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ETFs In Focus With Continued Emerging Market Asset Outflow

Emerging markets have been struggling for quite some time now. China’s economic problems are at the heart of the emerging markets’ woes. This along with weak emerging market currencies, a strong U.S. dollar and falling oil prices have resulted in a massive sell-off in emerging market stocks for quite some time now. Last week was particularly disastrous for emerging market ETFs as outflows from these funds were approximately $1.17 billion, according to data put together by Bloomberg . Last week’s outflow along with outflow of $2.12 billion in the week before that brings total outflow till January third week to $3.9 billion. Outflows of this magnitude have not been witnessed since August 2015. As per etf.com, iShares MSCI Emerging Markets (NYSEARCA: EEM ) alone recorded net outflows of approximately $1.4 billion in the week ended January 22. According to Bloomberg, China and Hong Kong witnessed the biggest outflow, primarily from stock funds. Withdrawal from China and Hong Kong funds reached $328.1 million last week, compared with redemptions of $146.8 million in the previous week. After a series of downbeat data flows from China, investors are now skeptical of the country’s ability to deliver above-par growth numbers. Meanwhile, the recent currency devaluation has not helped its case. While it can be argued that a weaker currency may help strengthen China’s sagging economy given its high exports, the popularity of dollar-denominated debt among domestic companies in China will make it more expensive to service the obligations. These factors are encouraging investors to flee from China in order to avoid further losses. Taiwan experienced the second biggest outflow, all from stock funds. Investors pulled back $185.1 million from this country’s ETFs last week, piling upon the $302.8 million witnessed in the previous week. As the Taiwanese economy thrives on exports, investors could be exiting the market on fears of it losing out to China on currency competitiveness. Below we highlight three broader emerging market ETFs that have considerable exposure in China and Taiwan. These ETFs are expected to remain in focus if outflows from emerging markets continue in the coming days. BLDRS Emerging Markets 50 ADR ETF (NASDAQ: ADRE ) – 43% weight in China This ETF tracks the BNY Emerging Markets 50 ADR Index, which is capitalization-weighted and comprises approximately 50 emerging market-based depositary receipts. The fund has the highest exposure to China (43%), followed by Taiwan (14.5%). It has amassed roughly $108.6 million in its asset base while it trades in a volume of roughly 15,459 shares a day. It charges 30 bps in fees from investors per year and currently has a Zacks ETF Rank #3 (Hold) with a Medium risk outlook. SPDR S&P Emerging Asia Pacific ETF (NYSEARCA: GMF ) – 44.5% weight in China This ETF follows the S&P Asia Pacific Emerging BMI Index and offers exposure to the emerging economies of the region. It is a large cap centric fund, with the top two sectors – financials and information technology – collectively accounting for more than half of the portfolio. From a country look, the Chinese firms dominate the portfolio at 44.5%, followed by Taiwan (20.4%) and India (18.3%). The ETF has amassed $347.4 million in its asset base with average daily volume of 86,146. It charges 49 bps in annual fees. The fund has a Zacks ETF Rank #3 (Hold) with a Medium risk outlook. SPDR S&P Emerging Markets Dividend ETF (NYSEARCA: EDIV ) – 29% weight in Taiwan This ETF provides exposure to the stocks from emerging market countries that offer high dividend yields by tracking the S&P Emerging Markets Dividend Opportunities Index. Taiwan accounts for 29% of the portfolio while South Africa and Brazil round off the next two countries with double-digit allocation each. It has accumulated $204.7 million in its assets base and trades in average daily volume of roughly 123,646 shares. It charges 49 bps in fees per year and carries a Zacks Rank #3 with a Medium risk outlook. Original Post

