Tag Archives: zacks funds

Inverse Equity ETFs To Tackle The Slump

The whole of 2015 suffered losses on the market, and the final day of the year was no exception. While the broader market indices like the S&P 500 and Dow Jones Industrial Average were down 0.7% and 2.3%, respectively, in 2015, the closing bell of December 31 also failed to ring in cheer, as both indices lost more or less 1%. A hangover could be felt at the onset of the new year, and if morning shows the day, then 2016 has chances of seeing a weak start. Like 2015, an edgy global market backdrop, acute oil sector worries, the commodity market rout, a soaring greenback and weakening corporate earnings, geopolitical threats related to terror attacks and the influence of the all-important Fed will be replayed in 2016 as well. We are now gearing up for the Q4 2015 earnings season, with the S&P 500 earnings projected to decline 7.3% on 3.3% lower revenues. Barring the finance sector, the numbers are projected to reflect a 10.3% decline in earnings on a 3.1% fall in revenues, as per the Zacks Earnings Trends report issued on December 29, 2015. Per the report, earnings growth lacked luster, as depicted by the negative growth rate for the S&P 500 index in each of the last two earnings seasons. The scenario is expected to remain equally dull, as the present Q4 growth expectations are “the weakest of any other recent period at the comparable stage.” Needless to say, dull earnings will have adverse effects on the bourses. Probably sensing this turbulence in the market, the long-term U.S. treasuries have been behaving in a dovish manner even after the Fed lift-off. Yields on long-term treasuries have hardly budged since then. While these safe-haven bets are always there to pacify investors’ jittery nerves, they can also make short-term plays on the equity markets with the inverse ETFs. For these investors, we highlight the three non-leveraged inverse ETFs that could deliver higher returns if the market remains bearish (see: all the Inverse Equity ETFs here ). As a caveat, investors should note that these products are suitable only for short-term traders, as these are rebalanced on a daily basis. Still, for ETF investors who are bearish on the equity market for the near term, either of the above products could be an interesting choice. ProShares Short S&P 500 ETF (NYSEARCA: SH ) This fund seeks to deliver inverse exposure to the daily performance of the S&P 500 index. It is the most popular and liquid ETF in the inverse equity space, with AUM of nearly $1.63 billion and average daily volume of around 4.8 million shares. The fund charges 90 bps in fees and expenses. Though the product lost 4.3% in 2015, it added about 1% on December 31, 2015. ProShares Short Russell2000 ETF (NYSEARCA: RWM ) This ETF targets the small cap segment of the broad U.S. equity market from a bearish perspective. This is done by tracking the inverse performance of the Russell 2000 index. The fund has amassed $381.1 million and trades in heavy volume of 600,000 shares per day. The expense ratio comes in at 0.95%. RWM was up 0.1% in the last one year, but gained 1.3% on December 31, 2015. ProShares Short Dow 30 ETF (NYSEARCA: DOG ) This product seeks to deliver inverse exposure to the daily performance of the Dow Jones Industrial Average, which includes 30 blue chip companies. The fund has managed $324.2 million in its asset base, while it charges 95 bps in fees and expenses. Volume is moderate, as it exchanges less than 850,000 shares per day, on average. DOG gained more than 1% in on December 31, 2015, but shed about 3% in the last one year. Original Post

Can Flight To Safety Save These Treasury Bond ETFs?

