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AQR To Close Top-Performing Alternative Funds To New Investors

AQR will be closing its Style Premia Alternative (MUTF: QSPIX ) and Style Premia Alternative LV (MUTF: QSLIX ) funds to new investors as of March 16. The funds, which posted respective gains of 8.76% and 4.02% in 2015, closed out the year as two of the top three multialternative funds in December. Clearly, they are not being closed due to poor performance – both funds finished in the top 3% of their Morningstar category for the recently concluded year. Instead, the funds are being closed to new investors because they’re nearing the maximum capacity of their strategies. QSPIX, with $2.2 billion in assets, and QSLIX, with $218 million, aren’t the only alternative funds AQR has had to close for this same reason: In June 2012, the firm closed the AQR Diversified Arbitrage Fund (MUTF: ADAIX ). The fund ranked in the top 2%, 41%, and 26% of its category from 2010 through 2012. In November 2012, AQR barred new investors from buying shares of its Risk Parity Fund (MUTF: AQRIX ). That fund launched in late 2010 and ranked in the top 2% and 11% in 2011 and 2012. And in September 2013, the AQR Multi-Strategy Alternative Fund (MUTF: ASAIX ) had to be closed, too. Today, the fund has a five-star rating from Morningstar, and it ranked in the top 2% of its category in 2015 (top 4% in 2014). The procedure for how AQR will wind down new investments in QSPIX and QSLIX, and how existing shareholders will be impacted, is outlined in a January 26 SEC filing . Past performance does not necessarily predict future results. Jason Seagraves contributed to this article.

January ETF Asset Report: Safe Havens Rule

The month of January was all about heightened global growth concerns and deflation fears. In particular, the acute plunge in oil prices has taken a toll on a number of assets worldwide. Most economies across the world, be it China, Japan, the Eurozone or the otherwise improving U.S. economy, fears of a slowdown were prevalent. Sell-off was the keyword in January, sending most of the key global benchmarks in red. Central bank meetings came out dovish with more support promised for the future, if need be. The circumstance left investors pondering about where to invest their money and realize gains. Let’s see how this horrid start to 2016 impacted asset growth in the ETF industry. U.S. Treasury Bonds: Safe Retreat U.S. Treasuries across the yield spectrum gathered assets in January with the iShares Short Treasury Bond ETF (NYSEARCA: SHV ) being the topper. The fund attracted 2.69 billion of assets in the month. The iShares 20+ Year Treasury Bond ETF (NYSEARCA: TLT ) , iShares 7-10 Year Treasury Bond ETF (NYSEARCA: IEF ) and iShares 1-3 Year Treasury Bond ETF (NYSEARCA: SHY ) took third, fourth and fifth spots, hauling in around $1.67 billion, $1.36 billion and $1.18 billion in assets, respectively. Heightened global uncertainty brought this safe asset into the limelight. Dimming prospects of the frequent Fed rate hikes further, global growth worries and severely low oil price put a lid on global inflation and helped treasury valuation to soar. Gold Gets Shine Back Another safe refuge, gold, also dazzled in the month as it is often viewed as a safe haven asset to protect against financial risks, and has performed well lately (despite deteriorating fundamentals) on heightened market volatility. As a result, funds tracking the yellow metal, such as the SPDR Gold Trust ETF (NYSEARCA: GLD ), pulled in $959.2 million in assets in January. U.S. Equities Losing Out As most risky assets lost appeal in the month, investors fled the U.S. equities space. This is truer given the slowing U.S. growth momentum. Notably, the U.S. economy expanded at an annualized rate of 0.7% in the final quarter of 2015, down from the 2% growth registered in the third quarter. The Wall Street in fact went back to the 2014 levels last month. As a result, the U.S. broad equity ETFs saw huge outflows last month with the ultra-popular large-cap U.S. ETF, the SPDR S&P 500 Trust ETF (NYSEARCA: SPY ), topping the losers’ list. The fund lost around $2.22 billion in assets. Not only SPY, but also the NASDAQ-based PowerShares QQQ Trust ETF (NASDAQ: QQQ ) came second, seeing $2.14 billion of assets gushing out. Other U.S. equity ETFs including the iShares Russell 1000 Value ETF (NYSEARCA: IWD ) and the iShares Russell 1000 Growth ETF (NYSEARCA: IWF ) also saw outflows of $1.35 billion and $1.28 billion in assets, respectively. Currency Hedged-Equities ETFs: Surprise Loser Though the prospect of further policy easing by the Bank of Japan (BoJ) was ripe in January, currency-hedged Japan ETFs fell out of investors’ favor. Probably, this was because of the fact that the greenback lagged in January (despite the December Fed liftoff) till BoJ announced a negative interest rate at the end of the month. Till January 28, 2016, the U.S. dollar fund, the PowerShares DB US Dollar Bullish ETF (NYSEARCA: UUP ) , lost 0.4% in the month while yen ETF, the CurrencyShares Japanese Yen Trust ETF (NYSEARCA: FXY ) , added about 0.5% during the same time frame. This sort of movement in currencies must have dented the currency-hedged Japanese equities ETFs like the WisdomTree Japan Hedged Equity ETF (NYSEARCA: DXJ ) which has seen assets worth $989.8 million flowing out. The problem was the same with the currency-hedged Europe equities ETF, the WisdomTree Europe Hedged Equity ETF (NYSEARCA: HEDJ ) . The fund lost $810 million in assets. Notably, euro also strengthened in the month as evident by the 1% gain in the CurrencyShares Euro Trust ETF (NYSEARCA: FXE ) till January 28, 2016. Original post

