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U.S. Fund Flows: Equity Funds Get Back In The Game

By Patrick Keon Thomson Reuters Lipper’s fund macro-groups (including both mutual funds and exchange-traded funds [ETFs]) took in over $13.2 billion of net new money during the fund-flows week ended Wednesday, March 9. All four of the fund macro-groups experienced positive net flows for the week; taxable bond funds were at the head of the table with net inflows of $5.8 billion, followed by equity funds (+$4.6 billion), money market funds (+$2.4 billion), and municipal bond funds (+$518 million). The positive flows into equity funds reversed a nine-week trend of investors pulling money out of the group. The equity markets continued their comeback during the week. After losing over 11.4% during the first six weeks of the year the S&P 500 Index recorded its fourth straight week of positive returns. The index gained back over 7.2% during this four-week timeframe, including this past week’s 0.1% appreciation. The market took strength during the week from a rally in oil prices. U.S. crude hit a three-month high ($38.51) during the week and experienced increases in seven of the last eight trading sessions. An increased demand for gas overpowered the record-high crude oil stockpiles to drive the price of oil higher. Another positive for the market was a strong jobs report as nonfarm payrolls grew by 242,000 jobs. The jobs report reinforced the belief that a recession was not in the cards for the near term and also opened the door to the possibility of more interest rate hikes by the Federal Reserve in 2016. The majority of the net inflows for taxable bond funds belonged to mutual funds (+$3.4 billion), while ETFs contributed $2.4 billion to the total. On the mutual fund side the largest net inflows belonged to funds in Lipper’s High Yield Funds classification (+$1.6 billion), while investment-grade debt categories Lipper Core Plus Bond Funds and Lipper Core Bond Funds took in $735 million and $657 million of net new money, respectively. The two largest individual net inflows for ETFs belonged to the iShares Core US Aggregate Bond (NYSEARCA: AGG ) (+$687 million) and the iShares JPMorgan USD Emerging Market Bond (NYSEARCA: EMB ) (+$528 million). ETFs (+$4.2 billion) accounted for the majority of the net inflows for equity funds for the week, while mutual funds pitched in $400 million of net new money. The largest net inflows among individual ETFs belonged to the iShares MSCI Emerging Markets (NYSEARCA: EEM ) (+$853 million) and the iShares Russell 2000 (NYSEARCA: IWM ) (+$535 million), while for mutual funds nondomestic equity funds had positive flows of $416 million and domestic equity funds suffered slight net outflows of $16 million. The week’s net inflows for municipal bond mutual funds (+$450 million) were the twenty-third consecutive weekly gains for the group. Funds in the Intermediate Muni Debt Funds (+$166 million) and General Muni Debt Funds (+$117 million) categories posted the largest net inflows for the week. The net inflows into money market funds (+$2.4 billion) marked the fourth consecutive week in which the group experienced positive flows. The group grew its coffers by over $13.3 billion during this four-week run. The largest contributors to this past week’s gains were Institutional U.S. Money Market Funds (+$7.5 billion) and Institutional U.S. Government Money Market Funds (+$2.8 billion), while Institutional U.S. Treasury Money Market Funds had net outflows of over $4.7 billion.

