Tag Archives: zacks funds

4 Ways To Hedge Volatility With ETFs

Volatility levels have picked up lately though chances of a turnaround are little, at least in the near term. This is especially true as a faltering Chinese economy rattled the global markets in recent weeks and intensified fears of global repercussions. Plunging oil price, which is yet again threatening global growth and deflationary pressure, and slowdown in key emerging markets have added to the woes. All these factors might dim the chances of the Fed’s September lift-off and delay the rates hike to later this year or early next year. On the other hand, a series of upbeat data on the domestic front is supporting the prospect of a rates hike. The second estimate of Q2 GDP data came in much higher than the initial estimate, the housing market is improving, consumer confidence is rising, and the unemployment rate dropped to a seven-and-half year low. All these signaled that the U.S. economy is doing quite well on several aspects. In such a backdrop where international fundamentals are weak but domestic economy is on a firmer footing, investors may want to stay allocated to the U.S. markets and might take advantage of the beaten down prices. However, rising volatility might put their returns at risk. In order to exploit the current trend, investors should apply some hedge techniques to the equity portfolio. While there are number of ways to do this, we have highlighted four volatility-hedged ETFs that could prove beneficial amid market turbulence. Investors should note that these funds have the potential to stand out and might outperform the simple vanilla funds in case of rising volatility. How to Play PowerShares S&P 500 Downside Hedged Portfolio (NYSEARCA: PHDG ) This actively managed fund seeks to deliver positive returns in rising or falling markets that are uncorrelated to broad equity or fixed-income market returns. It tries to follow the S&P 500 Dynamic VEQTOR Index, which provides broad equity market exposure with an implied volatility hedge by dynamically allocating between different asset classes: equity, volatility and cash. The S&P 500 Total Return represents the equity component while the S&P 500 VIX Short-Term Futures Index represents the volatility component of the index. The non-equity (volatility + cash) portion makes up for one-fourth of the portfolio, while the rest goes to equity. In terms of equity holdings, the fund is widely diversified across sectors and securities. None of the firms holds more than 2.72% share while technology, health care, financials, consumer discretionary and industrials occupy the top five spots with a nice mix in the portfolio. The fund has accumulated $462.5 million in its asset base and trades in a moderate volume of around 179,000 shares per day. It charges 40 bps in fees per year from investors and was down 1.8% in the trailing one-month period. Barclays ETN+ S&P VEQTOR ETN (NYSEARCA: VQT ) This is an ETN option tracking the S&P 500 Dynamic VEQTOR Index. VQT uses volatility futures contracts directly to hedge volatility. It increases allocation to the equity component as measured by the S&P 500 Total return index, in times of low volatility. On the other hand, it increases volatility exposure as measured by the S&P 500 VIX Futures Total Return index and allocates entirely into cash if the index slumps 2% or more in the preceding 5 days. In this manner, the note manages to keep a check on volatility. The product has amassed $434.7 million in AUM while sees light volume of nearly 28,000 shares per day on average. It is a bit pricey, charging 95 bps in annual fees. The ETN lost 1.7% over the past one month. Janus Velocity Volatility Hedged Large Cap ETF (NYSEARCA: SPXH ) This ETF tracks the VelocityShares Volatility Hedged Large Cap Index and looks to hedge “volatility risk” in the S&P 500, offering investors exposure to not only the S&P 500 but also both long and inverse exposure in short-term VIX futures. The product provides target equity exposure of 85% to the S&P 500 using large cap ETFs, while the remaining 15% goes to the volatility strategy through one or more swaps. The fund trades in a light volume of roughly 7,000 shares a day and charges 71 bps in annual fees. The ETF shed nearly 3.2% in the past one-month period. ETRACS S&P 500 VEQTOR Switch ETN (NYSEARCA: VQTS ) This product entered the market 10 months ago and has been able to garner $22.8 million in its asset base. It follows the S&P 500 VEQTOR Switch Index, which seeks to simulate a dynamic portfolio that allocates between equity and volatility based on realized volatility in the broad equity market. The allocation to the equity component is dynamically adjusted to gain exposure to the S&P 500 with a target volatility of 10%. The remainder of the index is allocated to the S&P 500 VIX Futures Long/Short Switch Index that allocates between cash and long or short positions in an index of VIX futures with a constant one-month maturity. This means that when realized volatility is 10% or less, the index allocates 100% to the S&P 500 Index. When realized volatility exceeds 10%, the index allocates a portion to the S&P 500 Index and the remainder to the futures index. This approach results in higher expense ratio of 0.95%. Volume is also paltry at about 4,000 shares. VQTS was down nearly 8% over the past one month. Bottom Line Investors could definitely hedge volatility in their portfolio with the help of the above-mentioned products, which provide dynamic exposure according to the level of market volatility. These are least affected by any market turmoil and could prove great choices when it comes to protection against market downturn. Original Post

Are Treasuries The Best Safe Haven ETFs Now?

