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5 Ways To Play The Oil Rebound With ETFs

After a bumpy ride, oil regained its momentum with the start of the fourth quarter, indicating that the worst might be over for the commodity. All credit goes to improving demand/supply dynamics, which are rebuilding the lost confidence in the rebalancing of the oil market. This is especially true as Nymex crude is now comfortably hovering around the key threshold $50 per barrel, having gained 11% since the start of October, while Brent oil jumped 10.4%. Improving Fundamentals The steep gains came on the heels of dwindling supply, improving demand and an increased willingness by major oil producers to support the prolonged slump in the market. In particular, production in the U.S. and non-OPEC countries is declining, while global demand is increasing. U.S. oil output is expected to decline from 9.25 million barrels per day (bpd) in 2015 to 8.86 million bpd in 2016, while non-OPEC production will likely fall by 0.5 million bpd next year, the sharpest drop in more than two decades. The Energy Information Administration (EIA) expects global oil demand for 2016 to increase at the fastest pace in six years, suggesting that oversupply is easing faster than expected. Overall, the OPEC Secretary General, Abdalla Salem El-Badri, projects the oil market to be more balanced next year, as the gap in crude oil supply and demand will likely close in the third quarter of 2016. He foresees global demand to grow to 110 million bpd by 2040, from the current 93 million bpd. On the other hand, Qatar’s energy minister, Mohammed Al Sada, expects oil prices to have bottomed out and supplies from non-OPEC countries to turn negative next year, and the demand to rise to 30.5 million bpd from 29.3 million bpd in 2015. Further, a declining rig count and the weakening dollar of late are adding to the strength. Given the renewed optimism and signs that the oil market may begin to tighten, many investors have turned bullish and are seeking to tap this opportunity. For them, there are two ways to play this surge – one by directly playing through the futures contracts, and the other through equities. Equity ETFs Beating Futures Out of the two ways, equities are leading the current oil rally, given that the ultra-popular United States Oil ETF (NYSEARCA: USO ), providing exposure to the Nymex crude, gained 8.9% since the start of October, while an equity-based ETF like the Energy Select Sector SPDR ETF (NYSEARCA: XLE ) is up 12.6%. This is because revenues and earnings of oil producers are closely tied to oil prices. Acting as a leveraged play, oil stocks tend to experience more gains or losses than oil itself in a rising or falling commodity market. As a result, equity-based oil ETFs will continue to be the real winners in the weeks ahead if oil price continues to rise. Investors can definitely look into the leveraged products in this space for outsized returns. Notably, leveraged ETFs could lead to huge gains in a very short time frame as compared to the simple products. Below, we have highlighted five equity-based leveraged ETFs that could be excellent picks for investors seeking to make large profits from the Energy space in a short span (see: all Leveraged Equity ETFs here ): Direxion Daily Energy Bull 3x Shares ETF (NYSEARCA: ERX ) This fund creates a triple (3x, or 300%) leveraged long position in the S&P Energy Select Sector Index, while charging 95 bps in fees a year. It is a popular and liquid option in the Energy leveraged space, with AUM of $557.2 million and average trading volume of 2.3 million shares. The ETF gained over 41% since the start of October. ProShares Ultra Oil & Gas ETF (NYSEARCA: DIG ) This ETF seeks to deliver twice (2x, or 200%) the daily performance of the Dow Jones U.S. Oil & Gas Index. It has been able to manage $153.4 million in its asset base, with trades in a good volume of more than 186,000 shares per day, on average. The product is up 26.7% in the same time frame. Direxion Daily Natural Gas Related Bull 3x Shares ETF (NYSEARCA: GASL ) This product seeks to deliver thrice the daily performance of the ISE Revere Natural Gas Index, which derives a substantial portion of its revenues from the exploration and production of natural gas. The fund is often overlooked by the investors, as depicted by its AUM of $63.7 million and average daily trading of 161,000 shares. Its expense ratio comes in at 0.95%. The fund has delivered whopping returns of 104.1% since the start of October. Direxion Daily S&P Oil & Gas Exploration & Production Bull 3x Shares ETF (NYSEARCA: GUSH ) This fund offers triple exposure to the daily performance of the S&P Oil & Gas Exploration & Production Select Industry Index. It debuted in the space only four months ago, and has accumulated $10 million in its asset base. The average daily volume is low at around 58,000 shares, while its expense ratio is 0.95%. The product has gained 74.6% in the same time frame. ProShares Ultra Oil & Gas Exploration & Production ETF (NYSEARCA: UOP ) This product also tracks the S&P Oil & Gas Exploration & Production Select Industry Index, but offers twice the returns of the daily performance with the same expense ratio as that of GUSH. It has AUM of just $2 million, and trades in a paltry volume of 1,000 shares. UOP is up over 49% so far this month. Bottom Line As a caveat, investors should note that these products are extremely volatile and suitable only for short-term traders. Additionally, the daily rebalancing, when combined with leverage, may make these products deviate significantly from the expected long-term performance figures. Still, for ETF investors who are bullish on oil for the near term, either of the above products can be an interesting choice. Clearly, a near-term long could be intriguing for those with high-risk tolerance, and a belief that the “trend is the friend” in this corner of the investing world. Original Post

Is The Recovery Of GLD Underway?

