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Q3 ETF Asset Flow Roundup

The third-quarter of 2015 was teeming with economic shockers that bulldozed risky investments worldwide but showered gains on some safe bids. While a hard landing fear in China was the actual culprit, a long-standing guesswork on the Fed’s liftoff timeline was a partner in crime. Yet, we admit that nothing could stand against the China issues that include sudden currency devaluation, multi-year low manufacturing data and a massive crash in the Chinese market. The resultant shockwaves, swooning commodities and the return of deflationary fears in the Euro zone also set the dark stage for the third quarter’s investing activity. The combined impact of these events led the SPDR S&P 500 Trust ETF (NYSEARCA: SPY ) , to lose about 7.7%, the PowerShares QQQ Trust ETF (NASDAQ: QQQ ) to shed 5.7% and the SPDR Dow Jones Industrial Average ETF (NYSEARCA: DIA ) to retreat about 8.4% in Q3. The iShares MSCI ACWI (All Country World Index) Index ETF (NASDAQ: ACWI ) was off about 9.8% in the quarter. Overall, the global market was quite disastrous for investors as most key indices endured the worst quarter in four years. In such a scenario, investors might thus want to check out the top and worst grossing ETFs of Q3 to see which products cashed in on the market crash and which lost out. Winners of Q3 The SPDR S&P 500 Trust ETF Though volatility rocked the show in the third quarter as China-led global growth fears and its ripples in the other emerging and developed economies muddled the market momentum, steady U.S. growth impressed investors. Also, the Fed’s reiteration of near zero interest rates at the end of the quarter resulted in strong inflows into the U.S. equity funds. The ultra-popular SPY led the way last month, gathering over $8.4 billion in capital. Not only SPY, another popular S&P 500 ETFs namely Vanguard S&P 500 ETF (NYSEARCA: VOO ) accumulated $4.45 billion in assets. U.S. Treasury Bonds – iShares 1-3 Year Treasury Bond ETF (NYSEARCA: SHY ) With the Fed still hesitating to hike the benchmark interest rates even almost after a decade, bond investing prevailed in Q3. Though September was a chancy month for the lift-off, a global market rout in August, a choppy global market and a still-low inflation level in the U.S. held the Fed back from catapulting a lift-off. This gave a big-time boost to the short-term U.S. Treasury bond ETFs. As a result, SHY garnered about $4.05 billion in assets in Q3. The SPDR Barclays 1-3 Month T-Bill ETF (NYSEARCA: BIL ) also piled up $1.66 billion in assets and made it to the top-10 asset scorers’ list (read: Guide to Interest Rate Hikes and ETFs: 4 Ways to Play ). Since the global macroeconomic environment was tumultuous in Q3, investors sought refuse in safe haven bids like intermediate-to-long term treasury ETFs. These offer investors safety along with a decent level of current income. Thanks to this sentiment, the iShares 7-10 Year Treasury Bond ETF (NYSEARCA: IEF ) and the iShares 20+ Year Treasury Bond ETF (NYSEARCA: TLT ) attracted about $2.40 billion and $1.65 billion of AUM during the quarter (read: ETF Winners & Losers Post Dovish Fed Meet ). Hedged Global – Deutsche X-trackers MSCI EAFE Hedged Equity ETF (NYSEARCA: DBEF ) The global economy may be lagging, but investors’ penchant for currency-hedged global equity ETF investing is not. The policy divergence stemmed from the looming Fed tightening and the easy money policies in most developed economies made hedged international investments a compelling opportunity for U.S. investors and led them to pour about $2.38 billion in assets in DBEF. Several other Europe-based ETFs including the iShares MSCI EMU ETF (NYSEARCA: EZU ) and the Vanguard FTSE Europe ETF (NYSEARCA: VGK ) hauled in respectively $1.7 billion and $1.6 billion assets in Q3. Top Losers Emerging Market – Vanguard FTSE Emerging Markets ETF (NYSEARCA: VWO ) Emerging markets were hard hit in Q3 thanks to the double whammy of China-induced worries and the Fed rate hike tensions. This clearly explains why two top-notch emerging market ETFs namely VWO and the iShares MSCI Emerging Markets ETF (NYSEARCA: EEM ) saw assets bleeding in the quarter. The funds, VWO and EEM saw outflows of about $3.44 billion and $2.79 billion respectively in the quarter. Un-hedged Global – iShares MSCI EAFE ETF (NYSEARCA: EFA ) Since sooner or later the Fed is due for a policy tightening, investors started to dump non currency-hedged international ETFs like EFA. The fund shed about $1.13 billion in assets in the quarter. Gold – SPDR Gold Trust ETF (NYSEARCA: GLD ) Gold has slipped to multi-year lows on a stronger dollar, a still-muted inflationary backdrop worldwide and the slowdown in China, which is one of the largest consumers of gold. Though the recent global market rout offered gold the much-needed respite for a brief session on the metal’s safe haven appeal, the underlying fundamentals are weak. So, investors abandoned this product in Q3, resulting in about $922 million in net outflows. Link to the original post on Zacks.com

