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Great ETF Picks For 2nd Half Of 2015

The global stock market ended the first half of the year in the green amid bouts of volatility and uncertainty. Though U.S. stocks, as represented by the S&P 500 index, have recorded their worst performance in five years, foreign investing took the credit. All the thanks go to ultra-easing policies across the globe in stark contrast to the U.S. Policy easing has however not helped to reduce volatility, which at the moment seems to be the only constant factor. The markets are grappling with the dire issue of unpaid debts in Greece and Puerto Rico, as well as the looming stock bubble in China. The developments in these areas will continue to unnerve investors as the second half unravels. There is the additional uncertainty of interest rate hike in the U.S. while a strong dollar will continue to play foul in the global financial world (read: ETF Strategies for 2H ). This is especially true as the U.S. economy has been on a moderate growth path as reflected in increased consumer confidence, higher spending power, renewed optimism in housing recovery and an improving job market. Meanwhile, waves of merger and acquisition deals will continue to brighten up the stock world. However, any downbeat data, including disappointing job growth, no wage increase, lower inflation, and less manufacturing and industrial activity, could delay rate hike or bring in more volatility. That being said, it seems that the second half will most likely resemble the first, extending the winning streak of the top performing ETFs of 1H. In fact, most of these ETFs have a top Zacks ETF Rank of 1 or “Strong Buy”, suggesting their continued outperformance for the rest of the year (read: Top Performing ETF Areas of 1H ). Below, we have highlighted some excellent ETF picks from three different categories given that there will be no major shift in fundamentals in the coming months. These funds should lead to big gains for investors and are worth a closer look heading into the second half. U.S. Sector ETFs Healthcare has been the soaring corner of the broad U.S. market so far this year, and this trend is likely to continue given the M&A boom, strong earnings growth, cost-cutting efforts, aging population and Obamacare. Combined with attractive fundamentals, the sector provides a defensive tilt to the portfolio due to its non-cyclical nature unaffected by global turmoil (read: 3 Buy-Ranked ETFs for a Healthy Portfolio ). Investor should focus on the iShares U.S. Healthcare Providers ETF (NYSEARCA: IHF ), which looks to offer exposure to the companies that provide health insurance, diagnostics and specialized treatment. Another alternative could be a small-cap play on the broader sector through the PowerShares S&P SmallCap Health Care Portfolio ETF (NASDAQ: PSCH ). Both funds gained 20.4% and 18.5%, respectively, so far this year. U.S. Style-Box ETFs 2015 is the year of growth as Americans are brimming with confidence instilled by their fat wallets and rising income. In particular, the small-cap space will likely be the major beneficiary of this trend as pint-sized stocks are closely tied to the U.S. economy and generate most of their revenues from the domestic market. This makes them safer bets than their large and mid-cap counterparts during a global turmoil. The Guggenheim S&P SmallCap 600 Pure Growth ETF (NYSEARCA: RZG ), which gained nearly 11% in the year-to-date frame, looks to be a compelling choice for the rest of the year. Global ETFs Global investing has been in vogue this year, reversing the past three-year trend. Though many developed and developing economies are still struggling with slower growth, Europe and Japan remained the bright spots and are gaining a lot of attention from investors this year. The iShares Currency Hedged MSCI Japan ETF (NYSEARCA: HEWJ ) and the WisdomTree Europe Hedged Equity ETF (NYSEARCA: HEDJ ) are the two popular picks in the broad Japanese and European stock markets. Both funds provide hedge against any fall in their respective currencies – yen and euro – which have been badly hammered. Moreover, rising concerns over Grexit have depressed many European ETFs in recent weeks, providing a solid entry point. HEWJ and HEDJ are up 17.6% and 10.5%, respectively, so far this year. In the developing world, China ETFs have been performing amazingly and are still on top at the midway mark, but it has been entering the bear market lately, dulling the appeal for Chinese products. On the other hand, the Indian economy has regained its strong momentum lately, after losing its shine this year. If this trend persists, the EGShares India Consumer ETF (NYSEARCA: INCO ) could be the best way to go. The fund added nearly 8% in the year-to-date time frame. Original post