Though the U.S. economy has been putting up a stronger show since the second quarter of 2015, global growth worries led mainly by China issues could derail the U.S. market momentum in the coming days. Whatever the case, devaluation of the Chinese currency yuan by 2% and a six-and-a-half-year low manufacturing data for August left the global market in ruins last month. Apart from China, a slowdown in the Japanese economy, the return of growth concerns in the Euro zone, technical recession in Canada mainly on a protracted oil price rout, slouching commodities and painful trading in the emerging markets recently put an end to the rally in risky assets. If this was not enough, U.S. job numbers in August grew at the most sluggish pace in five months and fell short of analysts’ expectations. Though the data was not at all unimpressive as the unemployment rate ticked down to 5.1% from 5.2%, the lowest since April 2008, the estimate miss stirred up confusion among investors. This coupled with growing concerns in the global horizon sent investors on a defensive mode and brightened the risk-off trade sentiments. Investors dumped stocks and junk bonds in favor of safe haven assets to protect their portfolio from capital erosion. However, investors should note that there are a few assets in the market which are known for their safe haven bids. These include U.S. Treasuries, the greenback, gold and Japanese yen. These products normally gain when volatility in the market flares up and vice versa. However, all safe haven assets and the related ETFs did not provide equal solace to investors this time around. While some lived up to expectations and some failed short. Greenback – Loser U.S. dollar seems to be loser on this front. PowerShares DB US Dollar Bullish Fund (NYSEARCA: UUP ) which offers exposure to the U.S. dollar against a basket of six world currencies like the euro, Japanese yen, British pound, Canadian dollar, Swedish krona and Swiss franc lost about 1.9% (as of September 4, 2015) in the last one month as the bet for the September timeline of the Fed lift-off had softened a bit since subdued inflation pushed the speculative timeline to a little later. After the latest U.S. job report which emphasized the estimate miss, UUP lost about 0.12% on September 4 and left safety seeking investors stranded. Gold – Gainer; But How Long? Though the looming Fed lift-off and the persistent slowdown in China (one of the major consumers of gold) go directly against the demand for the yellow metal, this precious metal offered unanticipated support to investors in the recent global market tumult. Gold bullion ETF SPDR Gold Shares (NYSEARCA: GLD ) added over 3.4% in the last one month. However, this support is likely to be short-lived as the underlying fundamentals are weak. Sooner or later, the U.S. economy is due for a rate hike which will tarnish the gold bullion. U.S. Treasury – Are the Best among the Pack? For the U.S. Treasury bonds, especially the long-dated ones, 2014 turned out to be a banner year. Though the looming Fed lift-off is a negative for U.S. treasury ETFs, 10-year U.S. Treasuries outdid their Group of Seven counterparts in the last month’s equities collapse, as per Bloomberg . Bloomberg also reported that the latest performance was a sweet surprise for Treasuries if we go by the prior three Fed rate-hiking rounds since 1993, when 10-year U.S. debt underperformed other developed countries. Yields on the U.S. benchmark 10-year notes, which touched the 2.50% mark – the highest point of this year – on June 10, slipped to 2.13% on September 4, 2015. The plunge in yields at the eleventh hour of the most speculated Fed meeting for a lift-off in mid-September favored its safe-haven standing. A still-low inflation level and an estimate miss in U.S. job data also spurred many investors to bet against an immense rate hike and pour their money into U.S. Treasuries, the safest harbor for smart yields and decent capital gains. Over the last one month (as of September 4, 2015), Barclays iPath US Treasury 5-Year Bull ETN (NASDAQ: DFVL ) added over 3.2%, the best performance in the government-backed bond ETFs space. The product looks to gain in response to a decrease in 5-year Treasury note yields and fall if there is a rise in 5-year Treasury note yields. Other well-performing treasury ETFs are Vanguard Extended Duration Treasury ETF (NYSEARCA: EDV ), Pimco 7-15 Year U.S. Treasury Index Fund (NYSEARCA: TENZ ), Intermediate-Term U.S. Treasury ET F (NYSEARCA: SCHR ) and iShares 20+ Year Treasury Bond ETF (NYSEARCA: TLT ). Original Post

China Stimulus Raises Hopes: Japan ETFs To Lead

Battered by the China-led global rout, Japanese stocks made a spectacular comeback in today’s trading session. The Nikkei 225 Stock Average skyrocketed nearly 8%, representing the biggest one-day jump in seven years. Steep gains came after a day when the index crashed 2.4%, wiping out all of the gains made this year. Optimism was mainly driven by stimulus hopes in China that could reinvigorate growth in the world’s second-largest economy. China will strengthen its fiscal policy, boost infrastructure spending and speed up the reform of its tax system to support the economy. Though this sparked off a rally in stocks across the globe, the Japanese stocks are leading the way higher. This is because prime minister Shinzo Abe provided an additional boost to the Japanese stock market, as it is seeking new reforms including a corporate tax cut to shore up the country’s economy. Abe is looking for a tax cut of at least 3.3% to 31.33% next year, starting April 2016, from the current 34.62% and aims to bring it down to the twenties over the next several years. Further, the steep drop in recent weeks made the Japanese stocks cheap, compelling investors to scoop up the bargain stocks. As of September 8, Nikkei 225 was trading at 16.4 times estimates earnings , the lowest level since October. Given an astounding surge in stocks, Japan ETFs are also expected to see smooth trading and investors should definitely tap this opportunity by investing in the top-ranked ETFs. While there are a number of funds with a Zacks Rank #1 (Strong Buy) or #2 (Buy), some are deep in red and thus offer attractive buying opportunities at present. In particular, the large cap centric funds – SPDR Russell/Nomura PRIMETM Japan ETF (NYSEARCA: JPP ), SPDR MSCI Japan Quality Mix ETF (NYSEARCA: QJPN ), Maxis Nikkei 225 Index Fund (NYSEARCA: NKY ) and iShares MSCI Japan ETF (NYSEARCA: EWJ ) – lost in double digits over the past one month. QJPN and JPMV have a Zacks Rank #1 while NKY and EWJ hold a Zacks Rank #2. Apart from these, Japan hedged funds – iShares Currency Hedged MSCI Japan ETF (NYSEARCA: HEWJ ), db X-trackers MSCI Japan Hedged Equity (NYSEARCA: DBJP ) and WisdomTree Japan Hedged Equity Fund (NYSEARCA: DXJ ) – also seem excellent picks. These ETFs offer exposure to the broad Japanese stock market, while at the same time provide hedge against any fall in the Japanese yen. The trio has a Zacks Rank #1 and is down nearly 14% over the past one month. Original article .