The bond market behaved in a peculiar manner when it started recording decline in yields across the yield-curve spectrum from December 17, just a day after the Fed hiked key interest rate after almost a decade. Agreed, the Fed move was largely expected and much of the meeting’s outcome was priced in before. Still, this time around, the bonds market did not act wild at all – especially the long-term bonds – as it did in taper-trodden 2013. On December 16 – the day the Fed announced the hike, the two-year benchmark Treasury yield jumped 4 bps to 1.02% – a five-and-a-half year high. The yield on the 10-year Treasury note rose just 2 bps to 2.30% and yield on the long-term 30-year bonds saw a 2-bps nudge to 3.02%. But yields on the benchmark 10-year Treasury bond fell 11 bps to 2.19% in the next two days accompanied by a 12-bps slump in 30-year Treasury bond, 5-bps dip in the two-year benchmark Treasury yield and a 7-bps decline in the ultra-short three-month benchmark Treasury yield. Why the Dip in Bond Yields? Investors must be looking for reasons why the bond market went against the rulebook, which says when interest rates rise, bond yields jump and bond prices fall. Several investors thought that the bull era of bonds will come to an end with the Fed tightening its policies. However, the Fed’s repeated assurance to go ‘gradual’ with the rate hike policies might have soothed bond investors’ nerves. Plus, while a healing job market strengthened the prospect of the next hike again in March 2016, a still-subdued inflationary backdrop led investors to mull over a near-term deflation possibility amid a rising rate environment. Added to this, global growth worries, the possibility of a scarier plunge in greenback-linked oil prices (as the U.S. dollar soars post Fed hike), weakening overall commodity market and possibility of lower U.S. corporate profits in the upcoming quarters might have propelled a flight to safety. Investors should also take note of the Fed funds rate projection. The estimated median funds rate was maintained at 0.4% for 2015 and 1.4% for 2016, while the same for 2017 and 2018 were lowered from 2.6% to 2.4% and 3.4% to 3.3%. The projected range for 2015, 2016 and 2017 was changed from negative 0.1-positive 0.9% to 0.1-0.4%, from negative 0.1-positive 2.9% to 0.9-2.1% and from 1.0-3.9% to 1.9-3.4%, respectively. All these show no material threat to long-term bonds and the related ETFs after the first Fed hike. 25+ Year Zero Coupon U.S. Treasury Index Fund (NYSEARCA: ZROZ ) This ETF follows the BofA Merrill Lynch Long US Treasury Principal STRIPS Index, which focuses on Treasury principal STRIPS that have 25 years or more remaining to final maturity. The product holds 20 securities in its basket. Both the effective maturity and effective duration of the fund is 27.22 years. This fund is often overlooked by investors as evident from an AUM of $158.5 million. The product charges 15 bps in annual fees and returned 2.1% on December 17, 2015. The fund is down 4.2% so far this year. The fund yields 2.70% annually and has a Zacks ETF Rank #2. Vanguard Extended Duration Treasury ETF (NYSEARCA: EDV ) For a long-term play on the bond market, investors have EDV, a fund that seeks to match the performance of the Barclays U.S. Treasury STRIPS 20-30 Year Equal Par Bond Index. This means that this benchmark zeroes in on fixed income securities that are sold at a discount to face value, and then the investor is paid the face value upon maturity. This particular 74 bond basket has an average maturity of 25.1 years. The effective duration of the ETF stands at 24.7 years, suggesting high interest rate risks. The fund has amassed about $371.1 million in assets. Investors should also note that this is a cheap product, as it charges just 12 basis points a year, so it will be a very low cost way to get into long duration bonds. The fund has lost about 5.4% in the year-to-date time frame on rising rate worries but gained 1.8% on December 17. This Zacks Rank #2 ETF yields 2.86% annually. iShares 20+ Year Treasury Bond (NYSEARCA: TLT ) This iShares product provides exposure to long-term Treasury bonds by tracking the Barclays Capital U.S. 20+ Year Treasury Bond Index. It is one of the most popular and liquid ETFs in the bond space having amassed over $5.7 billion in its asset base and more than 8.4 million shares in average daily volume. Its expense ratio stands at 0.15%. The fund holds 31 securities in its basket. The average maturity comes in at 26.65 years and the effective duration is 17.37 years. The fund gained over 1.1% on December 17. TLT has a Zacks ETF Rank #2 with a High risk outlook. Original Post

