Category Archives: Global X

Emerging Market ETFs Rally in Spite of Trump Trade Threat

In the wake of Donald Trump’s election, emerging-market ETFs tumbled as investors feared that the new administration’s protectionist trade policies would hurt the countries in these markets. But then a funny thing happened. After ranking as one of the worst-performing sectors in the last quarter of 2016, emerging- market ETFs began the new year with a rally and are outperforming U.S. stocks.

So far this year, Vanguard FTSE Emerging Markets ETF (VWO) has jumped 10%, iShares Core MSCI Emerging Markets ETF (IEMG) leapt 10%, and the iShares MSCI Emerging Markets ETF (EEM) climbed 10% vs. 5% for the SPDR S&P 500 (SPY).

Part of the reason is that prior to the election, 2016 had been a pretty good year for emerging markets. Because many emerging markets are tied to commodities, the prior four years had been pretty bad because of falling commodity prices and slowing growth in China. But in 2016, commodity prices began to rise and China’s economic slowdown stabilized.

A big part of the postelection drop was out of concern for the economy of Mexico should Trump attempt to renegotiate Nafta and anxiety over trade barriers with China, according to Mitch Tuchman, chief investment officer at Rebalance IRA, a retirement investment advisor, in Palo Alto, Calif.

Robert Johnson, Morningstar’s director of economic analysis, said the recent performance is a continuation of last year’s rally. He also said companies and investors have begun to think that, in the wake of Trump’s mishandling of the immigration ban, he might not be able to implement his trade policies, especially as he gets pushback from industries hurt by trade bans and tariffs.

Also, since the trade policies haven’t yet been defined and investors think most emerging markets, besides Mexico and China, won’t be affected, they’re jumping back in.

“After five years of underperformance, emerging markets were oversold, and the election flushed out the remaining people hanging on,” said Gerald Laurain, chief investment officer with FTB Advisors, an RIA in Memphis, Tenn., with $4 billion in assets under management. “So now that they’ve established a low, the only place to go isup.”

J.J. Feldman, a portfolio manager at Miracle Mile Advisors, a Los Angeles-based RIA, said the valuations are much more compelling. The price/earnings ratio on the emerging markets is 12 vs. an expensive 18 on the S&P 500. He added that emerging- market stocks are yielding 2.25% vs. the S&P’s 2%.

Peter Schiff, CEO of Euro Pacific Capital, an asset manger in Westport, Conn., has a different angle. “When there is protectionism, America is the loser,” he said. “And tariffs will backfire. People are making the connection that it will weaken the dollar. Meanwhile, the euro is bottoming out and that is better for emerging markets.”

“Europe seems to be doing better, and it’s more important to China than the U.S.,” said Johnson. “There’s better growth there, no new rules and other markets they can sell into.”

So far through this year, the top country-specific ETFs are all in emerging markets. IShares MSCI Brazil Small-Cap (EWZS) has soared 30%, VanEck Vectors Brazil Small-Cap (BRF) surged 26%, iShares Brazil Capped (EWZ) is up 18%, Global X MSCI Argentina (ARGT) up 16%, and KraneShares CSI China Internet (KWEB) up 16%.

After a brutal two-year recession in Brazil, during which President Dilma Rousseff was impeached and replaced by Michel Temer, the country is finally expected to be on the road to recovery. Finance Minister Henrique Meirelles expects the Brazilian economy to return to a 2% annual growth pace by the last quarter of the year. Wall Street is forecasting a more realistic 0.2% growth rate in 2017 gross domestic product. Brazil’s economy is driven by resources and commodities. Its top commodity exports are oil, iron ore, soybeans, sugar cane and coffee.

While China is seeing its economy slowing, with GDP expected to post growth of 6.7% for 2016, that’s the kind of slowdown most country’s would kill for. Right now China is dealing with a cooling housing market, explosive growth in debt, and painful structural reforms instituted by President Xi Jinping.

“E-commerce is going well and that is tapping into a strong part of the economy,” said Rob Lutts, president and chief investment officer of Cabot Wealth Management, an RIA, in Salem, Mass. Lutts spends a lot of time traveling in China. “Investing in Alibaba is like investing in Amazon.com.”

Lutts said that China will have a big challenge over the next five years with a big debt bubble that will have to be distributed over the rest of the economy. This will bring the economic growth rate down to 5% by 2020. “They will have stress when the real estate bubble comes down in price, and that will hurt the smaller banks in the next six months.”

