Monday, March 30, 2015

Investor Dollars Heading East

It seems like hardly a week can go by without the Financial Times or the Wall Street Journal talking about investors continuing unadulterated enthusiasm for European equity funds as the potential for fiscal tightening here at home runs counter to the ECB’s quantitative easing program to stimulate growth and fight the prospect of deflation.  Hedged or unhedged doesn’t seem to matter as the ETFG Fund Flows report shows over $4 billion has found its way into the European Equity ETF market over the last 30 days compared to the nearly $12 billion that has leeched out of domestic equity ETF’s.  But while the inflows into Europe have been impressive, Europe continues to lag behind the Asian-Pacific markets that pulled in over $5.32 billion in the same time period and perhaps even more surprisingly, the bulk of the money isn’t finding its way to China.

Despite the hype surrounding the strong performance of the China A-share market (or possibly because of it) the biggest asset gatherers in ETFG’s “Asia-Pacific” category are about as far removed from the red-hot Shanghai exchange as you can possibly be while still within a three-hour flight time.  Formerly most hated international market Japan continues to be the biggest gatherer in 2015 with over $4.3 of the $5.32 billion that’s flowed into the space going to just two funds, old stalwart iShares MSCI Japan ETF (EWJ) and WisdomTree Japan Hedged Equity Fund (DXJ.)  DXJ’s hedged currency exposure is one of the few differences between the funds although the impact on performance has been negligible in 2015 with DXJ up 12.72% compared to 13.26% for slightly larger rival EWJ as the U.S. dollar so far has held onto most of its 2014 gains versus the yen.  Investors doing a deeper dive into the funds for clues on which way the “smart money” is leaning are likely to be disappointed; both funds are focused on the large cap market with DXJ having a more value/blend leaning towards EWJ’s solid large blend focus and consequently leading to large cross holdings between the funds.  Both funds also have among the lowest ETFG Red Diamond Risk ratings thanks to low volatility and country risk and even the inflows are nearly identical over the last month.

While the developed and larger emerging market nations in Asia might be holding their own, the smaller frontier markets that saw massive investor inflows during the QE era are quickly losing ground.  Among the biggest losers in terms of percentage of assets are the Market Vectors Vietnam ETF (VNM) and iShares MSCI Thailand Capped ETF (THD) with outflows of $63 and $75 million respectively.  Both nations benefited strongly from the “anywhere but Europe” mentality of the last few years with THD outperforming the iShares Emerging Market ETF (EEM) five out of the last six years while VNM became an investor darling after outperforming EEM by 700 basis points in 2012.  But the potential for Fed rate hikes later this year has put both nation’s currencies (and consequently stock markets) under pressure as investors bring their capital home.  Vietnam has already devalued the dong once this year as the rising dollar crimped the country’s strong export growth although the depreciation risks raising inflation closer to the Central Banks targeted rate of 5% and has led to a large outflow by foreign investors.  And while the Thai Baht was one of the few currencies to hold its ground versus the dollar over the last year, a surprise rate cut earlier this month led to serious outflows from the Thai credit market.

The prospect of a rising dollar may continue to drag on frontier performance, but one of the biggest winners in the war for investor dollars (at least in percentage terms) is a small fund that offers investors exposure to two of last year’s bigger losers in the currency wars.  The relatively tiny Wisdom Tree Australia & New Zealand Debt Fund (AUNZ) tsaw a remarkable inflow of 225% last month to bring its AUM to over $78 million.  Initially launched in 2008 as the WisdomTree Dreyfus New Zealand Dollar Fund (BNZ) and later refocused in 2011 to include Australian debt, the fund actively rotates between what the managers consider to be three “sectors” or government debt, semigovernment (state and local debt) and debt issued by supernational agencies with a focus on generating income and most importantly to the new investors, capital appreciation due to changes in exchange rates.  With the Australian and New Zealand dollars down 21.6% and 15.82% respectively since last July and only one fund currently offering non-levered exposure to the Australian dollar, AUNZ has found a role in the portfolios of investors looking for alternate means to express their opinion that the U.S. dollar has risen too far too quickly.

Thank you for reading ETF Global Perspectives.

Friday, March 27, 2015

Registration Closing at 2:00 ET today for ETP Forum-NYC

Here’s a quick post from our partners at the Expert Series regarding next week’s conference:


We are just a few days from the Spring 2015 ETP Forum-NYC on Wednesday, April 1st and the response to the event has been nothing short of terrific.  We have registered over 400 attendees and we will close registration today at 2:00 PM ET.

