Can China ETFs Continue Their Ascent?

China ETFs’ recent gyrations are enough to give one whiplash. Many have behaved like the Shanghai Composite Index recently. After soaring 152% over the previous 12 months — 60% this year alone — to a seven-year high on June 12, the benchmark for mainland China’s stock market hit a significant speed bump.

Last week the index stumbled 13% into a much-anticipated correction. A 5% rally the first three days of this week gave way to selling Thursday, cutting the week’s gain so far to 1%.

“The sheer increase in prices this year is something that makes me want to stand back,” said John Rutledge, chief investment strategist for Safanad, an investment house in New York. “I don’t know any fundamental reason why prices should have doubled this year, and that price behavior sounds like a bubble.”

Rutledge is referring to the fact that the Chinese economy’s growth rate has slowed to a six-year low of 7%. But if fundamental analysis can’t explain it, macroeconomics can. With central banks all over the world cutting interest rates, there is flood of liquidity looking for returns.

The first thing to know is that there are two markets in China. The Hong Kong market, which has long been open to global investors, trades what are known as H-shares. Then there are the mainland markets in Shanghai and Shenzhen. They trade A-shares, which had been limited to domestic investors.

But last year the Shanghai and Hong Kong markets created a system that let global investors buy A-shares and domestic investors buy H-shares. This change has brought a lot of money to the mainland markets.

On top of that, the People’s Bank of China, the country’s central bank, has cut interest rates three times since November, and more cuts are expected.

Finally, throw in a slowdown in the Chinese real estate market. It led the Chinese government to encourage investments in stocks by making it easier for Chinese retail investors to open accounts and buy stocks on margin.

Loss Of Liquidity

And a loss of liquidity sparked last week’s correction. First, Chinese regulators, worried that the market was getting overleveraged, tightened the rules on margin trading. Then a slew of initial public offerings sucked up a lot of cash.

There’s no doubt that China is risky. But gains could resume if the economy picks up and government stimulus programs continue. And index provider MSCI is evaluating A-shares for inclusion in its emerging markets index. That could spark demand by many funds that track MSCI indexes.

If you want China A-Shares in your portfolio, investing in ETFs is the way to go. KraneShares offers four ETFs focused on China. Its Bosera MSCI China A ETF (ARCA:KBA) holds more than 300 large-cap and midcap stocks on both the Shanghai and Shenzhen stock exchanges.

KraneShares says that these are the stocks that would be included in an MSCI emerging markets index. KBA is up 40% year to date and 126% in the past 12 months. It has an expense ratio of 0.85%.

Deutsche X-trackers Harvest CSI 300 China A-Shares ETF (ARCA:ASHR) tracks the CSI 300 Index, which holds the largest and most liquid stocks in the A-share market. It’s up 35% year to date and 129% for the past year. It charges 0.8% of assets for expenses.
Market Vectors ChinaAMC A-Share ETF (ARCA:PEK) also tracks the CSI 300 index but charges less: 0.72%. It’s up 39% year to date and 132% in the 12 months. The big difference is that ASHR is more liquid and offers a 0.2% yield, while PEK offers none.

As liquidity improves in July, David Goldman, managing director of investment firm Reorient Group, sees a market recovery and a move back up beyond the 5,000 level for the Shanghai Composite.

“Economic fundamentals are clearly improving, and so are regulatory incentives for stock market growth,” he wrote this week.

Originally published in Investor’s Business Daily.

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WisdomTree Wins ETF of Year at ETF.com Awards As ProShares Walks Away With 4 Statues

It’s award time again.

Much like Spring follows Winter, although reports of more snow this weekend are leading some to question that, the ETF industry starts its period of self-congratulations on the heels of the Oscars, Grammys and Golden Globes.

ETF.com, the self-proclaimed world’s leading authority on exchange-traded funds, started the season off with their second annual awards banquet.

“Our awards try to recognize the products that make a difference to investors,” said Matt Hougan, president of ETF.com. “The ones finding new areas to put money to work.” The awards are determined by a panel of experts chosen by ETF.com.

Held at The Lighthouse restaurant at New York’s Chelsea Piers March 19, ETF.com wins the prize for best party location. With picture windows overlooking the Hudson River, guests of the cocktail hour took in the sunset over New Jersey before the ceremony started.

The WisdomTree Europe Hedged Equity (HEDJ) was the big winner, grabbing the prize for ETF of the Year, while the Market Vectors ChinaAMC China Bond (CBON) won Best New ETF. Not quite sure what the difference is between those two awards, but obviously both funds stand out from the crowd of 117 ETFs issued in 2014.

