Tag Archives: stocks

October ETF Asset-Flow Roundup

After a tumultuous Q3, it might be wise to look at how the $2.1 billion ETF industry performed in the first month of fourth-quarter 2015. Overall, the month came as a breather after a throttling third quarter. The major U.S. indexes finished October on a positive note on a stabilizing global economy, the promise of further monetary stimuli from the global superpowers and a dovish Fed. Let’s take a look at the corners that were the hot favorites of investors and those that were casted out. Our study concludes that income and international ETFs were the star performers in terms of asset gathering as these saw maximum inflows while the broader U.S. market was the laggard. Gainers High-Yield Bonds – SPDR Barclays High Yield Bond (NYSEARCA: JNK ) Hopes of a delayed Fed rate hike pushed bond yields down in October and investors piled up cash in high-yield bond ETFs, both for income and growth. Moreover, junk bonds are well attached with the energy sector. As energy securities cover about 16% of the high-yield bond market, a recovery in oil prices bode well for high-yield ETFs in the month. Thanks to this trend, JNK, a popular junk bond ETF, was at the helm, having added over $2.6 billion in assets in the month. This propelled its AUM to $11.9 billion. Two other junk-bond ETFs, iShares iBoxx $ Investment Grade Corporate Bond ETF (NYSEARCA: LQD ) and iShares iBoxx $ High Yield Corporate Bond ETF (NYSEARCA: HYG ) also added about $2.52 billion and $2.23 billion, respectively, to their asset base and took the second and third spots. LQD and HYG ended the month with about $24.7 billion and $15.4 billion, respectively. Nasdaq – PowerShares QQQ (NASDAQ: QQQ ) Technology earnings have turned out pretty well this season with the numbers not only bettering pre-season expectations, but also outperforming the sector’s performance in other recent quarters. This boosted investors’ lure for the tech-heavy Nasdaq ETF QQQ which took the fourth rank. QQQ hauled in about $1.73 billion to exit the month with $37 billion in assets. Europe – iShares MSCI EMU ETF (NYSEARCA: EZU ) The European markets roared back in the month on the European Central Bank (ECB) president Mario Draghi’s reassurance of a more intensified and protracted QE measure, if need be. Sensing further easing potential, STOXX 600 added about 8% in October underscoring the largest monthly rally in six years. Investors also poured in $1.56 billion, the fifth largest in the list, to be part of this rally. EZU has now amassed over $13 billion. Losers U.S. – SPDR S&P 500 ETF Trust (NYSEARCA: SPY ) Despite the Fed-induced bounce, U.S. stocks – small and large – could not rope in investors’ attention. While global growth fears weighed on the S&P 500-based large-cap ETF SPY, a volley of weak U.S. economic data came in the way of Russell 2000-based small-cap ETF iShares Russell 2000 (NYSEARCA: IWM ). After all, U.S. economic growth tallied 1.5 % in Q3, falling short of expectation of 1.6%. The products, SPY and IWM, witnessed an outflow of about $827 million and $632 million, respectively. Short-Term U.S. Bonds – iShares 3-7 Year Treasury Bond ETF (NYSEARCA: IEI ) Though the bet over a faster rate hike eased in October, the investing world has started to prepare for a Fed lift-off by this year-end or early next year. Since short-term bonds are expected to underperform the most on an expected rise in benchmark interest rates, short-term bond ETFs fell out of investors’ favor. Moreover, short-term bond ETFs sport meager yields – another reason for the disfavor to yield-starved investors. Hence, IEI had to sacrifice about $511 million in net assets while iShares Short Treasury Bond ETF (NYSEARCA: SHV ) surrendered about $507 million. Biotechnology – iShares Nasdaq Biotechnology (NASDAQ: IBB ) Nagging concerns over the biotech space regarding the over pricing of life-saving drugs shifted this hot and soaring sector from its lofty position a bit. Though the downing trend is reversing lately, October was an off month for the biotech sector. The biotech fund IBB saw a net exodus of about $497 million in assets. Original Post