4 Outperforming Sector ETFs Over The Past One Month

After a tumultuous ride in January and mid-February, the U.S. stocks witnessed the fourth consecutive week of gains on continued signs of improvement in the domestic and international markets. As a result, all the three major indices erased most of the losses made this year, climbing more than 6% over the past one month. With this, the S&P 500 and Dow Jones are down just over 1% each from a year-to-date look while the NASDAQ Composite Index has shed 5.2%. Behind the Surge A spate of stronger U.S. economic data infused enough confidence in the economy, erasing fears of a recession any time soon. In particular, factory activity contracted less than expected in February, suggesting that the beleaguered industry is stabilizing. About half of the industries have shown strength for the first time since August. Oil price has stabilized as the global oil glut has eased and the demand-supply trend is improving, thereby giving boost to the battered energy stocks. Notably, U.S. crude has risen 47% from a 13-year low of $26.21 a month ago. The rise in oil price has also calmed fears over the health of banks, especially those that are highly exposed to the energy sector. On the international front, the European Central Bank (ECB) turned more dovish in its meeting last week. The bank cut its deposit rate further by 10% to negative 0.4%, and lowered its refinancing rate and marginal lending rate by 0.5% each to zero percent and 0.25%, respectively. Further, it has expanded its monthly bond buying program from €60 billion to €80 billion. Additionally, the People’s Bank of China (PBOC) also stepped up its efforts to reinvigorate growth in the economy by fixing the yuan higher against the dollar at 6.4905, the strongest level seen this year. Investors should note that the Chinese turmoil and oil price slide were the main culprits of a steep downfall early in the year. The receding fears increased the appeal for riskier assets leading to a bullish trend in stocks, though bouts of volatility are still showing up. Given this, we have highlighted four sector ETFs that easily crushed the broad market funds by wide margins and were the star performers over the past one-month period. PowerShares S&P SmallCap Energy Portfolio ETF (NASDAQ: PSCE ) – Up 34.1% This fund provides exposure to the energy sector of the U.S. small-cap segment by tracking the S&P Small Cap 600 Capped Energy Index. It is less popular and less liquid with an AUM of $28.1 million and average daily volume of about 22,000 shares. Expense ratio comes in at 0.29%. Holding 33 securities in its basket, it is concentrated on the top firm with 16% share while other firms hold less than 10% of total assets. About 56.6% of the portfolio is tilted toward energy equipment and services while oil, gas and consumable fuels take the rest. PSCE currently has a Zacks ETF Rank of 5 or “Strong Sell” rating with a High risk outlook. SPDR S&P Metals and Mining ETF (NYSEARCA: XME ) – Up 28.0% The ETF offers a broad exposure to the U.S. metal and mining industry by tracking the S&P Metals & Mining Select Industry Index. Holding 26 stocks in its basket, it uses an equal-weight methodology and does not put more than 6.8% of assets in a single security. In terms of industrial exposure, steel makes up a large chunk at 52.6% while precious metals and gold mining round out the next two spots with a double-digit allocation each. The product has $314.6 million in AUM and trades in solid trading volumes of around 3.2 million shares per day on average. It charges 35 bps in fees and expenses. ETRACS ISE Exclusively Homebuilders ETN (NYSEARCA: HOMX ) – Up 24.0% This is an ETN option offering exposure to the companies that engage in the development and construction of homes and communities by tracking the ISE Exclusively Homebuilders Total Return Index. Notably, the index has 20 stocks in its basket with the largest allocation going to the top four firms with a combined share of 36.2%. The ETN has accumulated nearly $22 million in its asset base since its inception a year ago and trades in a light volume of about 32,000 shares. It charges 40 bps in annual fees and has a Zacks ETF Rank of 4 or “Sell” rating. PowerShares WilderHill Progressive Energy Portfolio ETF (NYSEARCA: PUW ) – Up 21.1% This fund provides exposure to 41 companies that focused on alternative energy, better efficiency, emission reduction, new energy activity, greener utilities, innovative materials and energy storage. This is easily done by tracking the WilderHill Progressive Energy Index. The ETF is pretty well spread out across various securities as each makes up for less than 3.7% of total assets. Oil, gas and consumables takes the top spot at 21.2% while electrical equipment and machinery make up for the next two spots with a double-digit exposure each. The fund has amassed $20.4 million in its asset base and sees paltry volume of nearly 5,000 shares a day. Expense ratio came in at 0.70%. PBW has a Zacks ETF Rank of 4. Original post