However, ProShares swept the evening, as the single provider that won the most awards. The twin funds ProShares CDS North American HY Credit (TYTE) and CDS Short North American HY Credit (WYDE) claimed the awards for both Most Innovative New ETF and Best New Fixed-Income ETF.

“We designed these ETFs for investors who want high yield credit exposure that is isolated from interest rate risk,” said Steve Cohen, ProShares managing director.

The fund was also nominated for Best Ticker of the Year with its homophones for “tight” and “wide”. However, the awards announcer had a chuckle by claiming they really were pronounced “tighty whitey”, a reference to his jockey shorts. Best Ticker was awarded to HACK, the PureFunds ISE Cyber Security ETF.

ProShares also won Best New Alternative ETF for the ProShares Morningstar Alternative Solution (ALTS) and Most Innovative ETF Issuer of the Year.

“We are always striving to deliver new and innovative products to allow investors to build better portfolios,” said ProShares Chief Executive Michael Sapir.

Lee Kranefuss, the man who created the iShares brand of ETFs and built them into the largest ETF issuer in the world won the 2014 Lifetime Achievement Award.

In the only speech of the night — thank goodness — Kranefuss said, “ETFs allow people to take control.” He likened ETFs to iTunes, saying “no longer are you limited to what the record company puts out.” He said he’s often been asked if he thought the ETF industry would take off like it has in the 15 years since iShares launched.

“Not really,” said Kranefuss, “we just put out the best products we could put out.”

The other award winners:

Best New U.S. Equity ETF – iShares Core Dividend Growth (DGRO)
Best New International/Global Equity ETF – Deutsche X-trackers Harvest MSCI All China Equity (CN)
Best New Commodity ETF – AdvisorShares Gartman Gold/Euro (GEUR) and AdvisorShares Gartman Gold/Yen (GYEN).
Best New Asset Allocation ETF – Global X /JPMorgan Efficiente (EFFE)
ETF Issuer of the Year – First Trust
New ETF Issuer of the Year – Reality Shares
Index Provider of the Year – MSCI
Index of the Year – Bloomberg Dollar Index
Best Online Broker for ETF-Focused Investors – TD Ameritrade
Best ETF Offering for RIAs – Charles Schwab
Best ETF Issuer Website – BlackRock

Target-Date Funds Are Cruise Control Of Investing

Target-date, or life cycle, funds are the cruise control of investing. After you choose which fund to invest in, the fund does all the work for you. You don’t have to think about it again until retirement.

Many target-date mutual funds are funds of funds. They hold a selection of equity funds, such as large-cap, small-cap and international funds, and a selection of fixed-income funds of multiple durations and yields.

The appeal of target-date funds is that they take care of all the asset allocation and rebalancing for you. It’s a balancing act of managing market risk, inflation risk and longevity risk.

Typically, an investor picks a target date around the time he plans to retire. When the investor is young, the fund focuses on growth and mostly holds stock funds. But as the investor gets closer to retirement, the fund’s asset allocation becomes more conservative and focuses on fixed income. The changing asset allocation is called the glide path.

Target-date funds hit the public consciousness after the Pension Protection Act of 2006. The legislation allowed 401(k) plan sponsors to make life cycle funds the default investments for participants who didn’t choose their own funds. The logic was that since investors were now in charge of their own retirement funds, sitting in cash wasn’t going to get them there.

“For the past nine years that we’ve been keeping track, there has been double-digit growth in assets, ever since Pension Protection came out,” said Janet Yang, Morningstar’s target-date fund analyst.
In 2006, of all the 401(k) plans, 57 offered target-date funds. In 2012 the number had jumped to 72, according to the Investment Company Institute.

In 2006, only 19% of 401(k) plan participants held target-date funds. Six years later it was 41%. Also, in 2006 target-date funds made up only 5% of 401(k) assets. By 2012 that had jumped to 15%.
By the end of Q2 2012, target-date mutual funds held $678 billion, said Sarah Holden, the ICI’s senior director of retirement and investor research. The majority of those assets were held in retirement accounts. Defined contribution plans held 68% of the total, and individual retirement accounts 20%. The rest was in the personal accounts of investors looking for the glide path approach.
Vanguard, Fidelity and T. Rowe Price have the largest target-date funds.

Families of target-date funds can have different philosophies, which can lead to wide dispersions in the holdings, returns and fees for funds with the same target year. Recently, fees have become a big issue, and that has helped move plan sponsors toward index-based funds.

“Each client’s needs are going to be different,” said Don Wilson, chief investment officer at BrightWorth, an Atlanta asset manager. “Some target-date funds will be too risky, while others won’t be risky enough.”

Wilson said that if the investor picks his 65th birthday as the target date, he may have 20 years of retirement ahead of him. He may need to have more equities to help his account grow and outpace inflation. The target-date fund may not be taking this into account.

