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Hungary Too In The Rate-Cut Club: ETFs In Focus

Hungary slashed its benchmark three-month deposit rate to a new low of 1.20% from 1.35%. It also lowered the overnight lending rate to 1.45% from 2.1%. The overnight deposit rate is now in negative territory from 0.1%.to -0.05%. The central bank took the step citing low imported inflation, European Central Bank (ECB) easing measures and continued slump in oil prices. Meanwhile, the bank also lowered its forecast for inflation this year. The bank now expects inflation to be around 0.3% as compared to the previous expectation of 1.7% announced in December. The target inflation the bank seeks to achieve is 3%. Thus, it plans to set a benchmark rate at such levels, which can be maintained for an extended period to reach its inflation target. Earlier this month, the ECB came up with a more intensified economic stimulus and opted for multiple rate cuts and the expansion of its quantitative easing program to boost the economy. Meanwhile, several other countries are undertaking easing measures and cutting rates. Last week, Norway indicated that it could join other European countries Sweden, Denmark and Switzerland in sub-zero levels of interest rate. On the other side of the pond, the Fed kept a dovish stance and dialed back its number of rate hikes to two instead of four as was projected last December. The rate cut measures by the Hungarian central bank, which was undertaking initiatives like cheap lending to small firms, subsidized funds to retail banks and buying government bonds, represent a huge shift in policy. Although the possibility of further rate cuts can’t be excluded, the central bank warned that too low rates may be counterproductive, forcing the banks to tighten lending conditions. Keeping these points in mind, we highlight four ETFs – RevenueShares Global Growth ETF (NYSEARCA: RGRO ), Cambria Global Value ETF (NYSEARCA: GVAL ), Guggenheim MSCI Emerging Markets Equal Weight ETF (NYSEARCA: EWEM ) and EGShares Low Volatility Emerging Markets Dividend ETF (NYSEARCA: HILO ) – that have high exposure of 11.7%, 7.7%, 5% and 4.8%, respectively, to Hungary. RGRO This ETF looks to track the RevenueShares Global Growth Index comprising the top five developed and top five emerging countries in the Standard & Poor’s Global Broad Market Index based on year-over-year GDP growth from the prior two quarters. The fund charges 70 basis points a year and has 95 stocks in its basket. Energy takes 21% of the fund’s exposure followed by basic materials and financials. As much as 74% stocks in the fund are large caps. The fund has total assets of $2.1 million with paltry volumes of less than 1,000 shares. It has gained 6% so far this year (as of March 23, 2016). GVAL GVAL seeks to match the performance of the Cambria Global Value Index. With 126 stocks in its basket, the fund is well diversified with none of the stocks holding more than 3% weight while financials has the highest exposure at 23%. With total assets of $65.7 million, the fund has average volume of 17,000 shares and an expense ratio of 69 basis points. It has returned 3.3% so far this year. EWEM EWEM is based on the MSCI Emerging Markets Equal Country Weighted Index and has 346 stocks in its basket with none holding more than 4% of total assets. The fund has an AUM of $11 million and trades in average volumes of 5,000. Financials dominates in terms of sector exposure, accounting for an almost 39% of total assets. The fund charges an expense ratio of 76 basis points. It has gained 7.1% in the year-to-date period. HILO HILO is based on the EGAI Emerging Markets Quality Dividend Index and has 49 stocks in its basket with none holding more than 2.3% of total assets. The fund has an AUM of $17.3 million and trades in average volumes of 6,000. Financials dominates in terms of sector exposure with telecommunication services and materials rounding off the top three. The fund charges an expense ratio of 85 basis points. It is up 9.8% in the year-to-date period. Original post

