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Less Volatility And Still No Inflows

By Jeff Tjornehoj For the fund-flows week ended September 9 the widely watched Dow Jones Industrial Average lost 98 points and saw just 390 points separate the week’s maximum high and low closing prices-much less volatility than the previous week’s 596-point swing and the 1,324-point swing the week before that. Equity mutual fund investors made net redemptions of $2.5 billion this past week, while equity exchange-traded funds (ETFs) saw net outflows of $13.6 billion as investors backed out of SPDR S&P 500 ((NYSEARCA: SPY ) , -$10.1 billion ) , PowerShares QQQ ((NASDAQ: QQQ ) , -$732 million ) , and iShares MSCI UK ((NYSEARCA: EWU ) , -$489 million ) . The $6.4-billion Select Sector Industrials SPDR ((NYSEARCA: XLI ) , +$228 million ) led the weekly net inflows list. Bond mutual fund investors, like their equity counterparts, took a risk-off attitude as they redeemed shares. Overall, taxable bond mutual funds saw net outflows of $1.0 billion for the week, while bond ETFs saw $4.6 billion of net inflows. Investors had singular views about credit risk; Lipper’s Loan Participation Funds (-$115 million) and High Yield Funds (-$160 million) classifications both experienced net outflows. The week’s biggest bond ETF net withdrawals occurred at SPDR Barclays Short-Term Corporate ((NYSEARCA: SCPB ) , -$58 million ) , while iShares 1-3 Treasury Bond ((NYSEARCA: SHY ) , +$559 million ) led the net inflows charge. Municipal bond mutual fund investors pulled $125 million net from their accounts, and the funds now have a three-week losing streak. Money market funds saw net outflows of $11.8 billion, of which institutional investors pulled $12.2 billion and retail investors added $432 million. Share this article with a colleague

Guide To The 7 Most Popular Financial ETFs

With the U.S. economy hanging between loose and (looming) tight monetary policies, a quick peek at the backbone of the economy, the financial sector, seems mandatory. The sector, which makes up the around one-fifth of the S&P 500 index, emerged a winner in the Q2 earnings season, having tided over an average start to 2015 and a sluggish finish to 2014. Several factors including fewer litigation charges, effective cost control measures and modest improvement in core businesses gave Q2 earnings a boost. The Zacks Earnings Trend also validated this uptrend especially on the earnings front. Total earnings were up 7.3% on 1.6% revenue growth with beat ratios of 66.7% and 65.1%, respectively. The performance bettered what we saw from the finance sector companies in other recent quarters. Among the bunch, investment bankers and real estate segment delivered strong growth on both lines while major banks scored on the bottom line. Not only this, the sector is due for more outperformance in the quarters to come. As per the Zacks Earnings Trend issued on September 4, 2015, the finance sector is expected to witness 8.6% earnings expansion in Q3 and 15.1% in Q4. Very few sectors are able to attain this envious growth rate especially given the even-increasing global growth concerns. Overall, increased investment banking activity thanks to solid deals in the U.S. ranging from mergers and acquisitions to IPOs along with loan growth, sound trading business and cost containment efforts were behind the recent success. Investors should note that the sector gained momentum despite the challenging interest rate backdrop. Since the Fed is likely to hike rates sometime this year, this corner of the market should soar on improving interest rate margins. This is because banks borrow money at short-term rates and lend the capital at long-term rates thereby benefitting from a widening spread between long- and short-term rates. Further, U.S. banks now have much healthier balance sheets and their quality of earnings is improving on a stepped-up economy. Given this, investors might look at the popular financial ETFs mentioned below and position their portfolio better prior to the Fed lift-off. Financial Select Sector SPDR ETF (NYSEARCA: XLF ) The most popular financial ETF on the market, XLF follows the S&P Financial Select Sector Index. This fund manages about $17.5 billion in assets and trades in heavy volume of roughly 39 million shares a day. The ETF charges 15 bps in fees per year from investors. In total, the fund holds about 90 securities in its basket with the top five firms accounting for about 35% share. Other firms hold less than 2.77% of assets. In terms of industrial exposure, the product is tilted toward banks at 36.9% while insurance, REITs, capital markets and diversified financial services account for a double-digit allocation each. The fund currently yields 1.88% in annual dividend and has lost 5.3% so far this year. The ETF has a Zacks ETF Rank #1 (Strong Buy) with a Medium risk outlook. Vanguard Financials ETF (NYSEARCA: VFH ) This ETF is now home to $3.04 billion in assets. The product holds 563 stocks in its basket with highest allocations to Wells Fargo (NYSE: WFC ), JPMorgan (NYSE: JPM ) and Bank of America (NYSE: BAC ). Diversified banks is the key focus of the fund with about 24.3% exposure followed by regional banks (10.2%). With an expense ratio of just 12 basis points, VFH is a cheap way of getting a diversified exposure to the financial services companies. The fund’s dividend yield is 1.92%. The fund is off over 6% in the year-to-date frame (as of September 8, 2015) and currently has a Zacks ETF Rank #1. SPDR S&P Bank ETF (NYSEARCA: KBE ) This fund tracks the S&P Banks Select Industry Index and has an AUM of $2.7 billion. Volume is good as it exchanges more than 2 million shares a day while expense ratio is at 0.35%. The product holds a diversified basket of 65 stocks with none holding more than 1.74% of total assets. From a sector look, about three-fourths of the portfolio is allotted to regional banks while thrifts & mortgage finance, diversified banks, asset management & custody banks and other diversified financial services take the remainder. KBE currently has a dividend yield of 1.69%. The ETF has added 1.4% in the year-to-date time frame and holds a Zacks ETF Rank #2 (Buy). SPDR S&P Regional Banking ETF (NYSEARCA: KRE ) This is yet another popular ETF in the banking space with AUM of nearly $2.31 billion and average daily volume of roughly 4.7 million shares. The product follows the S&P Regional Banks Select Industry Index, charging investors 35 basis points a year in fees. The product holds a well-diversified basket of 93 stocks. It uses an equal-weighted strategy and hence minimizes concentration risk. None of the individual stocks form more than 1.45% of total fund assets. The fund has given more than 2% returns in the year-to-date frame. It has also a Zacks Rank #2. iShares U.S. Financials ETF (NYSEARCA: IYF ) The fund looks to track the Dow Jones U.S. Financials Index and puts $1.48 billion of assets in 284 holdings. The fund is moderately spread out across each holding with the highest exposure of 6.38% going to Wells Fargo. Banks is the top industry in the fund with about one-third of exposure followed by diversified financials (25%) and real estate (20.3%). The fund charges 45 bps in fees and yields about 1.52% annually (as of September 8, 2015). The fund has a Zacks ETF Rank #3 (Hold). First Trust Financials AlphaDEX ETF (NYSEARCA: FXO ) The fund follows a modified equal-dollar weighted index and invests about $885.4 million of assets in 172 holdings. It is devoid of the company-specific concentration risk as no stock accounts for more than 1.29% of the basket. Insurance gets the top priority in the fund with over 34% focus while REIT and banks also have double-digit exposure in it. The fund charges 80 bps in fees and yields 1.36% per annum. The fund has lost about 1.5% so far this year and has a Zacks ETF Rank #3. iShares U.S. Financial Services ETF (NYSEARCA: IYG ) This product follows the Dow Jones U.S. Financial Services Index, holding 112 stocks in its basket. It is highly concentrated on the top two firms – WFC and JPM – making up for over one-fifth of the portfolio. Other firms hold less than 7.72% share. Banks dominates the fund’s portfolio at 56% while financial services makes up for the remainder. The fund has amassed $880 million in its asset base and sees moderate average daily volume of over 150,000 shares. It charges 45 bps from investors. The product has lost about 3% so far in the year and currently yields 1.34% in annual dividends. IYG has a Zacks ETF Rank #3. Link to the original post on Zacks.com