Biotech ETFs Looking Attractive After Sell-Off

The biotech sector has long been the investors’ darling and the stocks saw an enormous run from late 2011 till this past summer, rising 340%. But the recent global market rout took away the sheen away from the sector, which faced a double whammy when Democratic Presidential candidate Hillary Clinton tweeted on drug price limits and increased regulatory scrutiny. The tweet led to a brutal seven-day sell-off, sending the Nasdaq Biotechnology index into a deep bear territory with a decline of more than 25% from its July highs. With this, the index wiped out all of its gain made this year. While investors may want to consider staying on the sidelines for the time being given the bearish trend, risk tolerant long-term investors could consider this slump a buying opportunity, should they have the patience for extreme volatility. Reasons to Buy Despite the current slide, the outlook for the sector is quite promising. This is especially true as the biotech sector is still clearly outpacing the broad market index from the year-to-date look. In fact, the sector enjoyed a strong rally over the past five years, gaining nearly 250% versus the gain of 64.8% for the S&P 500 index. This trend is likely to continue thanks to promising drug launches, cost-cutting efforts, an aging population, ever-increasing demand for new drugs, ever-increasing healthcare spending, a merger & acquisition frenzy, expansion into emerging markets and the Affordable Care Act or Obamacare. Additionally, biotech stocks provide a defensive tilt to the portfolio amid political or economic turmoil. Further, most of the stocks have sold off sharply, making their valuations immense attractive at the current levels (read: The 3 Key Factors in Biotech ETF Investing ). Given the promising long-term trends and the sector’s high growth potential, biotech stocks are due for a rebound and will likely move higher this fall. While individual stock investing is certainly an option, a look at the top ranked biotech ETFs could be a lesser risky way to tap the same broad trends. Top ETF Choices We have found a number of ETFs that have the top Zacks ETF Rank of 2 or ‘Buy’ rating in the space and that are expected to outperform in the months to come. These have gained the most from the sector’s surge in yesterday’s trading session and thus have superior weighting methodologies, which could allow them to continue leading the biotech space higher (read: all the Top Ranked ETFs ). ALPS Medical Breakthroughs ETF (NYSEARCA: SBIO ) This fund targets companies with one or more drugs in Phase II or Phase III FDA clinical trials by tracking the Poliwogg Medical Breakthroughs Index. It is a small cap centric fund, having amassed $143.2 million in its asset base since its debut late last December. The product holds 82 stocks in its basket with a well-diversified portfolio as none of the security holds more than 4.89% of assets. The product charges 50 bps in fees per year from investors and trades in good average daily volume of around 143,000 shares. It gained 5.2% in yesterday’s trading session and nearly 7% in the year-to-date timeframe. iShares Nasdaq Biotechnology ETF (NASDAQ: IBB ) This fund provides exposure to 144 firms by tracking the Nasdaq Biotechnology Index and charging 48 bps in annual fees. With AUM of nearly $7.5 billion and average daily volume of about 2.1 million shares, this is the largest and the most popular ETF in the biotech space. The product is slightly concentrated on the top five firms, which makes up for at least 8% share each. Other firms hold less than 4.10% of total assets. IBB gained 4.8% in yesterday’s trading session and is down 4.6% in the year-to-date time frame. SPDR Biotech ETF (NYSEARCA: XBI ) With AUM of $2 billion and average daily volume of 4.2 million shares, XBI is extremely liquid and an easily traded fund. It provides equal weight exposure across of around 1% to 103 stocks by tracking the S&P Biotechnology Select Industry Index. This suggests that the product has no concentration issue and offers huge diversification benefits. The product has a definite tilt toward small cap securities, as mid and large caps account for around 10% each. It charges a relatively low fee of 35 bps a year for the exposure. The ETF added 3.7% yesterday and is down 3.1% so far this year. BioShares Biotechnology Products ETF (NASDAQ: BBP ) This ETF follows the LifeSci Biotechnology Products Index, which measures the performance of biotechnology companies with a primary product offering that has received the U.S. Food and Drug Administration approval. Holding 38 stocks, the product has moderate concentration across components with each holding less than 5.5% share. Small caps dominate with 60%, followed by 25% in large caps and the rest in mid caps. The product has accumulated AUM of about $21.7 million since its debut last December and charges 85 bps in fees per year. Volume is light trading under 27,000 shares a day. BBP rose 3.5% yesterday and has returned about 2% in the year-to-date timeframe. Link to the original post on Zacks.com