Is It Worth Investing In China? 3 Mutual Fund Picks

Slowdown in the manufacturing sector and the export business taking a hit are compelling China to turn into a consumer driven economy. This phase of transition is expected to be painful. But for patient investors, the returns are expected to be encouraging if they choose to remain invested in the service sector over the long run. While the service sector was on an expansionary mode in February, retail sales registered double-digit growth during the first two months of this year. China’s regulatory measures, on the other hand, raised hopes of a much stable economy. Hence, it will be prudent to invest in China focused mutual funds that have significant exposure to the service sector. GDP Slows Down, Foreign Trade Hit Badly China’s GDP came in at 6.9% last year, the lowest in almost a decade. The International Monetary Fund has trimmed China’s economic growth to 6.3% this year. China’s economy continued to be weighed down by sluggish demand at home and abroad. China’s trade surplus narrowed to $32.6 billion in February from January’s all-time high of $63.3 billion. Exports in February tanked 25.4% from last year’s figure, while imports including oil, iron ore and copper nosedived 11.2%. Even though this fall is partly due to the Lunar New Year holidays that fell in February, the overall trend is downward. In January, both exports and imports had declined by 11.2% and 18.8%, respectively. Moreover, in 2015, China’s foreign trade shrank by 8% from 2014. Manufacturing Slows Down China has mostly been a manufacturing hub. But of late, its manufacturing sector is slowing down. The official manufacturing Purchasing Managers’ Index (PMI) came in at 49.0 in February, lower than January’s reading of 49.4. In fact, China’s factory activities contracted for the seventh straight month in February. The Caixin manufacturing PMI also came in at 48 in February, a five-month low. Manufacturing was hit mostly by the beleaguered construction sector, which generally boosts demand for industrial products. Major funds such as Oberweis China Opportunities (MUTF: OBCHX ), AllianzGI China Equity A (MUTF: ALQAX ) and Matthews China Investor (MUTF: MCHFX ) fell 11.8%, 8.4% and 13.1%, respectively, on a year-to-date basis, mostly due to significant exposure to the industrial sector. Service Sector Expands, Retail Sales Rise Due to weakness in the manufacturing sector, China is looking to shift its focus to the service and consumption based sector. The official services PMI came in at 52.7 in February, down from January’s figure of 53.5. Also, the Caixin services purchasing managers’ index (PMI) for February was at 51.2 compared to 52.4 in January. Even though these figures went down in February, it remained above the key figure of 50, indicating expansion in service activities. He Fan, chief economist at Caixin Insight Group said that “overall, the services sector has outperformed manufacturing industries, reflecting continued improvement in the economic structure.” Meanwhile, retail sales of consumer goods gained 10.2% on a year-over-year basis during the first two months of 2016, according to the National Bureau of Statistics (NBS). Retail sales were mostly driven by online sales. Online sales in the first two months of this year surged by 27.2% year on year to 636.1 billion yuan. 3 China-Focused Mutual Funds to Buy Given this scenario, China’s service sector remains the only bright spot, which might help its economy to navigate through troubled waters. Moreover, China’s financial market regulators’ promising moves to boost the economy such as imposing a ban on initial public offerings, restrictions on margin trading, allowing government-managed pension funds to invest in equity markets and restricting large shareholders from shorting stocks will help investors in the long run. Here we have selected three China focused mutual funds that mostly invest in the service sector, which includes retail, financials, information technology, telecommunications and healthcare. Funds have been selected over stocks, since funds reduce transaction costs for investors and also diversify their portfolio without the numerous commission charges that stocks need to bear. Further, these funds boast a Zacks Mutual Fund Rank #1 (Strong Buy) or #2 (Buy), have positive 4-week and 3-year annualized returns and carry a low expense ratio. Fidelity China Region (MUTF: FHKCX ) invests a large portion of its assets in securities of Chinese issuers. As of the last filing, Tencent Holdings Ltd. ( OTCPK:TCEHY ), China Construction Bank Corp. ( OTCPK:CICHY ) and AIA Group Ltd. ( OTCPK:AAGIY ) were the top three holdings for FHKCX. FHKCX’s 4-week and 3-year annualized returns are 10.3% and 1.4%, respectively. Annual expense ratio of 0.96% is lower than the category average of 1.76%. FHKCX has a Zacks Mutual Fund Rank #2 and has a minimum initial investment of $2,500. Matthews China Dividend Investor (MUTF: MCDFX ) invests the majority of its assets in dividend-paying equity securities of companies located in China. As of the last filing, New Oriental Education SP (NYSE: EDU ), SERCOMM and China Construction Bank Corp. were the top three holdings for MCDFX. MCDFX’s 4-week and 3-year annualized returns are 9.6% and 4.2%, respectively. Annual expense ratio of 1.19% is lower than the category average of 1.76%. MCDFX has a Zacks Mutual Fund Rank #1 and has a minimum initial investment of $2,500. ProFunds UltraChina Investor (MUTF: UGPIX ) seeks returns that correspond to two times the daily performance of the BNY Mellon China Select ADR Index. As of the last filing, Alibaba Group Holding Limited (NYSE: BABA ), China Mobile Ltd. (NYSE: CHL ) and Baidu Inc. (NASDAQ: BIDU ) were the top three holdings for UGPIX. UGPIX’s 4-week and 3-year annualized returns are 38% and 7.8%, respectively. Annual expense ratio of 0.75% is lower than the category average of 1.99%. UGPIX has a Zacks Mutual Fund Rank #1 and has a minimum initial investment of $15,000. A higher minimum investment helps the fund manager to control cash flows, which eventually helps management of assets on a regular basis. Original Post