Tag Archives: SPY

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.

SPDR Jumps 32.3% in 2013

Last year was a banner year for U.S. stocks and the ETFs that tracked them.

All results are total returns, with dividends factored in

ETFs Flooded With New Money

Investors flooded ETFs with new money last week, pushing most of the cash into equity funds, even as they pulled dollars out of commodity and bond ETFs.

The $16.7 billion of net inflows that came in during the five days ended July 12 was the largest weekly total of the year, according to a report Morgan Stanley released Tuesday.

The SPDR S&P 500 ETF (SPY) was the star of the week. The ETF better known as the Spyder dramatically reversed its net outflows for the previous 12 weeks by bringing in half of the industry’s total net inflows for the week with $8.37 billion. It was the Spyder’s largest net inflow since the week of March 12, 2012.

With the Spyder leading the way, U.S. large-cap ETFs generated net inflows of $15.1 billion over the last 13 weeks, the most of any category, said Morgan Stanley. The Spyder accounted for 54% of that total. The total net inflow for all U.S. equity ETFs was $17.3 billion and the combined net inflows for all of ETF Land was $29.0 billion.

Year-to-date, total ETF assets in the U.S. have increased by 11% to $1.5 trillion. Net inflows year-to-date total $92.2 billion.

The commodity ETF category saw the biggest net outflows, losing $636 million for the week. However, all of that came from the SPDR Gold Trust (GLD), which posted a weekly net outflow of $900 million. Over the past 13 weeks, commodity ETFs have seen net outflows of $11.73 billion, with GLD accounting for $9.62 billion. The Gold Trust hasn’t posted a net inflow in the past 32 weeks, bringing its market capitalization down to $38.78 billion.

Emerging-market ETFs was the second-worst category, with net outflows for the week at $624 million and for the 13 weeks at $11.05 billion. The iShares MSCI Emerging Markets ETF (EEM) posted the second largest net outflows for the week and 13-week periods at $386 million and $7.03 billion, respectively. In a reflection of the faltering economy in China, the iShares MSCI China ETF(MCHI) had a net outflow of $246 million last week.

Fixed-income ETFs also went negative, posting weekly net outflows of $419 million. For the 13 weeks ended July 12, bond ETFs saw net outflows of $511 million as investors moved into short-duration fixed income and U.S. equity ETFs, said Morgan Stanley.

Among the ETFs market participants expect to fall, the Spyder saw the largest increase in short interest, at $2.0 billion, according to Morgan Stanley. This is the highest level the leading ETF has been at since April 15, and is nearly 10% about the one-year average.

Even as the CurrencyShares Euro Trust (FXE) gained 6.3% over the past year, it continues to be one of the most heavily shorted ETFs as a % of shares outstanding, says Morgan Stanley.

Fidelity Takes on State Street

Reading List for Monday, Jan. 7:

Fidelity’s new push into ETFs means it’s getting into the ring with cross-town rival State Street Global Advisors. The Boston Herald says Fidelity “is getting less and less business from investment advisers because it used to be that an investment adviser would pick a basket of mutual funds and Fidelity would be 30 percent or 40 percent of them.”

Wall Street Sector Selector does some technical analysis on the SPDR S&P 500 (SPY) and concludes “U.S. stocks and ETFs now face a moment of truth after the recent powerful rally.  Technical resistance and fundamental headwinds persist along with ongoing political uncertainty. “

Ari Weinberg explains in WSJ.com how ETFs lend out their securities for some extra cash. International securities regulators are in a tizzy over how this could cause potential disruptions in the market. But ETFs in the U.S. are much more stable than the derivative-based ETFs in Europe, so it’s not much of a concern on this side of the pond.

ING Likes Value Stocks, Emerging Markets and Europe in 2013

Just like the Christmas season, forecast season rolls around this time of year with investment advisors predicting what the new year holds and where we should all be putting our investment dollars. Ahead of us looms the fiscal cliff, a combination of tax increases and large government spending cuts that could chop as much as 4% out of the gross domestic product. Should the fiscal cliff go into effect it could put the current tepid economic recovery into jeopardy.

