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These Country ETFs Benefit From Oil Rebound

It’s truly been a roller-coaster ride for oil. The liquid commodity plunged to a six-and-a-half year low at the start of the week only to record the highest single-day gain in over six years to end the week. While pockets of weakness in most global superpowers including the Euro zone, China and Japan have resulted in weaker activities and weighed on crude oil prices so far, the recent rout in the Chinese market following its currency devaluation and grave economic situation slaughtered the already weak oil prices (read: 4 Ways to Short the Energy Sector with ETFs ). However, after a week-long losing streak, jittery investors worldwide saw some relief on Wednesday as China slashed rates to boost its economy and repeatedly intervened into the stock market to contain the relentless slide. Also, hunt for bargain took center stage. To add to this, the U.S. economy grew at 3.7% in Q2, which breezed past the initial reading of 2.3% growth and 0.6% expansion recorded in the seasonally weak Q1. A strong rebound in the U.S. economy, which is in fact the world’s largest economy, ruled out the demand-related fear out of the oil space. Plus, as per the American Petroleum Institute (API) crude stock piles declined by 7.3 million barrels in the week ending August 21,whcih is way lower than analysts’ projection of a rise of 1.9 million barrels in crude inventories. This overall bullish sentiment showered massive gains on oil prices on August 27 as oil advanced around 10%. Both WTI and Brent crude benefited from this unexpected surge. As a result, key oil producing and exporting countries that were on a downtrend so long, saw a sharp rise on Thursday trading. As we all know, ETFs offer a great opportunity while it comes to playing a particular nation. In light of this, we have highlighted a few country ETFs that could see a turnaround in the days ahead should oil price continue to rise ( see all energy ETFs here). Market Vectors Russia ETF (NYSEARCA: RSX ) Things have been pretty tough for Russia for last one-and-a-half year. If the tussle between Russia and the West on the Ukraine issue bothered the country, oil – seemingly the main commodity of the nation – posed further risks to its economy (read: 3 Russia ETFs at Bargain Prices Right Now ). RSX is the most popular and liquid option in the space with an asset base of $1.6 billion and average trading volume of more than 11 million shares a day. The fund tracks the Market Vectors Russia Index to provide exposure to the Russian equities. The energy sector accounts for about 43% of RSX with Gazprom and Lukoil – the Russian energy giants – taking more than 15% share of the fund. RSX charges 63 basis points as expenses. The fund was up 6.7% on August 27. iShares MSCI Malaysia Index Fund (NYSEARCA: EWM ) The Malaysian equity market has been also been a weak spot lately as its neighboring country China devalued its currency in mid August. Also, falling oil price hurt the stocks of the oil-rich Malaysia, which happens to be one of the largest Asian crude exporters. Political crisis is another cause of concern for Malaysia (read: 3 Country ETFs Impacted By China Currency Devaluation ). The $256 million-fund EWM looks to track the performance of the Malaysian equity market. EWM charges investors 48 basis points a year in fees and was up 5.2% on August 27 both on oil price recovery and the return of risk-on trade sentiment into the market. iShares MSCI UAE Capped ETF (NASDAQ: UAE ) Oil-rich OPEC nations (Organization of Petroleum Exporting Countries) must be the big beneficiary of this sudden surge in oil. UAE is such a country. The fund provides exposure to 32 stocks by tracking the MSCI All UAE Capped Index. The ETF has accumulated $27.5 million in AUM so far while charging investors 62 bps in annual fees. Volume is paltry trading in about 15,000 shares a day on average. The fund returned 5.5% on August 27. Another OPEC nation Qatar also got mileage out of this jump. Its pure play ETF, MSCI Qatar Capped ETF (NASDAQ: QAT ) soared 8.1% yesterday while yet another Middle East fund Market Vectors Gulf States Index ETF (NYSEARCA: MES ) added over 4.7%. iShares MSCI Canada ETF (NYSEARCA: EWC ) Canada is also among the world’s top 10 oil producers. The best way to invest in Canada is through iShares MSCI Canada ETF, a product that has nearly $1.88 billion in assets. The fund tracks the MSCI Canada Index, holding just under 100 stocks in its basket. Although financials takes the top spot at about 40%, energy makes up a huge chunk of assets accounting for about 20% of the total. The fund gained over 3.6% on August 27, 2015. EWC charges 48 bps in fees. Original Post