But Lutts is very bullish on India. For the fiscal year ended March 2016, India’s economy grew 7.9%, and Lutts said it could go higher. Indian Prime Minister Narendra Modi is instituting reforms to remove government obstacles to business and make the government more efficient. Lutts said his favorite way to invest in India is in the financial services sector.

He thinks HDFC Bank is one of the best-managed banks in the world. It’s also the top holding of iShares MSCI India ETF (INDA), No. 3 in WisdomTree India Earnings Fund (EPI), No. 2 in iShares India 50 ETF (INDY) and No. 3 in PowerShares India Portfolio (PIN). The ETFs’ year-to-date gains range from 8.8% to 9.8%.

Overall, all the experts think that because Europe is growing and Trump’s policies are still undefined, emerging markets should keep rising throughout the year.

Orginally published in Investor’s Business Daily.

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

China Stock Market: Decline Presents Opportunity

The Tiananmen Square massacre, in which Chinese troops killed hundreds of pro-democracy protesters, occurred 25 years ago last week. While the Chinese government didn’t give their people democracy, it did give them capitalism.

Just 18 months after the massacre, in December 1990, the government opened the Shanghai Stock Exchange.

Since then, China has become one of the world’s fastest-growing economies. According to the World Bank, the per capita growth of China’s gross domestic product since Tiananmen Square is 8.8% on an annualized basis.

“While the Chinese government reacted harshly to the protesters in Tiananmen, it’s made a concerted effort to increase growth and wealth over the past 25 years, which has had a huge impact on the population,” said Jonathan Brodsky, managing director of Advisory Research, a Chicago asset management firm with $11 billion under management.

“The pro-growth initiatives, which have been a powerful tool of the government to maintain stability, were accelerated in the face of Tiananmen.”

Brodsky runs Advisory Research Emerging Markets Opportunities Fund , which has more than 20% of its assets invested in China. The fund was up 9.5% this year going into Monday.

On the 25th anniversary, June 4, 2014, the Shanghai Composite Index closed at 2024, a 1,924% rise from when the market opened. However, even though China posted phenomenal growth over that period, the stock market has experienced enormous volatility on a fairly regular basis. The index is down 66% from its peak of 6092 on Oct. 16, 2007.


Sentiment Sours

Investor sentiment has soured on China for a variety of reasons. Top of the list is that China’s economy has slid from the phenomenal growth rate of 10% a year to the merely great annual rate of 7%. Part of this is related to the declines in the economies of its trading partners in the developed world.

Domestically, the country is suffering from a bubble in the real estate market, a slowdown in consumer spending and high debt levels in the Chinese banking industry. Add to that China’s shadow banking industry, which sells Chinese consumers lightly regulated, obscure investment products, and you can see significant risk to the economy.

Problems Already Discounted?

“The problems are not new and they are fully discounted, maybe more than fully discounted, creating one of the best opportunities to buy China in a decade,” said Jim Oberweis, president of Oberweis Asset Management in Chicago. The firm manages $5 billion in assets, including the Oberweis China Opportunities Fund . The fund gained 60% last year but is down 4.9% year-to-date.

Among ETFs, iShares China Large-Cap ETF (FXI), which holds 25 of the biggest Chinese stocks, currently trades at a price-earnings ratio of 7.6 and a price-to-book value of 1.1, while the S&P 500 has a P/E of 17, according to Morningstar. The fund is down 3% year-to-date, after rallying 5.3% over the past three months.

Global X China Financials ETF (CHIX), which has a P/E ratio of 6, is down 5.9% year-to-date, following a 6.6% rally over the past three months.

IShares MSCI China ETF (MCHI), with a P/E of 9, is down 3.8% year-to-date, after rising 2.3% the last three months.

Originally published in Investor’s Business Daily.

Homebuilder ETFs Surging; Silver Could See Rally

Reading List – a sample of what’s going on in ETF Land:

Homebuilder ETFs Surging This Year

Homebuilder ETFs have surged this year and could get a boost from reports on the U.S. housing market this week. The iShares Dow Jones US Home Construction (ITB) is the best-performing sector ETF year-to-date, surging 50% as of Friday, according to ETF Trends. The SPDR S&P Homebuilders (XHB) is up 36%.

Demand for Gold ETFs Rises as Metal’s Price Declines

Even though the price of gold is down 12% from its $1,900 peak a year ago, demand for gold bullion ETFs has continues unabated.

Sunny Days Ahead for Silver ETF

Hoarding of physical silver should give the iShares Silver Trust (SLV) a boost. In addition, commodity guru Jim Rodgers says silver is a better play than gold.

