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4 REIT ETFs To Buy After The Weak Jobs Report

Real estate investment trusts or REITs certainly have reasons to cheer. The disappointing U.S. jobs data for September has pushed the possibility of a rate hike in the near term further into the dark. Headline job gains for September came in at 142,000 versus estimates of 200,000. Further, average hourly earnings in the month moved south. According to the CME FedWatch Tool , there is now a negligible 6% possibility of a rate hike at the October 28 meeting and a 39% probability at the December 16 meeting, down from 44% before the release of the weak jobs data. This means that REITs will continue to draw leverage from the near zero interest rate in nearly a decade for refinancing their debts. Lower interest rates lead to a lower borrowing cost for the REITs on which they are highly dependent for acquisitions, development and redevelopment activities. Till September this year, REITs raised $49 billion in initial capital, debt and equity capital offerings (IPOs – $1.4 billion, Secondary Common – $20.3 billion, Secondary Preferred – $2.1 billion and Secondary Debt – $25.3 billion). Apart from ultra low interest rates, the capability to generate higher dividend yields makes the investment case for REITs very strong. This is especially true when treasury yields are hovering near its lowest level since April and is down from its peak of 2.5% in June. The U.S. law requires REITs to distribute 90% of their annual taxable income in the form of dividends. This has been one of the biggest enticements for investment in REITs amid global uncertainties, both in the money and commodities markets. In fact, dividend yield of REITs came in better than the market. As of September 30, 2015, the dividend yield of the FTSE NAREIT All REITs Index was 4.44% while the yield of the FTSE NAREIT All Equity REITs Index was 3.97%. With this, REITs outstripped the 2.28% dividend yield offered by the S&P 500 (read: REIT ETFs for Income and Diversification ). ETFs in Focus In the backdrop of weak jobs report, it looks like it’s the right time to bet on the sector through ETFs, so as to reap the benefits in a safer way. We have picked four ETFs that have posted handsome gains in the past five days as well as in the past one month (see all Real Estate ETFs here). iShares U.S. Real Estate ETF (NYSEARCA: IYR ) Launched in 2000, IYR follows the Dow Jones U.S. Real Estate Index that measures the performance of the real estate industry of the U.S. equity market. The fund comprises 119 stocks with Simon Property Group Inc. (NYSE: SPG ), American Tower Corporation (NYSE: AMT ) and Public Storage (NYSE: PSA ) as the top holdings. IYR has garnered more than $4 billion assets and trades in a solid volume of nearly 10 million shares per day. The fund charges 43 bps in fees and has a dividend yield of 3.4%. It has returned 4.2% in the past five days and 5.8% over the last one month (as of October 7, 2015). It has a Zacks ETF Rank #3 (Hold) with a Medium risk outlook. SPDR Dow Jones REIT ETF (NYSEARCA: RWR ) Functioning since 2001, RWR seeks investment results of the Dow Jones U.S. Select REIT Index. The fund consists of 98 stocks that have equity ownership and operate commercial real estate, with the top holdings being Simon Property Group Inc., Public Storage and Equity Residential (NYSE: EQR ). The ETF has amassed nearly $3 billion in assets and trades in a volume of 334,000 shares each day. It charges 25 bps in fees from investors per year and has a dividend yield of 3.3%. RWR gained 4% in the past five days and 7.8% in the past one month. It carries a Zacks ETF Rank #3 with a Medium risk outlook. Schwab U.S. REIT ETF (NYSEARCA: SCHH ) This fund debuted in 2011 and tracks the total return of the Dow Jones U.S. Select REIT Index. The fund consists of 99 stocks that own and operate commercial real estates. The top three holdings are Simon Property Group Inc., Public Storage and Equity Residential. SCHH has gathered $1.6 billion in assets and trades in an average volume of 386,000 shares. It charges a meager 7 bps in fees and has a distribution yield of 2.4%. The fund gained 4.1% in the past five days and 8.2% in the past one month. It holds a Zacks ETF Rank #3 with a Medium risk outlook. PowerShares KBW Premium Yield Equity REIT Portfolio ETF (NYSEARCA: KBWY ) Introduced in 2010, the fund follows the BW Nasdaq Premium Yield Equity REIT Index that measures the performance of 24 to 40 small- and mid-cap equity REITs in the U.S. It consists of 30 stocks with Government Properties Income Trust (NYSE: GOV ), Senior Housing Properties Trust (NYSE: SNH ) and STAG Industrial Inc. (NYSE: STAG ) being the top three holdings. The fund has roughly $107 million in AUM and trades in a volume of 21,000 shares per day. It charges 35 bps in annual fees and offers a robust dividend yield of 5.6%. KBWY returned 4.5% in the last five days and 7.6% in the past one month. It carries a Zacks ETF Rank #3 with a Medium risk outlook. Link to the original post on Zacks.com

