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U.S. Treasury Bond Funds Unscathed After China Cuts Stake

Many had the belief that the U.S. would be vulnerable to China’s quirks when the latter’s holdings of U.S. treasuries peaked to $1.65 trillion in 2014. China has chopped its holdings of U.S. treasuries by nearly $180 billion, but that sparked hardly any reaction from the treasury markets. Recent data from the Treasury Department showed benchmark 10-year yields dropped 0.6 percentage points despite the biggest foreign holder of U.S. debt chopping its holding between March 2014 and May 2015. China’s Holdings China has not reinvested the proceeds from maturing securities back into the treasuries; leading to a lower stake of nearly $180 billion from its peak. According to the latest Treasury data, China has $1.47 trillion of treasuries. This also includes $200 billion held through Belgium. Nomura has said that several Chinese custodial accounts are located in Belgium. Foreign buyers had played a key role in helping the treasury market boom to $12.7 trillion when the U.S. was trying to finance stimulus programs to come out of recession. China had been an active participant, reflected in the gigantic jump in holdings from less than $350 billion held previously. China is retreating as it looks to raise money to counter the dismal economic growth conditions and the recent market rout. Alternative Buyers Fill the Gap New regulations to avoid another financial collapse have made banks and such firms to buy highly-rated assets. Investors’ cash moved from bank deposits that have record low interest rates into mutual funds; which in turn have accumulated government debt. According to Fed data, stakes in treasuries and debt from federal agencies held by U.S. commercial banks have increased by nearly $300 billion since March 2014 to more than $2.1 trillion. Indirect bidders won 55% of the $1.2 trillion of notes and bonds that have been sold in 2015, up from 2014’s 43%. These indirect bidders include foreign investors and mutual funds. U.S. Treasury Mutual Funds to Buy China’s reduced holdings failed to have any negative impact on U.S. treasuries. It is evident that the alternatives stepped in; wherein many mutual funds too stockpiled substantial holdings. On that note, let’s look at mutual funds that have substantial U.S. treasuries holdings. The following funds carry a Zacks Mutual Fund Rank #1 (Strong Buy) or Zacks Mutual Fund Rank #2 (Buy). Remember, the goal of the Zacks Mutual Fund Rank is to guide investors to identify potential winners and losers. Unlike most of the fund-rating systems, the Zacks Mutual Fund Rank is not just focused on past performance, but the likely future success of the fund. These funds have strong 1-year returns. The 3-year and 5-year annualized returns are also encouraging. T. Rowe Price U.S. Treasury Long-Term (MUTF: PRULX ) invests a major portion of its assets in government affiliated U.S. treasury securities. The rest of the assets are invested in other government-backed instruments. It has a maturity between 15-20 years and may also vary from 10-30 years. PRULX carries a Zacks Mutual Fund Rank #1 and has returned 7.3% over the last 1 year. The 3- and 5-year annualized returns are 2.1% and 6%. The annual expense ratio of 0.51% is lower than the category average of 0.61%. Dreyfus U.S. Treasury Long-Term (MUTF: DRGBX ) seeks total return with capital growth and current income. DRGBX invests a majority of its assets in U.S. treasury instruments. DRGBX may also invest in other instruments which are approved by the domestic government or issued by its entities. DRGBX generally has a duration of more than or equal to 7.5 years and minimum of 10 years of weighted duration of maturity. DRGBX carries a Zacks Mutual Fund Rank #1 and has returned 7.3% over the last 1 year. The 3- and 5-year annualized returns are 2% and 6%. The annual expense ratio of 0.65% is however higher than the category average of 0.61%. Wasatch-Hoisington US Treasury (MUTF: WHOSX ) seeks return that beats inflation with an emphasis on both capital growth and current income. WHOSX invests a lion’s share of its assets in U.S. treasury securities and also in repurchase agreements backed by such securities. WHOSX carries a Zacks Mutual Fund Rank #2 and has returned 10.8% over the last 1 year. The 3- and 5-year annualized returns are 2.8% and 8%. The annual expense ratio of 0.70% is however higher than the category average of 0.61%. Fidelity Spartan Long-Term Treasury Bond Index Fund Fidelity Advantage (MUTF: FLBAX ) invests most of its assets in securities listed in Barclays U.S. Long Treasury Bond Index. The fund tries to replicate the performance of Barclays U.S. Long Treasury Bond Index by using statistical sampling techniques on the back of interest rate sensitivity and maturity among others. FLBAX carries a Zacks Mutual Fund Rank #2 and has returned 8.6% over the last 1 year. The 3- and 5-year annualized returns are 2.9% and 6.7%. The annual expense ratio of 0.1% is lower than the category average of 0.61%. Vanguard Long-Term Treasury Investor (MUTF: VUSTX ) invests a major portion of its assets in long-term bonds whose interest and principal payments are backed by the full faith and credit of the U.S. government. At least 65% of VUSTX’s assets will always be invested in U.S. treasury securities. VUSTX maintains a dollar-weighted average maturity of between 15 and 30 years. VUSTX carries a Zacks Mutual Fund Rank #2 and has returned 8.4% over the last 1 year. The 3- and 5-year annualized returns are 2.8% and 6.6%. The annual expense ratio of 0.2% is lower than the category average of 0.61%. Original Post