For those who plan to attend, please register immediately – there will be a waiting list registration available after 2:00 today.  The agenda, all-star line-up and registration may all be found at www.expertseries.org  Thank you.

See everyone next week and thank you for reading ETF Global Perspectives!

Monday, March 23, 2015

Green Flags Ahead?

What a week to be in the market as the FOMC’s press release on Wednesday caught investors by surprise.  While the Fed may finally be out of patience with its zero interest rate policy, the significant downgrade in FOMC expectations for economic output and anticipated interest rates was like waving the green flag at the Indy 500, EVERYTHING not tied to volatility or the U.S dollar took off like a rocket.  But despite the return of the “risk-on” mode, the S&P 500 was unable to break the highs set last month as investor enthusiasm continued to shift overseas.  With the PowerShares DB US Dollar Bullish Index (UUP) having its worst week since the start of its 2014 rally, could the dollar be in for more pain ahead and what can our ETFG Quant scores and fund flows tell us about the early winners?

The dollar’s loss has been the Euro’s gain and one of the most powerful movers last week were international equity funds where unhedged products racked up solid gains displacing the hedged funds that had previously dominated the ETFG Behavioral 25.  One of the strongest quant scorers in 2015 has been the Wisdom Tree Europe Hedged Equity (HEDJ) whose asset base has grown to $12.6 billion thanks to over $10 billion in flows over just the last three months making it the largest of the hedged European products.  But HEDJ’s quant score has continued to fall and with the largest unhedged European equity fund, Vanguard European Vipers (VGK) up 4.6% last week compared to .39% for HEDJ, it wasn’t surprising to us to see the Behavioral list now increasingly dominated by country specific European funds.  Making the top 25 are the iShares MSCI Ireland Capped ETF (EIRL) at #18 and the iShares MSCI Spain Capped ETF (EWP) at #23 (VGK is only #45.)  While both nations outperformed the S&P 500 last week, Ireland’s improving credit rating and strong GDP growth in 2014 have made it the darling of the year outperforming both the VGK and iShares MSCI Germany (EWG) although the fund lagged VGK last week (up 2.52%).  Spain’s political troubles with new Leftist party, Podemos, on the rise left investors concerned about whether the Eurozone’s 4th largest economy could be facing its own exit from the EU and shattering the Union in the process.

And what about international equities in those “commodity” economies we talked about on February 23rd?  The iShares MSCI Australia Index fund (EWA) still on the list at #14 while iShares MSCI Canada Index fund (EWC) holds down the #8 spot.  While both funds have seen their behavioral quant scores gyrate in a relatively tight range over the last month following the 20% selloffs both EWA and EWC had in late 2014, the shifting expectations at the FOMC have allowed both funds to reclaim lost ground.  Both funds have their largest single sector weighting in financials, energy-rich EWC has continued to lag EWA with the fund down .94% (including last week’s 3.35% gain) since our last posting compared to a 1.74% (up 5.6% last week) gain for its Australian counterpart.  Those investors looking to get in on the gains for the unhedged international funds might want to consider how much of the return from relatively stable developed markets might have already been realized over the last few weeks.  Australia and Canada have made up a lot of ground in the last three days after their currencies depreciated against the dollar by 7% and 10% respectively in 2015 (and a lot more in 2014).  The biggest loser in 2015 remains the Brazilian Real, down 21.53% and even its slight appreciation last week was enough to send EWZ up 7.61%.

International equities weren’t the only ones being pushed higher by the declining dollar last week as the inflation and interest rate sensitive precious metals sector achieved lift-off.  The first quarter started off with a bang for the sector as investor anxiety over a weakening S&P 500 and other global mayhem helped overcome a rising U.S. dollar with SPDR Gold Trust (GLD) up 9.35% in the three weeks ending January 20th, not to mention the iShares Silver Trust up 14% and the long-suffering Market Vectors Gold Miners (GDX) up a whopping 24.86%.  But the possibility of a rising rate environment (and higher opportunity costs) once again crushed golden dreams and heading into last Wednesday the sector was trading in the red for the year with massive asset outflows.  As everyone continued to go long the dollar UUP gapped open higher to close at 26.40 on Wednesday the 11th, the five days outflows from GLD, SLV and GDX topped -1.82 billion, -1.16 billion and -256.34 million respectively.  While it’s too early to write off the dollar rally even with the end of the Fed’s patience, the shift in the dot plot breathed new life into the sector; GLD and GDX have managed to attract assets over the last week to the tune of $302 million and $219 million while SLV has narrowed its outflow to $70 million.

Thank you for reading ETF Global Perspectives!

