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This Bear ETF Will Hedge Your Portfolio

Thanks to persistent weakness in China, worries over global repercussions have intensified. In fact, some are of the opinion that the China turmoil, plunging oil price and slowdown in key emerging markets will knock out chances of the Fed’s September lift-off and delay the rates hike to later this year or early next year. This uncertainty spooked the markets across the board in the last couple of weeks and sent many investors looking for alternatives as protection against a slump. While volatility ETNs like the iPath S&P 500 VIX Short-Term Futures ETN ( VXX) are definitely popular choices in this type of an environment, these can face significant problems over long-time periods when the futures curve isn’t favorable. Meanwhile, precious metals such gold have been highly volatile as a slew of upbeat U.S. economic data pushed the greenback higher and started weighing on commodities across the spectrum. On the other hand, the global risk-off trade situation has resulted in a flight to safety to gold. Additionally, the returns from the other traditional safe haven – Treasury bonds – are also unstable at present as any positive news flow about the U.S. economy is negative for Treasury bonds. As such, there are very few options left for investors to hedge their portfolios. Fortunately, there is one solid option – the AdvisorShares Ranger Equity Bear ETF (NYSEARCA: HDGE ) – which has been doing well lately. Is This A Better Hedge in Current Turmoil? This ETF has been on the market since 2011, a difficult period for bears. Though it has been beaten down since its inception, it has delivered stellar performances in recent months, especially after the volatility levels picked up. This is especially true as HDGE gained nearly 5.5% in the trailing one-month period compared to the loss of about 7.2% for the SPDR S&P 500 Trust ETF (NYSEARCA: SPY ) . From a year-to-date look, the bear ETF has delivered returns of about 2% against 5.8% decline for SPY. Additionally, it has outperformed other popular hedge plays like the SPDR Gold Trust ETF (NYSEARCA: GLD ) and the iShares 20+ Year Treasury Bond ETF (NYSEARCA: TLT ) over the past six months, suggesting that this could be a better play for investors seeking an inversely correlated choice in today’s market. Inside HDGE The ETF is actively managed and seeks capital appreciation by taking short positions in a number of U.S. listed companies. The securities selected for the fund are based on the philosophy from Ranger Alternative Management, which utilizes a bottom-up, fundamental, research driven security selection process. In particular, the managers of this active fund will look to go short in firms with low earnings quality or aggressive accounting practices, as this might be a sign that the firms are attempting to hide deteriorating operations or are looking to boost EPS over the short term. Additionally, the managers will look to identify earnings-driven events that could be a catalyst for price declines such as downward earnings revisions or reduced forward guidance – the two factors that can signal trouble for a company. The fund has amassed $143.7 million in its asset base while trades in good volume of around 151,000 shares a day on average. However, it is a bit pricey when compared to other hedging products. Management fees come in at 1.5%, while a number of other costs like short interest expense, other expense, and acquired fund fees result in a net expense ratio of 2.92%. Bottom Line HDGE is a pretty innovative product that looks to give investors short exposure to the U.S. equity market. The focus on companies with weak earnings suggests that it is zeroing in on firms that are probably the most susceptible to sluggish market conditions, and thus could fall in bear markets or when the bull loses steam. So for investors ready to bear a higher expense ratio, this fund seems to be a great choice when markets are stumbling. Moreover, it appears to be a more direct hedge than the volatility, gold or Treasuries. Link to the original post on Zacks.com

