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‘Ride An Elephant’ In 2016

By Carl Delfeld In the 19th century, there was a common expression used to describe the early intrepid explorers of the American West. They were said to be “seeing the elephant” – that is, they were seeing “all that could be seen.” On Wall Street today, brokers looking for 10-bagger stocks, and portfolio managers seeking big gains, are similarly said to be “hunting for elephants.” In the 21st century, the best chance of finding these elephants is by looking for them in emerging and frontier markets. These markets have growth that may be up to three times that of America and Europe, which is fueled by a young, vibrant consumer class, as well as some of the world’s most fascinating cultures, nature, and landmarks. One great New Year’s resolution for you would be to see the elephants with your own eyes this year. I can assure you that you’ll learn a lot, have great fun, and uncover some big opportunities that you would otherwise miss sitting in your living room. Investing With the Big Shots I’ve been fortunate enough to have on-the-ground experience in many of these markets, particularly in Asia and Latin America. Last year I teamed up with Global Frontiers, which organizes and leads institutional research trips in these dynamic markets. On these trips we meet with the insiders and heavy hitters that help shape a country’s power structure, stock market, and foreign policy. I’ve also developed friendships with a small circle of tycoons – sometimes referred to as “Taipans ” – a term which roughly translates to “big shots.” If you meet and spend any time with such tycoons, a light bulb could go off in your head. You’re better educated and have much better circumstances compared to most new tycoons. So what gives them their edge? Why do they see opportunities that elude the rest of us? The answer is, they think big and are very attentive to what’s happening on the ground in other countries and markets. They have great personal and professional networks that feed them valuable intelligence. Add a pinch of imagination, and a shot of courage, and you have a potential tycoon. If you wish to become a Taipan, I suggest you look beyond China and India in the coming year to a story that’s being completely missed by even the most sophisticated investors. Ten Southeast Asian nations will move ahead in 2016 as part of an ambitious, America-backed initiative to join their economies in a common market. The goal is to increase their common influence, form a counterweight to China, and boost prosperity for the region’s 622 million citizens. These countries share more than geography. They have a young tech-savvy population with a rising middle class and booming consumer markets. For example, Indonesian consumer spending has more than doubled in the last decade as it nears a $1 trillion economy. Singapore is already the world’s richest nation on a per capita basis. And Vietnam has the fastest-growing economy in the world and is projected to do even better this year. There are country ETFs for almost all of these countries, but for one-stop shopping, consider the Global X Southeast Asia ETF (NYSEARCA: ASEA ). This basket of 40 stocks was off 20% in 2015, giving you a nice value entry point. If Asia is too far and too exotic for your tastes, visit Latin America. The Brazilian market has suffered both major losses and a plummeting currency, so your U.S. dollar will go far whether you spend it or invest it in Brazil. I visited Panama last year and was astonished at the progress it’s made as a regional trade and financial center. Getting to see the project aimed at doubling the size of the Panama Canal made the trip worth-while. Other ideas? The energy-driven iShares MSCI Colombia Capped ETF (NYSEARCA: ICOL ) was down over 40% last year, while the iShares MSCI Mexico Capped ETF (NYSEARCA: EWW ) held up extremely well on a relative basis, even as Mexico becomes a favorite base for global manufacturing. Mexican wages are now actually below those in China. I encourage you to get going and see these opportunities for yourself. Then consider investing in a blend of these markets that are trading at bargain basement prices, and offer some of the best hedges on the U.S. dollar. This is your opportunity – now go out and seize it. Link to the original post on Wall Street Daily

High Dividend And Low Volatility ETF Outperforms During Corrections