SuperDividend ETF’s Assets Hit $100 Million

The Global X SuperDividend ETF (SDIV), a high income equity ETF, has acquired $100 million in assets since launching little more than a year ago. A big reason is the fund’s 12-month dividend yield of 7.92%, one of the highest among US-listed dividend ETFs.

You Can Do Better Than Your Pension Fund

Seeking Alpha contributor creates an ETF portfolio that can easily outperform the San Francisco Employees’ Retirement System (SFERS), a pension fund recently told by a court to change its strategy.

JPMorgan Caps Shares of Alerian MLP ETN

Obviously, the big news from JPMorgan Chase this week was Chief Executive Officer Jamie Dimon apologizing to the Senate Banking Committee for his firm’s recent multibillion-dollar trading loss. And while not nearly as momentous as the Dimon hearing, JPMorgan also released some highly unusual news to ETF Land.

The firm on Thursday put a limit on the number of shares it’s willing to create for its Alerian MLP Index ETN (AMJ), essentially making the exchange traded note act like a closed-end fund. JPMorgan capped maximum issuance of shares at 129 million exchange traded notes. As of June 13, JPMorgan Chase had issued 117.95 million ETNs with an aggregate market capitalization of $4.29 billion based on the $36.39 closing price.

Limiting the number of shares means that the ETN will not allow creation units once that number is met. This turns the ETN from an open-end investment vehicle into one that acts like a closed-end fund. This occurs because the arbitrage mechanism that allows market makers to create or sell shares to capture the difference between the indicative value and the price at which the share trades is no longer available. Unable to create shares, market makers are less likely to take on the risk of shorting the shares. Thus, the price of the ETN may trade at a premium or discount to its indicated value depending on the demand for the notes. Of course, if shares are redeemed, the ETN can later create more shares until the limit is hit again.

MLPs, or master limited partnerships, are limited partnerships that invest in natural resources, or companies that provide services such as pipeline companies that transport oil or natural gas. These companies offer large dividends and have been very popular since the fiscal crisis. Over the past 18 months assets in exchange traded products that hold MLPs has grown from nearly nothing to about $7.55 billion. Nearly all of that inflow sits in two products, AMJ, which has $4.2 billion in asset under management, and the ALPS Alerian MLP ETF (AMLP), with $3.25 billion.

“When AMJ reaches the maximum threshold, we will closely monitor the availability of AMJ notes available in stock loan as well as any premium in the funds pricing on the secondary market,” said Chris Hempstead, director of ETF execution services at Wallach Beth Capital. “This could bode well in the short term for existing holders of AMJ as the fund will likely trade at a premium once the creation facility is shut down. Early investors would not have expected this so it’s a win for them. That being said, once this happens I expect investors looking at MLP ETPs will be drawn away from the AMJ ETN and towards [other ETNS].”

Competing ETNs include the ALPS product as well as recent launches such as the Yorkville High Income MLP ETF (YMLP), with just $37 million in assets, and the Global X MLP ETF (MLPA), which has only $5 million.

Hempstead says because these ETNs will continue issue creation units, they will continue to trade close to their indicative values. This will make them more attractive investments as AMJ’s share price diverts from its indicative value.

ETF Companies Seek Vanity Plates for Tickers

Rachel Louise Ensign wrote a funny story in the Wall Street Journal on ETF sponsors searching for memorable ticker symbols to help market their funds. Laura Morrison of the New York Stock Exchange says they’re like vanity plates on cars. But with 1,350 symbols already in use on the NYSE Arca, the biggest exchange for ETFs, and another 2,446 reserved for future products, it’s getting hard to find something catchy.

Ensign likes the literal, such as SOIL, the ticker for the Global X Fertilizers/Potash ETF, the figurative, such as DUST for the Direxion Daily Gold Miners Bear 3X Shares and the alluring, such as GGGG for the Global X Pure Gold Miners ETF.

My all-time favorite is humor, with MOO, the symbol for Market Vectors Agribusiness ETF. For literal, it’s hard to beat EGPT for Market Vectors Egypt Index ETF or CORN for the Teucrium Corn Fund. For figurative I like GULF for WisdomTree’s Middle East Dividend Fund
.

The question on whether these vanity plates help a fund’s marketing efforts ends up with a big possibly considering the Global X Farming ETF, with the ticker BARN, gets ready to shut down this month.

Busy Week at Global X

It’s been a very busy week for Global X Funds. Over three consecutive days, the New York ETF sponsor launched three ETFs that track the global fishing industry, the food industry and Mexican small-cap stocks.

