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Time For Dow ETFs?

Dow Jones Industrial Average has been the worst performing index among the popular trio – S&P 500, Dow and Nasdaq – thanks mainly to a freefall in oil prices and rising rate worries in the U.S. Added to this, fears of a hard landing in China and its ripples throughout the world sent this key index into the correction territory in August. So far this year (as of October 9, 2015), SPDR Dow Jones Industrial Average ETF (NYSEARCA: DIA ) is down about 4%. However, things seemed to have been set right for the Dow Jones lately on the oil price jump and the diminishing prospect of a rate hike this year. Oil prices regained some of the lost ground as the U.S. count of oil and gas drilling rigs slipped to a five-year low. Also, the Energy Information Administration (EIA) expects a remarkable drop in U.S. crude production through the middle of next year before a turnaround in late 2016. Oil output is estimated to fall from 9.2 million barrels per day (bpd) in 2015 to 8.9 million bpd in 2016. Needless to say, the rise in oil prices supported energy stocks greatly in recent sessions. On the other hand, a weak September job data pushed the speculative timeline of the Fed rate lift-off to early next year. After all, the year-to-date monthly pace of job gains now averages 198K and the pace for the last three months is much lower at 167K. This compares with the monthly average of 260K for 2014, hinting at the lost momentum in U.S. economic growth. And the stocks surged in hopes of incessant cheap money flows. Moreover, a soft job report curbed the dollar strength which in turn provided a long-awaited boost to the commodities and material stocks. Though all the major benchmarks are correlated and got the boost they needed in October from the Fed and energy-centric optimism, Dow remained relatively more beaten-down and thus is more prone to a sturdy reversal. If this was not enough, a dovish Fed pushed the interest rates down to a lower territory. This in turn brightened the appeal for more yielding securities. Notably, among the top ETFs, Jones Industrial Average-based DIA yields 2.33% annually (as of October 9, 2015) against the S&P 500-based SPY ‘s 2.02% and Nasdaq-100 based QQQ ‘s 1.08%. Below, we highlight a few Dow Jones-based ETF options which could be intriguing options to play: DIA seeks to match the performance of the Dow Jones Industrial Average Index. The index is price weighted and measures the performance of 30 large cap stocks traded in the U.S. markets. Industrials, Financials, IT, Consumer Discretionary and Health Care all hold double-digit exposure in the fund. However, it is subject to company-specific concentration risks as it invests more than half of its portfolio in the top 10 holdings. This $11.6 billion-fund trades in large volumes of over 5 million shares daily and charges 17 bps in fees. It advanced 4.8% in the last 10 trading sessions (as of October 9, 2015). The fund has a Zacks ETF Rank #3 with a Medium risk outlook. iShares Dow Jones U.S. ETF (NYSEARCA: IYY ) This $941.1 million ETF also tracks the Dow Jones U.S. total market index. This fund has a proportionate exposure in almost all sectors with maximum emphasis on IT (19.77%), Financials (17.47%), Health Care (13.91%), Consumer Discretionary (13.55%), and Industrials (10.66%). Unlike DIA, this 1,280-stock fund invests less than 15% share in the top 10 holdings. IYY charges 20 basis points as fees and added 4.2% in the last 10 trading sessions. ALPS Sector Dividend Dogs ETF (NYSEARCA: SDOG ) This fund applies the ‘Dogs of the Dow Theory’ on a sector-by-sector basis using the S&P 500. This could be easily done by selecting the five highest yielding securities in each of the 10 GICS sectors and equally weighing them. These higher yielding stocks will appreciate in order to bring their yields in line with the market, leading to outsized gains. This approach results in a portfolio of 51 stocks with each security accounting for less than 2.33% of total assets. The fund focuses on yield in the large cap market while giving investors roughly equal exposure to all sectors. SDOG has accumulated $1.1 billion in AUM and trades in good volume of more than 180,000 shares. It charges 40 bps in annual fees and has an annual dividend yield of 3.63%. The ETF was up over 5.9% in the last 10 days. Original Post