In this article, I will be conducting an overview of broad defensive ETFs to see how each has performed during market corrections over the past two years. After reading a recent article on the Guggenheim Defensive Equity ETF (NYSEARCA: DEF ) and disagreeing with the author’s conclusion that DEF did not do its job, I decided to conduct an overview of all broad defensive ETFs. To start my search, I had to first generate a list of broad defensive ETFs to examine, therefore I used the Fidelity stock screener and searched through all ETFs that met the following criteria for the best broad defensive ETFs. Screen Criteria After conducting the screen, I excluded any individual sectors ETFs listed because I am looking for a broad defensive ETF that owns multiple sectors. After this, I was left with the following 27 ETFs listed in the table below. Inception Date: Before 1/19/2014 Assets: > $100 Million Geography Objective: Domestic, Global Dividend Yield: > 2.04% [10-yr treasury rate at time of writing] Expense Ratio: < 0.75% Performance YTD: > -7.88% [S&P 500 (NYSEARCA: SPY ) ytd return] 30 Day avg. Volume: > 20K Company Name Symbol FIRST TRUST MORNINGSTAR DIVIDEND LEADERS (NYSEARCA: FDL ) FIRST TRUST VALUE LINE DIVIDEND INDEX (NYSEARCA: FVD ) FLEXSHARES QUALITY DIVIDEND DEFENSIVE INDEX FUND (NYSEARCA: QDEF ) FLEXSHARES QUALITY DIVIDEND INDEX FUND (NYSEARCA: QDF ) GUGGENHEIM DEFENSIVE EQUITY ETF DEF ISHARES CORE HIGH DIVIDEND ETF (NYSEARCA: HDV ) ISHARES MORNINGSTAR LARGE-CAP VALUE ETF (NYSEARCA: JKF ) ISHARES MSCI ALL COUNTRY WORLD MINIMUM VOLATILITY ETF (NYSEARCA: ACWV ) ISHARES MSCI USA MINIMUM VOLATILITY ETF (NYSEARCA: USMV ) ISHARES S&P 500 VALUE ETF (NYSEARCA: IVE ) ISHARES SELECT DIVIDEND ETF (NYSEARCA: DVY ) POWERSHARES DIVIDEND ACHIEVERS (NYSEARCA: PFM ) POWERSHARES DYNAMIC LARGE CAP VALUE (NYSEARCA: PWV ) POWERSHARES HIGH YIELD EQUITY DIVIDEND ACHIEVERS (NYSEARCA: PEY ) POWERSHARES S&P 500 HIGH DIVIDEND LOW VOLATILITY (NYSEARCA: SPHD ) POWERSHARES S&P 500 HIGH QUALITY PORTFOLIO (NYSEARCA: SPHQ ) POWERSHARES S&P 500 LOW VOLATILITY PORTFOLIO (NYSEARCA: SPLV ) SCHWAB U.S. LARGE-CAP VALUE ETF (NYSEARCA: SCHV ) SCHWAB US DIVIDEND EQUITY ETF (NYSEARCA: SCHD ) SPDR S&P DIVIDEND ETF (NYSEARCA: SDY ) VANGUARD DIVIDEND APPRECIATION ETF (NYSEARCA: VIG ) VANGUARD HIGH DIVIDEND YIELD ETF (NYSEARCA: VYM ) VANGUARD MEGA CAP VALUE ETF (NYSEARCA: MGV ) VANGUARD VALUE ETF (NYSEARCA: VTV ) WISDOMTREE EQUITY INCOME FUND (NYSEARCA: DHS ) WISDOMTREE LARGECAP DIVIDEND (NYSEARCA: DLN ) WISDOMTREE TOTAL DIVIDEND (NYSEARCA: DTD ) Correction Performance Using the ThinkorSwim platform, I looked at how each of the above ETFs performed during market corrections over the past two years. The six correction periods I looked at are listed in the table below. To save space, here is a link to the correction performance data for each of the above ETFs in a Google Doc. *Data is price performance only* Correction Periods YTD 9/16/15 – 9/28/15 7/20/15 – 8/25/15 9/18/14 – 10/16/14 7/23//14 – 8/7/14 1/15/2014 – 2/3/14 Correction Performance Results Of the 27 ETFs I started with, only 11 outperformed SPY during every correction period I looked at. Those ETFs along with the average returns during those periods are listed in the table below. As I noted in the first paragraph, the reason I wrote this article was that I disagreed that DEF was not doing its job. However, as you can see through the data link above and in the table below, DEF did in fact do its job because it outperformed the SPY during each correction period. Looking at the data, you can see that SPHD was by far the best performing ETF during corrections. Average Correction Performance POWERSHARES S&P 500 HIGH DIVIDEND LOW VOLATILITY SPHD -3.89% POWERSHARES HIGH YIELD EQUITY DIVIDEND ACHIEVERS PEY -4.58% ISHARES MSCI ALL COUNTRY WORLD MINIMUM VOLATILITY ETF ACWV -4.66% ISHARES MSCI USA MINIMUM VOLATILITY ETF USMV -4.68% ISHARES SELECT DIVIDEND ETF DVY -4.71% GUGGENHEIM DEFENSIVE EQUITY ETF DEF -4.76% FIRST TRUST VALUE LINE DIVIDEND INDEX FVD -4.88% SPDR S&P DIVIDEND ETF SDY -5.57% ISHARES CORE HIGH DIVIDEND ETF HDV -5.58% WISDOMTREE EQUITY INCOME FUND DHS -5.71% FLEXSHARES QUALITY DIVIDEND DEFENSIVE INDEX FUND QDEF -5.87% SPDR S&P 500 ETF SPY -7.18% About SPHD Assets: $543 million Expense Ratio: 0.30% Inception: 10/18/2012 Number of Holdings: 50 ETF Description: The PowerShares S&P 500 High Dividend Low Volatility ETF selects 50 stocks from the S&P 500 that have historically provided a high dividend yield and low volatility. [ SPHD