ETF Investing Strategies To Brave Volatility In 2016

Global stocks were in a mess in 2015, stymied by the sudden currency devaluation in China, spiraling Chinese economic slowdown and the resultant shockwaves across the world. Also, the return of deflationary threats in Eurozone despite the QE measure, a sagging Japanese economy, the oil price rout and a slouching broader market complicated the scenario. Back home, putting an end to prolonged speculation, the Fed finally hiked the key interest rate by 25 bps at the tail end of the year. All these put the New Year in a critical juncture. The investing world may be at a loss of ideas on where to park money for smart gains. For them, below we detail possible asset class movements in 2016 and the likely smart ETF bets. Bull or Bear in 2016? The million-dollar question now is whether U.S. stocks will buoy up or drown in 2016. While policy tightening and overvaluation concerns give cues of an end to the bull run, a dubious performance in 2015 raises hopes that the stocks will rebound soon. After all, the Fed is not hiking rates to rein in inflation. The tightening is reflective of U.S. economic growth and lower risk of deflation, both of which are encouraging for stocks. Thus, stocks should offer decent, if not spectacular, returns next year. Investors can capitalize on a steady U.S. economy via the momentum ETF iShares MSCI USA Momentum Factor (NYSEARCA: MTUM ) . To rule out the negative impact of a higher greenback, investors can also try out more domestically focused small-cap ETFs; but a value notion is desirable to weather heightened volatility. S&P Small-Cap 600 Value ETF (NYSEARCA: VIOV ) is one such fund. Investors dreading interest rate hike may also try out this rate-restricted ETF PowerShares S&P 500 ex-Rate Sensitive Low Volatility ETF (NYSEARCA: XRLV ). Sectors to Hit & Flop Since investors will be busy in speculating the pace and quantum of Fed rate hikes in 2016, rate sensitive sector ETFs would be winners and losers. Financial sector ETF PowerShares KBW Bank ETF (NYSEARCA: KBWB ) and insurance ETF Dow Jones U.S. Insurance Index Fund (NYSEARCA: IAK ) generally perform better in a rising rate environment. Plus, Consumer Discretionary ETFs like Consumer Discret Sel Sect SPDR ETF (NYSEARCA: XLY ) and tech ETFs like Technology Select Sector SPDR ETF (NYSEARCA: XLK ) also perform well in the early rate hike cycle as per historical standard. Lower gasoline prices should also help consumers to create a wealth effect. On the other hand, high-yielding sectors and the sectors which are highly leveraged will falter in a rising rate environment. So Utilities Select Sector SPDR ETF (NYSEARCA: XLU ) and Vanguard REIT ETF (NYSEARCA: VNQ ) could be at risk. Having said this, we would like to note that these are just initial blows and after a few upheavals, the market movement should even out. Where Will Bond Markets Go? The year 2016 may mark the end of the prolonged bull run in the bond market as the first U.S. rate hike in a decade may make investors jittery in 2016. This is more likely if rates steadily move up in the coming months, with the Fed’s current projections hinting at four rate hikes in 2016. Agreed, interest rates environment remained benign even after the lift-off, owing to the global growth worries. But the scenario may take a turn in 2016 if economic data come on the stronger side, inflation perks up and wage growth gains momentum. On the other hand, the possibility of another solid year for fixed income securities can’t be ruled out, especially when stocks are not that cheap. However, investors should note that yield curve is likely to flatten ahead. Since the inflation scenario is still muted, long-term bond yields are expected to rise at a slower pace while short-term bond yields are likely to jump. Yield on the 6-month Treasury note soared 39 bps to 0.50% since the start of the year (as of December 29, 2015) while the yield on the two-year Treasury note jumped 43 bps to 1.09% and the yield on the 10-year Treasury note rose just 18 bps to 2.32%. Thanks to the potential flattening of the yield curve, the inverse bond ETF iPath US Treasury Flattener ETN (NASDAQ: FLAT ) could be a hit next year. Now that interest rates will be topsy-turvy, floating rate ETFs like iShares Floating Rate Bond (NYSEARCA: FLOT ) should do better going ahead. Investors can also take a look at the interest rate-hedged high yield bond ETFs as solid current income from these securities can make up for capital losses. High Yield Interest Rate Hedged ETF (BATS: HYHG ) is one such option, yielding over 6.50% annually. However, one should also note that the high-yield bond market is presently undergoing a tough time due to the energy market default. So, less energy exposure is desired in the high-yield territory. About 14% of HYHG is invested in the energy sector. Drive for Dividends The Fed may hike key interest rates, but it has hardly left any meaningful impact on long-term treasury yields. So, the lure for dividends will remain intact. U.S.-based dividend ETFs including Vanguard High Dividend Yield ETF (NYSEARCA: VYM ) and Schwab US Dividend Equity ETF (NYSEARCA: SCHD ) could be useful for investors in waiting out the volatility via current income. Want to Visit Abroad? Where? It’s better to stay diversified as far as the global market investing is concerned. Due to the divergence in monetary policies between the U.S. and other developed economies, many analysts are wagering on Europe and Japan (where substantial and prolonged QE reassures are on). Per an analyst , earnings in both regions “will make them attractive from a standpoint of possible capital appreciation.” Plus, the European markets were in occasional disarray this year due to economic hardships. This has made the stocks compelling. However, currency-hedging technique is warranted while visiting foreign shores. Europe Hedged Equity Fund (NYSEARCA: HEDJ ) and Japan Hedged Equity Fund (NYSEARCA: DXJ ) are two choices in this field. Investors can also stop over at China but with a strong stomach for risks. Golden Dragon Halter USX China Portfolio (NYSEARCA: PGJ ) should be a modest bet for this. Occasional Volatility to Crack the Whip Volatility has been pretty strong in the market in 2015 and the trend should continue in 2016. Investors can deal with this in various ways. First comes low volatility ETFs like SPDR S&P Low Volatility ETF (NYSEARCA: SPLV ) and iShares MSCI Minimum Volatility ETF (NYSEARCA: USMV ) , second are defensive ETFs like U.S Market Neutral Anti-Beta Fund (NYSEARCA: BTAL ) and AdvisorShares Active Bear ETF (NYSEARCA: HDGE ) , and last but not the least in queue are the volatility ETFs themselves such as C-Tracks on Citi Volatility Index ETN (NYSEARCA: CVOL ) and ProShares VIX Short-Term Futures (NYSEARCA: VIXY ) . Notably, as the name suggests volatility products are quite rowdy in nature and thus suit investors with a short-term notion. Original Post