The only ETF provider with target-date portfolios now is Deutsche X-trackers.

For Full story go to Investor’s Business Daily.

Currency Hedge ETFs Win Big at Global ETF Awards

Deutsche Bank’s family of Currency Hedge ETFs won the award for the Most Innovative ETF in the Americas for 2011 at the 8th Annual Global ETF Awards. The awards are given to industry participants for outstanding achievements in the marketplace. In Europe Deutsche Bank tied with the Nomura Voltage Mid-Term Source ETF for the top prize, while the Motilal Oswal Most Shares NASDAQ-100 ETF was named most innovative in the Asia-Pacific region.

The five ETFs under the Currency Hedge banner:
db-X MSCI Brazil Currency-Hedged Equity Fund (DBBR)
db-X MSCI Canada Currency-Hedged Equity Fund (DBCN)
db-X MSCI EAFE Currency-Hedged Equity Fund (DBEF)
db-X MSCI Emerging Markets Currency-Hedged Equity Fund (DBEM)
db-X MSCI Japan Currency-Hedged Equity Fund (DBJP)

The Most Innovative Exchange Traded Product (ETP) in the Americas went to the iPath S&P 500 Dynamic VIX ETN (XVZ), while the db Physical Gold SGD Hedged ETC won in Europe.

Held at the Grand Hyatt Hotel in New York last Thursday, the Global ETF Awards provide a window on how the global ETF industry views itself. Unlike the Capital Link awards, where a small committee of analysts and industry insiders choose the winners, the Global Awards is voted on by the entire ETF industry. Here 520 organizations from around the world voted on who they think are the industry’s leaders and innovators. The awards and ceremony were created and run by the operators of exchangetradedfunds.com.

The evening began with a new prize, the Nate Most Award. Named after the man who invented the SPDR, the first ETF, it’s awarded to the individual who has made the greatest contribution to the ETF Market.

“We honored to be able to celebrate Nate’s place as the father of the ETF and to honor achievements in the ETF industry,” said Arlene C. Reyes, chief operating officer of exchangetradedfunds.com.

The first winner of this new prize was James Rose, senior managing director of State Street Global Advisors, for his commitment to the industry and for setting a standard of excellence. In addition to running State Street’s ETF business he serves as the first chairman of the Investment Company Institute’s Exchange-Traded Funds Committee.

“Nate Most created a product that created an industry and a great product for investors,” said Ross upon receiving the award.

Here is the list of other winners:

Most Innovative ETF Index Provider
The Americas – Dow Jones Indexes
Europe – STOXX
Asia-Pacific – MSCI

Most Widely Utilized ETF Research (Statistical)
Deutsche Bank won in all three regions.

Most Widely Utilized ETF Research (Analytical)
The Americas – Bloomberg
Europe – Deutsche Bank
Asia-Pacific – Deutsche Bank

Best ETF Market Maker
The Americas – Knight
Europe – Flow Traders
Asia-Pacific – Flow Traders

Most Recognized ETF Brand
The Americas – SPDRs
Europe – (Tie) db x-trackers and iShares
Asia-Pacific – China 50 ETF

Best Service Provider
The Americas – BNY Mellon
Europe – (Tie) Northern Trust and State Street Fund Services (Ireland)
Asia-Pacific – SSgA

Most Informative Website
The Americas – SPDRS.com
Europe – etf.db.com
Asia-Pacific – hkex.com.hk

Most Informative Website – Media
The Americas – IndexUniverse.com

Stocks, ETFs Plunge as Italian Bonds Top 7%

If you had any hopes that Europe would get its act together and come up with a reasonable plan to deal with its debt crisis, I think it’s time to give the points to the cynics.

Italian bond yields spiked to 7.25% today on fears that Italy has replaced Greece as the next flash point in the European debt crisis. People were hoping Italy would be able to institute some austerity measures if Italian Prime Minister Silvio Berlusconi stepped down. However, news that Berlusconi had pledged to resign, and his insistence on elections instead of an interim government, instead sent markets reeling.

With Italian bonds hitting an all-time high since the euro’s 1999 introduction, they reached the same level that forced Greece, Ireland and Portugal to seek bailouts. This sent U.S. stocks plunging. The S&P 500 Index tumbled 47 points, or 3.7% to 1229.

The evaporation of investor confidence was clear by the movement of ETFs that track the Italian bond and equity markets. The PowerShares DB Italian Treasury Bond Futures ETN (ITLY) fell 3% to a new low of $17.38 and the PowerShares DB 3x Italian Treasury Bond Futures ETN (ITLT) sank 10.3% to $12.37. These ETNs measure the performance of a long position in Euro-BTP futures, whose underlying assets are Italian government debt with an original term of no longer than 16 years. The ITLT ETN provides leveraged exposure three times greater than the unleveraged bonds. They have expense ratios of 0.5% and 0.95% respectively. If you’re looking for a good way to short the Italian bond market, these offer a good proxy. Just be aware, the ETNs are unsecured debt notes subjected to Deutsche Bank’s credit risk.

