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ETF Deathwatch For January 2016: Count Grows To 386

Calendar year 2016 gets underway with 386 ETFs and ETNs on Deathwatch. The January list is 5.5% larger than December’s 366 and is the result of 30 additions and 10 escapees. The overall count consists of 284 ETFs and 102 ETNs. I am considering revising the criteria for ETF Deathwatch due to the quantity of closures in 2015 that had asset levels above the current $25 million cutoff level. However, I will wait until the quantity hits a new high before making changes to avoid artificially creating a new high due to altered criteria. In case you are wondering, the peak was 403 in September 2012 , the only time it registered more than 400. I have been pointing out the rapid proliferation of currency-hedged funds over the past year. Their appearance on ETF Deathwatch is another sign that the segment is approaching saturation. The Direxion Daily MSCI Europe Currency-Hedged Bull 2x (NYSEARCA: HEGE ), Direxion Daily MSCI Japan Currency-Hedged Bull 2x (NYSEARCA: HEGJ ), ProShares Hedged FTSE Europe ETF (NYSEARCA: HGEU ), and WisdomTree International Hedged SmallCap Dividend (NYSEARCA: HDLS ) are four additions this month that are currency hedged. Currency hedging isn’t the only form of hedging evident among the new arrivals to ETF Deathwatch. The ETRACS S&P 500 VEQTOR Switch Index ETN (NYSEARCA: VQTS ) tracks an index that employs a dynamic volatility hedge with VIX futures. “HFR” stands for hedge fund replication in the names of the three Highland ETFs joining the list this month. All three of them employ equity hedging via long/short portfolios. The average asset level of products on ETF Deathwatch held steady at $6.9 million, and the quantity of products with less than $2 million jumped from 73 to 83. The average age increased from 48.2 to 48.8 months, and the number of products more than five years old increased from 130 to 137. Here is the complete list of 386 ETFs and ETNs on ETF Deathwatch for January 2016 compiled using the objective ETF Deathwatch criteria . The 30 ETFs and ETNs added to ETF Deathwatch for January: Barclays OFI SteelPath MLP ETN (NYSEARCA: OSMS ) BLDRS Asia 50 ADR (NASDAQ: ADRA ) Direxion Daily MSCI Europe Currency-Hedged Bull 2x ( HEGE ) Direxion Daily MSCI Japan Currency-Hedged Bull 2x ( HEGJ ) ETRACS S&P 500 VEQTOR Switch Index ETN ( VQTS ) Global X JPMorgan US Sector Rotator (NYSEARCA: SCTO ) Global X Southeast Asia ETF (NYSEARCA: ASEA ) Guggenheim China Real Estate (NYSEARCA: TAO ) Guggenheim Wilshire Micro-Cap (NYSEARCA: WMCR ) Highland HFR Equity Hedge ETF ( OTC:HHDG ) Highland HFR Event-Driven ETF (NYSEARCA: DRVN ) Highland HFR Global ETF (NYSEARCA: HHFR ) IQ Global Agribusiness Small Cap (NYSEARCA: CROP ) iShares Convertible Bond ETF (BATS: ICVT ) iShares MSCI Intl Developed Size Factor (NYSEARCA: ISZE ) iShares MSCI Intl Developed Value Factor (NYSEARCA: IVLU ) Market Vectors Global Spin-Off ETF (NYSEARCA: SPUN ) PowerShares FTSE RAFI Asia Pacific ex-Japan (NYSEARCA: PAF ) ProShares Hedged FTSE Europe ETF ( HGEU ) ProShares Ultra Homebuilders & Supplies (NYSEARCA: HBU ) ProShares Ultra Oil & Gas Exploration & Production (NYSEARCA: UOP ) ProShares UltraShort Homebuilders & Supplies (NYSEARCA: HBZ ) ProShares UltraShort Oil & Gas Exploration & Production (NYSEARCA: SOP ) ProShares UltraShort Utilities (NYSEARCA: SDP ) SPDR S&P International Financial (NYSEARCA: IPF ) Tortoise North American Pipeline Fund (NYSEARCA: TPYP ) TrimTabs Intl Free-Cash Flow ETF (NYSEARCA: FCFI ) ValueShares International Quantitative Value (BATS: IVAL ) WisdomTree International Hedged SmallCap Dividend ( HDLS ) WisdomTree Western Asset Unconstrained Bond (NASDAQ: UBND ) The 10 ETPs removed from ETF Deathwatch due to improved health: AlphaMark Actively Managed Small Cap (NASDAQ: SMCP ) Compass EMP U.S. 500 Volatility Weighted (NASDAQ: CFA ) Guggenheim MSCI Emerging Markets Equal Country Weight (NYSEARCA: EWEM ) iShares FactorSelect MSCI International (NYSEARCA: INTF ) iShares FactorSelect MSCI USA (NYSEARCA: LRGF ) iShares iBonds Dec 2023 Corporate (NYSEARCA: IBDO ) iShares iBonds Dec 2025 Corporate (NYSEARCA: IBDQ ) PowerShares DB Optimum Yield Diversified Commodity Strategy (NASDAQ: PDBC ) ProShares Russell 2000 Dividend Growers (NYSEARCA: SMDV ) SPDR Barclays International High Yield Bond (NYSEARCA: IJNK ) The ETPs removed from ETF Deathwatch due to delisting: None ETF Deathwatch Archives Disclosure: Author has no positions in any of the securities mentioned and no positions in any of the companies or ETF sponsors mentioned. No income, revenue, or other compensation (either directly or indirectly) is received from, or on behalf of, any of the companies or ETF sponsors mentioned.