4 Safe Ways To Invest In Emerging Market ETFs

Emerging market equities have witnessed horrendous trading lately ravaged by the economic turmoil in China – the world’s second-largest economy and the largest emerging economy too. Back-to-back blows from China including currency devaluation, lackluster manufacturing data and the failure of the government’s relentless efforts to contain the stock market slide sent shockwaves around the world with emerging markets being among the most vulnerable spots. This, along with the constant guesswork on the Fed’s lift-off issues, threatened investors about their holdings on this susceptible-but-relatively-high-growth region. Investors ruthlessly dumped emerging market equities in apprehension of an imminent slowdown and a cease in cheap dollar inflows (once the Fed hikes rates). If this was not enough, IMF recently slashed the global growth forecasts for 2015 and 2016, mainly addressing the slowdown in emerging markets hurt by slouching commodities. The health of emerging markets is worsening, with growth expected to slow in 2015 for the fifth straight year. The two pillars of BRIC region – Brazil and Russia – will likely slip into recession this year and in the next. A protracted commodity market rout eclipsed the growth prospect of these two commodity-rich economies. Other key markets were also not out of the woods. Capital inflows to emerging markets are likely to turn negative this year for the first time since 1988. The fund outflows ($12.4 billion) in Q3 were the highest since the first quarter of 2014 when the emerging market funds bled $12.7 billion in assets. In September, emerging market ETFs witnessed $1.9 billion of extraction. Though bond funds were also unsteady, equities were hit hard. Though the scenario soothed a lot after a somber U.S. job report for September and China was able to put up some decent factory data for the month, things are yet to go a long way. A lot needs to be seen before investors’ confidence over this troubled-but-important zone is restored. A compelling valuation after a bloodbath may shower gains on emerging market equities ETFs lately, but we are unsure of how long this optimism will continue. As per Bloomberg , Fortress Investment Group LLC indicated that emerging markets are approaching a bear market of a scale seen during the Asian financial crisis of 1997. Credit crunch in these regions will continue till March 2017 going by the past economic cycles, according to Fortress. Several other hedge funds like Forum Asset Management and Ray Dalio’s Bridgewater Associates have also pointed to the lingering pain. According to the Institute of International Finance, investors will haul out about $540 billion from developing countries this year. While all are not outright bearish on this region as many see lucrative opportunities following a sell-off, it is wise to practice a defensive approach while playing this over-sensitive arena. Dollar-Denominated Bond – iShares JP Morgan USD Emerging Markets Bond ETF (NYSEARCA: EMB ) A low-rate environment especially after the weak labor market data which now points to a delayed Fed rate hike (probably early next year) perked up the appeal for high-yield instruments. Emerging market bond ETFs are known for smart yields. However, to cash in on this prospect, investors need to go for a dollar-denominated bond ETF. Since dollar has been range-bound lately, local-currency emerging market bond ETFs performed well of late. But this trend is not likely to linger. After all, the U.S. is the lone star in the developed market pack and the Fed will enact a rate hike sooner or later. And when it happens, local currencies bond ETFs will fail. Keeping these factors in mind, we suggest EMB as a good pick. The fund manages an asset base of over $4.4 billion, while charging investors 40 basis points as fees. The fund holds 294 U.S. dollar-denominated government bonds issued by 28 emerging market countries. The fund has lost 1.5% so far this year when the largest emerging market equities ETF VWO is down over 10%. The fund has a 30-Day SEC yield of 5.33% (as of October 7, 2015). High Yield – Emerging Markets Equity Income Fund (NYSEARCA: DEM ) As foreign investors normally park their money in the riskier emerging market bloc for higher yields, what could be a better choice than DEM? This $1.6 billion-ETF holds about 300 stocks. Though the fund is heavy on trouble zones like China, Russia and Brazil, and might see a sell-off ahead, an annual yield of 5.31% would provide some protection against capital erosion. The fund has a Zacks ETF Rank #3 (Hold) and is down 13.2% this year. Low Volatility – iShares MSCI Emerging Markets Minimum Volatility ETF (NYSEARCA: EEMV ) A low volatile portfolio is yet another key to long-term success. For investors seeking exposure to the emerging markets, EEMV could be an intriguing pick. The $2.6 billion-ETF charges 25 bps in fees. In total, the fund holds over 250 stocks in its basket with each accounting for less than 1.61% share. The fund has a slight tilt toward financials with 28.7% share, while consumer staples, telecommunication services and information technology round off the next three spots. The fund has retreated 6.2% in the year-to-date frame (as of October 8, 2015) and has a Zacks ETF Rank #3. High Quality – SPDR MSCI Emerging Markets Quality Mix ETF (NYSEARCA: QEMM ) High quality ETFs are generally rich on value characteristics as these focus on stocks having high quality scores based on three fundamentals factors – the performance of value, low volatility and quality factor strategies. This fund follows the MSCI Emerging Markets Quality Mix Index, holding a large basket of 729 stocks. It has amassed about $79 million and charges a low fee of 30 bps per annum. The fund puts more weight in China, South Korea, Taiwan and India. The Zacks Rank #3 fund is off 7.4% year to date and yields about 2.68% (as of October 8, 2015). Original Post