The Bright Future Of The Indian Consumer

After Narendra Modi’s political party won the general election in May 2014, the Indian economy set off in a new, promising direction. Favorable demographics and foreign direct investments will be the long-term tailwinds. Tumbling inflation makes consumers more confident in spending. It is estimated that by 2030, India is likely to surpass the USA and China and become the world’s largest consumer market. Economists and investors have turned optimistic about the prospects of the Indian economy since Narendra Modi’s political party won one of the largest elections in the country’s history last May. Before Modi became a Prime Minister, he led one of the fastest growing states in the country, so many people believe his government will be able to push through the most critical reforms to liberalize local industries and revive economic growth. According to the International Monetary Fund, the reform plan of the new Prime Minister is promising, although the key is going to be implementation . In its latest World Economic Outlook, the IMF forecasts that India will grow at 6.3% this year and 6.5% in 2016, when it is likely to overtake China. In contrast to the accelerating Indian economy, the Chinese economy is still projected to struggle with its decelerating growth rate. In 2015, China’s growth rate is expected to slow to 6.8%, while a year ago it reached 7.4%. One should not forget that India is the second most populous country in the world, with over 1.27 billion people (17.5% of the world’s population), and is projected to be the world’s most populous country by 2025. What is more interesting is that more than 50% of the Indian population is below the age of 25, and it is expected that, in 2020, the average age of an Indian will be 29 years, compared to 37 for China and 48 for Japan. This population composition together with Modi’s ambitious ‘ Make in India ‘ program to attract foreign direct investments will undoubtedly support the ongoing rapid expansion of India’s middle class consumer market. A very good piece of news for the Indian economy is that the great fall in global crude oil prices, 60% in the last six months, has helped to finally tame the long-standing high inflation rate. In particular, the rising prices of food have slowed, which frees up more disposable income for India’s middle classes to spend on other goods and services. The improving optimism of Indian consumers can be evidenced by the following graph showing the recent progress of consumer confidence. (click to enlarge) According to Rachna Nath, head of retail and consumer at PwC India, consumers are still hesitant about making big luxury purchases despite the record values of the index. Consumers are positively bullish because of what the new government is doing right now, but all of them will say that we also need to see it translate on the ground. However, Indians do seem prepared to splash out on some premium fast-moving consumer goods, like foodstuffs, for example. Just a few years ago the Indian market was dominated by basic glucose biscuits. Today, higher-end varieties have grown popular. On the back of better incomes, the overall FMCG market is anticipated to expand at a CAGR of 14.7% to 110.4 billion dollars during 2012 and 2020. By that year, some reports even predict that India will become the world’s third largest middle class consumer market just behind China and the US, which it will likely surpass by the end of the next decade. Probably the best suited ETF for the trends highlighted above is the EGShares India Consumer ETF (NYSEARCA: INCO ), which is designed to track the Indxx India Consumer Index measuring the market performance of 30 Indian consumer sector companies. Since Narendra Modi assumed the office of Prime Minister in late May, the fund has added more than 34%, while two major Indian equity benchmarks, the CNX Nifty and the S&P BSE SENSEX, have gained 20 and 19% respectively. Since the beginning of this year, the fund has yet outperformed both indices by more than 6%. Moreover, most of the time, shares of the fund trade at a modest discount to NAV. Last year, there were 211 out of 252 trading days when the fund’s market price was below the reported net asset value, and this year, there have already been so far 26 such days. Presumably, the most significant INCO’s drawback lies in it’s liquidity as the fund was launched relatively recently and has a little over 52 million dollars assets under management. The picture below displays key statistics of INCO’s portfolio as of 12/31/2014. Source: EGShares India Consumer ETF’s factsheet Over the long-term, the highly inclusive sector of automobiles & parts in INCO should not only benefit from rapidly growing car and two-wheeler manufacturing industry , but also from the intended investments into infrastructure, which can be directly grasped through another ETF – the EGShares India Infrastructure ETF (NYSEARCA: INXX ). Nevertheless, one should be aware that many investors currently perceive these infrastructure projects to have unfavorable risk-reward relationships . On the other hand, it wouldn’t be a mistake to purchase the WisdomTree India Earnings ETF (NYSEARCA: EPI ), iShares MSCI India ETF (BATS: INDA ), iShares S&P India Nifty 50 Index ETF (NASDAQ: INDY ), PowerShares India Portfolio ETF (NYSEARCA: PIN ), or any other ETF, which provides exposure to the broader Indian equity market, as Modi’s reforms concern the economy as a whole. Disclosure: The author is long INCO. (More…) The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.