Oil ETFs Head To Head: USO Vs. DBO

No doubt, oil has been the hottest and most volatile commodity so far this year. It is again showing large swings in its prices. This is especially true as oil broke its near-term trading range and regained momentum, indicating that the worst might be over for the commodity. Notably, WTI crude surged near $50 per barrel mark on Tuesday’s trading, while Brent jumped to more than $53 per barrel. However, the prices retreated over 1% in Wednesday’s trading session. With this, both WTI and Brent are up more than 6% since the start of October. Oil Rebound in the Cards? The latest boost came amid signs of dwindling supply, improving demand and an increased willingness by major oil producers to support the prolonged slump in the market. The weakness seen in the dollar, a declining rig count and better demand/supply balance added to the strength. In particular, U.S. production dropped by 120,000 barrels per day to a one-year low of 9 million barrels in September from the earlier month. The Energy Information Administration (EIA) expects a dramatic drop in U.S. production through the middle of next year, before the momentum is resumed in late 2016. Oil output is expected to decline from 9.25 million barrels per day (bpd) 2015 to 8.86 million bpd in 2016. On the other hand, the agency expects global oil demand for 2016 to increase at the fastest pace in six years, suggesting that oversupply is easing faster than expected. It also raised the Chinese demand outlook from 11.41 million bpd to 11.48 million bpd for the next year. However, the latest inventory storage report from the EIA showed that U.S. crude stockpiles rose 3.1 million barrels in the week (ending October 2), much higher than the market expectation of a 2.2 million barrel build. Total inventory was 461 million barrels, still near the highest level in at least 80 years. Despite the bearish inventory data, the oil price rally seems to have legs – it is likely to continue for the coming weeks as the oil market begins to tighten. Given the renewed optimism and improving demand/supply fundamentals, many oil ETFs and ETNs have seen smooth trading over the past week. While the ETNs are leading, investors should look at the ETF options, which are more liquid, transparent and tax-efficient. That being said, the two popular oil ETFs – the United States Oil ETF (NYSEARCA: USO ) and the PowerShares DB Oil ETF (NYSEARCA: DBO ) – that provide exposure to WTI oil gained more than 6% in the past five trading days. Though the duo might appear similar at a glance, there are a number of key differences between the two that are detailed below: USO This is the largest and most actively traded ETF in the oil space, with AUM of $2.6 billion and average daily volume of around 24.9 million shares. The fund provides investors with exposure to front-month oil futures contract traded on the NYMEX. The expense ratio came in at 0.45%. As traders need to roll from one futures contract to another in order to avoid delivery, the fund is susceptible to roll yield. Notably, roll yield is positive when the futures market is in backwardation and negative when the futures market is in contango. Basically, if the price of the near-month contract is higher than the next-month futures contract, this is backwardation, and the opposite holds true for contango. DBO Unlike USO, this ETF follows the DBIQ Optimum Yield Crude Oil Index Excess Return plus the interest income from the fund’s holdings of primarily US Treasury securities. The Index employs the rules-based approach when rolling from one futures contract to another, in order to minimize the effect of contango. Instead of automatically rolling into the near-month oil futures contract, the benchmark selects the futures contract with a delivery month within the next 13 months, when the best possible “implied roll yield” is generated. As a result, DBO potentially maximizes the roll benefits in backwardated markets and minimizes the losses from rolling in contangoed markets (see: all the energy ETFs here ). The fund has amassed nearly $508 million in its asset base, while it charges 78 bps in annual fees. It trades in a good volume of 367,000 shares a day, on average. In Conclusion While DBO has better roll strategies with higher potential returns, it lagged USO in terms of investor preference. First, DBO charges a 33 bps higher initial fee. Second, it has some hidden costs in the form of bid/ask spread, as the ETF trades in lower volume than USO. Further, the construction of the ETF is a bit complex and requires the systematic study of many futures contracts. Original Post

