Monday, June 18, 2018

Headlines Near and Far

Monday, June 18, 2018 – Last week was headlined by Trump’s meeting with Kim Jung Un at the Singapore Summit as the world seemed to have some relief that there is now a dialogue between North Korea and the U.S. The summit however, seemed to have little impact on the markets. On Tuesday, however, the Labor Department reported that inflation in May had reached 2.8% on a year-over-year basis and on Wednesday, the Fed raised the Fed Funds rate by 25 basis points which combined provided the primary cause of stocks dropping following the second interest rate hike in 2018. Investors had an even bigger reaction to trade news on Friday as the Trump administration announced that it was following through with the imposed tariffs on imports of $50 billion worth of goods from China. Overall for the week, the Dow Jones dropped .9%, the S&P ended flat and NASDAQ increased by 1.3%.

AT&T Broadband announced that it will merge with Comcast Corporation in a $72 Billion Transaction. The new company, AT&T Comcast Corporation, will be one of the leading communications, media and entertainment companies in the world. AT&T shareholders will receive approximately 0.34 shares of AT&T Comcast Corporation for each share of AT&T they own, while Comcast shareholders will receive one share of AT&T Comcast Corporation for each Comcast share they own. With the ETFG exposure report we can see which funds have the biggest exposure to Comcast and ATT and how they will be affected. The biggest ETF holders of ATT (T) are FCOM, Fidelity MSCI Telecommunication Services Index ETF, which has 21.76% exposure, VOX, Vanguard Communication Services ETF, which holds 20.83%, and IXP, iShares Global Telecom ETF, which holds 17.6%. The biggest holders of Comcast (CMCSA) are IEME, iShares evolved U.S media and Entertainment ETF, which holds 5.19%, XLY, Consumer Discretionary Select Sector SPDR Fund, which holds 4.98%, and IYC, iShares US Consumer Services ETF which holds 4.37%.

In the ETFG Quant Mover section we had MDYG, SPDR S&P 400 Midcap Growth ETF, gain 46% in their quant score, SLYV, SPDR S&P 600 Small Cap Value ETF which had a 40% increase in their score and SLY, SPDR S&P 600 Small Cap ETF, which had a 39% increase in their score.

On the flip side, ARGT, Global X MSCI Argentina ETF, dropped 22% of their ETTFG Quant score, DEMG, X-Trackers FTSE Emerging Comprehensive Factor ETF, dropped 17.55%, and CN, X-trackers Harvest MSCI All China Equity ETF, dropped 15.89%.

In the ETFG Select list, we had 3 new funds that were unranked last week claim the top in their respective categories. CNSF, iShares Edge MSCI Multifactor Consumer Staples ETF, in the Consumer Staples category, TUR, iShares MSCI Turkey ETF, in the Europe category and RDIV, Oppenheimer Ultra Dividend Revenue ETF, in the High Dividend Yield category.

Thanks for reading ETF Global Perspectives!

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____________________________________________________________
Assumptions, opinions and estimates constitute our judgment as of the date of this material and are subject to change without notice.  ETF Global LLC (“ETFG”) and its affiliates and any third-party providers, as well as their directors, officers, shareholders, employees or agents (collectively ETFG Parties) do not guarantee the accuracy, completeness, adequacy or timeliness of any information, including ratings and rankings and are not responsible for errors and omissions or for the results obtained from the use of such information and ETFG Parties shall have no liability for any errors, omissions, or interruptions therein, regardless of the cause, or for the results obtained from the use of such information. ETFG PARTIES DISCLAIM ANY AND ALL EXPRESS OR IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO ANY WARRANTIES OF MERCHANTABILITY, SUITABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE.  In no event shall ETFG Parties be liable to any party for any direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, or losses (including, without limitation, lost income or lost profits and opportunity costs) in connection with any use of the information contained in this document even if advised of the possibility of such damages.

