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How Greece Is Impacting The Financial Markets

From my perspective, the greater risk to investors is not their relative exposure to the country of Greece in their portfolios, but their relative exposure to other countries. I contend that international stocks, particularly within Europe and also including certain emerging markets, are an attractive asset class for risk-adjusted return potential over the intermediate- to long-term. Any pullbacks in international equity strategies (and European-based strategies in particular) as a result of the ongoing Greek drama, may present an attractive entry point, or re-entry point, for some investors. A lot of the volatility witnessed across global stock markets thus far in 2015 can be attributed to the ongoing soap opera involving Greece, the European Union and the International Monetary Fund. Greece, arguably the most notorious of the P.I.I.G.S. (Portugal, Italy, Ireland, Greece and Spain) countries, has been confronting a mountain of debt issues – currently estimated at 320 billion Euros – within the country for years. If that number is not staggering enough, consider these other economic statistics plaguing the country of Greece: Gross Domestic Product has fallen by 25% since 2010 A Debt-to-GDP ratio of 177% An unemployment Rate of 27% More than 20% of the Greek population is over the age of 65 – making it the world’s 5th oldest nation – and only 14% of the population is under the age of 15 (Data sources: BBC News, ECB, IMF, Green National Statistics Agency, Bloomberg.) With Greece in need of another bailout, or debt restructuring, to avoid defaulting on a significant repayment to the IMF at the end of June (and more to come thereafter), and Greece Prime Minister Tsipras opposing additional austerity measures (ex. pension cuts and potential increases to the age of retirement for these purposes in Greece) that may be a part of any new debt deal, many market participants are now bracing for the increased likelihood that Greece will leave the Euro – whether on their own or at the request of the EU. Germany, as the largest member of the EU, which Greece reportedly owes $56 billion alone, is showing signs of diminished interest in saving Greece again. This dubious view is shared elsewhere in Europe which suggests that this standoff may remain until the end of June deadline. While it is unknown if either party will blink first, or if the proverbial can will be kicked further down the road, we, at Hennion & Walsh, believe that it is appropriate for investors to consider the impact that a Greece exit from the Euro (now being referred to by many as the Grexit) would have on their portfolios and financial markets overall. Using a couple of the larger and more popular international equity exchange-traded funds below, including one Europe-specific strategy, as proxies, it would appear as though investors may not actually have that much exposure to Greece if they are investing in international equities through these types of product structures. FTSE Europe ETF (NYSEARCA: VGK ) has a 0.07% allocation to Greece as of May 31, 2015, according to Morningstar. iShares MSCI EAFE ETF (NYSEARCA: EFA ) has a 0.00% allocation to Greece as of May 31, 2015, according to Morningstar. From my perspective, the greater risk to investors is not their relative exposure to the country of Greece in their portfolios but rather their relative exposure to other countries that may be impacted by either a Greek default or a further extension of credit to this debt-burdened country. To this end, any funds “saved” by not allowing for any future Greece bailouts could be applied to additional quantitative easing measures or other economic stimulus programs within the Eurozone. It is worth noting that the fear of contagion throughout the Eurozone also adds to the volatility in the region each time a potential Grexit is in the headlines. I contend that international stocks, particularly within Europe and also including certain emerging markets, are an attractive asset class for risk-adjusted return potential over the intermediate-longer term. I would even suggest that having Greece ultimately leave the Euro would provide some certainty to international investors and relieve Europe of one of the anchors holding down their own economic recovery. Thus, any pullbacks in international equity strategies, European-based strategies in particular, as a result of the ongoing Greek drama may present an attractive entry point, or re-entry point, for some investors. Disclosure: Hennion & Walsh Asset Management currently has allocations within its managed money program consistent with the investment theme discussed in this article. This post is for educational purposes only and should not be considered as a solicitation to purchase or sell any of the securities or investment themes mentioned. International investments have their own unique set of risks that should be understood before considering an investment. As a reminder, all investment decisions in our view should be made consistent with an investor’s financial goals, tolerance for risk and investment timeframe. Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More…) I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Market Vectors Rolls Out A Spin-Off ETF

The niche ETF concept has been at the top of every issuer’s mind lately. There is hardly any scope for plain vanilla products in this rapidly growing industry. Moreover, these unique investing options give investors a scope to play the various areas of the market in basket form, using strategies that are usually hard to reproduce in a regular-themed portfolio. Probably, inspired by this sentiment, Market Vectors recently rolled out a spin-off ETF. The Market Vectors Global Spin-Off ETF (NYSEARCA: SPUN ) in Focus The fund tracks the Horizon Kinetics Global Spin-Off Index and comprises approximately 87 multi-cap securities belonging to the developed world. The universe of companies eligible for inclusion in the Index includes those that have been spun off. As per the summary prospectus , “for each company, an early entry at the start of the spin-off cycle aims to exploit valuation disconnects caused by selling pressure and pricing inefficiencies. A long-term hold seeks to capture periods of improved operating efficiency.” The fund does not appear to be concentrated on the top 10 holdings as no stock accounts for more than 1.64% of the basket. Among individual holdings, Global Brands Group Holding Ltd, Prothena Corp Plc (NASDAQ: PRTA ) and Indivior Plc ( OTCPK:INVVY ) occupy the top three positions in the fund, which has a net expense ratio of 0.55%. In terms of sector allocation, the ETF has double-digit allocation each in Consumer Discretionary, Financials and Industrials with 25.2%, 19% and 18.5%, respectively. Geographically, the fund is heavy on the U.S. with more than 65% exposure while the U.K. (6.5%) and Australia (5.5%) come in as the distant second and third. How Does it Fit in a Portfolio? In a spin-off, a company detaches certain assets to make a separate company and ‘spins off’, or hands out shares in that entity to the current shareholders. The most usual cause of a spin-off procedure is that the stock price of a big diversified company is unable to reciprocate the fair value of all its branches of operations. These could actually be among one of the top performing assets in the market. This is true for SPUN which actually reflects the full-phase of the separated companies. The issuer noted that such entities normally underperform in the earlier phase of their life-cycle due to the absence of historical performances, dearth of analyst coverage, inferior peer comparisons and market cap issues. However, over the long term, these entities trend to perform better on availability of historical results and the consequent perfection in the analysts’ reports. Better management often makes these lucrative bets. Thus, from the long-term perspective, the fund might be well liked by investors. ETF Competition The coast is clear for this newly launched ETF as it has to compete with just one ETF namely the Guggenheim Spin-Off ETF (NYSEARCA: CSD ) . Otherwise there is no meaningful player in this space. This fund tracks the Beacon Spin-off index which looks to focus on about 40 companies that have been spun-off within the past 30 months, but not before six months prior to the applicable rebalancing date. The fund charges 66 bps in fees (net) which much lower than the newly ETF. Thus, from the expense ratio point of view, SPUN scores a point over CSD. Moreover, CSD has moderately heavy concentration risk with the top four holdings taking 5% to 6% each. Thus, we see no hurdle for SPUN in garnering investors’ money. Article originally published on Zacks.com