The Refined ETF Approach To Emerging Markets Consumers

Summary More investors are diversifying with overseas exposure. Why investors should take a look at consumer sectors in emerging markets. Emerging market consumer sector ETF options. Investors have heard plenty about the rise of the emerging markets consumer in recent times, a theme easily accessed by a growing number of exchange-traded funds. Emerging markets investing, including doing so with ETFs, is changing, presenting investors with opportunities to take more tactical, thematic approaches to tap into the rise of developing world consumers. With many traditional emerging markets ETFs either too concentrated in the BRIC nations, excessively exposed to state-run enterprises or both, investors should rethink how they access emerging markets consumer trends. That includes making bets on some of the least developed developing markets. “Investors should focus on buying EM consumer companies in the least developed economies, as well as those EM companies geared towards domestic demand, rather than external demand through exports. Investors should look for stocks in the discretionary sector in countries where the consumption of staples has been satisfied, but consumption of durable goods has not,” according to Emerging Global Advisors , the company behind the EGShares family of ETFs. EGShares’ ETFs include consumer-focused offerings such as the EGShares India Consumer ETF (NYSEArca: INCO ) , the EGShares Emerging Markets Consumer ETF (NYSEArca: ECON ) and the EGShares Emerging Markets Domestic Demand ETF (NYSEArca: EMDD ). ECON, which carries a four-star rating from Morningstar, is up 15.4% over the past three years, enough to easily outpace the Vanguard FTSE Emerging Markets ETF (NYSEArca: VWO ) and the iShares MSCI Emerging Markets ETF (NYSEArca: EEM ) . The allure of ECON, one of the original dedicated emerging markets consumer ETFs, comes from its large combined weight to reform minded countries. For example, China, Mexico and India combine for over 41% of the ETF’s weight. “The new Indian government, led by Prime Minister Narendra Modi, intends to privatize state assets, increase foreign direct investment and reduce the fiscal deficit by cutting subsidies. There are also plans to deregulate the labor market and upgrade infrastructure. These improvements should unleash investment, increase efficiency, raise productivity and boost growth,” said EGShares in a whitepaper . If Modi delivers on the expected reforms, that could power INCO even higher. Often overlooked compared to other India ETFs , INCO also carries a Morningstar four-star rating. More important than that accolade is INCO’s performance. For much of the past year, India ETFs have been BRIC leaders, but INCO has shined especially bright with a gain of almost 77%. EMDD tracks the S&P Emerging Markets Domestic Demand Index, and draws from a country universe of Brazil, Chile, China, Colombia, Czech Republic, Egypt, Hungary, India, Indonesia, Malaysia, Mexico, Morocco, Peru, Philippines, Poland, Russia, South Africa, Thailand, and Turkey. Though not a pure consumer ETF, EMDD does allocate a combined 56.6% of its weight to staples and discretionary sectors. The weight to those sectors is important because consumer sectors have been key contributors to emerging markets earnings growth in recent years. “Emerging market consumer sectors have delivered higher earnings growth in four of the last seven years when compared to the broader emerging market equity index. Although earnings have disappointed over the last two years, we believe this should be a temporary relapse since consensus earnings are forecast to rebound in 2014 and 2015. Based on these estimates, EGA calculates that the EM consumer sectors would deliver earnings growth of 4.1% in 2014 and 16.2% in 2015, respectively, surpassing the rates of growth offered by the overall emerging markets index (3.8% in 2014 and 9.0% in 2015),” according to EGShares. South Africa, China and Mexico combine for over 55% of EMDD’s country weight. The ETF’s index has an impressive dividend yield of almost 3.4%. EM Consumer Fundamentals Table Courtesy: Emerging Global Advisors Tom Lydon’s clients own shares of EEM.