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Fossil Free ETFs Head To Head: ETHO Vs. SPYX

Pollution and global warming caused by fossil fuel has been on the rise lately. Global superpowers are leaving no stone unturned to restrict greenhouse emissions, protect the climate and go eco-friendly. President Obama has always been active in cleaning up carbon pollution. A proposed Environmental Protection Agency rule even seeks to reduce 30% carbon emission from power plants by 2030, compared to the levels in 2005. China announced its intent to build a pollution-free environment. And as part of this mission, the president of China and the U.S. president Barack Obama struck a deal to lessen carbon emissions (read: Fight Global Warming with These ETFs ). The agreement calls for carbon emission reductions by 26% to 28% in the U.S. by 2025. It also includes the first-ever commitment by China to stop emissions from growing by 2030. Not only from the social perspective, it has also been noticed that fossil fuels cast a dark shadow on economies and the associated stock markets. The latest theory is that this monster can ” cause job losses, recessions and even a tumbling stock market” according to economists. It is perhaps because of this grave concern that we received two fossil-fuel ETFs from issuers, namely, the Etho Climate Leadership U.S. ETF (NYSEARCA: ETHO ) and the SPDR S&P 500 Fossil Fuel Free ETF ( SPYX ) within just one month. Below we detail these two funds and highlight their key differences: ETHO in Focus This new ETF has a 398-stock portfolio having a carbon emissions profile that is 50-70% lower per dollar invested than a conventional broad-based benchmark. The index studies total greenhouse gas emissions from over 5,000 equities to choose ‘climate leaders’ in each industry. No stock accounts for more than 0.63% of the basket. Netflix (NASDAQ: NFLX ), M&T Bank Corp. (NYSE: MTB ) and Universal Display Corp. (NASDAQ: OLED ) are the top three holdings of the fund, which charges 75 bps in fees (read: How to Invest ‘Fossil-Free’ with This New ETF? ). Technology is the fund’s top priority with 23% exposure while industrial, consumer cyclical, financial and health care also have sizable weights. The fund puts 41% in mid-cap stocks while large caps rake in about 37% of the basket with the rest going to small-cap stocks. The fund has a tilt toward growth stocks with 57% exposure followed by 22% focus on blend and 21% in value stocks. SPYX in Focus The fund looks to tracks the S&P 500 Fossil Fuel Free Index which measures the performance of companies in the S&P 500 Index that do not own fossil fuel reserves. The 473-stock fund is heavy on Information Technology (22.37%). Financials, Health Care, Consumer Discretionary, Consumer Staples and Industrials have double-digit weight in the fund. No stock accounts for 3.92% of the portfolio. Apple takes the top position followed by Microsoft (2.60%) and General Electric (1.66%). The fund charges 20 bps in fees. Capitalization-wise, the fund puts about 90% in large caps. Here too, growth stocks take about 48% weight followed by value stocks (29%). ETHO SPYX Index The Etho Climate Leadership Index the S&P 500 Fossil Fuel Free Index Expense Ratio 0.75% 0.20% Company concentration risks Extremely low Relatively high Index composition Equal weighted Capitalization-weighted Capitalization Multi-Cap Large-cap Style Blend with a focus on growth (57%) Blend with a focus on growth (48%) Link to the original post on Zacks.com

