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Before The Fed Rate Hike, Buy These Stocks And ETFs

When the Fed meets for the final time in 2015, many investors are expecting them to do something that hasn’t been done in nearly a decade, raise rates. The last such rate hike came back in 2006 and brought us up to 5.25%, but it didn’t last long as rates soon cratered before finding bottom near zero in December of 2008 and staying there ever since. But now with an economy on more solid footing and inflation slowly starting to creep back towards a two percent target rate, it may be time to hike rates. After all, the whole idea of zero percent rates was predicated on a crisis situation. It is hard to say that we are still in a ‘crisis’ now, suggesting it is well past the time to consider a rate hike for the economy. Some investors still remain woefully underprepared for this reality, believing that a rate hike simply will not happen. But with a parade of Fed officials coming out lately to say otherwise, not to mention a CME Fed Watch reading approaching 80% chance for a hike , it is looking more and more likely that a hike is all but inevitable at this point. There is still plenty of time to prepare though. A closer look at financial stocks and also bond instruments which will not be hit by rising rates seems like a good plan for now. As such, I have taken a look at a few such good options below, any of which could make for solid choices ahead of a rate hike, no matter when the inevitable does strike: CBOE Holdings (NASDAQ: CBOE ) The Chicago Board Options Exchange may not be the first name you think of in a rising rate scenario, but it could actually be one of the better positioned – and more overlooked – choices in the space. That is because the company’s primary products, options on the S&P 500 and volatility-linked options, stand to see more trading as the Fed adjusts rates (with volatility coming especially into focus). Analysts have also begun to adjust their opinion of CBOE stock as we have seen broad analyst estimate increases in the past quarter. The full-year consensus estimate has increased from $2.21/share to $2.41/share in the past ninety days while we have also seen a positive trend for the next year time frame too. CBOE is also riding an earnings beat streak of three straight quarters and in each of these reports the company has beaten estimates by at least 4%. So not only has CBOE been an impressive pick as of late, but it could be a stealth choice for investors to play a Fed rate hike, and especially considering this is currently a Zacks Rank #2 (Buy) security right now. E-Trade Financial (NASDAQ: ETFC ) When the Fed raises rates, it is great news for investment brokers. Companies in this space make money off of the float, or invested capital that hasn’t been allocated to securities yet. And when rates increase, the return companies like E-Trade can generate is even greater. Though there are many names in the investment broker space, ETFC stands out as a great choice right now. The company is expected to see double-digit EPS growth this year while it currently has an earnings ESP of 6.9%. Best of all, analysts have begun to raise their estimates for the stock while all the recent estimates for the current year EPS have gone higher in the past two months. This has been enough to move ETFC to a Zacks Rank #1 (Strong Buy) making it a great pick ahead of a possible rate hike. WisdomTree Barclays U.S. Aggregate Bond Negative Duration Fund (NASDAQ: AGND ) A lot of investors like the safety of bonds and I can see how this can make up a decent size position of many portfolios. However, rising rates are generally bad news for bonds as bond prices have an inverse relationship with rates. Fortunately, WisdomTree’s ETFs in the bond space look to mitigate these worries with a lineup of negative duration products. These funds move higher when yields do and thus can be great bond choices for investors in this type of environment. Costs aren’t too bad here either at just 28 basis points a year, while yields come in at about 2%. And with an effective duration of roughly -4.5 years, this should benefit from rising rates but still won’t be too volatile either. Ex-Rate Sensitive Low Volatility Portfolio (NYSEARCA: XRLV ) If equities are more of your game but you are still concerned about volatility, than XRLV is definitely worth a closer look. This fund looks at 100 S&P 500 components that exhibit both low volatility, and low interest rate risk. This approach looks to exclude those that tend to perform the worst in rising rate environments, giving a tilt towards financials (28%), industrials (21.8%), and consumer staples (15%). There is definitely a large-cap focus here, but mid caps still make up nearly one-third of the portfolio too. XRLV will definitely be a lower risk choice to play the rising rate trend while it is a pretty cheap selection too at just 25 basis points a year in fees. And while volume isn’t great here, the product does have a pretty tight bid ask spread thanks to its focus on highly liquid securities trading in the U.S. market. Original Post