3 Small-Cap Growth ETFs For Every Kind Of Investor

Small-cap growth stocks can lead to significant outperformance over time. While the selection of ETFs is comparatively thin, there are several choices for each kind of investor. Healthcare and financials tend to make up the largest positions in these ETFs. I’m primarily a value investor, meaning I look for stocks that the market hasn’t discovered yet or that are out of favor for some reason. So why own a small-cap growth ETF? My favorite asset class is small-cap stocks. That’s because it is where you are most likely to find interesting little companies that other people pass over. They may do something unusual or exotic, and that can scare away most investors. Most of all, however, it is where you are most likely to find the stocks that will outperform the market over the long term. That’s just pure common sense – small companies have much more room to grow to become large companies than large companies have to become, well, even larger. You need a small-cap growth ETF to balance out value with growth, because owning a broadly diversified portfolio is essential. Sector outperformance occurs all the time, and the more diversification you have, the better. If you don’t have diversification, then you risk seeing your overall portfolio fall more in bad times by having your money overly concentrated. A small-cap growth ETF also provides exposure to those fast-growing companies that deliver outsized returns. The small-cap sector can provide outsized returns as well, so the combination of stocks that are growing quickly and have the furthest to run because they are small is what gets me interested in this sector. I’ve been hunting down 3 small-cap growth ETFs to share with aggressive investors, conservative investors, and the average investor. So when it comes to small-cap ETFs, I really like to take my time finding the ones that may suit different investors. There are a lot of approaches to small-cap investing, but here are the three small-cap growth ETFs that I think might be most interesting to the average Joe investor, aggressive investor and conservative investor. The best small-cap growth ETF for the conservative investor is the First Trust Small Cap Growth AlphaDEX ETF (NYSEARCA: FYC ). This is a quasi-actively managed fund. It first narrows down the S&P SmallCap 600 Growth Index by selecting stocks based on growth factors including 3-, 6- and 12-month price appreciation, and sales to price and 1-year sales growth. Value stocks are screened out, and of the growth stocks that remain, the top 75% are selected, which leaves 188 stocks. Those are then divided into quintiles based on their growth rankings and the top-ranked quintiles receive a higher weight within the index. The stocks are equally weighted within each quintile. The index is reconstituted and rebalanced quarterly. The resulting sector breakdown is 28% healthcare, 18% consumer discretionary, 17% financials, 15% IT, 14% industrials, 3.5% consumer staples and a smattering of others. Its P/E ratio averages 23, and has returned a solid 16.64% in the past 3 years. With a beta of 1.06, that return has only come with 6% more volatility than the overall market. The risk-adjusted return is reflected in an impressive Sharpe Ratio of 1.24. The average Joe may consider the iShares Russell 2000 Growth ETF (NYSEARCA: IWO ) is a simple, no-frills ETF. It actually only has 1,158 holdings, in which the fund uses a representative sampling indexing approach, meaning it takes those companies that represent the entire index of 2,000 stocks. It has a reasonable average P/E ratio for a small-cap growth funds, at 26.82, and yet has a beta of only 0.95, meaning it is 5% less volatile than the market. Its yield is 0.68%, which is a pleasant bonus as far as far as I’m concerned since so few small-cap stocks have any yield. That yield covers the 0.25% expense ratio as well. The sector breakdown includes 28% healthcare, 1% energy, 12% industrials, 18% consumer discretionary, 23% IT, 7% financials and 3% consumer staples. Finally, aggressive investors should look at the SPDR S&P 600 Small Cap Growth ETF (NYSEARCA: SLYG ) , which is just about the best-performing fund in this asset class, including better than the S&P 500 index from before the financial crisis to the present. It is like the AlphaDEX fund, but it doesn’t trim out other stocks from the index. It keeps all the growth stocks. The fund holds 355 stocks, spread into 24% financials, 18% healthcare, 17% consumer discretionary, 17% IT, 4% materials, and a bit of other sectors in small amounts. It is the fact that it isn’t terribly diversified in terms of sector allocation that makes it more aggressive. This is somewhat balanced by the fact that the PE ratio is lower than the other choices, at 19.5. Its 1.19% yield pays for the 0.15% expense ratio, giving you that extra 100bps in yield to goose your returns. Its 3-year return is 19.54%, making its more aggressive approach pay off. Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More…) I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