Weaker Yuan Put Currency-Hedged Chinese ETFs In Focus

Devaluation fear is gripping the Chinese currency yuan market again after five months. The currency fell to a four-month low level last week and stoked possibilities of further weakness going forward. A host of reasons are responsible for this. First, the relentless flow of offhand economic data added fuel to hopes for further stimulus measures. The Chinese economy is on its way to deliver a 25-year low expansion this year. China has already rolled-out a few of policy easing measures which haven’t yet materially lifted economic growth. The likeliness of more easing should devalue the currency ahead. In August, China’s central bank devalued the currency by 2%, following which yuan posted the largest single-day decline since the historical devaluation in 1994, after the country arranged its official and market rates in a line. Notably, the Chinese authorities follow a trading band around the official reference rate it sets each day for the value of yuan against the U.S. dollar. The Chinese government announced in August that renminbi’s central parity rate would follow the previous day’s closing spot rates more closely going forward. This indicates China’s intent to make its currency more market driven. As a result, a section of analysts believe that the actual motive behind this currency move was to prepare yuan as a reserve currency. However, the Chinese central bank assured the market that it will promptly intervene into the currency market if depreciation crosses the 3% mark. Now, with yuan getting the IMF nod to join the reserve currency basket from October 2016, China’s efforts the make the currency more “freely usable” and market oriented will likely go on (read: IMF Green Signal Put Yuan ETFs in Focus ). Last week, the currency weakened for two successive sessions amid lower fixings from the central bank, per CNBC . At the current level, yuan hovers around a four-and-a-half year low as PBOC fixed the yuan/dollar official midpoint ‘at its weakest since July 2011′. If this weakening continues, Asian emerging markets which are largely involved in exports would end up in a currency-war. Most export-centric economies will likely be forced to depreciate their currencies to stave off competitive and rev up their exports (read: 3 Country ETFs Impacted By China Currency Devaluation ). The investing world is divided into two clusters. While one part believes that there is no basis for persistent yuan depreciation, the other believes that extra devaluation is needed for the balance of payments’ adjustments, and for the authorities to jumpstart the economy and stamp out deflationary fears. The PBOC announced late last Friday that it has rolled out a yuan index rate against a basket of currencies, rather than tracking the greenback solely. Some see this as an indication of further weakening in yuan. Un-hedged ETFs tracking the nation have actually outperformed the broader market so far in Q4. Investors should note that even after such speculation, yuan declined just 0.26% against the U.S. dollar from August 12 to December 10, which is not at all a material devaluation. Still investors fearing yuan devaluation but still wishing to be invested in China ETFs, might try these two below-mentioned currency-hedged ETFs. The CSOP MSCI China A International Hedged ETF (NYSEARCA: CNHX ) in Focus The CSOP MSCI China A International Hedged Exchange Traded Fund looks to track the performance of the MSCI China A International with CNH 100% Hedged to USD Index. The index delivers the performance by hedging the currency exposure of the MSCI China A International Index, to the USD. The index is 100% hedged to the USD by selling Renminbi currency forwards at the one-month forward rate. Making its debut in mid October, the fund has amassed about $3 million in assets. It charges 79 bps in fees. The index is heavy on financials which makes up about one-third of the portfolio followed by Industrials (17.9%). The 381-holding product is extremely diversified in nature with no stock accounting for more than 0.01% of the basket. The Deutsche X-trackers CSI 300 China A-Shares Hedged Equity ETF (NYSEARCA: ASHX ) in Focus The Deutsche X-trackers CSI 300 China A-Shares Hedged Equity ETF looks to track the CSI 300 USD Hedged Index. The fund has amassed about $2.5 million in assets and its expense ratio is 0.85%. This index also has a tilt toward the financial sector with about 40% exposure. Industrials (17.1%) and Consumer Discretionary (11.2%) take the next two spots. In short, the fund is the currency-hedged version of the Deutsche X-trackers Harvest CSI 300 China A-Shares ETF (NYSEARCA: ASHR ) . Notably, the 300-stock ASHR is also a diversified fund, though not as wide as CNHX. The top holding of ASHR takes 4.05% of the fund. Link to the original post on Zacks.com

The Market Vectors Russia ETF – Low Oil Is An Existential Threat, The Worst Is Yet To Come