3 Tips For Investing In Emerging Markets

By Tim Maverick Having been a neglected asset class for some time, emerging market stocks are enjoying a healthy rebound so far in 2016. The story of how we got here is a familiar one. When developing stock markets got overbought, they became overvalued. As a result, nervous investors – mainly from the United States – dumped those assets. But the selloff led to a sharp 180-degree turn – emerging markets then traded at a 28% discount to developed countries. Research Affiliates, founded by noted investor Rob Arnott, explains that emerging market stocks have only been cheaper than current levels six times. Each of those periods sparked an average five-year return of 188%. That should grab any investor’s attention. So what’s the best way to invest in emerging stock markets? Based on my decades of experience as both an advisor and an investor, I’ve compiled three quick tips to help you make sense of this market trend . Tip #1: Do NOT Use Index Funds I’m not a fan of index funds in general… but especially when it comes to emerging markets. It’s a sure-fire way to be unsuccessful. Why, you ask? First, because indices severely restrict your investable universe. And they’re usually restricted to the most overbought and overvalued stocks. Case in point: The Institute of International Finance points out that only $7.5 trillion out of a total of $24.7 trillion in emerging market equities are covered by indices from MSCI and JPMorgan (NYSE: JPM ). The rest are simply ignored as if they don’t exist. Yet, it’s those ignored stocks that usually boast the best bargains and room for growth. Tip #2: Avoid The Closet Index Trackers Even if you do avoid index funds directly, there’s another problem: “Closet trackers.” These are fund managers who like playing it safe. They couldn’t care less about outperforming the benchmark index for their shareholders. These managers have at least 50% of their funds in index stocks, so their funds will mimic the underlying index. Needless to say, that’s not what you want. Worryingly, a study from the World Bank revealed that 20% of equity funds were index trackers or closet trackers. This is a complete waste of money from an investor’s viewpoint. You’re paying for active management, but you’re not getting it. One example of a mutual fund company that usually goes off the beaten track and often invests in smaller companies is the Wasatch Core Growth Fund No Load (MUTF: WGROX ). Though I do not own their emerging market fund, I do own their frontier markets fund – Wasatch Frontier Emerging SmallCountries Fund (MUTF: WAFMX ) – for exposure to the smaller frontier markets. Please note: The fund is closed to new investors if you try buying it through your brokerage, but if you go directly to the fund company, it’s still open. Tip #3: Get Local Exposure If you truly want exposure to developing markets, guess what? You’ll need to own shares in local companies. And while it may seem like a clearer route to a profit, don’t do what many U.S. advisors espouse and have your sole exposure through multinational companies. Yes… there are many great multinationals with huge emerging market businesses – a company like Colgate Palmolive Co. (NYSE: CL ) comes to mind – they’re not the best way to gain exposure to developing markets’ economic growth. I like to use this analogy when explaining this point to clients: Let’s say a Japanese investor wanted exposure to the U.S. economy. His broker recommends Toyota Motors Corp. (NYSE: TM ). After all, Toyota sells a lot of cars in the United States. Silly, right? Toyota shares aren’t a good way to play the overall U.S. economy, as the stock only represents a very select fraction of market success. Neither is investing in emerging markets solely through multinationals. Investing in emerging local companies is the best way to profit from more specific foreign trends. There are all manner of resources available these days for researching foreign companies and stocks. It does take a bit of work, but the rewards can be well worth the time. Alternatively, you can leave the work to proven, active fund managers. Regardless of which route you prefer, now is a good time to build positions in emerging markets. Original Post

