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Retail ETFs Slump: What’s Up For The Holiday Season?

The retail sector saw a bloodbath on Friday following a slew of weak reports from retailers ranging from department to dollar stores. Additionally, the soft October retail sales data added to the woes. With Thanksgiving less than two weeks away and Christmas coming up in six weeks, the growth prospects for the upcoming holiday season suddenly look dull. Retail Sales Data After a flat September, retail sales barely rose 0.1% in October, falling short of the market expectation of 0.3% growth. The lackluster growth can be blamed on a surprise decline of 0.5% in auto sales, implying that cheap gasoline failed to spur consumer spending as expected. Notably, consumer spending accounts for more than two-thirds of demand in the U.S. economy. Fast Recap of Early Q3 Earnings Total earnings from 60% of the sector’s total market capitalization reported so far are up 7.8% on revenue growth of 11.1%, with 59.1% surpassing earnings estimates and 45.5% beating on the top line. The sector kicked-off the earnings season on a solid note with growth rates and beat ratios coming in better than the pre-season expectations and other sector performances. But the trend reversed last week after departmental stores like Nordstrom (NYSE: JWN ) and Macy’s (NYSE: M ) spread an air of pessimism into the broad sector and disappointed investors. Even better-than-expected results from J.C. Penney (NYSE: JCP ) and Kohl’s (NYSE: KSS ) were unable to sweep away the negative sentiments. Nordstrom was the major dampener as the stock plummeted 15% on Friday after the company missed on both earnings and revenues by 14 cents and $43 million, respectively. The retailer lowered its sales growth guidance to 7.5-8% from 8.5-9.5% and the adjusted earnings per share guidance to $3.40-$3.50 from $3.70-$3.80 for the full year. The lackluster results came just a day after shares of Macy’s nosedived 14% on November 11 on the back of weak sales and a downbeat guidance. The second-largest department store retailer posted the third consecutive quarterly decline in sales and missed our estimates by $228 million, though it beat our earnings estimate by a couple of cents. The company now expects sales to decline 2.7-3.1% compared with the previous expectation of a 1% decline and slashed its earnings per share guidance to $4.20-$4.30 from $4.70-$4.80. However, J.C. Penney reported stronger results on November 13 with earnings and revenues coming ahead of our expectations. The company reported loss of 47 cents per share, narrower than the Zacks Consensus Estimate of loss of 58 cents while revenues of $2.897 billion were slightly ahead of our estimate of $2.869. On the other hand, Kohl’s also topped our estimates by 6 cents on earnings and $26 million on revenues on November 12. Despite the robust earnings announcement, both stocks were victims of the broad retail sector rout on Friday. Shares of JCP tumbled 15.4% while Kohl’s declined 6.4%, erasing all its gains made on November 12. Other retailers were also dragged down with their stock prices going deep into red at the close on the day. Some of these include video-game retailer GameStop (NYSE: GME ), watchmaker Fossil Group (NASDAQ: FOSL ), and apparel retailer Bebe Stores (NASDAQ: BEBE ) that shed 16.5%, 36.5% and 40%, respectively, on a single day. Big-box retailers like Target (NYSE: TGT ), Best Buy (NYSE: BBY ), Home Depot (NYSE: HD ) and Wal-Mart (NYSE: WMT ) were also hit by the sector slump. ETFs in Focus Given this, the retail ETF world also saw rough trading on the day with all the three funds, namely SPDR S&P Retail ETF (NYSEARCA: XRT ), Market Vectors Retail ETF (NYSEARCA: RTH ) and PowerShares Retail Fund (NYSEARCA: PMR ) losing 3.8%, 2.9% and 3%, respectively. XRT This product tracks the S&P Retail Select Industry Index, holding 104 securities in its basket. It is widely spread across each component as none of these holds more than 1.31% of total assets. Small cap stocks dominate about two-thirds of the portfolio while the rest have been split between the other two market cap levels. In terms of sector holdings, apparel retail takes the top spot with nearly one-fourth share while specialty stores, automotive retail and Internet retail also have a double-digit allocation each. XRT is the most popular and actively traded ETF in the retail space with AUM of about $688 million and