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February ETF Asset Update: Safe Assets Gain; Stocks Shed

Similar to January, safe assets were in the spotlight in February thanks to heightened global uncertainty. Dimming prospects of frequent Fed rate hikes this year, global growth worries and oil price issues put a lid on the global risky assets and helped the valuation of safe assets to soar. Though sentiments were slightly better than January, the global markets were broadly mixed. Let’s find out where investors parked their money and the spaces that were avoided in February (per etf.com ): Gold Continues to Shine This refuge continued to dazzle in the month as it is often viewed as a safe haven in times of heightened financial risks. The commodity is on a tear this year, with volatility creeping up. As a result, fund tracking the yellow metal, GLD pulled in $3.38 billion in assets in February. Another gold bullion ETF that hogged investors’ attention was iShares Gold Trust (NYSEARCA: IAU ) , which added $760.5 million in assets. U.S. Treasury Bonds Prevail U.S. Treasuries across the yield spectrum gathered assets in February with iShares 7-10 Year Treasury Bond (NYSEARCA: IEF ) taking the third spot by drawing $1.06 billion. iShares 20+ Year Treasury Bond ETF (NYSEARCA: TLT ) also embraced about $841.9 million in assets and made an entry into the top-10 list. Not only the safest bet Treasuries, high-yield bond funds like iShares iBoxx $ Investment Grade Corporate Bond (NYSEARCA: LQD ) and iShares iBoxx $ High Yield Corporate Bond (NYSEARCA: HYG ) – which were long out of investors’ favor – added $944.9 million and $943.8 million in assets, respectively. As 10-year Treasury bond yields plunged to below the 2% mark, investors jumped to the otherwise risky junk bond ETFs space to meet the need for current income. Apart from this aggregate bond ETF, iShares Core U.S. Aggregate Bond (NYSEARCA: AGG ) amassed about $952.1 million in assets. Utilities ETFs a Winner While the stocks tumbled mainly to reflect a retreat in risk-on movement, one safe corner of the equity world, namely utilities, ruled in the month. Also, utilities are known for their high dividend payout which made this space a highly longed-for area against the low-yield backdrop. First Trust Utilities AlphaDEX (NYSEARCA: FXU ) and Utilities Select SPDR (NYSEARCA: XLU ) accumulated about $999.2 million and $856.4 million in assets, respectively, in February. U.S. Equities Fall Flat In tandem with the other risky assets, investors fled the U.S. equities’ space. As a result, the U.S. broad equity ETFs saw huge outflows last month with the ultra-popular large-cap U.S. ETF SPDR S&P 500 (NYSEARCA: SPY ) topping the losers’ list. The fund lost around $2.1 billion in assets while another S&P 500-based ETF iShares Core S&P 500 (NYSEARCA: IVV ) saw about $1.18 billion in assets gushing out. Not only the S&P 500, even Nasdaq-based P owerShares (NASDAQ: QQQ ) lost about $722.8 million. Japan ETFs Lose Status Despite the Bank of Japan’s negative interest rate policy, Japan equities ETFs saw investors shunning the area. This was because as yen gained strength on safe-haven demand, equities suffered. WisdomTree Japan Hedged Equity (NYSEARCA: DXJ ) and iShares MSCI Japan (NYSEARCA: EWJ ) saw asset outflow of $1.19 billion and $704.8 million, respectively. Biotech Breaks Down The biotech ETF space also fell victim to the high beta crash, which is why First Trust NYSE Arca Biotechnology (NYSEARCA: FBT ) saw assets worth $1.43 billion flowing out in the month. Original Post