ECB To Be More Dovish? Watch These ETFs

The European Central Bank (ECB) president Mario Draghi surprised the global market yesterday by giving cues of further policy easing in its March meeting. This came on the heels of Draghi’s repeated assurance of a more intensified and protracted policy easing, if need be. With the Euro zone growth picture still dull and the inflationary environment slackening considerably, prospects of further rate cuts and a likely raise in ECB’s ongoing QE measure have high chances of manifestation. Draghi reaffirmed that the ECB will evaluate and ‘possibly reconsider’ the monetary policy in the March meeting. The reason behind this dovish stance was a 12-year low Brent crude which ruined the possibility of any improvement in inflation in 2016. The ECB economists had projected the annual inflation rate to inch up ‘from 0.2% recorded in December 2015 and average 1% this year, rising further in 2017’. But with oil prices sliding 40% more than the time when the projections were made, Draghi is now skeptical of inflation in 2016, as per the Wall Street Journal. At present, ECB expects 2016 inflation to be 0.7% (down from 1% projected earlier) while inflation for 2017 is expected to be 1.4% (down from 1.5% guided previously) (read: Dovish Draghi Drives Up These European ETFs ). The ECB took several meaningful steps in last two years to bolster the common currency bloc. It launched an asset buying program at the start of 2015 and extended the program by six more months to March 2017 at the end of the year. The bank also cut its deposit rate by 10 bps, shoving it deeper into the negative territory to -0.3% (read: 4 European ETFs to Buy on Cheaper Valuations, QE Launch ). While the markets did not appreciate ECB’s year-end stimulus measure as they expected an outsized expansion in the QE policy and steeper cuts in interest rates, global stocks liked ECB’s statement this time around. Market Impact Several Euro zone ETFs rallied on January 21 post Draghi’s comment. Among the toppers were the iShares MSCI Italy Capped ETF (NYSEARCA: EWI ) , the Barclays ETN + FI Enhanced Europe 50 ETN (NYSEARCA: FEEU ) , the Credit Suisse FI Enhanced Europe 50 ETN (NYSEARCA: FIEU ) , the iShares MSCI United Kingdom ETF (NYSEARCA: EWU ) and the iShares Currency Hedged MSCI EMU ETF (NYSEARCA: HEZU ) with gains of about 2.9%, 1.8%, 1.5%, 1.4% and 1.3%, respectively. Euro also shed gains as evident by 0.03% losses incurred by the CurrencyShares Euro Trust ETF (NYSEARCA: FXE ) . The fund shed more gains of about 0.1% after hours. ETFs to Play Investors may take advantage of this euphoria in the European market. The first option is to bet on our top-ranked European ETFs. Below we highlight two options. Deutsche X-trackers MSCI Germany Hedged Equity ETF (NYSEARCA: DBGR ) DBGR is a hedged German equity ETF providing exposure to 56 firms. The fund focuses on Consumer Discretionary, Financials and Health Care sectors. Expense ratio comes in at 0.45%. DBGR has a Zacks ETF Rank #1 (Strong Buy) with a Medium risk outlook. DRGR was up 1.3% on January 21, 2016. Deutsche X-trackers MSCI United Kingdom Hedged Equity ETF (NYSEARCA: DBUK ) This hedged UK ETF has amassed about $4 million in assets. The fund holds114 stocks presently and charges 45 bps in fees. Financials, Consumer Staples, Energy, Consumer Discretionary and Health Care have a double-digit weight in the fund. The fund was up 1.4% on January 21 and carries a Zacks ETF Rank #2 (Buy). Investors can also play this move by shorting the euro ETFs. Below, we highlight a few choices in the inverse euro ETF space. These ETFs profit when the euro declines and may be suitable for hedging purposes against the fall in the currency. ProShares Ultra Short Euro ETF (NYSEARCA: EUO ) This leveraged ETF looks to provide twice the inverse exposure to the performance of euro versus the U.S. dollar on a daily basis. The ETF charges a hefty annual expense ratio of 95 basis points. The product was up 0.04% on January 21. Investors could book more profits off this fund, should the euro continue to struggle. Market Vectors Double Short Euro ETN (NYSEARCA: DRR ) This is an exchange-traded note issued by Morgan Stanley. The product seeks to track the performance of the Double Short Euro Index. For every 1% weakening of the euro relative to the greenback, the index normally gains 2%. The product charges an expense ratio of 0.65% a year and advanced about 1% (as of January 21, 2016). Link to the original on Zacks.com