Wednesday, March 18, 2015

VALX "New-to-Market"

New-to-Market - This blog series highlights ETFs that have recently gone public and reflect those strategies currently most in demand by investors.  While ETFs are not eligible for ETFG Risk Ratings until traded for 3 months and ETFG Reward Ratings for 12 months, our goal is to highlight the most cutting-edge investment strategies that have recently embraced the ETF structure – we hope you enjoy this special series of posts.

Regular readers of our “New-to-Market” series might remember the February 11th post that featured the TWM Deep Value ETF (DVP) and specifically how their rules-based portfolio construction approach was something that Benjamin Graham might recognize.  Well that got some of us at ETF Global excited about the possibilities of building ETPs that instead of copying the holdings from a 13F filing would instead replicate the styles of the investment greats like Graham and Buffet.  We discovered the recently launched Validea Market Legends ETF (VALX.) and how it aims to bring the timeless lessons of the investing greats to the public for a reasonable price.

Actively managed by Validea Capital, the fund is the result of backtesting 17 investment strategies built around the styles of different investment gurus although all are fundamental strategies focusing on price and value rather than any purely technical trading strategies.  Validea aims to reduce volatility and drawdowns by selecting ten of these models based on historical performance and correlation with the fund drawing from a universe of 2,500 stocks run through each of the models with the 100 highest scoring stocks making the cut.  Given the significant use of momentum and valuation in fundamental strategies, the fund has a 10% cap on individual positions and individual sectors (no more than 40%) to keep the portfolio from taking on too much non-systemic risk.  Every 28 days there is a rebalancing where 10% of the portfolio is traded and stocks whose scores have fallen below the initial threshold are swapped out for newer positions.

Those who are fixated on the style box or hugging a benchmark might have a difficult time with VALX as one of the consequences of their approach is that the portfolio includes growth and value names as well as a bias towards the small and mid-cap spectrum with nearly 50% of the portfolio in small/microcap stocks.  For Validea, the focus is on the best stock whatever the size although classified as a mid-cap blend thanks to an average market cap of $3.6 billion.  One of the largest positions at 1.39% is the hot data exchange operator and serial acquirer Ebix Inc, already up a spectacular 76.5% in 2015 and which shares nearly the same amount of portfolio space with more cyclical discount retailer Ross Stores.  For those worried about the volatility of small cap stocks, you can take comfort in more than just the cap of individual position sizes. The portfolio does have large and even giant cap stocks in the allocation which helps reduce overall volatility.  While the great run-up Ebix has enjoyed in 2015 pushed the stock above the $1 billion market cap level, it can’t hold a candle to giant-caps like Apple (.93% of the portfolio) or financial titan Blackrock (.91%.).

The performance in 2015 is in-line with what you would expect from an actively managed fund with a more small-cap focus; VALX has outperformed the S&P 500 with the market up .75% compared to VALX’s 2.9% YTD although the fund has lagged its lower cost competitors like the iShares Russell 2000 ETF (IWM) which is up 3.38% or iShares Russell Mid-Cap (IWR) up 3.54%.  Launched last December, the fund is still in its infancy but the unique portfolio construction process has already proved itself in a limited test.  Thanks to its concentrated portfolio, VALX managed to strongly outperform the market as well as IWM and IWR in February and after the equity markets flipped into “risk-off” mode at the start of the March, VALX has managed to break even compared to the S&P 500’s loss of 1.44% while mid-cap IWR has lost 0.32% and IWM has seem a .88% gain.  For those investors looking to lean on the wisdom of the greats and not afraid to color outside the lines, VALX might be a fund to put on your watch list.

Thank you for reading ETF Global Perspectives!


*Please note that ETFs are eligible for ETFG Red Diamond Risk Ratings following 3 months of trading and ETFG Green Diamond Reward Ratings following 12 months of trading.


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, March 16, 2015

Is the party over for A Shares?

After the strong showing by the Shanghai exchange in 2014, we weren’t surprised recently to see so many China funds on the ETFG Quant Movers report.  It also got us thinking about whether investors looking to buy these international equities cheaply had already missed a good deal.

There may be numerous parallels between China in 2014 and Europe in 2015: concerns over a weak banking system, sustainability of the investment led GDP growth model and a once-a-decade political transition that punished the China A-share market for years and pushed share prices of many of the largest banks below book value.  Actions by the PBoC and the central government to prevent major defaults in the high yield investment trust market (as well as opening the A-share market to further outside investment) offered investors a guide map to what policy actions investors could expect to support the market while shifting the economy from an investment-driven to a consumer driven model.  But like their European counterparts, it would be hard to call the A-share funds a good bargain after their 53% run-up in 2014.  While the ETFG fundamental score for the largest A-share fund, the Deutsche X-trackers Harvest CSI 300 China A-Shares ETF (ASHR) is still attractive relative to its own history, the trailing P/E of 14.72 is hardly a bargain.