5 Sector Favorites For Q3 Earnings And Their Hot ETFs

The Q3 earnings season has just kicked in and investors are worried about the impact that the China-led global growth concerns will have on the earnings picture. Adding to the woes were some Q2 issues like sluggishness in other developed and developing economies, lower oil prices, a strong dollar, uncertain timing of the rates hike, and a slump in commodities that spilled over into Q3. All these factors would continue to heighten the financial market instability and could dampen earnings growth. This is especially true as Q3 earnings estimates have fallen substantially over the past three months from a decline of 2.7% to decline of 5.6% as per the Zacks Earnings Trend . This is worse than earnings decline of 2.2% reported in Q2. Revenues are also expected to decline by 5.5% versus the 6.5% decline in Q1. While the earnings weakness seems broad based with energy being the biggest drag, autos and transportation are the only sectors with double-digit growth. Further, the earnings growth rates for medical, construction and financial sectors are strong (read: 2 ETFs Rising to Rank #1 This Earnings Season ). Given this, we have highlighted five ETFs – each from these expected winning sectors – that investors should definitely tap this earnings season. Not only are these picks far better in today’s investment world, they are also likely to outperform the overall market in the coming weeks. Automotive The U.S. automotive sector has been riding high with the overall industry on track to record its best year of sales since 2000. Increased consumer spending, lower gasoline prices, rising income, high demand for light trucks, a plethora of new models, need to replace aging vehicles and the easy availability of credit at lower interest rates are adding adequate fuel to the industry. These attributes will lead to a strong auto earnings growth of 21.2%, making it the best sector of the third quarter despite the big Volkswagen scandal. Investors could ride the earnings growth potential with a pure play – First Trust NASDAQ Global Auto Index ETF (NASDAQ: CARZ ) – that provides global exposure to the 37 auto stocks by tracking the NASDAQ OMX Global Auto Index. Japanese firms dominate the fund’s portfolio with more than one-third share and the top five holdings account for at least 8% share each. CARZ is under appreciated as indicated by its AUM of only $32.5 million and average daily trading volume of under 8,000 shares. The product charges 70 bps in fees per year and has a Zacks ETF Rank of 2 or ‘Buy’ rating with a High risk outlook. Transportation The transport sector is expected to report earnings growth of 17.0% year over year for the third quarter. While a strong dollar is eating away the profits of big transporters, the sector remains the biggest beneficiary of cheaper oil prices, and increasing consumer confidence and spending. Further, higher demand for the movement of goods across many economic sectors acts as a major catalyst for earnings growth. One way to play this trend is with the iShares Transportation Average ETF (NYSEARCA: IYT ) , which tracks the Dow Jones Transportation Average Index and holds 20 stocks in its basket. The fund is highly concentrated on the top firm – FedEx (NYSE: FDX ) – at 11.8% while other firms hold less than 8.1% of assets. Air freight & logistics takes the top spot at 29% while railroad, trucking and airlines round off to the next three spots with double-digit allocation each. The product has accumulated nearly $846.7 million in AUM while sees a good trading volume of more than 418,000 shares a day on average. It charges 43 bps in fees and expenses and has a Zacks ETF Rank of 3 or ‘Hold’ rating with a High risk outlook. Medical/Health Care Though the twin attacks of the recent global market rout and Hillary Clinton’s tweet might dampen the bottom lines of the health care companies, the sector is still expected to report solid earnings growth of 8%. This is primarily thanks to solid industry fundamentals, including rising mergers & acquisitions, emerging market expansion, positive demographic trends and innovation of new products. Investors could find the largest and ultra-popular Health Care Select Sector SPDR ETF (NYSEARCA: XLV ) an exciting pick to benefit from the current trends. The fund follows the S&P Health Care Select Sector Index, holding 57 stocks in its basket. It is largely concentrated on the top two firms – Johnson & Johnson (NYSE: JNJ ) and Pfizer (NYSE: PFE ) – at 10.3% and 8%, respectively. Other firms hold less than 5.7% of assets. Pharma accounts for 38.8% share from a sector look, followed by biotech (24.3%), health care providers and services (19.4%), and equipment and supplies (13.7%). The fund manages about $13.5 billion in its asset base and trades in heavy volume of more than 11.3 million shares. Expense ratio came in at 0.15% annually. It has a Zacks ETF Rank of 1 or ‘Strong Buy’ with a Medium risk outlook. Construction The housing sector emerged relatively unscathed by the recent global market turmoil, which has hit almost every corner of the investing world. The major strength came from the industry-specific fundamentals such as growing demand for homes and affordable mortgage rates. The sector is expected to post 7.5% earnings growth for Q3. Investors seeking to ride this growth could consider the iShares U.S. Home Construction ETF (NYSEARCA: ITB ) . This fund provides a pure play to the home construction sector by tracking the Dow Jones U.S. Select Home Construction Index. It holds a basket of 41 stocks with double-digit allocation going to D.R. Horton (NYSE: DHI ) and Lennar (NYSE: LEN ). Homebuilding takes the top spot at 64.6%, followed by 14.9% in building products and 9% in home improvement retail. The product has amassed $2.1 billion in its asset base and trades in heavy volume of around 3.7 million shares a day on average. The ETF charges 43 bps in annual fees and has a Zacks ETF Rank of 2 with a High risk outlook. Financials This sector also offers opportunities of healthy returns to investors this earnings season with an expected earnings growth rate of 7.5%. Better expense management, rising fees from surging M&A activity, lower litigation charges, solid loan growth, steadily improving credit quality, growing trading businesses and improving balance sheets are fueling optimism in the broad sector. A broad way to play this trend is with Financial Select Sector SPDR ETF (NYSEARCA: XLF ) , having AUM of $17.1 billion and average daily volume of around 35 million shares. The ETF tracks the S&P Financial Select Sector Index, holding 90 stocks in its basket. The top three firms – Berkshire Hathaway (NYSE: BRK.B ), Wells Fargo (NYSE: WFC ), and JPMorgan Chase (NYSE: JPM ) – account for over 8% share each while other firms hold less than 5.8% of assets. In terms of industrial exposure, banks take the top spot at 36.3% while insurance, REITs, capital markets and diversified financial services make up for double-digit exposure each. The fund charges 15 bps in annual fees and has a Zacks ETF Rank of 2 with a Medium risk outlook. Link to the original post on Zacks.com