5 Bond ETFs Gaining Popularity In October

The timing of the first U.S. interest rate hike in almost a decade has been unsettling the financial world for long. In all FOMC meetings so far this year, the Fed has kept its rates unchanged and hinted toward a slower rate hike path when it is warranted. The September Fed meeting was also no different, suggesting cheap money flows for longer than expected as China and global slowdown concerns are weighing on domestic growth. The dismal jobs report for September and the latest Fed minutes confirmed this trend, further dampening the prospect of an interest rates hike for later this year or early next year. This has rekindled investors’ interest in the bond space, as lower rates will push the yields down, boosting the prices for the bonds. Added to the popularity was the global stock market instability, which wiped out nearly $11 trillion from the global markets in Q3. Last week, the International Monetary Fund (IMF) cut its global growth forecasts for the second time this year and warned of a rising risk of global recession. The agency now projects the global economy to grow by 3.1% for this year and 3.6% for the next as compared to the previous forecasts of 3.3% and 3.8%, respectively. All these factors compelled investors to flock to the bond funds. As a result, U.S. fixed income ETFs were winners last week (ending October 8), gathering nearly $6 billion in total assets, as per ETF.com . Below, we have highlighted the five bond ETFs that have seen the highest inflows in the initial days of the fourth quarter. SPDR Barclays Capital High Yield Bond ETF (NYSEARCA: JNK ) This product accumulated about $1.8 billion in its asset base in the first few trading sessions of October, propelling its AUM to $10.8 billion. It offers exposure to the high-yield corner of the bond ETF world and follows the Barclays High Yield Very Liquid Index. The fund holds 783 low-rated (BB and lower) corporate bonds with average maturity of 6.12 years and modified adjusted duration of 4.32 years. Expense ratio came in at 0.40% while volume is robust as the fund exchanges more than 8.8 million shares a day. The ETF gained 2.1% so far this month and has a Zacks ETF Rank of 4 or ‘Sell’ rating with a High risk outlook. iShares iBoxx $ Investment Grade Corporate Bond ETF (NYSEARCA: LQD ) This fund targets the corporate bond world by tracking the Markit iBoxx USD Liquid Investment Grade Index and holds 1,462 securities in the basket. It pulled in nearly $938 million in capital to start October, propelling the total asset base to $23.1 billion. It focuses on high-quality bonds (BBB and plus) with about 66% going to the mid-term bonds and 34% to the long-duration bonds. As a result, it has a relatively higher default risk and interest rate risk, with an average maturity of 12.25 years and an effective duration of 8.02 years. Expense ratio came in at 0.15%. The product was up 0.2% in the same time frame and has a Zacks ETF Rank of 3 or ‘Hold’ rating with a High risk outlook. iShares 7-10 Year Treasury Bond ETF (NYSEARCA: IEF ) This fund provides targeted exposure to mid-term securities and tracks the Barclays U.S. 7-10 Year Treasury Bond Index. Holding a small basket of 22 securities, it focuses on top-rated bonds, suggesting a lower default risk. The fund has an average maturity of 8.51 years and an effective duration of 7.64 years. IEF is by far the largest and most popular ETF in the bond space with AUM of around $9.7 billion and average daily volume of about 1.7 million shares. It has gathered nearly $841 million in October so far. Additionally, the ETF charges a lower fee of just 15 bps per year. It is down 0.4% and has a Zacks ETF Rank of 3 with a High risk outlook. iShares iBoxx $ High Yield Corporate Bond ETF (NYSEARCA: HYG ) This is the largest and most liquid fund in the high-yield bond space with AUM of over $13.5 billion and average daily volume of around 7.3 million. The product has accumulated about $687 million in assets in the past few trading sessions while charging 50 bps in fees per year from investors. The fund tracks the iBoxx $ Liquid High Yield Index and holds 1,014 securities in the basket. Effective duration and average maturity came in at 4.20 and 5.11 years, respectively. In terms of credit quality, the fund focuses on lower quality, non-investment grade bonds, allocating about 49% of the portfolio to bonds rated ‘B’ or lower. The ETF is up 2.8% and has a Zacks ETF Rank of 4 with a High risk outlook. SPDR Barclays 1-3 Month T-Bill ETF (NYSEARCA: BIL ) This product saw substantial inflows of over $315 million in the same period. It offers exposure to the short end of the yield curve by tracking the Barclays 1-3 Month U.S. Treasury Bill Index. It holds 10 securities in the basket with an average maturity and an effective duration of 0.15 year each. The fund has amassed $3.4 billion in its total asset base while it trades in solid volume of 1.1 million shares. It charges 14 bps in annual fees and has delivered flat returns so far in the fourth quarter. BIL has a Zacks ETF Rank of 3 with a Low risk outlook. Bottom Line These bond ETFs are getting a lot of attention from investors since the start of the final quarter of 2015. The trend is likely to continue as long as interest rates are at low levels and global worries weigh on stock returns. Original Post