Top And Flop ETFs Of November

Finally, the U.S. stock market has entered into its strong stretch. Historically, the three months from November through January are the most successful in the stock markets. A consensus carried out from 1950 to 2013 has revealed that November has ended up offering positive returns in 43 years and negative returns in 22 years, with an average return of 1.37%, as per moneychimp.com . November stands second in terms of monthly returns over the past two decades. However, this year, the market looked more like the down-years due to a host of concerns, with rising rate worries being at the helm. Global growth has been in jeopardy and commodities falling fast. Among the top ETFs, investors saw U.S. ETFs advance slightly with SPY adding 0.3%, DIA gaining 0.12% and QQQ moving higher by about 0.25% in the month (as of November 27, 2015). Let’s take a look at the three best and worst performing ETFs of the month. Top Performers KraneShares CSI China Five Year Plan ETF (NYSEARCA: KFYP ) – Up 14.7% China was the beneficiary of compelling valuation. After a bloodbath in August following the currency devaluation and several offhand economic data, China started to recoup losses from October with its A-Shares ETFs turning out as chartbusters in November. Plenty of monetary easing policies, changes in demographic policy and hopes for further easing (as the economy is still reeling under pressure) helped KFYP to add over 14% in the month. BioShares Biotechnology Clinical Trials Fund (NASDAQ: BBC ) – Up 13% The biotech space was hit hard in September on drug pricing concerns. However, the sell-off made this piping hot corner affordable. A whirlwind of mergers and acquisitions, plenty of drug launches, FDA approvals for the highly awaited drugs, ever-increasing demand in the emerging markets and surging health care spending made this sector the star performer of November. Needless to say, the operating fundamentals of the health care space are stronger than many other sectors. Other biotech and pharma ETFs that stole the show in the month were SPDR S&P Pharmaceuticals ETF (NYSEARCA: XPH ), Loncar Cancer Immunotherapy ETF (NASDAQ: CNCR ) and ALPS Medical Breakthroughs ETF (NYSEARCA: SBIO ) which advanced about 9.6%, 9.2% and 7%, respectively. Deutsche X-trackers Japan JPX-Nikkei 400 Hedged Equity ETF (NYSEARCA: JPNH ) – Up 12% Japan may have entered into a technical recession in Q3, but that did not turn off investors’ enthusiasm toward Japanese investing. An ongoing QE measure and hopes of further monetary support which can fight weakening growth and boost consumer prices were behind the optimism in the Japanese stocks. Another Japanese ETF that soared (about 10.7%) in the month was WisdomTree Japan Hedged Health Care Fund (NYSEARCA: DXJH ). Barclays Inverse US Treasury Aggregate ETN (NASDAQ: TAPR ) – Up 8.2% As the Fed gave cues of a rate hike, the inverse U.S. Treasury ETF which follows a unique strategy to hedge against or benefit from the rising U.S. dollar interest rates by tracking the Barclays Inverse US Treasury Futures Aggregate Index, gained over 8%. Worst Performers Metals were slaughtered in the month. The double whammy of flagging global growth suppressing demand and the strength of the greenback in the wake of the U.S. policy tightening have weighed heavily on metal ETFs. ETFS Physical Palladium Shares (NYSEARCA: PALL ) – down 19.1% This product looks to reflect the price of palladium. This precious metal has a number of uses in society including jewelry and dentistry, though the key use is in the auto sector with catalytic converters to control emissions. As a result, following the Volkswagen scandal, demand for the metal declined. While a higher greenback dampened the metal price, the rise in U.S. interest rates would make auto loans pricier, which in turn might curb auto sales in the country. E-TRACS UBS Bloomberg CMCITR Long Platinum ETN (NYSEARCA: PTM ) – down 18.4% This is a sub-index of the UBS Bloomberg Constant Maturity Commodity Index & measures the collateralized returns from a basket of platinum futures contracts which is designed to be representative of the entire liquid forward curve of the platinum contracts. In addition to usage in jewelry, platinum is widely used in auto-catalysts to control emissions and so its decline is self-explanatory. Global X Copper Miners ETF (NYSEARCA: COPX ) – down 18.9% Copper prices slipped to a six-year low on growth concerns. A weak Chinese economy remains a concern for the fund for long. China matters the most for this metal as the country is the world’s biggest consumer of this industrial metal, making up roughly 40% of global copper demand. This headwind shattered the copper mining ETFs in November. Notably, mining ETFs generally trade as a leveraged play on the underlying metal and thus see a higher jump. iPath Dow Jones-UBS Nickel ETN (NYSEARCA: JJN ) – down 16.6% Nickel prices plummeted to a nine-year low. Solid exports from Malaysia are resulting in a supply glut and soft demand for stainless steel in Europe has wrecked havoc on nickel ETFs. Original Post