Best ETF Strategies To Survive Market Turmoil

This morning, US stocks are trending higher after indiscriminate and irrational selloff over the past few days. Even though things may calm down in the near term, investors are getting increasingly worried whether the 76 month long bull run is finally coming to an end. The selling was initially triggered by the surprise devaluation of the Chinese currency – which raised concerns that economic conditions in the world’s second-largest economy may be much worse than suggested by official numbers. Recent commodity rout and emerging markets slump have added to these concerns. Investors should remember that a healthy correction at times is a sign of a normal functioning market. This market had not seen a drop of 10% or more from a recent high in more than 46 months. While this sudden, steep selloff was driven more by fear than facts, it is possible that we may see more frequent declines as the Fed gets ready to raise rates for the first time in almost a decade while the economic recovery in most parts of the world remains fragile. At the same time, the US economy is growing steadily and stock valuations are not yet in the bubble territory. And while the rout started with worries over China’s economic malaise, exports to the emerging giant actually account for just 0.2% of US GDP. Amid wild rout that defies all logic, it is important for investors to stay focused on their long-term goals and not act rashly during times of panic. While it is difficult to predict whether the market has bottomed out, it is almost certain that we are likely to see more volatility ahead. Buy High Quality Assets for Longer Term Predicting stock market’s short-term moves accurately is almost impossible but stocks deliver superior returns over longer term. So, if you are an investor with a long-term horizon, then this selloff presents an excellent opportunity to buy some high-quality ETFs that are now available at deep discounts. While growth stocks outperformed till earlier this month, value stocks have delivered higher returns with lower volatility compared with growth stocks over the long term in almost all the markets studied. Ultra-cheap value ETFs like Schwab U.S. Large-Cap Value ETF (NYSEARCA: SCHV ) and Vanguard Value ETF (NYSEARCA: VTV ) are excellent choices for long-term focused portfolios. Also consider adding some low volatility ETFs – like SPDR S&P Low Volatility ETF (NYSEARCA: SPLV ) and iShares MSCI Minimum Volatility ETF (NYSEARCA: USMV ) – to the portfolio. These not only shine during highly volatile market environments but also deliver superior risk adjusted returns over longer term. Stay Diversified As stocks plunged, nervous investors piled into the so-called safe haven assets, particularly Treasury bonds, sending the yield on the benchmark 10-year Treasury note below 2% for the first time in about four months. Investors with well-diversified portfolios were obviously less impacted than those with all stocks holdings. Bonds still deserve a place in portfolios even as the Fed is on track to lift rates sometime in the coming months. Treasury bonds – in particular longer term – may continue to benefit from heavy buying by foreign investors, as long as interest rates remain ultra-low in Europe and Japan, the U.S. dollar continues to strengthen and long-term inflation expectations remain benign. Shorter-term yields may however rise in anticipation of Fed funds rate hike and thus the trend of yield curve flattening may continue this year. Take a look at iShares 10-20 Year Treasury Bond ETF (NYSEARCA: TLH ) or Vanguard Long-term Government Bond ETF (NASDAQ: VGLT ) or other cheap longer-term Treasury bond ETFs. Similarly, a mix of cyclical and defensive stocks is essential for a core portfolio. My favorite ETFs are low-cost sector ETFs – Vanguard Technology ETF [(NYSEARCA: VGT )- ETF report ] and iShares Healthcare Providers ETF (NYSEARCA: IHF ), among others. Things to Know before Investing in Inverse/Leveraged ETFs If your losses are making you very nervous during times of steep declines, then it may be a better idea to add some hedging to the portfolio rather than bailing out of stocks completely. Leveraged/Inverse ETFs-like ProShares Short S&P 500 ETF (NYSEARCA: SH ), ProShares UltraShort S&P500 ETF [(NYSEARCA: SDS ) – ETF report )] and ProShares UltraPro Short S&P500 [(NYSEARCA: SPXU ) – ETF report )] can be effectively used by investors for short-term market timing or hedging purpose during selloffs. However, investors should remember that “timing” the market is never easy and should be prepared to monitor their positions closely and exit their short positions in case the market goes up. Please note that these ETFs are typically designed to achieve their stated performance goal on a daily basis. The performance of leveraged ETFs, if held for longer than a day, is path dependent. That means not only the level of the index at the end of the holding period, but also how the index got there will determine the performance of these ETFs. In trending markets with low volatility, compounding works in investors’ favor and hence there should be no harm in holding these instruments for longer periods. However, if the underlying index sees high volatility, compounding will work against investors and eat into returns, producing high tracking errors. Further if the index tracks a limited number of entities and/or faces contango risks, then it is safer to hold these positions just for a few days. The Bottom Line Investors should remember that patience and diversification are keys to long-term investing success. And, while it is impossible to predict which way the market will turn in the next few days, the overall outlook for US-focused stocks remains favorable in the medium-term despite global concerns. It is important for investors to stay focused on their long-term goals rather than fixating over short-term market moves. Original Post