Manufacturing Data Point To Recovery: ETFs, Stocks To Consider

The U.S. manufacturing sector saw a silver lining in February after a prolonged sluggishness. This was indicated by the recent manufacturing report from the Institute for Supply Management (ISM). As per ISM, PMI was 49.5 in February (a reading of 50 or higher points to growth), beating January’s reading by 1.3 percentage points. Though the latest reading has come in below 50 for the fifth successive month, ISM talked of overall recovery. The data showed an increase for the second month in a row in February. There was stepped-up production and new orders were seen at higher levels . So far a stronger greenback, huge capex cuts by energy companies to fight back the plunge in oil prices and soft demand in the wake of global growth worries were keeping a check on the sector. Inventory accumulations also put a lid on factory activity . Also, construction spending jumped to the highest level since 2007 in January. Plus, solid consumer spending, a healing labor market and improving industrial production point to the fact that the U.S. economic growth probably has legs, and that the recession fear is overblown. ISM noted that out of the 18 manufacturing sectors under coverage, nine witnessed growth in February. Needless to say, the upbeat data points once again sparked off Fed hike talks and pushed up the benchmark Treasury bond yields by 9 bps to 1.83% on March 1. While the report prompted a risk-on movement in the overall market, specific comers like industrial and construction companies need extra attention. While almost all industrial and construction ETFs in the space experienced a rise post-upbeat data, we highlight one from each category that gained the most. ETF Picks First Trust RBA American Industrial Renaissance ETF (NASDAQ: AIRR ) This fund provides exposure to the small- and mid-cap stocks in the industrial and community banking sectors by tracking the Richard Bernstein Advisors American Industrial Renaissance Index. The portfolio results in a basket of 39 securities, which are widely spread out across components with none holding more than 4.80% of assets (read: Invest in America with These 4 ETFs ). The fund is often overlooked by investors as depicted by its AUM of $30 million and average daily volume of about 19,000 shares. The Zacks Rank #3 (Hold) fund with a High risk outlook charges 70 bps in fees per year and has lost 2.1% so far this year (as of March 1, 2016). However, AIRR was up over 2.4% on March 1, 2016. PowerShares Dynamic Build & Construction (NYSEARCA: PKB ) As far as construction companies are concerned, several homebuilding companies like ETRACS ISE Exclusively Homebuilders ETN (NYSEARCA: HOMX ), iShares U.S. Home Construction ETF (NYSEARCA: ITB ) and SPDR Homebuilders ETF (NYSEARCA: XHB ) returned better than PKB post-data release (read: Time to Buy Housing ETFs Despite Mixed D.R. Horton Earnings? ). But here we focus more on broad-based construction activities, rather than having a concentrated approach to housing companies. PKB has just 10% exposure in home builders, while engineering and construction companies take the top spot with about 23% of the fund. PKB seeks to track the performance of the Dynamic Building & Construction Intellidex Index. It holds a basket of 30 stocks and has an expense ratio of 0.63%. The product has amassed nearly $59.4 million in its asset base and trades in a light volume of around 18,000 million shares per day on average. The ETF has lost 4.2% in the year-to-date frame, but added 2.2% on March 1. It has a Zacks ETF Rank #2 with a High risk outlook. Stock Picks Many construction stocks will definitely enjoy price appreciation from recovering fundamentals. We highlight two stocks with a top Zacks Rank #1 (Strong Buy) and a Momentum Style Score of A or B (at the time of writing) that are expected to outperform their peers in the months ahead. Gibraltar Industries Inc. (NASDAQ: ROCK ) This New York-based company manufactures and distributes building products in North America, Europe, and Asia. The stock has a Growth score of ‘A’, Momentum score of ‘B’ and a Value score of ‘B’. The underlying sector of the stock is in the top 22% of the Zacks Industry Universe. ROCK is off 0.6% so far this year but added about 2.4% on March 1. AAON Inc. (NASDAQ: AAON ) This Oklahoma-based company manufactures and sells air-conditioning and heating equipment in the United States and Canada. The stock has a Growth score of ‘B’ and Momentum score of ‘A’. However, the stock does not score on value with an ‘F’. The underlying sector of the stock is in the top 5% of the Zacks Industry Universe. AAON is up 9.9% so far this year and advanced about 2.9% on March 1. Original Post

New Trend-Following Fund Limits Your Downside

By Alan Gula, CFA Paul Tudor Jones (PTJ), a legendary trader and hedge fund manager, essentially predicted the stock market crash of 1987. In a PBS documentary, PTJ asserted, “There will be some type of a decline, without a question, in the next 10 to 20 months… it will be earth shaking… it will create headlines that will dwarf anything that’s happened up to this point in time.” On October 19, 1987 the S&P 500 dropped 20.5% in a single day. Many investors were eviscerated, and some traders were completely wiped out. That month, PTJ’s fund was up an astonishing 62%. PTJ is an ardent proponent of trend following. That is, you always want to be positioned with the prevailing price trend. If a security or futures contract is trending higher, then be long. If it’s trending lower, get flat (no position) or be short. So how do we determine the predominant trend? In an interview with Tony Robbins for Money: Master the Game , PTJ revealed that his preferred metric is the 200-day moving average of closing prices. Regarding the 1987 crash, Robbins asked, “Did your theory about the 200-day moving average alert you to that one?” PTJ responded, “You got it. It [equity index] had gone under the 200-day moving target. At the very top of the crash, I was flat.” The following chart helps illustrate what PTJ saw: Trend following has been around for ages. But now funds are popping up that automate the process. For example, the Pacer Trendpilot 750 ETF (BATS: PTLC ) was launched in June 2015. This exchange-traded fund (ETF) alternates exposure to the Wilshire U.S. Large-Cap Index (Index) or U.S. Treasury bills (T-Bills) depending on the trend indicators. Here are the allocation rules: Positive Trend Established: When the Index closes above its 200-day simple moving average (NYSE: SMA ) for five consecutive trading days, the exposure of the fund will be 100% to the Index. In other words, the fund will be fully invested in equities. Negative Trend Established: When the Index closes below its 200-day SMA for five consecutive trading days, the exposure of the fund will be 50% to the Index and 50% to 3-month T-Bills. Negative Trend Confirmed: When the Index’s 200-day SMA closes lower than its value from five business days earlier, the exposure of the fund will be 100% to 3-month T-Bills. These rules are designed to keep the fund invested when the stock market’s trend is up but to protect capital with the safety of T-Bills during down trends. Also, the rules attempt to minimize fund turnover during periods of high volatility. PTLC seeks to replicate the performance of a trend-following index. The chart below shows its back-tested results. The trend following index has outperformed over the long term with much smaller drawdowns (peak-to-trough declines). The benefits of trend following as a form of risk management can clearly be seen during the equity bear markets in 2001-2002 and 2008-2009 (yellow circles). The expense ratio of 0.6% for PTLC is a bit high, but the ETF does conveniently simplify the trend-following process. It’s worth noting that the ETF’s current exposure is 100% T-Bills, meaning that a stock market downtrend has been confirmed. The 200-day moving average is such a simple indicator that few people believe it offers valuable information. Also, with so much focus on daily catalysts and short-term moves in the media, the big-picture trend gets lost amid the din. The last time the S&P 500 crossed below its 200-day SMA was at the very end of 2015. I doubt PTJ was caught off guard by this year’s 10.5% decline through February 11.