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Will China Pull Copper ETFs Down?

Last week, copper prices witnessed the biggest weekly decline since January on oversupply concerns in China and sluggish demand growth. After a stressful stretch in 2015 due to softness in China’s manufacturing sector, global growth worries, a stronger U.S. dollar and surplus supplies, the red metal had shown a recovery in 2016. But the trend took a U-turn once concerns related to oversupply in China surfaced. While there are many factors influencing the price of copper, events in China are major contributors, as the country is the world’s biggest consumer of this industrial metal, making up roughly 40% of global copper demand. However, per the latest LME data, China’s shipments to Singapore jumped 4,800 tonnes, boosting exports and leading to worries about domestic oversupply in China. As per state-backed research firm Antaike , China could be holding more than 1 million tonnes of refined copper stocks at present, including bonded stocks, exchange stocks and metal held by traders and smelters. Historically, the strongest period of demand for copper from China is in the second quarter, as production of cables and wires is the highest during this period. However, sectors that import copper, including construction and manufacturing, have been hit hard. Thus, if China resorts to exporting copper instead of importing, it could send a major shockwave to red metal prices across the globe. Meanwhile, most of the other developed and developing economies are also experiencing sluggish growth, which in turn, is weighing on the global demand for copper and dampening its appeal. Oversupply concerns in China could intensify the global supply glut and drive copper prices further down. This brings our attention to copper ETFs – the iPath DJ-UBS Copper Total Return Sub-Index ETN (NYSEARCA: JJC ), the United States Copper Index ETF (NYSEARCA: CPER ) and the iPath Pure Beta Copper ETN (NYSEARCA: CUPM ). These funds have a Zacks ETF Rank of 3 or “Hold” rating (see all the Industrial Metals ETFs here ). iPath DJ-UBS Copper Total Return Sub-Index ETN The ETN tracks the Bloomberg Copper Subindex Total Return, which seeks to deliver returns through an unleveraged investment in the futures contracts on copper. The index currently consists of one futures contract on the commodity of copper (currently, the Copper High Grade futures contract traded on the COMEX). The product charges investors 75 bps a year in fees and has a lower level of AUM of $29.6 million. It trades in paltry volume of about 26,000 shares a day, on average. The ETN shed nearly 4.4% in the last week (as of April 8, 2016). United States Copper Index ETF The fund seeks to track the performance of the SummerHaven Copper Index Total Return, plus interest income from CPER’s holdings. The index provides investors with exposure to a portfolio of copper futures contracts. The product has amassed $2.8 million in its asset base, while it sees paltry volume of about 2,000 shares a day. Its expense ratio came in at 0.65%. The ETF has lost 3.8% in the last week. iPath Pure Beta Copper ETN This note seeks to match the performance of the Barclays Copper Pure Beta Total Return Index. This can roll into one of a number of futures contracts with varying expiration dates, as selected, using the Barclays Pure Beta Series 2 Methodology, lowering the effect of contango. The note has amassed $1.8 million in its asset base and trades in a meager volume of about 250 shares a day. The expense ratio came in at 0.75%. CUPM is gained 0.5% in the last week. Original Post