ETFG ratings and rankings are statements of opinion as of the date they are expressed and not statements of fact or recommendations to purchase, hold, or sell any securities or to make any investment decisions. ETFG ratings and rankings should not be relied on when making any investment or other business decision.  ETFG’s opinions and analyses do not address the suitability of any security.  ETFG does not act as a fiduciary or an investment advisor.  While ETFG has obtained information from sources they believe to be reliable, ETFG does not perform an audit or undertake any duty of due diligence or independent verification of any information it receives.

This material is not intended as an offer or solicitation for the purchase or sale of any security or other financial instrument. Securities, financial instruments or strategies mentioned herein may not be suitable for all investors.  Any opinions expressed herein are given in good faith, are subject to change without notice, and are only correct as of the stated date of their issue.  Prices, values, or income from any securities or investments mentioned in this report may fall against the interests of the investor and the investor may get back less than the amount invested.  Where an investment is described as being likely to yield income, please note that the amount of income that the investor will receive from such an investment may fluctuate.  Where an investment or security is denominated in a different currency to the investor's currency of reference, changes in rates of exchange may have an adverse effect on the value, price or income of or from that investment to the investor.

Saturday, June 16, 2018

"Summer in the City" ESG Conference - July 18th - NYC

Saturday, June 16, 2018 - We have long believed that ESG would transition to the core of the world's investment theses. As time has progressed, we now think that transition will happen even earlier and requires investors to truly understand this space and its far reaching implications.

In support of fostering more understanding of ESG, we are proud to sponsor this year's Summer In the City Conference on July 18th in New York City. This is an all-day conference and forum for engaging with thought leaders who discuss their viewpoints on how to define, manage and measure responsible investing. The event gathers together expert practitioners from investment management firms, RIAs, retirement plan fiduciaries, endowments, consultants, NGOs, and academics.

Please join us at this wonderful event, below are all the details and the link to register:

  • When:     Wednesday, July 18, 2018, 8:30 AM – 6:30 PM
  • Where:    Thomson Reuters, 3 Times Square – 30th Floor, New York, NY


Thank you for reading ETF Global Perspectives!

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_____________________________________________________________
Assumptions, opinions and estimates constitute our judgment as of the date of this material and are subject to change without notice.  ETF Global LLC (“ETFG”) and its affiliates and any third-party providers, as well as their directors, officers, shareholders, employees or agents (collectively ETFG Parties) do not guarantee the accuracy, completeness, adequacy or timeliness of any information, including ratings and rankings and are not responsible for errors and omissions or for the results obtained from the use of such information and ETFG Parties shall have no liability for any errors, omissions, or interruptions therein, regardless of the cause, or for the results obtained from the use of such information. ETFG PARTIES DISCLAIM ANY AND ALL EXPRESS OR IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO ANY WARRANTIES OF MERCHANTABILITY, SUITABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE.  In no event shall ETFG Parties be liable to any party for any direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, or losses (including, without limitation, lost income or lost profits and opportunity costs) in connection with any use of the information contained in this document even if advised of the possibility of such damages.

ETFG ratings and rankings are statements of opinion as of the date they are expressed and not statements of fact or recommendations to purchase, hold, or sell any securities or to make any investment decisions. ETFG ratings and rankings should not be relied on when making any investment or other business decision.  ETFG’s opinions and analyses do not address the suitability of any security.  ETFG does not act as a fiduciary or an investment advisor.  While ETFG has obtained information from sources they believe to be reliable, ETFG does not perform an audit or undertake any duty of due diligence or independent verification of any information it receives.

This material is not intended as an offer or solicitation for the purchase or sale of any security or other financial instrument. Securities, financial instruments or strategies mentioned herein may not be suitable for all investors.  Any opinions expressed herein are given in good faith, are subject to change without notice, and are only correct as of the stated date of their issue.  Prices, values, or income from any securities or investments mentioned in this report may fall against the interests of the investor and the investor may get back less than the amount invested.  Where an investment is described as being likely to yield income, please note that the amount of income that the investor will receive from such an investment may fluctuate.  Where an investment or security is denominated in a different currency to the investor's currency of reference, changes in rates of exchange may have an adverse effect on the value, price or income of or from that investment to the investor.