Another factor to consider before taking the plunge into a China fund is the currency peg between the Chinese Yuan and the U.S. dollar; since the July 1st 2014 the U.S. dollar has gained over 30% compared to the Euro but only .83% versus the Chinese Yuan as the PBoC works overtime to keep the currency peg within its established trading range.  That peg has helped support the strong rally in the A-share market but investors relying on the Chinese Communist Party to maintain the Yuan at its current levels might want to think again.  While China’s trade surplus hit a new record in February as rising exports to America help counteract the fallout from the Yuan’s 30% appreciation versus the Euro, the PBoC’s balance sheet experienced a major contraction last quarter as capital continues to flee the country and forces the central bank to intervene to support the value of the Yuan.

Lastly, a current account surplus and capital account deficit seem to be the natural order of things for the rest of the world, but it has added another element of instability in China’s transition towards a consumer-based economy.  Given the size and importance of China’s trade relationship with the EU, there is a significant amount of debate as to whether China will continue to defend the Yuan as its current levels or allow a one-time depreciation despite the concerns that it could add further instability to the market.

Thank you for reading ETF Global Perspectives!

Thursday, March 12, 2015

Update - Spring 2015 ETP Forum NYC

We spoke to our friends at The Expert Series this morning and registrations for the upcoming Spring 2015 ETP Forum-NYC are at a record pace.  The event will be held at The New York Athletic Club on Wednesday, April 1st and ETFG will once again Chair this terrific conference.

The Expert Series has already registered in excess of 250 attendees, so if you have not registered, please do so ASAP – registration is now expected to close 1-2 weeks in advance of the event.

You can register here: Register and complete event information is at www.expertseries.org

Updates on the event are now available on Twitter via @Expert_Series and #ExpertSeries2015

Featured Speakers:

Jeremy Schwartz
, Director of Research, WisdomTree Asset Management
Alex von Obelitz, ETF Strategist, PIMCO
Mark Yusko (Keynote), CEO & CIO, Morgan Creek Capital Management
Chris Romano, Director of Research Applications, ETF Global
Haddon Kirk, Head ETF Trader, UBS Securities
Mike Boucher, Portfolio Manager, Fidelity Investments
David LaValle, US Head of ETF Capital Markets, SPDR ETF
Charles de Vaulx, Chief Investment Officer, International Value Advisers
Ethan Powell, Chief Product Strategist, Highland Capital Management
Xiaolian Wang, Managing Director, MarketGrader Capital
Rick Ferri, Chief Executive Officer, Portfolio Solutions
Niall H. O’Malley, Portfolio Manager, Blue Point Investment Management
David Sherrill, The Vector Group, Morgan Stanley Wealth Management
Thomas E. Cavada, The Mowrer-Cavada Group, UBS Wealth Management
Scott Dooley, Chief Investment Officer, Fusion Investment Group
Jay Hatfield, Portfolio Manager, Infrastructure Capital Advisors
Matthew Tuttle, Chief Investment Officer, Tuttle Tactical Management
Paul Yook, Portfolio Manager, BioShares Funds
Carlos Diez, CEO, MarketGrader Capital
David Perlman, ETF Strategist, UBS
Jeremy Eisenstein, Exchange Traded Notes, Credit Suisse
Daniel Zraly, Head of US Fixed Income ETF Trading, BNP Paribas
A. Seddik Meziani, PhD, Professor of Finance, Montclair State University
Thomas Picciochi, Multi-Asset PM & Trading, QS Investors
Jason Nicastro, Senior Research Analyst, LPL
Jason DeSena Trennert, Managing Partner, Strategas Research Partners
Scott Ladner, Head of Quant & Alts Strategies, Horizon Investments
Joe Anthony, President, Financial Services, GREGORY FCA
Edward Rosenberg, Head of ETF Capital Markets & Analytics, FlexShares
Brian Good, Portfolio Manager, THL Credit
Julie Abbett, ETF Sales Trading, Deutsche Securities/Women in ETFs
Ben Sklar, Portfolio Manager, Alliance Bernstein
Greg Skidmore, Head of Financial Group/President of Asset Management, Belpointe

Thank you for reading ETFG Perspectives!