Description ] Like many broad defensive ETFs, SPHD largest sector allocation is to utilities, with just over 25% allocated to the sector. The second largest sector is financials coming in at nearly 20% of the ETF. However, out of that nearly 20% allocation, 13.17% is from REITs. SPHD is also very diversified when it comes to individual holdings as well. The top 10 holdings only account for 27.23% of total assets. Therefore, SPHD is not going to hurt by a single large holding that drags the rest of the ETF down. [Chart from SPHD Holdings Page] Closing Thoughts In closing, I believe SPHD is a quality ETF that has shown it can outperform the broad market during a correction. In addition, SPHD has a dividend yield of 3.70%, which is significantly above the current ten-year treasury rate and significantly, above the 2.24% the S&P 500 is currently yielding. The other ten ETFs that also outperformed the SPY during every correction during the last two years are also worthy of further research as defensive ETF candidates. Disclaimer: See here .

Why Good News And Bad News Are Not Helping Stocks Anymore

Since the Great Recession’s inception, whenever the stock market dropped like a steel anvil or the U.S. economy showed signs of weakness, the Federal Reserve acted to inspire investor confidence. For example, in November of 2008, when the Fed announced its first quantitative easing (QE1) program to buy mortgage-backed securities (MBS), stocks rocketed 10% in two weeks. The enthusiasm wore off quickly. In March of 2009, the central bank of the United States “doubled down” on the MBS dollar amount and simultaneously expanded its reach with a decision to acquire $300 billion of longer-term Treasury bonds. The 1-year program correlated with stock market gains of 70%. Could the Fed have stopped there? At the end of the first quarter in 2010? The Fed could have. However, when the S&P 500 lost 16% over the next few months, committee members began hinting at a second tidal wave of bond buying (QE2). From summertime rumor through QE2 completion in the second quarter of 2011, the S&P 500 pole vaulted approximately 29%. Might the monetary policy authorities have decided, at that juncture, to let financial markets operate without additional interference? At the conclusion of the second quarter of 2011? They might have. Perhaps unfortunately, the S&P 500 responded unfavorably to the end of another Federal Reserve program and the absence of a European bank bailout. A 19% price collapse over a brief span of time compelled the Fed to invoke “Operation Twist” – a program to push borrowing costs even lower through using the proceeds of short-dated Treasury bond maturities to acquire intermediate- and long-dated maturities. The Federal Reserve also orchestrated dollar liquidity swap arrangements that aided European financial institutions with raising capital. Not surprisingly, the Fed-inspired activities helped push U.S. stocks 27% off of the 2011 bottom. “Operation Twist” was scheduled to end in the second quarter of 2012. What could possibly go wrong? This time, investors did not even wait for another Fed program to end, sending stocks down nearly 10% over 8 weeks in April-May. The Fed did not wait either. They extended “Operation Twist” through year-end 2012. And there was more. In an effort to break the cycle of start-stop stimulus dates, and to stimulate a U.S. economy that showed definitive signs of deceleration, the Fed served up hints of its largest quantitative easing experiment yet. The third round of asset purchases (QE3) was not only larger than its predecessors at $85 billion per month, it was open-ended in nature; that is, it came without a formal termination date. Over the next three years, the S&P 500 catapulted roughly 57% with little resistance. Since the last asset purchase by the Fed in mid-December of 2014, however, investors have not been able to rely on the Fed to “ride to the rescue.” On the contrary. Investors have lived with the persistent headwind of overnight lending rate tightening. Granted, the Fed did everything it could to prepare financial markets for an exceptionally slow path to rate normalization. Monetary policy leaders even pushed its first move – a 0.25% increase in the Fed Funds rate – out from the first quarter of 2015 to the 4th quarter of 2015. Nevertheless, once market participants began to fear that the Fed would cease serving as a backstop for falling equity prices, return OF capital supplanted return