Monday, June 11, 2018

Best and Worst of Worlds

Monday, June 11, 2018 - Depending on where you stand, we live in the best or worst of times for investors. Last week, the tech heavy NASDAQ Composite Index continued to set new highs, US household wealth hit $100 Trillion in Q1 for the first time, copper prices continued to rise reflecting strong economic activity in China and the recent US jobs report indicated that for the first time in recent memory, available jobs exceeded the supply of workers available.

US indexes ended the week registering gains for the S&P 500 and the NASDAQ Composite rising to 2,779.03 and 7,645.51 respectively for a weekly gain of 1.62% and 1.21%. All US Sectors registered positive gains except utilities.

Yet, a brief tour around the globe would raise some yellow and red flags for seasoned investors.  The usual concerns of rising US interest rates and increasing trade tensions with China were somewhat alleviated by a play to pay solution ($1 billion fine) for ZTE to reenter the US cell phone market. Most unwelcoming however, was a contentious G7 Meeting culminating in the US not signing the customary joint statement at the conclusion of the conference. This was a clear punch to the multinational international trade and monetary regime constructed after WWII under the leadership of the US. While a lot of this might be posturing by the various members under populist pressure at home, investors cannot but wonder what will replace it…. 

Headline news around the world will dominate this busy week, starting with the much anticipated North Korean US Summit in Singapore which begins Tuesday. If a deal is announced, traders should expect a short term rally. Country Funds focusing on Korea, China and Japan could provide a nice pop.

Next in the headlines will be the outcome of the Open Market Committee of the Federal Reserve when it meets on Tuesday and Wednesday. Investors will be looking for signs of additional tightening on top of the two already expected. The Bank of Japan and the European Central Bank also meet this week. While BOJ is expected to continue its expansionary monetary position, investors will be looking closely at the ECB to see for signs of accommodations to Italy and Spain as we discussed last week.

The risk of contagion from Emerging Markets cannot be ignored. The canary in the coal mine may have been the bigger than 6% drop last week in Brazilian Stocks in USD terms and the op-ed article in the Financial Times last week by Urjit Patel, Governor of the Reserve Bank of India, who wrote that the Fed policies will create a shortage of US dollar liquidity in global markets which will squeeze in particular highly indebted countries.

Those Emerging Markets which went on a borrowing binge benefited for years from ultra low US interest rates now face a stronger US Dollar along with rising US interest rates. This hits countries running large current account deficits particularly hard such as Brazil, India, Indonesia, Turkey and South Africa. Investor money is fleeing these markets for the safety of US money markets as evidenced by fund flows. Should these markets come under pressure, one could have investors seeking to cover losses in these assets by selling high priced US stocks – a situation similar to that seen in 1997-1998 during the period of the Asian Contagion.

In fact, JP Morgan’s EM Currency Index has fallen 9% from its mid-February peak and trades near the lows not seen since late 2016.   See below graph.











Now let’s take a look at EM debt and Developed Market Countries debt as a percentage of GNP (courtesy of Mauldin Economics).  Both have borrowed heavily since 1997 but the Developed world is far more leveraged than the Emerging Markets.  Emerging Markets, however, often lack the economic stabilizers that developed countries have should a problem arise.












The next graph shows us that large tranches of the EM debt comes due this year thru 2020.














Investors should not fall into complacent even with dropping VIX levels.  A trigger could easy be a headline out of Spain or Italy or the imposition of a new tariff which could tip a country into crisis and create a domino effect.

Given these cautionary markers, if one goes to the beach be sure to bring a fully charged cell phone to be able to react to headline news. Investors must assess if their investment strategy reflects these realities. There are a variety of ETFs available to hedge a portfolio on the downside as well as play particular markets. We suggest a mindful eye on tools like our Select List and Risk and Reward Ratings that can be used to evaluate the vast set of opportunities in the ETF marketplace. Today’s market realities require a new approach to macro investing, one in which individual investors now have access to tools via ETPs to customize risk and return profiles in their portfolios. Use our Scanner to find those funds.

