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Retail ETFs Hit Hard By Soft September Sales

September seems to be a doomed month as it repeatedly ascertained the lost growth momentum in the U.S. economy. First, soft job and manufacturing data and then a weaker-than-expected retail sales report reconfirmed that the impetus had gone astray. Retail sales (barring autos) dived 0.3% in September, the largest decline since January, and below economists’ expectation of a decline of just 0.1%. Though consumers spent on cars and at food joints, sales targeted at e-commerce, general-merchandise stores, home centers, grocery stores, electronics stores and appliances lacked, per the source. Retail sales barring automobiles, gasoline, building materials and food services dropped 0.1% after 0.2% expansion in August. Overall, retail sales nudged up 0.1% on cheaper fuel prices against August sales which were revised down from 0.2% gain to flat. As per Retail Dive , hurricane in the Southeast spoilt sales in that region while a soothing weather weighed on fall clothing purchases. Fragile wage growth appears another factor behind this sales slump. Since consumer spending makes up about 70% of the U.S. GDP, this blow to retail sales remains a matter of concern. This is more so as consumers saved a considerable amount from low fuel prices. But these savings are hardly being spent at stores. This proves that the last recession is still fresh in the memory of consumers, who are extra cautious about loosening their purse strings for discretionary purchases. However, autos had a safe journey in September, with sales expanding 1.7% in the month and representing the largest gains since May, per Bloomberg. All the three retail ETFs – SPDR S&P Retail ETF (NYSEARCA: XRT ), Market Vectors Retail ETF (NYSEARCA: RTH ) and PowerShares Dynamic Retail Portfolio (NYSEARCA: PMR ) – closed in the negative following the somber retail sales data. Weak earnings guidance from retail-behemoth Wal-Mart (NYSE: WMT ) also did substantial damage to the sector. The funds were off about 1%, 2.4% and 3.1%, respectively. While the results surely caught many investors off guard, we should wait for another month before drawing a conclusion on the momentum level in the U.S. economy. After all, the ongoing fourth quarter embraces the all-important holiday season, which is apparently the key selling-season for retailers. Plus, with the tentative timeline of the Fed rate hike shifting back to not before early 2016, U.S. consumers will see cheap money inflows for some more months. A few more months of low-rate environment in turn may persuade consumers to spend at stores rather than stuffing energy savings in their bank accounts. Muted job growth is an issue; but probably it’s too early to take a call on the fate of retail sales. Original Post

The Strongest European ETF Will Surprise You

Summary Ireland’s markets stands out in tepid Eurozone markets. A closer look at the Ireland ETF. Outperformance in Ireland compared to other Eurozone equities. Buoyed by impressive economic growth, the iShares MSCI Ireland Capped ETF (NYSEArca: EIRL ) has climbed 13.5% year-to-date, good for one of the best performances among single-country exchange traded funds tracking Eurozone nations. However, there is more to the story when it comes the steadiness of EIRL and the Irish economy. In the first quarter, the Irish economy expanded by an upwardly revised 5.2% in 2014, its best performance since 2007, and the country’s economy is now larger than at the height of its so-called Celtic Tiger boom. Ireland’s central bank pointed to support from domestic demand as robust retail sales and an improved labor market bolstered the economy . Often seen as the steadiest hand of the five PIIGS ETFs, is up 22.2% over the past year. “A big reason the country has done so well is that it applied austerity in quick and dramatic fashion by cutting spending and raising taxes. This, along with a weak euro which helped bolster exports, has Ireland’s government predicting gross domestic product growth of 6 percent this year, matching last year’s pace. In addition, the country’s unemployment rate has dropped, from 15 percent in 2012 to 9.7 percent today ,” reports Eric Balchunas for Bloomberg . The $163.3 million EIRL holds 24 stocks with the materials and consumer staples sectors combining for half the ETF’s weight. The ETF is top heavy as CRH Plc occupies almost 21% of EIRL’s weight on its own. EIRL’s top five holdings combine for over 54% of the fund’s weight. “Ireland’s performance over the past four years stands in stark contrast to its peripheral peers in the euro zone. Portuguese stocks are down about 12 percent, equities in Italy are up 32 percent, and Spain’s are up 15 percent. Unsurprisingly, debt-ridden Greece has been the worst performer, down 33 percent since the debt crisis,” according to Bloomberg. iShares MSCI Ireland Capped ETF (click to enlarge) Share this article with a colleague

A Popular ETF Play To Be Wary Of

Summary Emerging market stocks and funds have been struggling this year. Many remain pessimistic about the emerging market’s prospects. Nevertheless, some are betting on a turnaround after the selling pressure through leveraged funds. By now, most investors know that emerging markets exchange traded funds and the stock those funds hold have struggled this year. Yet with the Vanguard FTSE Emerging Markets ETF (NYSEARCA: VWO ) and the iShares MSCI Emerging Markets ETF (NYSEARCA: EEM ) , the two largest emerging markets exchange traded funds by assets, each down more than 8% this year, rushing to short emerging markets at this juncture may be a case of being too late to a crowded party. Some fund managers believe it will be a while before emerging markets stocks recover in earnest. Investors pulled out of riskier emerging markets as data showed growth from China’s economy slowed, commodity prices fell and the Federal Reserve signaled an interest rate hike this year. The China slowdown is fueling the lower commodity prices and lower outlook for other major emerging economies. Moreover, rising borrowing costs, a stronger dollar and rising corporate debt loads, with the International Monetary Fund warning of corporate defaults, are adding to volatility. “Bank of America Merrill Lynch surveyed more than 200 ‘asset allocators’ in the first week of October. When asked what they thought was the most crowded trade, they said shorting emerging markets, more so than in a September survey. More also viewed shorting emerging market currencies as a crowded trade this month,” reports Dimitra DeFotis for Barron’s . According to a monthly fund manager survey from Bank of America Merrill Lynch, exposure to emerging market stocks remained at a record low, reports Dhara Ranasinghe for CNBC . However, after investors dumped the emerging markets this year, developing country stocks now appear more attractive, especially for long-term investors. Traders of leveraged ETFs have been more comfortable being short emerging markets than long. For example, the ProShares Ultra MSCI Emerging Markets ETF (NYSEArca: EET ) has lost more than $2 million in assets this year while the ProShares UltraShort MSCI Emerging Markets ETF (NYSEArca: EEV ) has seen inflows north of $33 million. ProShares UltraShort MSCI Emerging Markets ETF (click to enlarge) Tom Lydon’s clients own shares of EEM . Share this article with a colleague