Summary Low oil prices have important implications for Russian economy and RSX holdings. These implications go beyond the direct damage. I explain my views on this topic, as well as on the Central Bank’s policy and the ruble exchange rate. In my latest article titled ” RSX: Ready For December Wipeout ” on the Market Vectors Russia ETF (NYSE: RSX ), I discussed the recent developments including the weakness of oil and the relative strength of the Russian ruble. In this article, I will focus on the role of the ruble exchange rate for the economy, the Russian Central Bank’s policy and its implications for RSX. Why the ruble is so important? First, I would like to address the role of the Russian ruble exchange rate for the country’s economy. In my view, failure to acknowledge the governing role of the exchange rate for the Russian economy will lead to wrong assumptions and wrong conclusions about the state of the economy, the state of individual firms and, ultimately, the direction of RSX. One of the first comments on my preceding article stated that Russia, perhaps, was relying on champagne from France, and could live without it. This is very far from truth. For years, the Russian ruble suffered from the so-called Dutch disease – it was very strong. The combination of high oil prices and a strong ruble made production in Russia not viable in many cases. Why produce something, risk capital and wait for years for return on this capital when you can just buy what you need with the funds from energy and materials exports? This tactic was also politically convenient, as it brought immediate results that anyone can feel through increased consumption levels. However, there was a major flaw in the whole system that everyone knew but did not want to address. The whole system was (and still is) heavily dependent on just one variable – the price of oil. Back in 2009, Russia was lucky and oil rebounded fast. This time, luck is over. From the comments that I read here on SA I see that many people think that low oil prices just make life for the Russian economy harder through lower oil income. However, the damage spreads wider. Low oil prices are an existential threat to the current economic system, and it will take time to develop a real response to challenges. When people think about Russian imports, they typically imagine something like clothes, pork or the abovementioned champagne. Yes, these could be internally substituted. The price will be high, the quality will likely be so-so, but a substitute can be made. However, when we think about capital goods like tools and machines, the situation starts to look dire. Here’s a snapshot of top Russian imports. Source: www. worldrichestcountries.com As you can see, Russia imports things that are necessary to produce other things. This means that it will take long time before the country can internally source the means of production. Below is the graph of Russian industrial production this year. (click to enlarge) Source: tradingeconomics.com The devaluation of the ruble failed to improve situation on this front. Also, please note that quality is not included in such calculations. What do you think about the quality of internally produced tools and machines when the country chose the easy way and just bought them for 15 years in a row? The Central Bank’s dilemma This puts the Russian Central Bank in an unpleasant situation. If the ruble is too strong, the budget suffers. If the ruble becomes weaker, you immediately get inflation and producers cannot afford to buy the means of production – and you get negative industrial production growth numbers. So far, the Russian energy sector was immune from such problems. However, if oil prices stay at low levels for a longer time, the companies will have to invest in production or face production declines. Yes, I’m talking about production declines while Russia pumps record amounts of oil. This is a short-term reaction which was anticipated. In the longer run, if oil stays lower for longer, the absence of investment will inevitably lead to the decline in production. Recently, the Central Bank stated ( Google translate link ) that it was targeting lower inflation. It looks like it is doing so through keeping the ruble stronger in the short-term. As I’m writing this, the ruble-denominated price of oil is 2670, further down from 2693 that I mentioned in my previous article. I restate my view that this cannot last forever, as it hurts both the Russian budget and the majority of RSX holdings – energy and basic materials companies. When the next year starts, the Central Bank will face a tough choice between targeting inflation and filling the budget. My bet is that “filling the budget” will win, sending ruble and RSX lower. The longer oil stays around current levels, the lower RSX will fall. The Russian economy and Russian companies have previously shown that they were able to sustain low oil prices for a short period of time. This time is different, and the economy is facing a prolonged period of low oil prices. I believe that this is an existential threat to the current economic model. At the same time, I see no changes in policy that would have signaled a shift from the current economic model to something different. When I look at RSX chart, I believe that investors are too optimistic about Russian companies and Russian economy in general. As oil prices stay lower for longer, the numbers will show the continuing contraction and early optimists will likely run for cover. I remain bearish on RSX.