Thank you for reading ETF Global Perspectives!


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____________________________________________________________
Assumptions, opinions and estimates constitute our judgment as of the date of this material and are subject to change without notice.  ETF Global LLC (“ETFG”) and its affiliates and any third-party providers, as well as their directors, officers, shareholders, employees or agents (collectively ETFG Parties) do not guarantee the accuracy, completeness, adequacy or timeliness of any information, including ratings and rankings and are not responsible for errors and omissions or for the results obtained from the use of such information and ETFG Parties shall have no liability for any errors, omissions, or interruptions therein, regardless of the cause, or for the results obtained from the use of such information. ETFG PARTIES DISCLAIM ANY AND ALL EXPRESS OR IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO ANY WARRANTIES OF MERCHANTABILITY, SUITABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE.  In no event shall ETFG Parties be liable to any party for any direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, or losses (including, without limitation, lost income or lost profits and opportunity costs) in connection with any use of the information contained in this document even if advised of the possibility of such damages.

ETFG ratings and rankings are statements of opinion as of the date they are expressed and not statements of fact or recommendations to purchase, hold, or sell any securities or to make any investment decisions. ETFG ratings and rankings should not be relied on when making any investment or other business decision.  ETFG’s opinions and analyses do not address the suitability of any security.  ETFG does not act as a fiduciary or an investment advisor.  While ETFG has obtained information from sources they believe to be reliable, ETFG does not perform an audit or undertake any duty of due diligence or independent verification of any information it receives.

This material is not intended as an offer or solicitation for the purchase or sale of any security or other financial instrument. Securities, financial instruments or strategies mentioned herein may not be suitable for all investors.  Any opinions expressed herein are given in good faith, are subject to change without notice, and are only correct as of the stated date of their issue.  Prices, values, or income from any securities or investments mentioned in this report may fall against the interests of the investor and the investor may get back less than the amount invested.  Where an investment is described as being likely to yield income, please note that the amount of income that the investor will receive from such an investment may fluctuate.  Where an investment or security is denominated in a different currency to the investor's currency of reference, changes in rates of exchange may have an adverse effect on the value, price or income of or from that investment to the investor.

Monday, June 4, 2018

New Italian Renaissance Triggers Equity Market Mini-Selloff

Monday, June 4, 2018 - Headline news around the world continued to drive stocks last week as investors focused concerns on rising US interest rates, new tariffs with allies, increasing trade tensions with China and most unwelcoming, Italy replacing Greece as the new trigger to pull apart the Euro Currency Zone.

Investors returned from the Memorial Day holiday weekend to surprising political news out of Italy that rekindled fears of a Euro crisis not seen since Greece. After a brief sell off Tuesday, investors breathed a sigh of relief with the week ending on a stronger than expected Jobs Report on Friday. US stocks’ resilience continued with the markets eeking out a slight gain on large caps while the broader Nasdaq Composite comprising a significant number of small–mid cap names, as well as, tech companies rose significantly more.

US indexes ended the week barely registering gains for the S&P 500 and the NASDAQ Composite rising to 2734.62 and 7554.33 respectively for a weekly gain of .49% and 1.62%. The indexes recovered being led by Energy and Technology stocks.

Now a word about why Italy matters more than Greece to the Euro….

The Italian economy is larger than either the Greek or Spanish economy within the Eurozone. While more industrial, rigidities in the societal and political sectors have prevented the country from modernizing like its more innovative neighbors. For example, the FTSE MIB Index (originally created by the Milan Stock Exchange) has only one technology stock, STMicroelectronics with a minor 3.3% weighting. The balance of the index is largely in banking (28%), Utilities (17%), Energy (11%), Auto (10%) and Industrials, Insurance, etc. That’s it. One stock is the tech sector.  A cautionary note for investors, the FTSE MIB hit its all time high in January 2000.

