Tag Archives: etfs

Investors Favor Equity ETFs In 2015

By Patrick Keon Positive net flows into equity exchange-traded funds (ETFs) (+$55.5 billion) have far outweighed those into equity mutual funds (+$6.9 billion) for the year to date. Investors putting more net new money into equity ETFs as opposed to equity mutual funds has been true for every year except one (2013) since the global financial crisis. What jumps out about this year’s fund flows activity for equity ETFs is that nondomestic equity ETFs have dominated equity ETFs. Nondomestic equity ETFs have grown their coffers by almost $64 billion so far for 2015, while domestic equity ETFs have seen over $8 billion leave. If this trend holds through year-end, 2015 will be the first year since 2010 that nondomestic equity funds have had more net inflows than domestic ones. Nondomestic barely nudged out domestic for most net inflows for 2010 (+$34.0 billion versus +$33.7 billion), while the roughly $70-billion spread for this year would be by far the highest annual difference between the two groups for the 20 years Lipper has been tracking the data. It stands to reason then that nine of the ten largest net inflows among equity ETFs this year have been for nondomestic products. These nine ETFs are split up between MSCI EAFE (4), Europe (3), and Japan (2) products. The MSCI EAFE ETFs have taken in the most net new money (+$24.3 billion) of the three groups, followed closely by Europe ETFs (+$21.6 billion), with the Japan products recording more-modest gains (+$8.5 billion). The single largest positive net inflows belong to Deutsche X-trackers MSCI EAFE Hedged Equity ETF ( DBEF , +$12.9 billion). Conversely, the largest equity ETFs are two S&P 500 Index products: SPDR S&P 500 ETF Trust ( SPY , $168.0 billion of assets under management) and iShares Core S&P 500 ETF ( IVV , $63.8 billion of assets under management); each has seen money leave this year. SPY has had net outflows of almost $36 billion for YTD 2015, while IVV is down $1.1 billion.

Valuation Dashboard: Industrials – October 2015

Summary 4 key fundamental factors are reported across industries in the GICS Industrial sector. They can be used to assess the valuation status of an industry relative to its historical average. They can also be used as a reference for picking quality stocks at a reasonable value. This article is part of a series giving a valuation dashboard by sector of companies in the S&P 500 index (NYSEARCA: SPY ). The idea is to follow up a certain number of fundamental factors for every sector and to compare them to historical averages. This article is going down at industry level in the GICS classification. It covers Industrials. The choice of the fundamental ratios used in this study has been justified here and here . You can find in this article numbers that may be useful in a top-down approach. There is no analysis of individual stocks. A link to a list of individual stocks to consider is provided at the end. Methodology Four industry factors calculated by portfolio123 are extracted from the database: Price/Earnings (P/E), Price to sales (P/S), Price to free cash flow (P/FCF), Return on Equity (ROE). They are compared with their own historical averages “Avg”. The difference is measured in percentage and named with a prefix “D” before the factor’s name (for example D-P/E for the price/earnings ratio). The industry factors are proprietary data from the platform. The calculation aims at eliminating extreme values and size biases, which is necessary when going out of a large cap universe. These factors are not representative of capital-weighted indices. They are useful as reference values for picking stocks in an industry, much less for ETF investors. Industry valuation table on 10/29/2015 The next table reports the 4 industry factors. For each factor, the next “Avg” column gives its average between January 1999 and October 2015, taken as an arbitrary reference of fair valuation. The next “D-xxx” column is the difference between the historical average and the current value, in percentage. So there are 3 columns relative to P/E, and also 3 for each ratio.   P/E Avg D- P/E P/S Avg D- P/S P/FCF Avg D- P/FCF ROE Avg D-ROE Aerospace&Defense 19.64 18.02 -8.99% 1.15 1.02 -12.75% 22.45 21.28 -5.50% 7.31 9 -18.78% Building Products 27.98 20.14 -38.93% 1.3 0.64 -103.13% 37.43 22.38 -67.25% 11.96 6.07 97.03% Construction&Engineering 19.89 18.3 -8.69% 0.4 0.48 16.67% 15.75 19.81 20.49% 3.86 5.98 -35.45% Elec.Equipment 23.15 18.31 -26.43% 1.53 1.64 6.71% 25.31 21.88 -15.68% -7.83 -3.3 -137.27% Ind. Conglomerates 36.65 20.45 -79.22% 2.44 1.3 -87.69% 29.48 29.98 1.67% 2.59 12.12 -78.63% Machinery 17.84 18.25 2.25% 1.04 0.9 -15.56% 25.17 21.81 -15.41% 10.34 8.72 18.58% Trading Companies&Distri 17 17.14 0.82% 0.58 0.7 17.14% 14.47 25 42.12% 8.39 8.61 -2.56% Commercial Services&Supplies 22.99 20.86 -10.21% 1.22 1.03 -18.45% 26.12 19.84 -31.65% 3.9 3.99 -2.26% Professional Services* 21.91 24.04 8.86% 1.5 1.22 -22.95% 19.53 17.43 -12.05% 6.51 3.09 110.68% AirFreight&Logistics 23.45 21.06 -11.35% 0.65 0.57 -14.04% 23.49 32.87 28.54% 12.44 11.12 11.87% Airlines 12.02 15.18 20.82% 0.96 0.41 -134.15% 24.97 12.37 -101.86% 25.32 3 744.00% Marine** 16.02 14.04 -14.10% 1.13 1.41 19.86% N/A N/A N/A -13.74 6.05 -327.11% Road&Rail 16.71 19.17 12.83% 1.15 0.86 -33.72% 28.74 36.17 20.54% 16.39 9.43 73.81% Transport Infrastructure 7.7 23.6 67.37% 1.07 1.19 10.08% 5.48 20.8 73.65% 16.51 -3.22 612.73% *Professional Services: Avg since 2008 **P/FCF currently outlier for Marine Valuation The following charts give an idea of the current status of industries relative to their historical average. In all cases, the higher the better. Price/Earnings: Price/Sales: Price/Free Cash Flow: Quality Relative Momentum The next chart compares the price action of the SPDR Select Sector ETF (NYSEARCA: XLI ) with SPY. (click to enlarge) Conclusion Industrials have underperformed the broad market in the last 6 months. At the industry level, Transport Infrastucture, Road & Rail are the only 2 industries with at least 2 of 3 valuation ratios pointing to underpricing, and a quality level above their respective historical averages. However, there may be quality stocks at a reasonable price in any industry. To check them out, you can compare individual fundamental factors to the industry factors provided in the table. As an example, a list of stocks in Industrials beating their industry factors is provided on this page . If you want to stay informed of my updates on this topic and other articles, click the “Follow” tab at the top of this article. You can choose the “real-time” option if you want to be instantly notified.