Japan ETFs To Buy On Negative Interest Rates

Finally, Bank of Japan (BoJ) has also followed the ECB’s suit by pushing interest rates on excess reserves into negative territory. While the investing world was expecting further monetary easing from the BoJ as the region’s growth picture is still dull and the inflationary environment is slackening substantially, hardly did any one hope for the launch of a negative interest rate. However, dissimilar to the single negative rate applied by the ECB, the Japanese central bank resorted to tiered measures exercised by the Swiss National Bank. Under this method, “the outstanding balance of each financial institution’s current account at the BoJ will be divided into three tiers , to each of which a positive interest rate, a zero interest rate, or a negative interest rate will be applied, respectively.” At its January-end meeting, BoJ set its benchmark interest rate at negative 0.1%, higher than ECB’s deposit rate of negative 0.3%. However, the BoJ hinted at further cuts in interest rates if the economy fails to improve desirably. Prior to this, in December 2015, Japan’s central bank announced a number of cautious changes without expanding the volume of its annual asset purchasing program it has been following for about the last three years. The bank opted for raising the Japanese government bonds’ (JGBs) average maturity from 7-10 years to 7-12 years. The bank also revealed its plan of purchasing all JGBs to be issued in 2016 and announced that it will allocate 300 billion yen of assets annually in purchasing ETFs that seek to follow the JPX-Nikkei Index 400. Reason Behind This Dovishness Investors should note that massive monetary easing to move closer to the target inflation rate of 2%, a flexible fiscal policy and structural reforms made Japan a rising star in 2013. However, the economy started to lose ground since 2014, slipping into recession in Q2 and Q3. Though the BoJ reacted to this slowdown by enhancing its asset-buying program to 80 trillion yen a year from the previous rate of 60-70 trillion yen in late October 2014, the response was not favorable. Experiencing a spurt in the first quarter of 2015, the Japanese economy shrank in Q2 and barely escaped a technical recession in Q3 (having expanded 0.3% q/q in Q3 compared with an initial reading of a 0.2% contraction). Meanwhile, consumer prices in Japan increased 0.2% y/y in December 2015, down from 0.3% growth in the previous month. The recent inflation trend shows that the level is far behind the BoJ’s goal of 2%. The central bank, on January 28, stretched out its timeline to attain the inflation goal to the first half of 2017, the third deferment in less than a year . Market Impact While this flush of liquidity gave the equities a solid boost, the Japanese yen fell against the U.S. dollar. This is true given the Fed’s policy tightening stance and the resultant ascent of the U.S. dollar. The CurrencyShares Japanese Yen Trust ETF (NYSEARCA: FXY ) lost 2.2% in the last five trading sessions (as of January 29, 2016). This proved vital for investors seeking a Japanese flavor in their portfolio, yet looking to hedge against a falling currency. The move also lowered Japanese government bond yields boosting the Japanese government bond ETFs. The DB 3x Japanese Govt Bond Futures ETN (NYSEARCA: JGBT ) – a triple leverage JGB ETF – added 2.4% on January 29 and hit a 52-week high. Below we highlight a number of top-ranked (Zacks ETF Rank #2 (Buy) currency-hedged Japan ETFs which are likely to soar in 2016 given the supportive BoJ. WisdomTree Japan Hedged SmallCap Equity ETF (NASDAQ: DXJS ) DXJS offers exposure to the Japanese small cap stocks while at the same time provides a hedge against any fall in the Japanese yen. Since small-cap stocks better reflect the economy’s inherent strength. This ETF appears to be a strong bet in the current perspective. This is truer given the global growth worries which weighed on Japan’s export sector. The ETF charges 58 bps in fees and gained 6.6% in the last five trading sessions (as of January 29, 2016). iShares Currency Hedged MSCI Japan ETF (NYSEARCA: HEWJ ) This is another currency hedged option to play the Japanese equity and is a hedged version of the popular fund (NYSEARCA: EWJ ). The expense ratio comes in at 0.48%. The fund gained 5.9% in the last five trading sessions (as of January 29, 2016). WisdomTree Japan Hedged Dividend Growth ETF (NYSEARCA: JHDG ) The ETF follows the WisdomTree Japan Hedged Dividend Growth Index and measures the performance of dividend-paying common stocks with growth characteristics selected from the WisdomTree DEFA Index while at the same time neutralizing exposure to fluctuations between the yen and the U.S. dollar. JHDG charges 43 bps in fees and was up 6.3% in the last five trading sessions. WisdomTree Japan Hedged Equity ETF (NYSEARCA: DXJ ) DXJ also looks to offer investors a way to gain exposure to the Japanese shares devoid of currency risks. This ultra-popular Japan ETF charges 48 bps in fees. The fund advanced 4.6% in the last five trading sessions. Original Post