The Global X Food ETF (EATX) tracks the global food industry as a play on continued growth of gross domestic product in emerging market nations. With income growth giving citizens of the emerging market nations great purchasing power, this has changed the way these people procure, prepare and consume their food. In particular, they have increased their consumption of dairy goods, livestock and packaged foods.

The fund got a nice ticker, EAT with Global X’s signature consenant. And it has an interesting symbol on the Web site, a chocolate chip cookie. So basically this is a play on multinational corporations from the West being able to now sell all those skinny third-worlders the same junk food we eat.

The Global X Food ETF tracks the Solactive Global Food Index a specialty index to track the equities of global companies in the food industry. Chocolate chip maker Nestle is the biggest holding in the fund, with a 4.88% weighting. Hence, the cookie. According to Reuters, Nestle, one of the world’s largest food producers has 40% of its business in emerging markets with sales growing 12% in regions such as China, South Asia and Africa. Yogurt maker Danone is a close second with 4.85% weighting, followed by Brasil Foods, 4.81%; General Mills, 4.75%, and Kraft, 4.68%, as of April 21. More than 48% of the funds holding’s are companies in the U.S., followed by China, 8.4%; Switzerland, 8.1%; Japan, 6.7% and United Kingdom 5.4%. Not including China, emerging markets make up less than 10% of the country holdings.

“8 out of 10 people in the world live in emerging markets. We are starting to see how food companies stand to benefit as the population in emerging economies continues to increase their purchasing power,” said Bruno del Ama, Global X’s chief executive in a written statement.

The fund concept is a clever niche play on the emerging markets. However, there’s definitely a dodgy feel to profiting off of selling to the third world the food we’re discovering could be the cause of many of our health problems. It seems Global X had a similar feeling. Feeling some social responsibility, Global X Management, the fund adviser, will donate any profit it derives from EATX to Action Against Hunger | ACF International, a global humanitarian organization that works to save the lives of malnourished children while providing communities with sustainable access to safe water and long-term solutions to hunger.

Wednesday saw the launch of the Global X Fishing Industry ETF (FISN), the first ETF targeting the global fishing industry, which is comprised of two main components: commercial fishing and aquaculture. Commercial fishing companies are directly involved in the capture of fish from the wild, while aquaculture represents fish farming operations. In addition to more processed foods, citizens of the emerging markets are eating more protein, says Global X. According to the United Nations’ Food and Agriculture Organization China has seen its per-capita fish consumption grow at a dramatic rate of 5.7% per year since 1961. The FAO says an additional 27 million tons of production will be needed to maintain the present level of per-capita consumption in 2030.

The Global X Fishing Industry ETF tracks the Solactive Global Fishing Index, which holds global companies involved in the fishing industry. As of April 29, the three largest components were Cermaq, with 10.8% of the index; Marine Harvest at 10.7% and Toyo Suisan Kaisha at 9.8%. More than 35% of the index is in Norwegian companies, with 22.7% from Japan and 13% from China.

Then Thursday, the firm added to its suite of Latin American-based funds with the launch of the Global X Mexico Small-Cap ETF (MEXS), the first ETF to focus on Mexico’s small-cap companies. Many analysts think small-cap stocks are the best way to play the emerging markets because these comapanies receive the majority of their revenues from the local domestic economy. According to Morgan Stanley, in the fourth quarter of 2010, Mexico’s 4.6% economic growth rate was driven almost entirely by domestic demand. Mexican consumers have a per-capita income twice as large as Brazil’s, says Reuters, which means greater purchasing power and a strong domestic services sector. The country is expected to see economic growth of about 4% this year.

The Global X Mexico Small-Cap ETF tracks the Solactive Mexico Small-Cap Index. As of May 3, consumer discretionary was the largest sector in the index, at 29.4%. Industrials made up 22.6% and consumer staples was 20.5%.

Last month, the company launched the Global X Waste Management ETF (WSTE). The fund tracks the Solactive Global Waste Management Index, which is evenly divided among global companies that deal with the disposal of hazardous waste, non-hazardous waste and recycling.

While the entire Global X family of ETFs is extremely specialized, the funds have garnered a big enough audience to pull in $1.7 billion in assets as of March 31. And the company is getting noticed. In April, Global X tied to win America’s Most Innovative ETF Provider at the Global ETF Awards. It has also won awards from ETF Express, including Most Innovative North American ETF Provider,” “Best Emerging Markets Equity ETF Manager,” and “Best Global (ex-US) Equity ETF Manager.”