After months of failed plans, it’s become apparent that the European politicians are unable to make the hard choices to avert a disaster and that this has all been a huge shell game to push the problem forward without actually doing anything. I think it’s time for people to get out of U.S. stocks. We’re in for another hard landing.

Other ways to take advantage of the clustercuss that I fear will soon envelope Europe are the iShares MSCI Italy Index Fund (EWI), which tracks about 85% of the Italian equity market, and the CurrencyShares Euro Trust (FXE), which offers U.S. investors a way to bet on the euro without trading on the foreign exchange markets. The MSCI Italy fund, which charges 0.54%, plummeted 9.4% to $12.30, while the Euro Trust, which charges 0.4%, fell 2% to $135.03.

With Berlusconi demanding new elections, he effectively leaves Italy leaderless at the depths of the crisis, bringing the country close to a breaking point.

Meanwhile, late Wednesday, Greek Prime Minister George Papandreou did officially quit, without naming a successor.

It’s hard to see things getting better soon. The market’s recent bounce gave most people an opportunity to get out of the market with some profits. I think it’s a good time to go to cash.

Palladium Shares Wins Most Innovative ETF Award

The ETFS Physical Palladium Shares (PALL) and ETF provider Global X Funds tied to win the award for the Americas’ Most Innovative ETF of 2010 at the 7th Annual Global ETF Awards banquet at New York’s Grand Hyatt Hotel recently.

Launched by ETF Securities in January 2010 with the ETFS Physical Platinum Shares (PPLT), the palladium and platinum funds were the first ETFs in the U.S. to provide investors with a cheap and convenient way to invest in these precious metals. The Palladium Shares track the price of palladium and are backed by palladium bullion plates and ingots and stored in vaults approved by the London Platinum Palladium Market. Because the Palladium ETF holds physical bullion it has minimal counterparty or credit risks and charges an expense ratio of 0.6%. Voters did not specify which Global X ETF deseved the award.

The Benchmark Hang Seng BeES was named the most innovative ETF in Asia. Europe’s most innovative ETFs came from db x-trackers and Source. The actual funds weren’t named.

Hosted and organized by exchangetradedfunds.com, the Global ETF Awards are like the Academy Awards for the ETF industry because only industry insiders are allowed to vote. Essentially, these industry insiders are asked grade their competitors to pick which denizens of ETF Land have done the best job over the past year.

The Most Innovative Exchange-Traded Product, not an ETF, in the Americas went to Barclays ETN + S&P Veqtor ETN (VQT). This exchange-traded note tracks the S&P 500 Dynamic Veqtor Total Return Index. It offers a strategy of “broad equity market exposure with an implied volatility hedge by dynamically allocating its notional investments among three components: equity, volatility and cash. The equity component is represented by the S&P 500 Total Return Index and the volatility component is represented by the S&P 500 VIX Short-Term Futures Index.” ETF Securities won in Europe for an unnamed product.

Once again, SPDRs was named the Most Recognized ETF Brand in the Americas beating out iShares, Vanguard and PowerShares. IShares shared the title with db x-trackers in Europe, while Asia’s best known brand is China 50 ETF.

“Every year this becomes more meaningful because the industry becomes more competitive every year,” said the SPDR representative.

S&P Indices won Most Innovative ETF Index Provider in the Americas, with STOXX the European winner and China Securities Index taking Asia’s prize.

IndexUniverse.com, where I am a contributing writer, was named the Americas Most Informative ETF Website, with etf.db.com and hkex.com.hk the winners in Europe and Asia, respectively.

Deborah Fuhr of BlackRock held onto her crown as the leading ETF analyst winning both Most Widely Utilized ETF Statistical Research and Most Widely Utilized Analytical Research in Europe. The latter award she was tied with Deutsche Bank, which also took both prizes in the Americas and Asia’s analytical award. Daiwa Asset Management won Asia’s statistical research award.

Other prize winners:

Best ETF Market Maker: Knight (Americas), FlowTraders (Europe), UBS Securities (Asia)

Most Proactive Exchange: NYSE Euronext (Americas), Deutsche Borse (Europe), Shanghai Stock Exchange (Asia).

Most Proactive Exchange for ETF Derivatives: International Securities Exchange (Americas), Eurex (Europe), Hong Kong Stock Exchange (Asia).

Best Service Provider: BNY Mellon (Americas), Bank of Ireland (Europe), SSgA (Asia).