Malaysia ETF Hits New 52-Week Low

For investors seeking to know about the painful areas of investing, the iShares MSCI Malaysia ETF (NYSEARCA: EWM ) is probably on the radar now. The fund just hit a 52-week low, and shares of EWM are down roughly 36.6% from their 52-week high price of $16.32. Are more pains in store for this ETF? Let’s take a quick look at the fund and its near-term outlook to get a better idea of where it might be headed. EWM in Focus EWM looks to track the performance of the Malaysian equity market. The fund has a focus on large caps, with key holdings in the Financials, Industrials, Utilities and Telecom sectors. EWM charges investors 48 basis points a year in fees, and has top holdings in Public Bank, Malayan Banking and Tenaga Nasional BHD (see all Asia-Pacific (Emerging) ETFs here ). Why the Move? The Malaysian equity market has been an area to watch lately, as its neighboring country China devalued its currency earlier last week, and Fed policy normalization has never looked so strong. Also, a falling oil price marred the stocks of oil-rich Malaysia, which happens to be one of the largest Asian crude exporters. Political crisis is another cause of concern for the country. On the other hand, China’s currency devaluation hurt its competiveness as an exporter. This, coupled with a strong U.S. dollar amid the looming Fed rate hike sent Malaysia’s currency ringgit to a new 17-year low last week. This resulted in depletion of Malaysia’s foreign exchange reserves, and in turn, soured investors’ mood toward Malaysian investing. More Pains Ahead? Currently, EWM has a Zacks ETF Rank #3 (Hold), so it’s hard to make out its future returns one way or another. However, the fund has a negative-weighted alpha of 38.21 . A negative-weighted alpha hints at more pain. So, for those who are currently not into the Malaysian ETF, it is wise to stay on the sidelines and wait for better entry points. Things will likely take some more time to stabilize. Original Post Share this article with a colleague

Reasons Asia Should Be The Focus Of Investors

Asia is a continent with huge potential and a multitude of growth opportunities in various industries. The tech industry in the region is growing at a fast pace, though it is not the only opportunity that can be found. There are many other rising industries, and they remain untapped at this day. One of the many reasons why investors should look more into Asia is because of the continent’s fast-developing high-tech environment. While everyone knows about the innovation coming out of Silicon Valley, companies from tech hubs such as Singapore , Hong Kong and Tokyo are under the radar of many investors and there are many stocks in Asia that are on the cutting edge, yet have a very attractive valuation. Mobile is becoming very big, with some markets’ growth predicted to be hugely reliant on it in the near future. A report from Forrester expects online spending in China to reach US$1 trillion in 4 years through the growing use of mobile apps. An environment where people will use more mobile devices with improved networks, increased application usage, and more e-commerce entails emerging opportunities for every type of business. Another reason Asia should be on any investor’s radar is because of its huge market size. The continent’s population is very large, with an estimated 4.3 billion people living in the Asia-Pacific region in 2014, according to the United Nations Economic and Social Commission for Asia . This represents 60% of the world’s population, not only entailing a huge pool of potential customers, but also for untapped talent that has yet to be discovered. A growing population along with an easier access and an evolving tech industry will enable more talent to grow in the field of engineering and design, adding to the Asian market’s performance. Opportunities in Asia are limitless with this large base of potential customers and promising future talents. There is still a lot of room for creativity, innovation and unique opportunities as most of Asia is not already in the mature stage that the United States and Western Europe is. The startup environment is growing at an incredible speed, making it a very inspiring place to conduct business in. According to CB Insights, Beijing, Tokyo, Shanghai and Bangalore figured in the top 6 cities in the world to grow the fastest in venture-capital deals and dollars last year. Indeed, deals increased by 165% between 2013 and 2014 in Beijing. India is the fastest growing startup ecosystem in the world according to a study conducted by the National Association of Software and Service Companies. India is launching nearly 800 startups per year. Furthermore, the major Asian cities are equipped with advanced and developed infrastructure. This facilitates the process of business creation, and enables rapid growth. Asia has received a lot of investment both in economic and social infrastructure, and improvements are already clearly visible. These investments also help to reduce barriers for trade. Entry of foreign businesses in Asia is easier and more opportunities are rising. For example, Japan now has less demanding requirements for foreigners to start their businesses in the country as they no longer need a permanent residence. A growing trend of economic liberalization, an untapped pool of consumers and talent, great infrastructure and a rapidly growing startup scene all bode well for Asia in the 21st century.