The Case For Considering The Australian Equity Market

Summary Australia had record high business confidence on low AUD and consumption boost. Labor market continued to grow in a sustained manner along with the housing and credit markets. This might be the time to buy into Australian equities as both internal and external conditions merged to form bullish condition. Australia might be iconic to the average Americans as the land of the kangaroos but it has more to offer than tourism. The Australian economy is on the steady path of recovery as seen in the record high of business confidence, recovering labor market and better credit condition. This represents a great opportunity to gain exposure to the Australian market for this recovery had been ongoing since the beginning of this year. Australia had been blessed with its proximity to the emerging Asia, strong reserves of minerals and other raw materials and a dovish central bank that cut rate twice this year as a precaution. As a result, the recovery in Australia took hold and through months of consistent performance, it is now deeply rooted as the latest May data would show. However the Australian stock market remains discounted as market confidence was shaken by the weaker than expected US and Chinese economic data. This is now changing as the US and Chinese economies are on the mend as seen in recent articles. Record High Business Confidence We shall first delve into the May survey of business sentiment as conducted by the National Australia Bank (NAB). Business confidence went up from +3 in April sharply to +7 in May as all business sector (except mining) had a better outlook on business conditions. This +7 reading of business confidence is the record high this year. Source: NAB Business conditions were lifted by the twin effects of the lower AUD and supportive budget released this year. The recent low 2% interest rates by the Reserve Bank of Australia (NYSE: RBA ) also helped in the credit conditions for the housing market and business lending. Consumption and consumer confidence have also staged a steady recovery. These conditions had led non mining businesses as a whole to revisit their reluctance towards capital expenditure and to invest for the future. The manufacturing industry led the recovery on the tailwinds of the lower AUD while the mining industry continued to contract on reduced Chinese demand. Forward looking indicators such as new orders are also pointing towards the right direction for future growth. The overall trend is clear towards greater business confidence for Australia. Strengthening Australian Labor Market The next piece of good news for the Australian economy is the improving labor market as reported by the Australian Bureau of Statistics ( ABS ) for May 2015. The major good news is that the Australian economy had added 42,000 new jobs in May and this is resulted in the lowering of the unemployment rate from 6.1% to 6.0%. (click to enlarge) The reduction of the mining sector had resulted in the net increase in Australian unemployment rate as seen in the chart above. However this had been largely reversed since January 2015. The improving economy had been able to absorb the increasing workers made redundant as mining companies cut back on production. This improvement is all the more remarkable because this reduction is done without any corresponding reduction in the overall employment rate as seen in the table below. In other words, the unemployment rate came down not because of more discouraged workers as was the case in the US 5 years back in 2010. The unemployment came down because the labor pool expanded and more people are now working. (click to enlarge) Source: ABS In fact, the labor participation rate crept up by 0.2% over a 1 year period as the labor pool expanded to 11.75 million and 64.7% of Australians are gainfully employed. This means that Australian have greater income as a whole and would naturally consume more in the future. Housing And Credit Market Lastly we can look at the status of the Australian housing market. Bubbles are formed when housing are purchased for the purpose of speculation instead of dwelling. This, along with lax credit conditions, is the root cause of the US housing bubble, which burst in 2007. The Australian regulators are mindful of this painful episode and they had recently cracked down on runaway housing prices especially on foreign purchase of property for ‘investment’ purposes. This has resulted in the majority of purchase being used for residential purposes. In May, out of $32 billion worth of housing commitments, $19 billion is for owner occupation while $13 billion is for the purpose of investment. In other words, a good 59% of new housing being built in Australia will be occupied by owners and they are not likely to bid prices up to excessive levels in hopes of flipping it for profit as soon as regulation permits. (click to enlarge) Source: ABS The strength of the Australian housing market can also be seen in the upwards momentum of both the value and number of housing commitment. This is supported by modest and sustained increase in loans as seen in the chart below. (click to enlarge) The chart shows that the credit market in Australia had been rising for 3 consecutive months in a row. Conclusion If we were to put the recent domestic conditions of better business confidence, labor condition, housing and credit market in May together with the recovering economic conditions in the 2 largest economy in the world, this would signal the path towards a sustained economic recovery for Australia is now under way. This would mean this current price of $22 might the low price for the iShares MSCI Australia ETF (NYSEARCA: EWA ) which is the broad based representation of the best of Australian equity. The conditions are ripe for the bottoming out of Australian equities as both internal and external conditions coincide for a strong and sustained economic recovery. Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (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.