Tag Archives: ideas

Successful ETF Launches Of Q1

The ETF industry is growing by leaps and bounds irrespective of whether the markets are on a bull or bear run. Thanks go largely to unique strategies, creativity, transparency, diversification benefits, enhanced tax competences, low turnover and low cost. In fact, ETFs are now considered as a preferred investment vehicle across the globe over mutual funds and hedge funds. U.S. ETFs have gathered about $2.2 billion of capital so far in 2016, as per etf.com . Though it is much lower than $59 billion inflows seen in the year-ago period, both existing and new issuers remain active in binging innovative products to the market. About 37 ETFs have been launched in the first quarter, taking the total number of ETFs to 1,863 and total assets to over $2.1 billion. Below, we highlight four ETFs that have gathered maximum attention from investors and have a huge potential to dominate the market in the coming months. SPDR SSGA Gender Diversity Index ETF (NYSEARCA: SHE ) Several researches found that companies that have female employees in the top brass have a tendency to outperform the market. As per the latest study from market index provider MSCI , companies with boardrooms featuring “strong female leadership” have generated 36.4% greater return on equity since 2009 than male-dominated companies. A new study by Quantopian, a Boston-based trading platform, has revealed that companies with female CEOs in the Fortune 1000 generated 226% better returns than the S&P 500 over the past 12 years (read: Women Leaders ETFs Head to Head: WIL vs. SHE ). Given the long history of outperformance, investors have shown their eagerness to add female-centric companies to their portfolio. This is easily depicted by the successful debut of SHE, which has attracted nearly $265 million in assets since its inception on International Women’s Day. It is the most popular ETF launch of Q1. The fund offers exposure to the companies that have managed to recruit and retain women in leadership positions by tracking the SSGA Gender Diversity Index. Holding 140 stocks in its basket, it is moderately concentrated in the top firms with each holding less than 6.6% share. In terms of sector, financials, healthcare, information technology, consumer discretionary, and industrials occupy the top five positions with double-digit exposure each. The fund charges 20 bps in annual fees and trades in solid volume of 310,000 shares a day on average. PowerShares DWA Tactical Multi-Asset Income Portfolio (NASDAQ: DWIN ) Amid heightened uncertainty and volatility, investors are seeking to employ strategies that could fetch higher returns with lower risk to their portfolio. This has raised the appeal for multi-asset ETFs, which offer huge diversification benefits by investing across different asset classes having low correlations with each other. These products aim to provide a high level of current income with stability and potential for long-term appreciation while they simultaneously avoid the downside risk of specific asset classes (read: Multi-Asset ETFs to Counter Volatility ). As a result, DWIN has become extremely popular among investors in its first month of debut having amassed $35.5 million in AUM. It is a fund of five funds and tracks the Dorsey Wright Multi-Asset Income Index, which seeks to capitalize on seven different income-producing market segments including corporate bonds, emerging market debt, dividend stocks, MLPs, REITs, and preferred shares based on relative strength and current yield criteria. Currently, each of the five ETFs in the basket accounts for around 20% of the assets, making the portfolio highly diversified. The fund is quite expensive, charging 69 bps in fees and expenses while volume is light at around 40,000 shares. ETRACS 2xMonthly Leveraged S&P MLP Index ETN Series B (NYSEARCA: MLPZ ) This is a leveraged ETN targeting the MLP corner of the broad energy segment. It delivers twice (2x or 200%) the returns of the monthly performance of the S&P MLP Index. Launched on February 8, the note is catching investors’ eye amid wild swings in oil prices. This is because most MLPs, which are engaged in the processing and transportation of energy commodities such as natural gas, crude oil, and refined products, are best positioned to withstand the decline in oil prices and be the major beneficiaries of an oil boom in the long term. These have relatively consistent and predictable cash flows, making them safer and less risky than other plays in the broader energy space. Additionally, the leveraged factor tacked on it is encouraging investors to make big gains on quick turns in oil prices. MLPZ has gathered about $34.9 million in its asset base since its inception but trades in light volume of about 30,000 shares. Expense ratio comes in at 0.95%. ETRACS 2xMonthly Leveraged Alerian MLP Infrastructure Index ETN Series B (NYSEARCA: MLPQ ) MLPQ is also a leveraged MLP ETN launching on February 8 and providing two times exposure but tracks the Alerian MLP Infrastructure Index. It saw slightly lower inflows of $34.7 million and even lower average daily volumes than MLPZ. However, it charges lower fees by 10 bps. Link to the original post on Zacks.com

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

Peak Oil And Runaway China: A Dangerous Combination Of Memes

By Ron Rimkus, CFA Back in 2005, investors heard an endless chorus in the financial media around two memes: the end of oil, and the growth of China. Oil production was supposedly hitting its upper limits. In 2005, the US Department of Energy published a study on the peaking of world oil production (.PDF) that stated: Because oil prices have been relatively high for the past decade, oil companies have conducted extensive exploration over that period, but their results have been disappointing [….] This is but one of a number of trends that suggest the world is fast approaching the inevitable peaking of conventional world oil production [….] The world has never faced a problem like this [….] Previous energy transitions (wood to coal and coal to oil) were gradual and evolutionary; oil peaking will be abrupt and revolutionary. The peak oil narrative was reaching a fever pitch around the same time as China’s “runaway growth” meme. A BBC report on ” 2004: China’s Coming Out Party ” highlighted how China’s increasing appetite for oil was affecting global prices. Other articles made eye-popping comparisons of China’s cities before and after the country’s economic changes (decades apart). For instance, Shenzhen transformed from a sleepy fishing village in 1980 to a bustling urban empire by 2006 . Shenzhen had grown at an annual pace of 28% per year during this 26-year period. Yes, you read that right. The pair of memes led some investors to embrace the notion that oil supply was peaking just at the moment that oil demand was accelerating- a recipe for higher and higher oil prices. Then, we all marveled as the price of oil rose from $30 per barrel in 2003 to well over $100 by 2008 . In subsequent years, both memes were proven wrong. There was no “abrupt and revolutionary” oil peaking, and China’s energy demands would not keep growing forever . But higher oil prices created an umbrella of opportunity for capital formation, and much of that capital flowed into US shale oil projects. Between 2009 and 2015, total US oil production nearly doubled from 5,000 barrels per day to just under 10,000 barrels per day , thanks largely to shale oil. The shale revolution, which took place because high prices stimulated investment and innovation, blew apart the notion that the world had reached peak oil. By the end of 2014, it became apparent that oil output would satisfactorily meet demand growth. Blindly following popular investment memes is a recipe for disaster, and investors who convinced themselves that oil prices would remain above $100 per barrel were blindsided by the return of oil priced under $40 per barrel – even though it was a function of price signals directing capital investment as a normal part of the business cycle. One person who correctly identified the business cycle as it played out was Amy Myers Jaffe , executive director for energy and sustainability at the University of California, Davis. “When I would talk about this boom and bust cycle in 2005 and 2007,” Jaffe said in a 2013 issue of The Planning Report , “people would heckle me off the stage because it looked like the price of oil was going to be high forever.” But time has a way of vindicating truth, and now her perspective looks quite prescient. Jaffe will be sharing her views on current events in global energy markets at the 69th CFA Institute Annual conference in Montréal. All posts are the opinion of the author. As such, they should not be construed as investment advice, nor do the opinions expressed necessarily reflect the views of CFA Institute or the author’s employer.