5 Low-Risk ETFs To Protect Returns Amid Volatility

The global stock market has been on a wild ride over the past couple of weeks, with a wave of selling seen in recent sessions making matters worse. China played the role of the biggest culprit in roiling the market with the devaluation of its currency on August 11, and dovish Fed minutes last week did the rest of the damage. Worries about prolonged weakness in China accelerated on Friday on the country’s factory activity data, which contracted at the fastest pace in over six years in August. Additionally, Europe is struggling with slower growth, the Japanese economy has lost its momentum and many emerging economies are experiencing a slowdown despite rounds of monetary easing. Added to the woes is the slump in commodities, especially the resumption of the oil price slide, which is once again threatening global growth and deflationary pressure. Notably, U.S. crude has dropped to below $39 per barrel, its lowest price since the financial crisis six years ago. Such market gyrations have left investors nervous about the safety of their portfolios. However, the People’s Bank of China (PBOC), in a surprise move today, intervened to boost the sagging domestic economy. For the fifth time in nine months, it has cut its interest rates by 25 bps to 4.6%. The deposit rate has also been cut by 25 bps to 1.75%, while the reserve ratio has been slashed by 50 bps to 18%. Though the move has injected fresh optimism into the global markets, with most benchmarks in green, the gain seems a short-lived one. Most of the analysts believe that the country will continue to face a long period of uncertainty that would result in more volatility and hurt the global economy. Given the weak fundamentals, the outlook for stocks still appears cloudy, and the markets are expected to remain volatile in the coming days. As such, investors should consider low-volatility (risk) products in order to protect themselves from huge losses. Why Low Volatility? Low-volatility products generate impressive returns or often outperform in an uncertain or a crumbling market, while providing significant protection to one’s portfolio. This is because these funds include more stable stocks that have experienced the least price movement in their portfolio. Further, these funds contain stocks of defensive sectors, which usually have a higher distribution yield than the broader markets. Below, we have highlighted five low-volatility ETFs that investors should consider if the stock market continues to experience volatility. These funds appear safe in the current market turbulence and tend to reduce risk, while generating decent returns: iShares MSCI USA Minimum Volatility ETF (NYSEARCA: USMV ) This is the largest and most popular ETF in the low-volatility space, with AUM of $5.8 billion and average daily volume of 1.1 million shares. It offers exposure to 163 U.S. stocks having lower-volatility characteristics than the broader U.S. equity market by tracking the MSCI USA Minimum Volatility (USD) Index. The fund’s expense ratio came in at 0.15%. The fund is well spread across a number of components, with none holding more than 1.68% share. From a sector look, healthcare, financials, information technology, and consumer staples occupy the top positions, each with double-digit exposure. The ETF lost nearly 7% over the past 10 days. PowerShares S&P 500 Low Volatility Portfolio ETF (NYSEARCA: SPLV ) This ETF provides exposure to the stocks with the lowest realized volatility over the past 12 months. It tracks the S&P 500 Low Volatility Index, and holds 105 securities in its basket. Like USMV, the fund is widely spread across a number of securities, and none of these holds more than 1.25% of assets. However, the product is tilted toward financials at 35.1%, while consumer staples, industrials and healthcare round off the top five. SPLV has amassed $5 billion in its asset base and trades in heavy volume of around 1.3 million shares a day, on average. The fund charges 25 bps in annual fees and lost 7.6% in the past 10 days. iShares MSCI All Country World Minimum Volatility ETF (NYSEARCA: ACWV ) This fund tracks the MSCI All Country World Minimum Volatility Index. Though the ETF provides exposure to low-volatility stocks across the globe, the U.S. accounts for more than half of the asset base. Apart from this, Japan is the only country with a double-digit allocation. In total, the fund holds 359 stocks, with each accounting for no more than 1.41% of assets. Financials, healthcare, and consumer staples are the top three sectors, each with double-digit allocation. The product has a managed asset base of $2.2 billion, while it trades in good volume of more than 202,000 shares a day. It charges 20 bps in annual fees, and is down 8% in the same period. iShares MSCI EAFE Minimum Volatility ETF (NYSEARCA: EFAV ) This fund targets the low-volatility stocks of the developed equity markets, excluding the U.S. and Canada. It follows the MSCI EAFE Minimum Volatility (USD) Index, charging investors 20 bps in annual fees. Holding 206 securities, the fund is highly diversified, with none making for more than 1.66% share. However, it is slightly tilted toward financials at 21.1%, closely followed by healthcare (16.1), consumer staples (16.0%) and industrials (11.1%). In terms of country profile, Japan and United Kingdom take the top two spots at 28.7% and 22.6%, respectively, followed by Switzerland (11.2%). EFAV has AUM of $3 billion and trades in good volume of 372,000 shares a day, on average. The ETF was down about 9% over the past 10 days. iShares MSCI Emerging Markets Minimum Volatility ETF (NYSEARCA: EEMV ) For investors seeking exposure to the emerging markets, EEMV could be an intriguing pick. The fund follows the MSCI Emerging Markets Minimum Volatility Index and is one of the largest and popular ETFs in this space, with AUM of over $2.5 billion and average daily volume of around 441,000 shares. It charges 25 bps in annual fees and expenses. In total, the fund holds 258 stocks in its basket, with each accounting for less than 1.7% share. It provides exposure to a number of emerging countries, with China, Taiwan and South Korea as the top three holdings. However, the fund has a slight tilt toward financials with 28.5% share, while consumer staples, telecommunication services and information technology round off the next three spots. The fund shed 13.8% in the same period. Bottom Line Though these products have been on a downslide, the losses are much lower than those of the broader market funds. This is especially true given the losses of 9.8% for the U.S. fund (NYSEARCA: SPY ), 11.2% for the global fund (NASDAQ: ACWI ), 11.5% for the developed markets fund (NYSEARCA: EFA ) and 15.2% for the emerging markets fund (NYSEARCA: EEM ). As a result, investing in low-volatility ETFs seems a good strategy at present, given the China turmoil and global growth fears. Original Post