In a press briefing at ING’s offices Tuesday, Paul Zemsky, ING Investment Management’s chief investment officer of multi-asset strategies, said he expects the fiscal cliff to be resolved by the end of this year, with a negative impact of just 1% to 1.5% to GDP. He expects to see an end to the payroll tax holiday and the Bush tax cuts for the highest-income brackets. He also expects capital gains taxes to rise to 20% and dividend taxes to revert back to taxpayers’ regular rate from 15% now. Should the Congress wait until after the new year, Zemsky expects to see a major sell off in the equity markets. “It could be as much as a 10% drop, but we would expect this to be a V-shape bounce because the government would have to fix the problem. We would consider this a buying opportunity should it happen.”

Stocks remain cheap relative to bonds, said Zemsky, and both U.S. and global equities are attractive investments right now with price-to-earnings ratios around 15. Zemsky said the housing market has bottomed and is poised to rise, however investors have not yet realized this. As housing prices bottom, this makes collateral stronger, said Zemsky, adding now is the time to increase investments in U.S. financial stocks.

Overall, ING expects 2013 will bring modest growth in the U.S., continued growth in emerging markets and the end of the European recession. Zemsky’s overall forecast predicts U.S. GDP to see 2% to 3% growth next year, which will lead to 5% to 7% earnings growth in the S&P 500. He expects the S&P 500 to grow 8% to 10% next year with a year-end target price between 1550 and 1600. U.S. value stocks and emerging market equities look especially attractive in 2013.

The most popular ETFs tracking these areas of the market are the SPDR S&P 500 (SPY), the Financial Select Sector SPDR (XLF) and the Vanguard MSCI Emerging Markets ETF (VWO). Click here for a list of ETFs that track U.S. value stocks.

Zemsky added that it might be time to begin overweighting European equities. He said people are too negative on Europe. While there is still risk in there, he said the Euro Zone is beginning to stabilize and this could lead to higher equity prices. Click here for a list of ETFs that track European stocks.

As for the bond market, Christine Hurtsellers, ING’s chief investment officer of fixed income and proprietary investments, said the U.S. market is not pricing in any changes in policy from the U.S. Federal Reserve Bank. She says it’s time to underweight U.S. Treasury bonds and high quality investment grade U.S. credit. She recommends moving into emerging market debt, especially high-grade sovereign debt. The PowerShares Emerging Markets Sovereign Debt Portfolio (PCY) covers this market.

U.S. Large-Caps’ Net Cash Inflows Top Bonds

Net cash inflows in U.S.-listed ETFs surged to $55.8 billion in the third quarter, far exceeding the average quarterly inflows of $33.8 billion seen over the last three years, according to the ETF research team at Morgan Stanley Smith Barney. With $133.4 billion for the first three quarters of the year, ETF net cash inflows are “on pace for the biggest year on record,” says Morgan Stanley. This would beat the $174.6 billion that poured into U.S.-listed ETFs in 2008.

Investors made a big switch to risk as ETFs following U.S. large-cap indices received $11.0 billion, the largest net cash inflows for the quarter, compared with $8.1 billion for fixed income ETFs. This was a big change from the previous quarter when fixed income ETFs received about $19 billion. ETFs tracking high-yield corporate bonds topped the fixed-income segment with inflows of $4.4 billion, according to Morgan Stanley.

With 20 new ETFs launched in the third quarter, and another 11 in October, the number of ETFs stands at the extremely cool total of 1,234. Total assets in the U.S. ETF market, as of Oct. 25, were $1.3 trillion, a 21% increase since the beginning of the year.

The top three funds in terms of net cash inflows were the SPDR S&P 500 ETF (SPY), with net inflows of $7.4 billion, the SPDR Gold Trust (GLD), with $4.1 billion, and the Vanguard MSCI Emerging Markets ETF (VWO), with $3.9 billion, according to Morgan Stanley. Currency ETFs experienced the largest net cash outflows for the quarter, at $71 million. For the first nine months of the year, currency ETFs have seen outflows of $2.0 million. Most of the outflows came from ETFs bullish on the U.S. dollar, while most of the inflows went into funds bullish on the euro vs. the dollar.

Blackrock continues to be the market leader with 280 U.S.-listed ETFs and $528.4 billion in assets. This accounts for a 41.7% share of the market, says Morgan Stanley, down from 48% at the end of 2008. State Street Global Advisors, with $235.8 billion in 116 ETFs holds 18.6% of the market, down from 27% at the end of 2008. Vanguard had $231.6 billion in 65 ETFs, giving it a market share of 18.3%, up from 8% at the end of 2008. Through the first three quarters of the year, Vanguard has had net cash inflows of $41.2 billion, the most of any provider, says Morgan.

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