ETFs have seen assets worth $3.17 billion gushing out so far this quarter. As per Markit, global financial ETFs are on the way to record the “worst quarterly outflow in six years since the second quarter of 2010″. iShares Global Financials ETF (NYSEARCA: IXG ) The $212 million ETF holds 236 stocks in its portfolio. No stock accounts for more than 4.46% of the portfolio. Banking is the fund’s topmost priority, with about 46.5% focus, followed by insurance (20%) and diversified financials (19.4%). As far as geographical focus is concerned, the U.S. is the fund’s top sector, with about 47.4% exposure, while the UK (7.7%), Australia (7.2%), Japan (6.4%) and Canada (6.14%) also hold considerable exposure each. The fund charges 48 bps in fees and is down 17.1% so far this year (as of February 10, 2016). SPDR S&P International Financial Sector ETF (NYSEARCA: IPF ) IPF invests $6.4 million in assets in 199 stocks. Japan, the UK, Canada and Australia get double-digit weights in the fund. Banks (46.3%) and insurance (22.2%) have considerable weights in the fund. No stock accounts for more than 3.49% of the portfolio. It is off 20.2% so far this year (as of February 10, 2016). Bottom Line Having described the crisis, we would like to note that the fear of a 2008-like recession or financial market crash is less likely. The negative interest rates should boost capital market activities in the eurozone and Japan and benefit banks in other ways. As far as the U.S. is concerned, a negative interest rate is less likely to be a near-term option, though the Fed chief does not ” take those off the table .” The U.S. economy may be slowing from the end of 2015, but is not so feeble that it needs to undergo a negative interest rate policy at the current level. So, one can consider the recent sharp sell-off as more panic-induced, and banks’ stocks probably do not deserve such a beating as they are currently going through. Original Post