average daily volume of more than 3.9 million shares. It charges 35 bps in annual fees and is down 11% in the year-to-date time frame. RTH This fund tracks the Market Vectors US Listed Retail 25 Index and holds about 26 stocks in its basket. It is a large cap centric fund and is heavily concentrated on the top firm Amazon.com (NASDAQ: AMZN ) with 14.6% share, closely followed by Home Depot. Sector wise, specialty retail occupies the top position with 29% share, followed by a double-digit allocation each to Internet & catalogue retail, hypermarkets, drug stores, departmental stores, and health care services. The fund has amassed $191.5 million in its asset base while average daily volume is moderate at nearly 72,000 shares. Expense ratio came in at 0.35%. The product has added 3% so far this year. PMR This retail fund provides diversified exposure across various market caps with 42% each in small and large caps and the rest in mid caps. This is easily done by tracking the Dynamic Retail Intellidex Index. The fund has accumulated just $22.4 million in its asset base while trades in a light volume of about 6,000 shares a day. The ETF charges 63 bps in fees per year. In total, the product holds 30 securities with none accounting for more than 5.72% of assets. In terms of industrial exposure, specialty retail takes the top spot at 43%, while food retail (22%) and drug stores (12%) round off the top three positions. PMR has shed 6.3% in the year-to-date time frame. What Awaits the Holiday Season? Despite the current slide, the outlook for the sector looks quite promising. This is because consumer confidence is on a rise, offering some hope for retailers ahead of the crucial holiday season. The University of Michigan consumer sentiment index rose to 93.1 in early November from 90 in October, indicating that economic recovery is on track despite the twin attacks of a strong dollar and weak global demand that have been hurting the industrial sector, especially manufacturing. Additionally, the National Retail Federation (NRF) expects sales in November and December (excluding autos, gas and restaurant) to grow at a solid pace of 3.7%. Though this marks a deceleration from last year’s growth rate of 4.1%, it is well above the 10-year average of 2.5%. A recent survey by Gallup showed that Americans intend to spend an average $812 on gifts this holiday season, up from $781 last year and the highest expected spending since 2007. The retail sector bodes solid Industry rank from Zacks perspective, which divides the sector into 19 industries at the expanded level. Out of these, 64% of the industries have a solid Zacks Industry Rank in the top 42%, reflecting strong growth prospects in the weeks ahead. Moreover, the three products detailed above have a Medium risk outlook with a top Zacks ETF Rank of 1 or ‘Strong Buy’ rating for XRT and RTH, and Zacks ETF Rank of 3 or ‘Hold’ rating for PMR. As a result, risk tolerant investors may want to consider the recent slump a buying opportunity, should they have the patience for extreme volatility. Original Post

Stocks Bleed With Paris, Safe Havens Surge: ETFs In Watch

Ominous clouds over the Eurozone are refusing to pass. At least back-to-back hits last week corroborate this fact. If weaker than expected GDP data for the bloc in Q3 – merely 0.3% – was not enough to dampen investors’ mood, a gruesome terror attack in Paris, slaughtered whatever little bit of risk-on trade investing sentiment over the region was left. In fact, not only the Eurozone, the entire risk-pro global investing backdrop took a beating after the terrorist group ISIS took responsibility for the attack in the French capital on Friday. Squads of Islamic State-backed gunmen assassinated about 129 people in a chain attack at various locations and left hundreds severely injured. This was Europe’s worst terror assault in over a decade, as per Bloomberg . In vengeance, France bombed the Syrian city of Raqqa on Sunday night, which was the most hostile anti-terrorism strike by the former against this Islamic group. With the global superpowers including France now looking confident of bolstering defense against ISIS, geo-political issues may crop up in the coming days. Needless to say, all global risky assets went into a tailspin following this horrible incident. Though the French economy fared better than other biggies in the bloc in Q3, having returned to subtle growth on higher domestic demand , investors did not have time to celebrate the recovery as terrorism took the upper hand over an improving economy. Market Impact Investors appeared to take this bloodbath too seriously and rushed to panic selling in apprehension of a surge in geo-political threats. The sudden elevation of risk aversion in the market brightened the appeal for safe haven assets. Volatility ETFs, which track the implied volatility of the market, also surged thanks to the massacre in the stock market and concerns over a further downturn. This specifically caused the uptrend in a few segments of the financial world that are seeing dire trending of late, but hold promises now. Below, we highlight a few of the biggest gainers from the latest sell-off in the global stock market. Also, these ETFs may continue to thrive should tensions persist in the global economy in the near term. Gainers Gold Gold is often viewed as a hedge against market risk. The precious metal went through a brutal stretch in the last one-month period thanks to the rising greenback and reduced demand from the major consuming nations like China. The metal has seen some strength thanks to this market turmoil. In fact, the solid Fed rate hike bet for December couldn’t hold back this safe haven metal post Paris attack. The ETF tracking gold bullion SPDR Gold Trust (NYSEARCA: GLD ) added over 0.5% after hours on November 13 and is expected to tack on gains in the short term. GLD was down 9% in the last one month. Long-Term U.S. Treasury Though U.S. treasuries were out of favor a few days back due to worries over Fed tightening, heightened global uncertainty brought this safe asset into the limelight. Along with the terror attack, global growth worries and severely low oil price, which put a lid on global inflation should help treasury valuation going forward. Yields on the U.S. benchmark 10-year notes slipped to 2.28% on November 13 from 2.32% recorded the day earlier. Long-term U.S. bond ETF the iShares 20+ Year Treasury Bond ETF (NYSEARCA: TLT ) was up 0.6% on November 13 and added over 0.3% after hours. For the month, the fund is down about 3.9%. Greenback The U.S. dollar or greenback is yet another product, which acts favorably when a flight to safety commands the market. Plus, a ripe prospect of a sooner than expected Fed lift-off also favors this asset class. As a result, the PowerShares DB US Dollar Bullish ETF (NYSEARCA: UUP ) added about 0.4% on November 13, advanced about 0.6% after hours, and soared about 5.4% in the last one month. Yen The Japanese currency, yen, is often considered a classic safe haven asset. Though a somber GDP data for Japan – which indicates that Asia’s second-largest economy is into a recession in Q3 – had the chance of wrecking havoc on the yen, the currency moved higher on a safe-haven appeal. Thus, the CurrencyShares Japanese Yen Trust (NYSEARCA: FXY ) might see a surge ahead. Volatility When sentiments among investors are so shaky, the volatility index is sure to gain. Obeying this law, the CBOE volatility index or “fear gauge” reached its highest tip since October 2. The ProShares VIX Short-Term Futures (NYSEARCA: VIXY ) – the ETF tracking the performance of the S&P 500 VIX Short-Term Futures Index – returned over 6.8% on November 13 and added more than 2.8% after hours. However, investors should note that volatility investments are not meant for long-term traders. Losers Along with several research houses like Goldman , we believe that this market turmoil is here to stay. Yet, we would like to highlight the losers in the wake of the Paris attack. While most of the global equities lost after the massacre, with the U.S. equity gauge the SPDR S&P 500 Trust ETF (NYSEARCA: SPY ) losing 1.12% on November 13 and shedding over 0.8% after hours, Europe-based products are likely to be the worst hit. France As expected, France equities and the related ETFs were the worst hit. The pure-play France ETF the iShares MSCI France (NYSEARCA: EWQ ) lost 1.1% on November 13 and plunged over 4% after hours. Euro First a soft GDP report and then the attack weighed on the common currency Euro and its related ETFs. The euro fell to a six-month low versus the greenback. The CurrencyShares Euro Trust (NYSEARCA: FXE ) lost over 0.5% on November 13. Broader Europe Since the impact of this bloodshed would be far-reaching, broader Europe ETFs would also be vulnerable in the coming few days. Already, the Vanguard FTSE Europe ETF (NYSEARCA: VGK ) shed over 0.8% on November 13 and went on to lose over 1.3% after market. Bottom Line Though we do not expect this bearish move to continue especially in the U.S., which has a strong trend underneath, the upheaval in the stock market may persist for a week or so due to the gloomy global backdrop and the rise in fear among investors. However, as the central banks of the U.S., Eurozone and Japan start to speak again, this unsteady market will take solid shape and decide the fate of several asset classes and sectors. Original Post