Top And Flop ETFs Of October

After a rocky Q3, the fourth quarter started off on a decent note, with the first month of the quarter – October – stepping up on gas. The U.S. markets were in green, thanks to a delayed Fed lift-off possibility at the end of September, no more economic shockers from China (the root cause of the Q3 massacre of the global market) and solid tech earnings. U.S. stocks delivered the largest monthly returns in four years. Among the top ETFs, investors saw the S&P 500-based SPY gain about 8.5%, Dow Jones-based DIA advance 8.6% and Nasdaq-based QQQ have a stellar rally and pop about 11.4% in October. While QQQ surged from superb tech earnings, DIA got positive cues from the oil price recovery, though for a shorter period. Though the bullish sentiments eased later in the month on the return of Fed-related worries, moderate corporate earnings and hopes for further policy easing across the globe (especially by the ECB) maintained the upbeat momentum. That being said, below we highlight the best and worst ETF performers of October (returns are mentioned as per xtf.com ). Global X MSCI Argentina ETF (NYSEARCA: ARGT ) – Up 25.1% Argentina stocks were a surprise winner in October on election euphoria. The election on October 25 did not however succeed in bringing out a victor and led to a runoff. In fact, Conservative opposition’s pro-business candidate Mauricio Macri’s unexpected strength in the poll box set the stage for a second round on November 22 . Hopes of a pro-growth leader and the ongoing election-related spending fueled Argentina’s stocks and the related ETF. KraneShares CSI China Internet ETF (NASDAQ: KWEB ) – Up 20.7% Overall, the Chinese stocks are back with a bang after the horrendous sell-off in the August-September period, on compelling valuation and the government accommodative policies. Of the whole set, the Chinese Internet stocks deserve a special mention as these are soaring on solid earnings. Be it Alibaba Group (NYSE: BABA ) or Baidu (NASDAQ: BIDU ), most stocks witnessed jump in its share prices post earnings release and helped KWEB gain over 20% in the month. Several other China-based ETFs including Guggenheim China Technology ETF (NYSEARCA: CQQQ ), PowerShares Golden Dragon China Portfolio (NYSEARCA: PGJ ), and KraneShares CSI China Five Year Plan ETF (NYSEARCA: KFYP ) returned over 19% in the month. Global X Copper Miners ETF (NYSEARCA: COPX ) – Up 19.0% Copper prices held up well in October on the possibility of an easing supply glut, fresh Chinese rate cuts as well as Beijing’s pro-growth reforms. Announcements by Freeport-McMoRan (NYSE: FCX ) and Glencore ( OTCPK:GLNCY ), the second and third largest copper producing companies worldwide, for considerable output cuts, boosted the price of the red metal. Moreover, China matters the most for this metal as the country is the world’s biggest consumer of this industrial metal, making up roughly 40% of global copper demand. All these tailwinds lifted the copper mining stocks and ETFs in October. Notably, mining ETFs generally trade as a leveraged play on the underlying metal and thus see a higher jump. C-Tracks on Citi Volatility Index ETN (NYSEARCA: CVOL ) – Down 45.2% Volatility products lost the most in October, as these tend to underperform when markets are rising or fear levels over the future are low, both of which were the flavors of October, though the trends began to alter at end the month. The Fed-induced bounce was behind the volatility crash in October. As such, CVOL linked to the Citi Volatility Index Total Return, plunged about 45% last month. iPath Dow Jones-UBS Natural Gas ETN (NYSEARCA: GAZ ) – Down 25.8% Natural gas prices fell through the floor in October on higher inventory and the buzz that this winter might be milder than the prior two. El Niño, a warm-water phenomenon that blows off the Pacific coast of South America, is likely to be stronger and keep the Northern Hemisphere relatively warmer. As almost 50% of Americans use natural gas for heating purposes, these fundamentals dented the pricing of the commodity. As a result, the product shed about 25.8%. iShares Currency Hedged MSCI ACWI ETF (NYSEARCA: HACW ) – Down 8.3% Since the U.S. dollar dipped early in October, the currency-hedging technique fell out of investor favor. As a result, this ETF lost about 8% in the month. However, investors should note that with the Fed rate hike talks on the table again, and China, Euro zone and Japan mulling over further policy easing, the flair for currency hedging is brightening up. Original Post