For the record, MSCI Italy classifies STMicroelectronics as a French company due to its dual country structure. Hence, Italy suffers from high unemployment particularly among its youth. There is no tech sector to drive the economy and create new wealth. The country runs huge government deficits to cover its social welfare net which has been strained by the influx of African migrants.

Since it cannot devalue its currency to become more competitive to attract investment, the current populist coalition Trumpian-like government has come up with a novel idea to launch a parallel internal currency called the BOT which sent a chill thru the Eurozone. The outcome of this new crisis is likely to be consolidation in the European Banking Sector lead by discussion of the merger between UniCredit and SocGen as well as some type of bailout by Germans and Dutch Governments of the weaker member states although in what form has not taken shape if the Euro is to remain intact.

The announcement of new tariffs on aluminum, steel and lumber on European and Canadian imports added to investors’ concerns. Emerging Market countries like Brazil and Argentina are starting to feel the pinch from a rising US Dollar and increasing US interest rates as well.  The weekend China US trade discussions have been indecisive.  Also, investors should maintain an eye on the stock price of Deutsche Bank, which hit a new low, as an indicator of the health of the European banking system.  These issues will dominate this week’s meeting of the G7.

In fact, we thought the most insightful quote of the week was from Mohammed El-Erian on CNBC:

"The downturn in global markets on Tuesday over concerns about Italy's political power struggle and the possible economic fallout as a result highlights the mistaken assumption that the world was in a phase of synchronized growth,"… People are now realizing the only economy with real legs to it was the U.S. economy."

Little reported was the vote by the Federal Reserve Board of Governors to relax the Volcker Rule that had severely limited banks from engaging in proprietary trading. Once other agencies relax their restrictions, we should see added liquidity to the bond markets. Also, regional banks should start expanding lending due to reduced reporting and stress test requirements.

Given these events, we suggest a mindful eye on tools like our Select List and Risk and Reward Ratings that can be used to evaluate the vast set of opportunities in the ETF marketplace. Investing in ETFs requires a new approach to macro investing, one in which investors are just beginning to realize.

Thank you for reading ETF Global Perspectives!

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_____________________________________________________________
Assumptions, opinions and estimates constitute our judgment as of the date of this material and are subject to change without notice.  ETF Global LLC (“ETFG”) and its affiliates and any third-party providers, as well as their directors, officers, shareholders, employees or agents (collectively ETFG Parties) do not guarantee the accuracy, completeness, adequacy or timeliness of any information, including ratings and rankings and are not responsible for errors and omissions or for the results obtained from the use of such information and ETFG Parties shall have no liability for any errors, omissions, or interruptions therein, regardless of the cause, or for the results obtained from the use of such information. ETFG PARTIES DISCLAIM ANY AND ALL EXPRESS OR IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO ANY WARRANTIES OF MERCHANTABILITY, SUITABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE.  In no event shall ETFG Parties be liable to any party for any direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, or losses (including, without limitation, lost income or lost profits and opportunity costs) in connection with any use of the information contained in this document even if advised of the possibility of such damages.

ETFG ratings and rankings are statements of opinion as of the date they are expressed and not statements of fact or recommendations to purchase, hold, or sell any securities or to make any investment decisions. ETFG ratings and rankings should not be relied on when making any investment or other business decision.  ETFG’s opinions and analyses do not address the suitability of any security.  ETFG does not act as a fiduciary or an investment advisor.  While ETFG has obtained information from sources they believe to be reliable, ETFG does not perform an audit or undertake any duty of due diligence or independent verification of any information it receives.

This material is not intended as an offer or solicitation for the purchase or sale of any security or other financial instrument. Securities, financial instruments or strategies mentioned herein may not be suitable for all investors.  Any opinions expressed herein are given in good faith, are subject to change without notice, and are only correct as of the stated date of their issue.  Prices, values, or income from any securities or investments mentioned in this report may fall against the interests of the investor and the investor may get back less than the amount invested.  Where an investment is described as being likely to yield income, please note that the amount of income that the investor will receive from such an investment may fluctuate.  Where an investment or security is denominated in a different currency to the investor's currency of reference, changes in rates of exchange may have an adverse effect on the value, price or income of or from that investment to the investor.