Can October Turnaround Heal Q3 Scars? 3 Leading Fund Categories

Third-quarter 2015 turned out to be a stock market bloodbath. However, much to investors’ relief, markets have rebounded sharply from the beginning of October. Key benchmarks are up significantly since October 1, shrugging off the horrid third-quarter performance. In the third quarter, most mutual fund categories struggled to post gains. In fact our Mutual Fund Commentaries will show how certain fund categories like Energy, Health and Technology failed to have even one mutual fund scoring gains. However, the rebound now has changed the story. Technology and Health are now leading the one-month gains among the mutual fund categories. Since October 1 and till November 15, the Dow Jones Industrial Average, Standard & Poor’s 500 and the Nasdaq Composite Index gained 8.7%, 7.4% and 8.1%, respectively, and the mutual funds will not be exempted from growth. Thus, let’s look at the top 3 fund category gainers and pick one mutual fund from each that carries a favorable Zacks Mutual Fund Rank and is a leading gainer. Third-Quarter Rout China-led global growth fears, uncertainty about the Fed rate hike followed by the no liftoff decision, sell-off in biotech stocks and tumbling commodity prices among other factors resulted in the worst quarter in four years. Like a pack of cards, markets from Beijing to Berlin came tumbling down. Eventually, the quarter ended in massive losses, wherein the performance of mutual funds worsened from the dismal second quarter. In the third quarter, just 17% of mutual funds managed to finish in the green. This is a slump from 41% in the second quarter, which was again a sharp fall from 87% of the funds ending in positive territory in the first quarter. Separately, a JPMorgan (NYSE: JPM ) equity strategy note revealed that 67% of mutual funds underperformed their benchmark in the third quarter. Around 34% of funds underperformed their peers by a minimum of 250 basis points. The Dow, S&P 500 and Nasdaq declined 7.6%, 7% and 7.4%, respectively. The Dow registered its third-consecutive quarter of losses and the S&P 500 slumped for the second straight quarter. To term the third quarter of 2015 as a “bloodbath” would not be too off the mark. October Rebound Markets posted their best monthly performance in four years in October. For the month, the S&P 500, the Dow and the Nasdaq soared 8.1%, 8.6% and 9.2%, respectively. Investors largely ignored weak economic data to focus on positive external signals. In a surprise move, China’s central bank cut key rates, leading to further optimism. Additionally, the European Central Bank (ECB) said it would further boost the region’s economy. Tech and healthcare sectors staged a strong rebound, boosting the broader markets. Finally, the Federal Reserve refrained from hiking rates but indicated that such a move was likely in December. Earnings numbers were mixed, once again reflecting weakness in revenues. However, impressive results from the tech sector and resurgence in healthcare stocks boosted the broader markets. November So Far During the first week, the Dow, S&P 500 and Nasdaq gained 1.4%, 1% and 1.9%, respectively. Benchmarks registered weekly gains for the sixth-consecutive week. Merger and acquisition news including that between Dyax (NASDAQ: DYAX ) and Shire plc (NASDAQ: SHPG ), and Treehouse Foods, Inc. (NYSE: THS ) and ConAgra Foods, Inc.’s (NYSE: CAG ) spread cheer. Meanwhile, encouraging third-quarter earnings from companies like The Clorox Company (NYSE: CLX ), Michael Kors Holdings Limited (NYSE: KORS ), Facebook, Inc. (NASDAQ: FB ) and Ralph Lauren Corporation (NYSE: RL ) lifted the benchmarks. Also, strong auto sales data and a better-than-expected reading of the ISM Services Index helped benchmarks to finish the week in the green. Meanwhile, energy shares registered gains despite continued decline in oil prices. However, benchmarks lost some sheen in the second week following a sell-off in retail and energy shares. Nonetheless, markets are expected to continue the positive momentum. 