5 Low-Cost ETFs Poised For Long-Term Wins

The global ETF industry has been growing by leaps and bounds and has already accumulated almost $4.5 trillion in assets, as per ETFGI data. ETFs gained popularity over mutual funds because of their flexibility, liquidity and low cost among other factors. In fact, low cost has been one of the biggest drivers for the ETFs, enhancing their total returns. This is primarily because fund managers generally don’t actively manage an ETF. As these products often engage in passive index-based investing, they charge a much smaller fee. Several research reports have shown that only a handful of fund managers outperform the market over the long term. This gives a major boost to passive investing strategies. As per the 2015 SPIVA U.S. Scorecard , over the last five years, 84.2% of large-cap managers, 76.7% of mid-cap managers, and 90.1% of small-cap managers underperformed the S&P 500, the S&P MidCap 400 and the S&P SmallCap 600, respectively. The number of managers outperforming the benchmark index is equally bleak over the 10-year investment horizon. Roughly 82.14% of large-cap managers, 87.61% of mid-cap managers, and 88.42% of small-cap managers lagged their respective benchmarks. Additionally, managers across all international equity categories failed to outperform their benchmarks in the above mentioned time frame. Although there are several cost components to an ETF like trading commissions and bid/ask spreads, expense ratios are paid the foremost attention by investors. With several ETF providers including iShares, Vanguard and Charles Schwab vying with each other, ETFs have gotten cheaper every year (read: 5 Costly ETF Mistakes You Can Easily Avoid ). Knowing how important the expense ratio is, we have highlighted five of the cheapest ETFs for long-term investors (see: all the ETFs with Low Expense Ratios here ): iShares Core S&P Total U.S. Stock Market ETF (NYSEARCA: ITOT ) – Expense ratio: 0.03% This fund provides a broad exposure to the U.S. equity market by tracking the S&P Total Market Index and is one of the low-cost choices in the equity ETF world, charging just 3 bps in annual fees. Holding 3,819 securities, the fund is widely diversified across sectors and securities. Information technology is the top sector accounting for less than 20% while Apple (NASDAQ: AAPL ) is the top firm taking 2.7% share of the basket. Large caps account for 74% of the assets while mid and small caps take the remainder. ITOT is a popular and liquid ETF with AUM of $3.6 billion and average daily volume of 286,000 shares. The product has delivered 70.9% returns over the last five-year period. Schwab U.S. Broad Market ETF (NYSEARCA: SCHB ) – Expense ratio: 0.03% This fund also provides a broad exposure to the U.S. equity market. The fund tracks the Dow Jones U.S. Broad Stock Market Index and charges just 3 bps in annual fees. Holding 2,077 securities, the fund is widely diversified across sectors and securities. Like ITOT, information technology is the top sector accounting for less than 20% while Apple is the top firm taking 3.3% share of the basket. Large caps account for 73% of the assets while mid and small caps take the remainder. SCHB is one of the popular and liquid ETFs with AUM of $5.8 billion and average daily volume of 927,000 shares. The product has delivered 70.7% returns over the last five-year period. Schwab U.S. Large-Cap ETF (NYSEARCA: SCHX ) – Expense ratio: 0.03% This fund targets the large-cap segment of the U.S. equity market by tracking the Dow Jones U.S. Large-Cap Total Stock Market Index and holds 777 securities in its basket. Here again, information technology is the top sector with just over 20% share while Apple is the top firm at 3%. With an expense ratio of 0.03%, the fund has amassed $5.3 billion in its asset base and volume is solid at over 783,000 shares. While this is a large-cap fund, mid and small caps take minor portions each in the basket. The fund has gained about 72.4% over the past five-year period. Vanguard Total Stock Market ETF (NYSEARCA: VTI ) – Expense ratio: 0.05% This ETF follows the CRSP US Total Market Index, holding a large basket of 3,712 securities. Each security holds no more than 2.5% of total assets while financials, technology, consumer services and health care make up for a nice sector mix in the portfolio. It is one of the largest and a popular fund with AUM of nearly $57.9 billion and average daily volume of nearly 3.5 million shares. It charges 5 bps in fees and expenses and has gained 70.3% over the past five years. Vanguard S&P 500 ETF (NYSEARCA: VOO ) – Expense ratio: 0.05% This is another low-cost, well-diversified large-cap fund tracking the S&P 500 index. It holds 505 securities in its basket with each taking less than 3.2% share while sector-wise too, none accounts for more than 21% of assets. The fund has AUM of $43.5 billion and trades in heavy volume of 2.7 million shares per day on average. Expense ratio came in at 0.05%. The ETF returned about 74.5% in the same period. Link to the original post on Zacks.com