Buy-Ranked Large Cap Value ETFs In Focus

The start of 2016 was extremely rocky for the broader stock market, especially given the persistent slowdown in China and the collapse in oil prices. Subsequently, weak corporate earnings, a strong dollar, sluggishness in other emerging markets, uncertain timing of the next interest rate hike, and a spate of negative U.S. economic data added to the long list of woes. In particular, the global headwinds have started to hurt the U.S. economy as GDP for the fourth quarter grew at a slower pace of 0.7% after having advanced 2% in the third quarter and 3.9% in the second. With this, the rate of economic expansion in 2015 is same as that of 2.4% in 2014. While strong job growth, an improving housing market, and bumper auto sales continued to fuel growth in the economy throughout the year, falling oil prices and a strong dollar hurt consumer and business spending. Consumer spending, which accounts for more than two-thirds of U.S. economic activity, grew 2.2%, down from 3% recorded in the third quarter while business spending contracted 2.5% after rising 9.9% in the third quarter. Moreover, the International Monetary Fund (IMF) recently warned that the global economy is on the verge of another financial meltdown and subsequently slashed the global growth forecast for the third time in less than a year. The agency now expects the global economy to grow 3.4% this year and 3.6% in the next, both down 0.2% from the previous estimates. Earlier this year, the World Bank also cut its growth forecast for the global economy to 2.9% for this year from its previous projection of 3.3%, citing that the slowdown in China, which is one of the big emerging market countries, and a worse-than-expected slowdown in Brazil and Russia have worsened the already bleak global economic outlook. Amid these headwinds and uncertainties, investors should focus on large cap stocks, which tend to be the most stable in an adverse economic scenario, while at the same time offering capital appreciation in a booming market. Further, honing in on value securities in this capitalization level ensures safety to investors. Value investing includes stocks with strong fundamentals – earnings, dividends, book value and cash flow – that trade below their intrinsic value and are undervalued by the market. Why Value Investing Is A Better Play Value stocks often overreact to both positive and negative news, resulting in share price movement that does not reflect the company’s true long-term fundamentals. This creates buying opportunities in such stocks at depressed prices and shows potential for capital appreciation when the stock finally reflects its true market price. As a result, value stocks have the potential to deliver higher returns and exhibit lower volatility compared to growth and blend counterparts. In fact, these stocks outperform the growth ones across all asset classes when considered on a long-term investment horizon, and are less susceptible to trending markets. Given this, investors may want to consider a nice large cap value play in the current volatile market environment. While looking at individual companies is certainly an option, a look at the top-ranked ETFs in this space could be a less risky way to tap into the same broad trends. Top-Ranked Large Cap Value ETF in Focus We have found a number of ETFs with a Zacks ETF Rank of 2 (Buy) in the large cap value space expected to outperform in the months to come (see all the Top-Ranked ETFs here ). While all these top-ranked ETFs are likely to outperform, the following five funds could be good choices to play the space. These products have potentially superior weighting methodologies, which could allow them to lead the large cap value space in the coming months. Vanguard Value ETF (NYSEARCA: VTV ) This fund seeks to track the CRSP US Large Cap Value Index, which measures the performance of the largest U.S. value stocks. With AUM of $17.6 billion and an expense ratio of 0.09%, VTV is one of the cheapest funds in this space. Volume is also solid exchanging around 1.7 million shares per day, on average. The product holds 328 stocks, which are well spread across each component, as none of these holds more than 4.3% share. Here again, financials takes the top spot with one-fourth share, while healthcare, industrials, consumer goods and technology round off to the next four spots with a double-digit allocation each. The ETF has shed 4.9% in the year to date time period. Vanguard Mega Cap Value ETF (NYSEARCA: MGV ) This ETF provides exposure to 160 stocks by tracking the CRSP US Mega Cap Value Index. It is pretty well spread out across components, as none of the firms holds more than 5% of assets. From a sector look, about one-fourth of the portfolio is dominated by financials, while healthcare, information technology, industrials and energy round off the top five with double-digit allocation each. MGV has AUM of $1 billion and average daily volume of 62,000 shares. It charges 9 bps in annual fees from investors and has lost 4.6% so far this year. Schwab U.S. Large-Cap Value ETF (NYSEARCA: SCHV ) This fund tracks the Dow Jones U.S. Large Cap Total Stock Market Index, holding 342 stocks in its basket. None of the securities accounts for more than 4.6% of total assets. Additionally, the product is well spread out across sectors, with financials, consumer staples, information technology, and healthcare accounting for double-digit exposure each. SCHV has amassed assets worth $1.7 billion and trades with volume of around 268,000 shares a day, on average. It charges a low expense ratio of 0.07% and is down 4.1% so far this year. PowerShares Dynamic Large Cap Value Portfolio ETF (NYSEARCA: PWV ) This fund tracks the Dynamic Large Cap Value Intellidex Index, which seeks to provide capital appreciation while maintaining value exposure. The index applies a 10-factor style isolation process and then evaluates stocks on price momentum, earnings momentum, quality and management action. This approach results in a basket of 50 securities, each holding less than 4% of total assets. About one-fourth of the portfolio is allotted to financials, followed by 15.3% to information technology, 12.5% to consumer staples and 10.5% to energy. The fund has amassed $912.4 million in its asset base, while it sees solid volume of 143,000 shares a day, on average. It charges 57 bps in fees per year and has lost 3.7% this year (see all the Large Cap Value ETFs here ). iShares Morningstar Large-Cap Value ETF (NYSEARCA: JKF ) With AUM of $280.5 million, this product tracks the Morningstar Large Value Index. Holding 84 securities, the fund is moderately concentrated on the top firms, with none holding more than 6.51% of assets. From a sector look, financials, energy, consumer staples, and industrials are the top sectors with double-digit exposure each. The ETF charges 25 bps in annual fees and trades in light volume of nearly 16,000 shares a day. It has shed 3.8% in the year to date time frame. Bottom Line Value stocks generally outperform during periods of muted market performance, which we are seeing currently. Investors are taking flight to safety given global slowdown concerns and geopolitical tensions. Therefore, the above-mentioned products have lost less that the broad U.S. market fund (NYSEARCA: SPY ) and the growth fund (NASDAQ: QQQ ). As such, investors shouldn’t forget the value space and should take a closer look at a few of the attractive value ETFs in this segment for excellent exposure and some outperformance in the months ahead. Original Post