ON capital. Unless the Fed reverses course back toward zero percent rate policy, and perhaps another round of QE, overexposed investors are likely to sell the bounces. Consider the overexposed participants who leveraged their portfolios on margin. Those who bought stock on margin have leveraged themselves 2:1, having borrowed money to acquire twice as many shares of stock than they would have been able to do otherwise. And while that increased demand for stock shares pushed prices higher on the way up, the need to deleverage accelerates price declines on the way down. How out of whack did margin debt become over the last few years? Margin debt peaks went hand in hand with the stock market tops in 2000 and 2007. Similarly, the margin debt pinnacle in April of 2015 is not far from the nominal high for the S&P 500 in May of 2015. Keep in mind, prominent members of the Federal Reserve like Richard Fisher, have acknowledged front-loading an enormous stock rally to create a wealth effect. What Mr. Fisher did not acknowledge, however, are the back-end issues associated with wealth effect intentions. For instance, stocks that move to exorbitant valuation levels offer less hope for future returns. In the same vein, one should be able to anticipate a wealth effect reversal when a front-loading Federal Reserve subsequently removes its support for ever-increasing equity prices. Don’t be fooled by CNBC’s focus on China or the ticker tape on crude oil. China’s slowing economy may be relevant to U.S. corporate revenue and profitability, but it’s the Fed’s perceived unwillingness to “save stocks” from the volatile sell-off that exacerbates the panic. Oil depreciation may be signaling global recessionary pressures and domestic manufacturer retrenchment. Again, however, it is the direction of the Fed’s rate normalization path, albeit gradual, that has poked the grisly bear in its eyes. Perhaps ironically, the Fed ignored its own projections on economic deceleration in the final quarter of 2015. It raised its benchmark overnight interest rate by 25 basis points to between 0.25 percent and 0.50 percent, even as the Atlanta Fed’s “GDP Now” currently projects 0.6% 4th quarter economic growth. That’s well below the 2.0% annualized growth in the six-and-a-half year economic recovery, where 2.0% had been deemed too anemic for the Fed to fully remove itself from the QE/zero percent rate game. In sum, the U.S. stock market is likely to see little more than bounces and rallies in a bearish downtrend, until and unless the Fed reverses course. In the past, “bad news was good news” because poor economic data solidified ongoing central bank involvement. “Good news was good news” because, well, that meant things were getting better. Today, on the other hand, “good news is bad news” because it might encourage the Fed to tighten rates more quickly. And bad news? That’s the worst of both worlds for risk assets because the Fed is not currently expressing a willingness to head back toward quantitative easing or zero percent rate policy. There have been some safer havens over the last six months, ever since the August-September meltdown for stocks. The PowerShares DB USD Bull ETF (NYSEARCA: UUP ), the iShares 7-10 Year Treasury Bond ETF (NYSEARCA: IEF ), the iShares 20+ Year Treasury Bond ETF (NYSEARCA: TLT ), the SPDR Gold Trust ETF (NYSEARCA: GLD ), the CurrencyShares Japanese Yen Trust ETF (NYSEARCA: FXY ) and the iShares National AMT-Free Muni Bond ETF (NYSEARCA: MUB ) have all gained ground over the last six months. In fact, most of the asset classes in the FTSE Multi-Asset Stock Hedge Index (MASH) – zero-coupon bonds, munis, longer-term treasuries, the yen, the greenback, gold – have appreciated in value. The SPDR S&P 500 (NYSEARCA: SPY ) has not been quite as fortunate. Click to enlarge Disclosure: Gary Gordon, MS, CFP is the president of Pacific Park Financial, Inc., a Registered Investment Adviser with the SEC. Gary Gordon, Pacific Park Financial, Inc, and/or its clients may hold positions in the ETFs, mutual funds, and/or any investment asset mentioned above. The commentary does not constitute individualized investment advice. The opinions offered herein are not personalized recommendations to buy, sell or hold securities. At times, issuers of exchange-traded products compensate Pacific Park Financial, Inc. or its subsidiaries for advertising at the ETF Expert web site. ETF Expert content is created independently of any advertising relationships.