Tuesday, May 29, 2018

Sell in May and Go Away?

Tuesday, May 29, 2018 – As we approach the end of May, recent market moves and some historical perspective are important, but the traditional rhyme “sell in May and go away” might prove unsatisfying to some investors. While the S&P 500 is up over 3% for this month, the small-cap Russell 2000 Index has lagged, reversing a recent stretch of outperformance. Energy shares performed worst within the S&P 500 Index, while Utilities recorded solid gains as longer-term bond yields fell, making their relatively high dividend yields more attractive.

In general, the U.S. markets edged slightly higher last week, driven by several key factors. Trade negotiations with China prompted swings between optimism and pessimism, while ongoing diplomatic tensions with North Korea weighed heavily on the market's mood. The Fed’s decision on interest rates was also in focus, signaling that the path of gradually rising rates remains intact. Of particular note are the prospects of inflation temporarily running slightly above their long-term 2% target, providing some comfort to investors. Meanwhile, corporate earnings are rising at a strong pace. While prevalent risks are likely to drive further volatility, the combination of a healthy consumer and healthier bottom lines for businesses provide support for the market.

The week was perhaps most notable for the nosedive in oil prices and energy shares. On Monday, oil prices reached their highest level since late 2014 - mostly due to the speculation that the U.S. would impose new sanctions on Venezuela after the country’s leadership congealed its control in allegedly corrupt elections. Ironically, the threat of U.S. sanctions appeared to be partly at work in this case as well, with some speculating that OPEC was seeking to compensate for the loss of Iranian and Venezuelan supply.

These key market highlights were reflected our ETF Global dynamic and prospective Quant Rankings. The week’s winners include both iShares U.S. Energy ETF (IYE) and iShares Global Energy ETF (IXC) both gaining approximately 15% in their respective total Quant Score. The biggest drop in ETFG Quant ratings were SPDR Portfolio Emerging Markets (SPEM) and iShares Currency Hedged MSCI South Korea ETF (HEWY). Looking ahead, economic data in the coming week will be plentiful, with May's jobs report and construction spending all being reported on Friday. For those investors looking for a real winner for their portfolio, with a total Quant Score of 82.42 the WisdomTree U.S. MidCap Dividend Fund (DON) is expected have the most potential in capturing positive market movements.

Thanks for reading ETF Global Perspectives!

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____________________________________________________________
Assumptions, opinions and estimates constitute our judgment as of the date of this material and are subject to change without notice.  ETF Global LLC (“ETFG”) and its affiliates and any third-party providers, as well as their directors, officers, shareholders, employees or agents (collectively ETFG Parties) do not guarantee the accuracy, completeness, adequacy or timeliness of any information, including ratings and rankings and are not responsible for errors and omissions or for the results obtained from the use of such information and ETFG Parties shall have no liability for any errors, omissions, or interruptions therein, regardless of the cause, or for the results obtained from the use of such information. ETFG PARTIES DISCLAIM ANY AND ALL EXPRESS OR IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO ANY WARRANTIES OF MERCHANTABILITY, SUITABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE.  In no event shall ETFG Parties be liable to any party for any direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, or losses (including, without limitation, lost income or lost profits and opportunity costs) in connection with any use of the information contained in this document even if advised of the possibility of such damages.

ETFG ratings and rankings are statements of opinion as of the date they are expressed and not statements of fact or recommendations to purchase, hold, or sell any securities or to make any investment decisions. ETFG ratings and rankings should not be relied on when making any investment or other business decision.  ETFG’s opinions and analyses do not address the suitability of any security.  ETFG does not act as a fiduciary or an investment advisor.  While ETFG has obtained information from sources they believe to be reliable, ETFG does not perform an audit or undertake any duty of due diligence or independent verification of any information it receives.