3 Leading Mutual Fund Category Gainers It is not that every fund category is in the green over the past one month. Surprisingly, the Municipal Bond funds, including sub categories like Muni California Long and Muni New Jersey are in the negative territory. These funds were among the few to have posted gains in the third quarter. (Data source: Morningstar) On the contrary, key fund sectors that ended in the red last quarter are now leading one-month gains. Technology and Health are standing out. Let’s look at the top 3 fund categories, and one fund from each that is a leading gainer carries either a Zacks Mutual Fund Rank #1 (Strong Buy), Zacks Mutual Fund Rank #2 (Buy) or Zacks Mutual Fund Rank #3 (Hold), and have a minimum initial investment within $5000 . Technology The technology sector’s mutual funds were far from enjoying encouraging trends in the third quarter. Morningstar data revealed that the Technology fund category lost 7.7%. None of the technology mutual funds we studied could post gains in the quarter. The average loss for these 199 funds was 8%. Now, with a nearly 5% jump over the past one month, the Technology mutual fund category is the leading gainer. The technology stocks impressed with their third-quarter earnings at a time when the overall growth picture was challenged. The tech sector’s stock-price performance reflects strength as its S&P 500 members outperformed the index over the trailing 4-week period. BlackRock Science & Technology Opportunities Investor A (MUTF: BGSAX ) is a leading gainer in the technology sector. BGSAX’s one-month gain is 4.3%. Since October 1, BGSAX has returned 7.6%. BGSAX invests the majority of its assets in equity securities issued by domestic and foreign science and technology companies. BGSAX may invest a maximum 25% of its net assets in emerging economies and generally invests in common stocks, with preferred stocks and convertible securities also considered. BGSAX currently carries a Zacks Mutual Fund Rank #1. Health The robust rally by the Healthcare mutual fund category ended somewhat brutally in the third quarter. After finishing 2014, and the first and second quarters of 2015 as the top gainer among the sector equity funds, healthcare mutual funds finished in the bottom 10 in the third quarter. According to Morningstar, the Healthcare mutual fund category slumped 13.7% and surprisingly, not a single healthcare mutual fund could finish in the positive territory in the July-September period. Over the past one month, Healthcare has gained 3.7%. Growth prospects for the sector are strong thanks to strong fundamentals and an overestimation of the impact of recent events. Encouraging earnings results from several companies such as UnitedHealth Group Inc. (NYSE: UNH ) and Amgen Inc. (NASDAQ: AMGN ) helped the health care sector to stage a rebound in October. BlackRock Health Sciences Opportunities R (MUTF: BHSRX ) gained 2.4% over the past one month. Since October 1, BHSRX has improved 2.8%. BHSRX invests most of its assets in health sciences and related sectors such as health care equipment and supplies, health care providers and services, biotechnology, and pharmaceuticals. BlackRock Health Sciences Opportunities R currently carries a Zacks Mutual Fund Rank #3. Japan Stock Expectations of additional stimulus, rising corporate profitability and attractive valuations are driving the Japan mutual funds. Japan’s benchmark Nikkei 3000 confirmed the momentum with a 10.9% surge since October 1. Japanese companies’ earnings have improved a lot since the launch of Abenomics courtesy of the declining Yen. Nominal GDP has actually turned upward since 2013, after 20 years of sideways movement. Many are expecting Bank of Japan to come up with higher asset purchases in the coming months. Over the past one month, the Japan category has gained 3.7%. Commonwealth Japan (MUTF: CNJFX ) boasts one-month gain of 2.5%. Since Oct 1, CNJFX has jumped 8.5%. CNJFX invests the majority of its assets in securities and depositary receipts that include American Depositary Receipts, Global Depositary Receipts and European Depositary Receipts. The securities are issued by Japanese firms and are economically tied to the country. Commonwealth Japan currently carries a Zacks Mutual Fund Rank #3. Original post .