Should You Invest In Market Neutral Funds?

By Ronald Delegge I was recently asked by a reader named M.M. about the benefits of investing in market neutral funds. Equity market neutral funds hold long/short stock positions and aim to capitalize on investment opportunities in a specific group of stocks while keeping neutral exposure to broader groups of stocks either by sector, market size, or country. Aside from stocks, some market neutral strategies invest in other asset classes like bonds, currencies, commodities, and even volatility. One of the primary selling points of market neutral strategies is their distinction for having the lowest correlation with other alternative investing strategies. How has the performance of market neutral funds been? ETFs linked to market neutral strategies haven’t been good performers. The IQ Hedge Market Neutral ETF ( QMN) has risen just +2.95% over the past 3 years compared to a +49.89% gain for the Vanguard Total Stock Market ETF ( VTI) and a gain of +48.36% for the SPDR S&P 500 Trust ETF ( SPY). Similarly, the HFRI Equity Market Neutral Index, one yardstick of hedge funds that employ a market neutral strategy, has gained just +3.18% annualized over the past five years through August 2015. The sponsor of QMN describes the fund this way: The IQ Hedge Market Neutral Index seeks to replicate the risk-adjusted return characteristics of the collective hedge funds using a market neutral hedge fund investment style. These strategies seek to have a zero “beta” (or “market”) exposure to one or more systematic risk factors including the overall market (as represented by the S&P 500 Index), economic sectors or industries, market cap, region and country. Market neutral strategies that effectively neutralize the market exposure are not impacted by directional moves in the market. QMN has just $13.5 million in assets and charges annual expenses of 0.90%. Personally, I’m not a big fan of market neutral funds. But if you’re going to buy them, they don’t belong inside your core portfolio but rather inside your non-core portfolio. The non-core portfolio is always much smaller in size compared to your core. In summary, if you want to be neutral on the stock market, own cash. It’s cheaper than buying a market neutral fund, it’s more liquid, and it’ll probably even perform better. Disclosure: No positions Link to the original post on ETFguide.com