This material is not intended as an offer or solicitation for the purchase or sale of any security or other financial instrument. Securities, financial instruments or strategies mentioned herein may not be suitable for all investors.  Any opinions expressed herein are given in good faith, are subject to change without notice, and are only correct as of the stated date of their issue.  Prices, values, or income from any securities or investments mentioned in this report may fall against the interests of the investor and the investor may get back less than the amount invested.  Where an investment is described as being likely to yield income, please note that the amount of income that the investor will receive from such an investment may fluctuate.  Where an investment or security is denominated in a different currency to the investor's currency of reference, changes in rates of exchange may have an adverse effect on the value, price or income of or from that investment to the investor.

Monday, May 21, 2018

Rising Rates Reintroduce Concerns

Monday, May 21, 2018 – Trade, Treasury, Trump. Three Ts that have caused a mixed week for investors, as trading was scattered amid a flurry of both positive and negative headlines. The 10-year Treasury yield reached 3.11%, its highest level since 2011 and headlines regarding trade negotiations were also in the spotlight. The good news is that rates are rising for the right reasons. Inflation expectations have been set with the confidence of continued gradual rate hikes, led by a lift in wage growth, reflecting a healthier economy and full employment. But government borrowing costs are continuing to grind upwards, putting pressure on U.S. stock indexes: Dow Jones -0.1%; S&P 500 -0.2%; Nasdaq -0.4%.

However, unlikely interest rates have reached a level that will begin choking off economic growth. In prior stock market peaks back to 1987, the 10-year yield averaged 6.5% at the market’s peak. That being said, rising interest rates are the most credible threat to the economic cycle and while we are not there yet, this expansion will ultimately end as Fed rate hikes and longer-term rates reach restrictively high levels.

Looking ahead, geopolitical tensions will provide some ongoing underlying support to oil, which will help limit crude prices from returning near that triple-digit mark. It must be noted that crude prices have risen to a three-and-a-half-year high, driven by concerns over potential sanctions limiting Iranian supply along with production cuts in the Middle. At over $78 per barrel of Brent Crude, oil prices have risen sharply but remain well off of the $100 mark for the next few years. On the upside, higher crude prices are will provide a boost to energy-sector profits and have thus contributed to the recent stock market rebound.

Turning to emerging market equities, an asset class that has struggled somewhat in 2018 after a very strong performance last year. The main culprit, a rise of the U.S. dollar, because emerging market companies have a load of debt denominated in US dollars. The dollar index has risen nearly 4% over the past month, rising to a five-month high last week. At the same time, roughly 40% of S&P 500 profits come from international markets. However going forward, we expect to see outperformance in emerging markets as the dollar’s rise tampers off.

Watching for any key stocks making big moves last week along with the ETF Global Behavioral 25 and ETF Global Quant Movers, we saw big movement in Global Markets, specifically Europe and Latin America, as well as a blowout in utilities. Key funds included Utilities Sector SPDR Fund (XLU), iShares Edge MSCI Multifactor Utilities ETF (UTLF), First Trust Latin America AlphaDEX Fund (FLN), and Shares MSCI Italy Capped ETF (EWI). We do expect the prospective focus to be on interest rates, trade negotiation and corporate cash flow, which will be a driving force for volatility for the remainder of the year. Sorting this week’s ETFG Quant scores based on momentum, you’d see essentially nothing but hedged equity funds. Investors should prepare by rebalancing their portfolios with a mix of stocks and bonds based on their risk comfort.

Thanks for reading ETF Global Perspectives!

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____________________________________________________________
Assumptions, opinions and estimates constitute our judgment as of the date of this material and are subject to change without notice.  ETF Global LLC (“ETFG”) and its affiliates and any third-party providers, as well as their directors, officers, shareholders, employees or agents (collectively ETFG Parties) do not guarantee the accuracy, completeness, adequacy or timeliness of any information, including ratings and rankings and are not responsible for errors and omissions or for the results obtained from the use of such information and ETFG Parties shall have no liability for any errors, omissions, or interruptions therein, regardless of the cause, or for the results obtained from the use of such information. ETFG PARTIES DISCLAIM ANY AND ALL EXPRESS OR IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO ANY WARRANTIES OF MERCHANTABILITY, SUITABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE.  In no event shall ETFG Parties be liable to any party for any direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, or losses (including, without limitation, lost income or lost profits and opportunity costs) in connection with any use of the information contained in this document even if advised of the possibility of such damages.