3 Small-Cap Growth ETFs To Beat Global Worries

Concerns regarding sluggish global growth have curbed the major benchmarks in recent times. Dismal manufacturing data out of China once again sent jitters in the global markets on Tuesday. Disappointing factory data in the Eurozone further dampened investor sentiment. On the other hand, recently released economic data showed that the U.S. economy has recovered significantly from the sluggish growth conditions in the first quarter. While others are struggling to stem the rout, the U.S. economy seems to be standing tall amid falling towers. In this situation, ETFs that have significant exposure to companies with a more domestic focus are likely to gain from improving fundamentals. China, Europe Suffering China The China Federation of Logistics and Purchasing reported on Tuesday that the official manufacturing PMI index declined to a three-year low in August to 49.7 from July’s reading of 50. Meanwhile, the final Caixin Manufacturing Purchasing Managers’ index fell from 47.8 in July to 47.3 in August, reaching its lowest level in the last 77 months. The reading below 50 signaled that manufacturing activity contracted in August. Moreover, a plunge of 8.3% in export and a decline of 8.1% in import in July indicated the world’s second biggest economy is suffering from both weak global and domestic demand. It was also reported that producer prices declined to the lowest level in six years in July. These disappointing data raised concerns that China may fail to achieve the target of 7% GDP growth rate this year. Europe Investors are also worried about the economic condition of Europe. The final reading of Markit’s manufacturing PMI came in at 52.3 in August, below July’s reading of 52.4. Though the reading of the index reached a 16-month high in Germany, the reading out of France and Italy declined to the lowest level in last four months. Meanwhile, the Markit/Cips UK manufacturing PMI declined from 51.9 in July to 51.5 in August, indicating a slowdown in manufacturing activity in the U.K. Meanwhile, it was also reported that the Eurozone’s inflation rate was at only 0.2% in August, significantly below the targeted rate of 2%. Last month, Eurostat reported that the common currency bloc expanded at a rate of only 0.3% in the second quarter, down from the first quarter’s growth rate of 0.4%. While the French economy remained stagnant in the second quarter following a 0.7% rise in the first, growth of only 0.2% in Italy came in below the first quarter’s growth rate of 0.3%. U.S. Outperforming Despite global growth coming to a grinding halt, the “second estimate” released by the U.S. Department of Commerce last month showed that the GDP in the second quarter advanced at a pace of 3.7%, significantly higher than the first quarter’s rise of only 0.6%. The report also showed that gross domestic purchases surged at a rate of 3.4% during the quarter compared to a gain of 2.5% in the first, indicating an increase in domestic demand. Also, the personal consumption expenditure (PCE) price index gained 1.5% during the quarter, a turnaround from the first quarter’s 1.9% decline. Meanwhile, job data released last month showed that labor market condition in the U.S. remained strong in July. While the U.S. economy created a total of 215,000 jobs in July, the unemployment rate remained unchanged from June’s seven-year low of 5.3%. Separately, the Commerce Department reported on Tuesday that construction spending gained 0.7% to a seasonally adjusted annual rate of $1.08 trillion, hitting its highest tally since May 2008. 3 ETFs to Buy Small-cap ETFs that are expected to have limited international exposure are believed to remain untouched by global growth concerns. Meanwhile, these domestically-focused ETFs are poised to benefit from the favorable economic environment in the U.S. Hence, we have highlighted three well-ranked small-cap growth ETFs that investors may find profitable in the current situation. PowerShares Russell 2000 Pure Growth ETF (NYSEARCA: PXSG ) This fund provides exposure across 310 securities by tracking the Russell 2000 Pure Growth Index. It is well diversified across its holdings with none of the companies accounting for more than 1.4% of total assets. Sector-wise, health care takes the top spot at 31.5%, while information technology and consumer discretionary take the next two positions. PXSG has amassed $31.3 million in its asset base while it sees light volume of around 2,947 shares a day. The ETF has 0.41% in expense ratio and has a Zacks ETF Rank #2 (Strong Buy) with a Medium risk outlook. The ETF returned 1.5% over the past one week. SPDR S&P 600 Small Cap Growth ETF (NYSEARCA: SLYG ) This fund follows the S&P SmallCap 600 Growth Index, holding 355 stocks in its portfolio. It is also well diversified across its holdings with none of the companies accounting for more than 1.3% of total assets. The ETF has been able to manage $544.2 million in its asset base and has a low traded volume of 20,249 shares per day. It has a Zacks ETF Rank #1 (Strong Buy) with a Medium risk outlook and charges 15 bps in annual fees and expenses. The product returned 1.4% over the past one week. Vanguard Small Cap Growth ETF (NYSEARCA: VBK ) This ETF provides exposure to 738 firms by tracking the CRSP US Small Cap Growth Index. The fund has amassed $4.47 billion in its asset base while it sees a moderate volume of around 188,000 shares a day. Only 5.4% of the fund’s assets were invested in the top 10 holdings. About 20.6% of its assets are allocated to the financial sector, which takes the top spot among other sectors. The ETF charges a fee of only 9 bps annually and has a Zacks ETF Rank #1 (Strong Buy) with a Medium risk outlook. It returned 0.3% in the past one week. Original Post