Q1 Earnings Trend Spells Trouble For Bank ETFs

The financial sector has been on a rough ride since the start of the year even though the broader market sentiments have shown recovery. Most of the pain came from the banking sector, which had a worst start to the year since the financial crisis in 2007-2008, as lower interest rates continued to restrict profitability by shrinking the interest rate spread. This is because banks seek to borrow money at short-term rates and lend at long-term rates. Now, if short-term rates do not rise and long-term rates fall, banks will earn less on lending and pay more on deposits, thereby leading to a tighter spread. Additionally, concerns about slow growth in China and the impact of persistently low oil prices on the energy sector have put pressure on investment banking and trading activities as well as loan growth. According to Dealogic, global investment banking revenues (fees paid for advice on mergers and acquisitions, debt and equity underwriting and syndicated loans) plunged 36% year over year in the first quarter to $12.8 billion. This represents the lowest quarterly number since the height of the financial crisis. The continued market turmoil has pushed down trading activities across the globe with banks witnessing a drop of as much as 56% in their trading businesses. Further, banks that are highly exposed to the energy sector have increased their loan reserves due to a prolonged decline in crude oil prices. The higher provisioning to cover the bad loans of the energy companies are weighing on the overall banking earnings picture and could result in deteriorating credit quality. Given the spiral of woes, analysts expect an average decline of 20% in earnings from the six largest U.S. banks, according to Reuters . In particular, Goldman Sachs (NYSE: GS ) is expected to post the largest decline of 54.2% when it releases its results before the market opens on April 19, as per the Zacks Estimate. This is followed by expected earnings decline of 41.68% for Morgan Stanley (NYSE: MS ), 31.43% for Citigroup (NYSE: C ), 18.52% for Bank of America (NYSE: BAC ), 13.29% for JPMorgan (NYSE: JPM ) and 5.45% for Wells Fargo (NYSE: WFC ) when they report in the coming days. Further, these banks have an unfavorable Zacks Rank of #4 (Sell) or #5 (Strong Sell) with VGM Score of D or F, suggesting that they will underperform the market when the results are released. Moreover, the downside in this corner can be confirmed by the Zacks Industry Rank, as five out of seven banking industries actually have a negative rank in the bottom 40% at the time of writing. All these indicate significant weakness in the broad financial sector given that the banks are the major contributors to its growth (see: all the Financial ETFs here ). As a result, investors should avoid bank ETFs heading into the earnings season. Below, we take a closer look at four bank ETFs that have lost in double digits so far this year. Though these funds might have a Zacks ETF Rank of 3 or ‘Hold’ rating, the weakness is expected to continue given the bearish earnings outlook. PowerShares KBW Bank Fund (NYSEARCA: KBWB ) This fund provides exposure to 24 stocks by tracking the KBW Nasdaq Bank Index. It is moderately concentrated across various components with each holding no more than 8.05% share. Though banks account for 84% share, consumer finance and investment companies also take minor allocations in the basket. The fund has amassed $297 million and trades in solid volumes of 387,000 shares per day on average. Expense ratio came in at 0.35%. The ETF has shed 13.6% in the year-to-date time frame. SPDR S&P Bank ETF (NYSEARCA: KBE ) This fund tracks the S&P Banks Select Industry Index and has an AUM of $2.2 billion. Volume is heavy as it exchanges nearly 3 million shares a day while the expense ratio is 0.35%. The product holds a diversified basket of 64 stocks with none holding more than 2.18% of total assets. From a sector look, about three-fourths of the portfolio is allotted to regional banks while diversified banks, thrifts & mortgage finance, asset management & custody banks and other diversified financial services take the remainder. The fund has lost about 12% so far this year. SPDR S&P Regional Banking ETF (NYSEARCA: KRE ) With AUM of nearly $1.7 billion and average daily volume of around 6.3 million shares, this product follows the S&P Regional Banks Select Industry Index, charging investors 35 bps a year in fees. Holding 100 securities in its basket, the fund is widely spread out across each security, with none holding more than 2.77% of assets. The fund is down 11.6% in the year-to-date time frame. iShares U.S. Regional Banks ETF (NYSEARCA: IAT ) This ETF offers exposure to 54 regional bank stocks by tracking the Dow Jones U.S. Select Regional Banks Index. The top two firms – U.S. Bancorp (NYSE: USB ) and PNC Financial Services (NYSE: PNC ) – dominate the fund’s return with a combined 29.5% of assets. Other firms hold less than 7.4% share. The fund has amassed $390.5 million in its asset base while sees good volume of 308,000 shares a day. It charges 44 bps in annual fees and has shed 10.7% so far this year. Original Post

Time To Worry About CORN ETF?

Anemic growth in the global economy and lingering concerns over macro uncertainty have dragged down overall agricultural consumption so far this year, hurting corn export sales. A cut in Chinese corn imports brought its share of troubles. And the most important deterrent – a strong U.S. dollar – is making exports expensive. This is bad news since corn is one of the most important U.S. crops and is the most important agricultural product in many states. And overall, the nation enjoys the status of the world’s largest exporter of the staple. The future of the staple doesn’t look very bright given expanding stockpiles and increasing planting given that the corn market is already oversupplied. Per the Agriculture Department report released last week, U.S. farmers are expected to sow 93.6 million acres of corn this year compared with 88 million last year, representing an increase of about 6%. The agency’s report also revealed that corn stockpiles totaling 7.81 billion bushels on March 1 were at the highest level in the past 30 years. Stockpiles were up from 7.75 billion bushels on the same date last year. With corn prices sinking to a nearly three-month low, investor focus is expected to be on the only ETF in the market that targets this important commodity, Teucrium Corn ETF (NYSEARCA: CORN ) . CORN has been down more than 4.1% so far this year (as of April 5, 2016), underperforming the broad agricultural commodity fund PowerShares DB Agriculture ETF (NYSEARCA: DBA ), which was down 2.2% and the equity-based fund SPDR S&P 500 Trust ETF (NYSEARCA: SPY ), which returned over 1.7%. Corn ETF in Detail The fund provides investors a direct exposure to corn. The fund looks to reduce backwardation and contango. The fund looks to reduce contango by spreading out exposure across the curve, as opposed to just rolling over from front month to front month. The fund will be using the second-to-expire contract (35%), the third-to-expire contract (30%), and the December contract that is following the third-to-expire contract (35%). The product is expensive as it charges 2.92% in fees per year, which is steep compared with the average expense ratio prevailing in agricultural commodities ETFs. It trades in moderate volumes of nearly 30,000 shares on an average daily basis that increases the trading cost in the form of a somewhat wide bid/ask spread. The fund has so far attracted $57.2 million in assets. CORN has fallen almost 20% in the last one year. As such, CORN currently carries a Zacks ETF Rank of 4 or “Sell”, indicating that the fund might face significant bearishness in the months ahead. So, for the time being, if investors are looking to play this commodity market, a look to other segments might be necessary. Original post