ETFG ratings and rankings are statements of opinion as of the date they are expressed and not statements of fact or recommendations to purchase, hold, or sell any securities or to make any investment decisions. ETFG ratings and rankings should not be relied on when making any investment or other business decision.  ETFG’s opinions and analyses do not address the suitability of any security.  ETFG does not act as a fiduciary or an investment advisor.  While ETFG has obtained information from sources they believe to be reliable, ETFG does not perform an audit or undertake any duty of due diligence or independent verification of any information it receives.

This material is not intended as an offer or solicitation for the purchase or sale of any security or other financial instrument. Securities, financial instruments or strategies mentioned herein may not be suitable for all investors.  Any opinions expressed herein are given in good faith, are subject to change without notice, and are only correct as of the stated date of their issue.  Prices, values, or income from any securities or investments mentioned in this report may fall against the interests of the investor and the investor may get back less than the amount invested.  Where an investment is described as being likely to yield income, please note that the amount of income that the investor will receive from such an investment may fluctuate.  Where an investment or security is denominated in a different currency to the investor's currency of reference, changes in rates of exchange may have an adverse effect on the value, price or income of or from that investment to the investor.

Monday, May 14, 2018

More Market Resilience.....

Monday, May 14, 2018 - The market is once again showing its resilience as last week major indices posted big gains. The Dow Jones Industrial Average, Nasdaq Composite and S&P 500 all posted over 2% gains as investors did not overreact to President Donald Trump pulling out of the Iran Nuclear Deal and may have seen April’s “weak” economic numbers as a good thing. All this happening while there is continued fall out stemming from the 2016 presidential election as Trump’s Lawyer Michael Cohen is the focal point of a federal investigation of possible campaign tampering.

A big story in ETFs this week was the way passive investors would react to the election in Malaysia as the small Asian country is bracing for a total shift in its politics after a surprise win by their former prime minister. The iShares MSCI Malaysia ETF (EWM) fell 4.5% this week and took a hit in redemptions as investors pulled out over $50M of their money from the fund.

Elsewhere in Fund Flows, our ETFG summary shows that on a nominal basis, the iShares 1-3 year Treasury Bond ETF (SHY) has pulled in the most money MTD with over $1.5B during the month of May. Coming in second is the largest Technology ETF, the PowerShares’ QQQ which pulled in more than $650M during the month of May. This in part attracted assets as Facebook made a comeback from its 2018 lows following the data privacy fallout and the fact that Apple was able to show continued growth in their first Quarter earnings report. Apple is the largest position in QQQ with a weight of over 12% in the fund that holds 104 positions.

In our ETFG Quant Movers, we saw winners and losers across the investment spectrum last week. The losers column included the Powershares Golden Dragon China Portfolio ETF (PBJ), the iShares Russell 1000 Growth ETF (IWF) and the Vanguard Small-Cap Growth ETF (VBK) saw the biggest declines to their reward scores losing 8.95, 8.00 and 7.41 respectively.

The winners column had names such as Deutsche X-Trackers MSCI EAFE Small Cap Hedged Equity ETF (DBES), ProShares S&P 500 Ex-Energy ETF (SPXE) and the iShares MSCI Poland Capped ETF (EPOL) had the biggest gains to their ETFG Reward scores adding 10.92, 10.86 and 9.89 to their overall scores respectively.

We will see if the markets can continue their Spring strength throughout the remainder of May. Though they are about 6 months away, it is hard for investors not to start thinking of the mid-term elections in the US as they can have huge implications if the Republican controlled House of Representatives can’t keep their majority seating.

We here at ETF Global would like to wish all the mothers out there a belated Happy Mother’s Day!

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