Summary Shares of GLD have bounced back in the past couple of weeks. The recent depreciation of the U.S. dollar has helped pull up the price of GLD. Will the recent rally of GLD continue? Shares of the SPDR Gold Trust ETF (NYSEARCA: GLD ) have rallied in the past couple of weeks, following the disappointing non-farm payroll market and a weaker U.S. dollar. The gold market isn’t out of the woods just yet – even though some analysts already suggest the recovery of gold is underway – as the Fed is still on course to raise rates in the coming months, and the U.S. dollar may start to climb back up if future U.S. economic reports such as JOLTS and consumer sentiment show better-than-expected results. But for now, the gold market benefits from the current market conditions. The U.S. dollar isn’t picking up, for now The appreciation of the U.S. dollar during the first few months of 2015 came to halt. Although the gold market saw short-term gains during the first half of the year, it dropped between April and July. Since then, however, gold has remained relatively flat, as the U.S. dollar also remained relatively (compared to the beginning of the year) stable. (click to enlarge) (Source: FRED ) The hesitation of the FOMC in raising rates, and the lower-than-expected growth in non-farm payroll report helped pull up the price of GLD. The minutes of the last FOMC meeting also didn’t offer much input as to when the Fed plans to raise rates, or any new insight behind the Fed’s deliberations. But the main issue will remain the progress of the U.S. economy, including when it comes to inflation and labor. As for labor, the JOLTS report will be released this week, and may boost the U.S. dollar if it shows better-than-expected results. It may offset the adverse impact the NFP report had on the U.S. dollar. Nonetheless, the market isn’t convinced that the Fed is ready to raise rates. As of the end of the week, the implied probabilities of an October rate hike are below 10%, while in December, the odds are still nearly unchanged at 37%. And these odds suggest the market isn’t convinced that the Fed will raise rates. And in a recent interview, Federal Reserve Vice Chairman Stanley Fischer opened the door for a scenario in which the Fed may opt out from raising rates this year, as opposed to repeated claims that the Fed, including Chair Yellen , aims to raise rates this year. He stated that a rate hike is expected, but isn’t a commitment. As long as the Fed isn’t raising rates, the U.S. dollar may remain flat or even decline against other currencies, which will keep fueling the rally of GLD. But GLD isn’t the only way people invest in the yellow metal – some also consider buying coins. And the demand for coins seems to have gone up in previous months. Higher demand for coins? The U.S. mint experienced a rise in gold coin sales back in July-September. Since then, however, sales have gone down and are at among the lowest levels for this year, as presented in the following chart. (Data Source: U.S. Mint ) This is only a signal as to the changes in the physical demand for gold for investment purposes in the U.S. So far, the slow fall in gold prices in the past few months may have fueled a rise in demand for gold during the summer. I have pointed out in a previous article that total demand for gold declined in the second quarter. So even though this recent finding may signal (albeit it should be taken with a grain of salt, considering it’s not a complete account of the changes in the demand for gold coins on a global level – less than 10%) a modest gain in demand for coins during the third quarter, it’s still too early to determine if this means the gold market is tightening, and how this could affect the price of gold in general and GLD in particular. Final note The recent rally in GLD may not last long, especially if the U.S. reports including JOLTS and consumer sentiment show promising results. If not, the recent rally of GLD is likely to continue until other central banks boost their QE programs (ECB or BOJ), which will drive up the U.S. dollar, or until the Fed starts to drop stronger hints as to timing of the historic rate hike, which seems less likely to occur this year. As long as the Fed keeps pushing the rate hike to a later date, the price of GLD will keep seeing modest relief. For more please see: ” Gold and Inflation ”