The European Local Recovery: Introducing A New Index

By Jeremy Schwartz Earlier, we discussed how positive trends in the European economy showing domestic growth are leading the eurozone , while global trade has been one of the weak points. 1 We also discussed how our favorite leading indicators of the economy-both M1 growth and the European Commission’s Economic Sentiment Indicator-were showing positive signs that bode well for future trends in the local economy. 2 What could be a good way to position toward this local economic recovery? Creating an Index to Respond Strongly as Economic Conditions Improve At WisdomTree, we build innovative equity Indexes that offer the opportunity to express certain characteristics or have greater potential to respond to different economic trends. If an economic recovery in Europe is truly taking hold, we wanted to create an Index that best reflects these local economic conditions. WisdomTree thus created the WisdomTree Europe Local Recovery Index to reflect attributes of an improving domestic economy that is less reliant on the global export markets. Especially over the past five years, certain more defensive sectors of the MSCI EMU Index have exhibited lower correlation to changes in the economy and the leading indicator of activity, the European Commission’s Economic Sentiment Indicator. These defensive sectors thus may not offer the most representative exposures to improving economic conditions within the eurozone. Over the past five years, those same defensive sectors have exhibited lower betas when measured against the returns of the MSCI EMU Index. In times of turmoil or uncertainty, this could be a potentially positive attribute, but if an investor truly believes in the prospects for a eurozone economic recovery, these lower-beta defensive sectors are likely to be least responsive to a more positive growth environment. Defensive Sectors Less Correlated to Changes in Economic Activity and Sentiment (click to enlarge) Positioning in Cyclicals: No Defensives In positioning for local economy recovery, these data points lead us toward a preference for cyclical sectors over defensive sectors. Within the WisdomTree Europe Local Recovery Index, the Consumer Staples, Health Care, Telecommunication Services and Utilities sectors are not eligible for inclusion. Two important factors are driving allocations in the WisdomTree Europe Local Recovery Index: Stock Selection: In addition to the aforementioned sector screens, there is also a geographic revenue requirement to ensure a domestic European focus: constituents must derive more than 50% of their revenue from inside Europe, giving focus to what is happening within Europe and less sensitivity to the global growth outlook. Weighting: We also employ a weighting methodology to maximize sensitivity to improving economic conditions. This process tilts the weight toward stocks whose returns have been most correlated to changes in economic conditions, defined by the European Commission’s Economic Sentiment Indicator discussed above. This unique weighting methodology ranks stocks by their correlation to the Economic Sentiment Indicator and, using a smoothed weighting process, tilts weight from the traditional benchmark market capitalization weights toward stocks that are more responsive to changes in economic sentiment and activity. Formally, the weights are set by two factors: 25% according to their market capitalization percentages, and 75% according to how correlated each stock is to economic activity over the last five years (based on each stock’s returns and its relationship to the European Commission’s Economic Sentiment Indicator). Bottom Line 3 : Local Focus: WisdomTree Europe Local Recovery Index has nearly 70% of its weighted average revenue coming from within Europe. Opposite of WisdomTree Europe Hedged Equity Index: This is a distinctly complementary approach to that employed by the WisdomTree Europe Hedged Equity Index, which requires constituents to derive more than 50% of their revenue from outside Europe. The weighted average revenue exposure from Europe in that Index is only 30%. Unhedged Local Exposure Complements Hedged Exporters: There has been a huge amount of interest in currency-hedged eurozone exporters in 2015. The unhedged local recovery basket provides a nice complement both from its unhedged nature and the distinctly different profile of stocks represented in the local recovery Index. Based on the macroeconomic trends discussed in our blog post ” A Recovering Eurozone Economy: Where Should You Position? ,” this local recovery index should also be a focal point for traditional unhedged replacements, as the local economy is showing relative strength within the European economy. Sources Bloomberg, Eurostat and WisdomTree, with data as of 6/30/15. Bloomberg, European Commission, European Central Bank and WisdomTree, with data as of 9/30/15. Bloomberg, FactSet, with data as of 9/30/15. Important Risks Related to this Article Investments focused in Europe increase the impact of events and developments associated with the region, which can adversely affect performance. Jeremy Schwartz, Director of Research As WisdomTree’s Director of Research, Jeremy Schwartz offers timely ideas and timeless wisdom on a bi-monthly basis. Prior to joining WisdomTree, Jeremy was Professor Jeremy Siegel’s head research assistant and helped with the research and writing of Stocks for the Long Run and The Future for Investors. He is also the co-author of the Financial Analysts Journal paper “What Happened to the Original Stocks in the S&P 500?” and the Wall Street Journal article “The Great American Bond Bubble.”