Market Neutral Funds: Best And Worst Of December

Market neutral mutual funds and ETFs returned an average of -0.06% in December and -0.10% for the entire year of 2015. The combined category’s annualized three-year returns stood at +1.01% through December 31, with 4.16% annualized volatility (“standard deviation”) and a 0.09 Sharpe ratio. The funds, which are designed to move irrespective of the broad stock and bond markets, have done their job in terms of their three-year beta relative to the Barclays U.S. Aggregate Bond Index, which stood at 0.04, and generated 0.98% alpha over that time. Click to enlarge Best Performers in December The three best-performing market neutral mutual funds in December were: BTAL, which initially launched in September 2011, returned +3.35% in December, making it the top-performing ’40 Act market-neutral fund for the month. For the year, however, BTAL gained just 0.15%, and for the three-year period ending December 31, its annualized returns stood at -2.10%. Its three-year beta of 1.04 means it had a high correlation to the Barclays U.S. Aggregate Bond Index. However, its -2.75% alpha was put you behind the index, and its above-average volatility (8.63% three-year standard deviation) resulted in a -0.15 three-year Sharpe ratio. FXMAX ranked second among market neutral funds in December, with monthly gains of 2.93%. But over the one- and three-year periods ending December 31, the fund’s returns were unattractive at -7.72% and -4.42% (annualized), respectively. Its three-year beta (0.46) and standard deviation (5.41%) were better than BTAL’s, but its three-year alpha (-5.07%) and Sharpe ratio (-0.82) were worse. Finally, the popular MNA ETF ranked third in December, with returns of +2.41%. In 2015, the ETF gained 1.45%, easily beating its peers. Its three-year annualized returns of +4.36% were comprised entirely of alpha (4.62%) relative to the Barclays U.S. Aggregate Bond Index, since the fund did its job by producing a three-year beta of 0.00 on the nose. MNA’s three-year standard deviation of 3.65% was by far the lowest of any fund reviewed this month, and its three-year Sharpe ratio of 1.27 towered above the competition. Worst Performers in December The three worst-performing market neutral mutual funds in December were: TFSMX was December’s worst performer among market neutral mutual funds and ETFs, returning -3.78% and dropping its returns for the full year into negative territory at -2.96%. The fund launched in 2004 and returned an annualized 0.83% for the three years ending December 31, with a fair 0.24 beta, 0.55% alpha, and 4.96% volatility. Its three-year Sharpe ratio stood at 0.18 as of year’s end. QuantShares’ SIZ and MOM both ranked in the bottom three, somewhat offsetting the firm’s first-place finish with BTAL. But while SIZ and MOM posted respectively disappointing one-month returns of -2.95% and -2.50% in December, MOM’s annual gains of 17.42% in 2015 made it the clear standout of the six funds reviewed this month. Indeed, MOM’s three-year annualized returns of 4.19% were only slightly bested by the more-famed MNA, but on the negative side, its 1.14 three-year beta may be less than appealing to investors looking to diversify away from fixed income. By this basis SIZ, which returned an annualized -5.07% for the three years ending December 31, looked better with its 0.13 three-year beta. SIZ and MOM had respective three-year alphas of -5.26% and +2.46%, with respecitve volatility of 6.25% and 8.45%, resulting in Sharpe ratios of -0.81 for SIZ and 0.48 for MOM. Past performance does not necessarily predict future results. Jason Seagraves and Meili Zeng contributed to this article.