The Health Care Sector’s Weakness Could Be The Investor’s Best Friend

Summary The health care sector went through a significant meltdown during the recent weeks. A long term investor might consider it as an opportunity to invest in great companies. Here is a list of 4 non-expensive ETFs that are focused on the Health Care sector. Three weeks ago a good friend of mine bought shares of Mylan Inc (NASDAQ: MYL ). His goal was to invest in a defensive stock in order to mitigate the volatile market. Since the day he made the purchase the stock was hammered down and closed is currently at a total of ~20% lower. Mylan is a global generic and specialty pharmaceuticals company that is registered in the Netherlands. In 2007, following a big acquisition Mylan became the second-largest generic and pharmaceuticals’ company in the United States. It was a wise decision at the time. Here is Mylan’s forecast P/E growth rates in the coming years based on Nasdaq.com. A P/E of 8x for a double digit growth company is not too bad at all. MYL’s stock price free fall was no different compared to other Health care companies’ stocks. If looking at the behavior of the S&P 500 Health Care Sector the graph tells us that there was about 20% drop in the sector since the recent highs. On Wednesday, September 30th, there seemed to be some recovery after several bloody weeks. (click to enlarge) The drop is explained by Hillary Clinton’s ” price gouging ” tweet which led to concerns within the investors’ community regarding higher regulations on drug pricing. Is this massive drop justified or is it an out-of-panic oversell and therefore a great opportunity? Why do I think it is an oversell? Several reasons lead me to believe it is an extreme reaction over nothing and it is a temporary meltdown: The market is very volatile in the recent weeks and it seems that the focus is only on the bad news that are being a catalyst towards a dipper correction. Back in August it was the less-than-expected growth in China’s economy, than it was the Volkswagen ( OTCQX:VLKAY ) scandal and now it is this tweet. Any regulation would need to pass Congress where the Republicans still have the major votes. It would be at least couple of years until something would really change. Not all companies are taking outrages profits on their developed drugs. The amount of Research and Development the companies are investing is huge and therefore the economy of the business will eventually dictate the prices. It will not be the politicians. The sector is composed from different types of companies. Some develop an original medicine or drug and there are generic drug companies. Some are focused on specific niches and others have huge diversification. Even if there will be new regulations not all will suffer equally. Some would even benefit from it. For those, like me, who think that it is the later here are some ETFs that invest in this sector and should be profoundly examined by the long term investor. Why an ETF and not specific stock picking? While both the uncertainty and the volatility are high an investment in a specific sector can be better managed through an ETF. In cases where an investor would like to build a position that is composed by wide list of holdings, sometimes in several steps, an ETF would be a better way to do it. Buying into a sector’s ETF allows to build a position in a by-step model. Another reason to prefer an ETF is the level of familiarity with the list of companies in the sector. Though all the sector’s companies were hurt by the recent selloff most of the investors will not know which of the companies are best to recover and which could be impacted by new regulations (in case it is not just a hot balloon towards election). An ETF allows to have a wide exposure and by that increase the probability to ride the right companies towards recovery. When looking at the list of Health care ETFs I found a list of 38 ETFs. The full list can be found here . Some of the ETFs are focused on the traditional big health care companies like Johnson & Johnson (NYSE: JNJ ), Gilead (NASDAQ: GILD ) and Pfizer (NYSE: PFE ). Others are focused on biotechnology companies like BioMarin Pharmaceutical Inc. (NASDAQ: BMRN ) and Biogen Inc. (NASDAQ: BIIB ). Some are focused on health care equipment companies and some in small biotech small startups. An investor can decide based on his or her risk profile the best ETF that suits his or her needs based on its mix and focus. Filtering the list As I like to start a list filtering by eliminating ETF that charge high management fees I have sorted out all ETFs that charge more that 0.3% per year. Surprisingly I was left with only four ETFs. (click to enlarge) The last four are: The Health Care Select Sect SPDR ETF (NYSEARCA: XLV ), which replicates Health Care Select Sector Index. The Vanguard Health Care ETF (NYSEARCA: VHT ), which replicates MSCI US Investable Market Health Care 25/50 Index. The Fidelity MSCI Health Care Index ETF (NYSEARCA: FHLC ) that replicates MSCI USA IMI Health Care Index. The PowerShares S&P SmallCap Health Care Portfolio ETF (NASDAQ: PSCH ) which replicate S&P SmallCap 600 Health Care Index. This list allows an investor to pick an inexpensive ETF based on his or her own risk tolerance. A quick comparison between the four: In term of performance, PSCH delivered the highest return in the last five years due to its more risky nature. Surprisingly it wasn’t harmed harder than the others during the recent month drop. Both XLV and VHT are tending towards the large cap health care companies. XLV seems to be more conservative as it shown by its average 18x P/E ratio versus the average of 32x. VHT has a significantly higher amount of holdings which are mostly small and medium cap companies that are trading at higher P/Es compared to the JNJs and PFEs. Conclusions: The list of four non-expensive ETFs can be examined by a long term investor who believes that the Health Care sector’s meltdown is only a temporary one. In term of the potential of long term gains, some would prefer the small cap ETF, PSCH. If looking for high diversification, VHT seems to be the best one. I picked XLV in term of risk/return tradeoff. I prefer an exposure to the big and strong companies of the sector. In any case, I suggest to plan a strategy of building a position in multiple steps. The volatility is still here and the correction can be dipper than anyone anticipates. Happy investing.