Best And Worst Q1’16: Financials ETFs, Mutual Funds And Key Holdings

The Financials sector ranks seventh out of the ten sectors as detailed in our Q1’16 Sector Ratings for ETFs and Mutual Funds report. Last quarter , the Financials sector ranked sixth. It gets our Dangerous rating, which is based on an aggregation of ratings of 41 ETFs and 244 mutual funds in the Financials sector. See a recap of our Q4’15 Sector Ratings here . Figures 1 and 2 show the five best and worst-rated ETFs and mutual funds in the sector. Not all Financials sector ETFs and mutual funds are created the same. The number of holdings varies widely (from 22 to 572). This variation creates drastically different investment implications and, therefore, ratings. Investors seeking exposure to the Financials sector should buy one of the Attractive-or-better rated ETFs or mutual funds from Figures 1 and 2. Figure 1: ETFs with the Best & Worst Ratings – Top 5 Click to enlarge * Best ETFs exclude ETFs with TNAs less than $100 million for inadequate liquidity. Sources: New Constructs, LLC and company filings Four ETFs are excluded from Figure 1 because their total net assets are below $100 million and do not meet our liquidity minimums. See our ETF screener for more details. Figure 2: Mutual Funds with the Best & Worst Ratings – Top 5 Click to enlarge * Best mutual funds exclude funds with TNAs less than $100 million for inadequate liquidity. Sources: New Constructs, LLC and company filings The iShares US Insurance ETF (NYSEARCA: IAK ) is the top-rated Financials ETF and the Davis Financial Fund (MUTF: DVFYX ) is the top-rated Financials mutual fund. Both earn a Very Attractive rating. The PowerShares KBW Premium Yield Equity REIT Portfolio ETF (NYSEARCA: KBWY ) is the worst-rated Financials ETF and the Rydex Series Real Estate Fund (MUTF: RYREX ) is the worst-rated Financials mutual fund. Both earn a Very Dangerous rating. 602 stocks of the 3000+ we cover are classified as Financials stocks. The Progressive Corp (NYSE: PGR ) is one of our favorite stocks held by IAK and earns a Very Attractive rating. PGR also lands on January’s Most Attractive Stocks list. Since 2009, Progressive has grown after-tax profit ( NOPAT ) by 5% compounded annually. Over this same time frame, Progressive’s return on invested capital ( ROIC ) never fell below 17% and is currently a top quintile 19%. The strength in Progressive’s business helps explain why the stock was up over 17% in 2015, but even after this price increase shares remain undervalued. At its current price of $31/share, Progressive has a price to economic book value ( PEBV ) ratio of 1.0. This ratio means that the market expects Progressive’s NOPAT to never meaningfully grow from its current levels. If Progressive can grow NOPAT by just 5% compounded annually (similar to past five years) for the next five years , the stock is worth $39/share today – a 26% upside. Prologis (NYSE: PLD ) is one of our least favorite stocks held by RYREX and earns a Dangerous rating. On the surface, Prologis would appear to be a healthy business that has grown GAAP net income by 181% compounded annually since 2010. However, this net income growth fails to account for the expansion of the balance sheet to fund the GAAP growth. In fact, Prologis’ debt has increased from $3.6 billion to $10.4 billion since 2010 and in total, Prologis’ invested capital has grown from $7 billion to $25 billion over the past five years. Increasing invested capital does not come free of charge and after removing the cost for Prologis’ invested capital we find that Prologis has only earned positive economic earnings in one of the past 17 years (2005). Despite its long-term track record of value destruction, PLD is priced for significant profit growth going forward. To justify its current price of $41/share, PLD must grow NOPAT by 10% compounded annually for the next 12 years . This expectation seems highly optimistic given PLD’s history of value destruction. Figures 3 and 4 show the rating landscape of all Financials ETFs and mutual funds. Figure 3: Separating the Best ETFs From the Worst ETFs Click to enlarge Sources: New Constructs, LLC and company filings Figure 4: Separating the Best Mutual Funds From the Worst Mutual Funds Click to enlarge Sources: New Constructs, LLC and company filings D isclosure: David Trainer and Kyle Guske II receive no compensation to write about any specific stock, sector or theme.