5 Bond ETFs Gaining Popularity In October

The timing of the first U.S. interest rate hike in almost a decade has been unsettling the financial world for long. In all FOMC meetings so far this year, the Fed has kept its rates unchanged and hinted toward a slower rate hike path when it is warranted. The September Fed meeting was also no different, suggesting cheap money flows for longer than expected as China and global slowdown concerns are weighing on domestic growth. The dismal jobs report for September and the latest Fed minutes confirmed this trend, further dampening the prospect of an interest rates hike for later this year or early next year. This has rekindled investors’ interest in the bond space, as lower rates will push the yields down, boosting the prices for the bonds. Added to the popularity was the global stock market instability, which wiped out nearly $11 trillion from the global markets in Q3. Last week, the International Monetary Fund (IMF) cut its global growth forecasts for the second time this year and warned of a rising risk of global recession. The agency now projects the global economy to grow by 3.1% for this year and 3.6% for the next as compared to the previous forecasts of 3.3% and 3.8%, respectively. All these factors compelled investors to flock to the bond funds. As a result, U.S. fixed income ETFs were winners last week (ending October 8), gathering nearly $6 billion in total assets, as per ETF.com . Below, we have highlighted the five bond ETFs that have seen the highest inflows in the initial days of the fourth quarter. SPDR Barclays Capital High Yield Bond ETF (NYSEARCA: JNK ) This product accumulated about $1.8 billion in its asset base in the first few trading sessions of October, propelling its AUM to $10.8 billion. It offers exposure to the high-yield corner of the bond ETF world and follows the Barclays High Yield Very Liquid Index. The fund holds 783 low-rated (BB and lower) corporate bonds with average maturity of 6.12 years and modified adjusted duration of 4.32 years. Expense ratio came in at 0.40% while volume is robust as the fund exchanges more than 8.8 million shares a day. The ETF gained 2.1% so far this month and has a Zacks ETF Rank of 4 or ‘Sell’ rating with a High risk outlook. iShares iBoxx $ Investment Grade Corporate Bond ETF (NYSEARCA: LQD ) This fund targets the corporate bond world by tracking the Markit iBoxx USD Liquid Investment Grade Index and holds 1,462 securities in the basket. It pulled in nearly $938 million in capital to start October, propelling the total asset base to $23.1 billion. It focuses on high-quality bonds (BBB and plus) with about 66% going to the mid-term bonds and 34% to the long-duration bonds. As a result, it has a relatively higher default risk and interest rate risk, with an average maturity of 12.25 years and an effective duration of 8.02 years. Expense ratio came in at 0.15%. The product was up 0.2% in the same time frame and has a Zacks ETF Rank of 3 or ‘Hold’ rating with a High risk outlook. iShares 7-10 Year Treasury Bond ETF (NYSEARCA: IEF ) This fund provides targeted exposure to mid-term securities and tracks the Barclays U.S. 7-10 Year Treasury Bond Index. Holding a small basket of 22 securities, it focuses on top-rated bonds, suggesting a lower default risk. The fund has an average maturity of 8.51 years and an effective duration of 7.64 years. IEF is by far the largest and most popular ETF in the bond space with AUM of around $9.7 billion and average daily volume of about 1.7 million shares. It has gathered nearly $841 million in October so far. Additionally, the ETF charges a lower fee of just 15 bps per year. It is down 0.4% and has a Zacks ETF Rank of 3 with a High risk outlook. iShares iBoxx $ High Yield Corporate Bond ETF (NYSEARCA: HYG ) This is the largest and most liquid fund in the high-yield bond space with AUM of over $13.5 billion and average daily volume of around 7.3 million. The product has accumulated about $687 million in assets in the past few trading sessions while charging 50 bps in fees per year from investors. The fund tracks the iBoxx $ Liquid High Yield Index and holds 1,014 securities in the basket. Effective duration and average maturity came in at 4.20 and 5.11 years, respectively. In terms of credit quality, the fund focuses on lower quality, non-investment grade bonds, allocating about 49% of the portfolio to bonds rated ‘B’ or lower. The ETF is up 2.8% and has a Zacks ETF Rank of 4 with a High risk outlook. SPDR Barclays 1-3 Month T-Bill ETF (NYSEARCA: BIL ) This product saw substantial inflows of over $315 million in the same period. It offers exposure to the short end of the yield curve by tracking the Barclays 1-3 Month U.S. Treasury Bill Index. It holds 10 securities in the basket with an average maturity and an effective duration of 0.15 year each. The fund has amassed $3.4 billion in its total asset base while it trades in solid volume of 1.1 million shares. It charges 14 bps in annual fees and has delivered flat returns so far in the fourth quarter. BIL has a Zacks ETF Rank of 3 with a Low risk outlook. Bottom Line These bond ETFs are getting a lot of attention from investors since the start of the final quarter of 2015. The trend is likely to continue as long as interest rates are at low levels and global worries weigh on stock returns. Original Post