Coffee Prices Crumbling: What Is The ETF Impact?

We certainly enjoy sipping a warm cup of coffee to start the day but when it comes to green unroasted coffee, traders and farmers have no reason to rejoice. This is because their prices are down about 36% in the past one year (as of October 26, 2015) and is currently trading near its two-year low. Meanwhile, the December coffee contract, on the Inter Continental Exchange (ICE) Futures U.S. exchange, is down 41.7% in the last one year. There are three factors that added to the long rout in the coffee market. First is the depreciation of the Brazilian real against the dollar. The real was already under pressure due to rising inflation, an investment-grade rating downgrade by Standard and Poor’s and fears of economic recession. After a short respite at the beginning of this month, the real started depreciating again against the greenback amid growing concerns of a budget deficit (excluding interest payments) and other political woes. A weak real encourages exports of the greenback priced coffee from Brazil – the world’s largest producer – as farmers try to capture higher profits. This will lead to an oversupply in the global market and hurt prices. The second factor is the forecast of excessive rainfall in Brazil’s top coffee-growing state, Minas Gerais. Weather forecasts indicated monsoon rains in fall and the winter and normal rains during the crucial stage of pod development from mid-December to early February. This has erased fears of drought in the region – a primary factor that had caused a surge in coffee prices in early 2014 – and increased the possibility of a longer-than-expected crop season. Lastly, the move by the Columbian government to lower the benchmark on the quality of beans deemed fit for exports could add to the supply glut in the global market. The threat of a surplus production looms large despite the possibility of dry weather due to El Niño in the coffee-growing regions. The battering in coffee prices had an adverse impact on the funds tracking the coffee market. Below we highlight two ETNs that experienced more than a 4% fall in the past five days and more than a 40% slide in the past one year (as of October 26, 2015). iPath Dow Jones-UBS Coffee ETN (NYSEARCA: JO ) This ETN tracks the Dow Jones-UBS Coffee Subindex Total Return, providing the returns that are available through an investment in the futures contracts on the commodity of coffee. The note has garnered nearly $108 million in assets and trades in a solid volume of 167,000 shares on average. The product is expensive with 75 bps in annual fees. The note was down nearly 5% in the last five days and about 48% in the past one year. It has a Zacks ETF Rank #3 (Hold) with a High risk outlook. iPath Pure Beta Coffee ETN (NYSEARCA: CAFE ) This ETN follows the Barclays Capital Coffee Pure Beta TR Index, providing returns that are available through an investment in the futures contracts in the coffee markets. The index consists of a single futures contract but it has a unique roll structure which selects contracts using the Pure Beta Series 2 Methodology. CAFE is quite overlooked as it has gathered only $5 million in AUM and is thinly traded with an average volume of roughly 7,000 shares. This note also charges 75 bps in annual fees and lost 4% in the past five days and 44% in the last one year. It also carries a Zacks ETF Rank #3 with a High risk outlook. Original Post