Monday, March 9, 2015

Banking for a Win

It was no surprise that our weekly Quant Movers report looked a little “schizophrenic” after Friday’s panic-induced Treasury rout from another stellar Job’s report.  As the “risk-off” trade sparked strong selling across all asset classes, some of the biggest quant gainers for the week made for a mismatched list of market neutral, covered call and low volatility products with no clear trend to follow.  But there was one standout amidst the bloodletting last Friday, the PowerShares KBW Capital Markets Portfolio (KBWC). As the potential for a rising rate environment finally provides a much needed lift to the financial sector where profitability has long been constrained by tight interest rate spreads.  While it might be early to declare victory for the financials, the momentum shift does have us wondering if it’s time to get serious about bank stocks.

After showing so much promise last December when the on-going rally in low volatility sectors seemed to finally spillover to the financials, the sector fell flat on its face in January as traders and economists squared off on when rates might finally begin to rise in the U.S.  Constrained by low net interest margins, weak loan growth and stricter regulations that have all conspired to keep ROA close to historic lows, banking stocks (especially regional bank stocks that lack a trade desk) were the wallflowers in January with the Financial Sector Select SPDR down 6.96% and the KBW Regional Bank Index SPDR (KRE) down 9.46% to the S&P 500’s 3.1% loss.  How the worm turned last Friday with KRE gaining .77% compared to XLF’s -.74% and the S&P’s -1.42% performance on the day.  KRE wasn’t the only fund to see big gains on the day, the iShares U.S. Regional Banks ETF (IAT) and SPDR S&P Bank ETF both managed to deliver positive returns on the day.

The secret to their success is a formula familiar to investing greats like Warren Buffet; community and regional bank names that dominate their home markets through a strong footprint but rely on loans and investment/trust services to generate revenue.  Pittsburgh’s own PNC Group (PNC) fits neatly into this category along with BB&T Corp (BBT) and SunTrust Banks (STI) that have long battled each other for supremacy in the states of the old Confederacy.  Besides having similar asset bases and extensive geographic footprints, the three banks are common holdings across the regional bank ETF market and were up over 1% on Friday (PNC and BBT were up 1.29%, STI was up 1.7%) as investors interpreted the potential for rate hikes as early as this June as positive for those strong regional players.  That regional focus for KRE and IAT (where these three banks make up 25% of the allocation) helps explain a significant portion of Friday’s performance differential when compared to XLF’s more lackluster showing.  IAT’s average market cap is $14.9 billion compared to $66.1 billion for XLF.

And if a little smaller is good, than a lot smaller must be better right?  Investors looking for a bigger bang for their buck as rising return on assets and leverage boost return on equity back to historic norms might consider the First Trust NASDAQ ABA Community Bank ETF (QABA.) With an average market cap of only $1.6 billion and many of the 143 banks are located within a single state they were among the hardest hit by the consumer balance sheet recession of the last five years.  Investors worried about the risks that they’ll be acquiring besides geographic risk if they add QABA to their portfolio’s should look at our Red Diamond Risk scores; QABA currently sports an ETFG Red Diamond Risk rating of 2.82, one of the lowest among the bank stock ETF’s we’ve talked about today thanks to lower volatility and deviation scores.  But investors should note that those lower scores may be due to much lower transaction volumes for underlying holdings compared to either regional players like PNC or national operations like Citi.

Thank you for reading ETF Global Perspectives!



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.

Thursday, March 5, 2015

New-to-Market: BBC

New-to-Market - This blog series highlights ETFs that have recently gone public and reflect those strategies currently most in demand by investors.  While ETFs are not eligible for ETFG Risk Ratings until traded for 3 months and ETFG Reward Ratings until traded for 12 months, our goal is to highlight the most cutting-edge investment strategies that have recently embraced the ETF structure – we hope you enjoy this special series of posts.

Congratulations to the team at BioShares who rang the opening bell at the NASDAQ MarketSite yesterday morning and the timing couldn’t have been more appropriate as the biotech sector has already significantly outperformed the broader market in 2015.  The largest biotech fund, the iShares Nasdaq Biotechnology ETF (IBB), is up over 12% in 2015 compared to 1.92% for the S&P 500 as the potential for strong earnings growth and M&A activity offer a counterbalance to the gloomy analyst forecasts that dominated the headlines during earning season.  Given that strong price appreciation, investors looking for a fund that can offer exposure to those biotech stocks that may have been overlooked in the rush to buy names like Celgene or Biogen might want to consider the BioShares Biotechnology Clinical Trials Fund (BBC).

BBC’s unique benchmark construction process and focus on companies in the clinical development phase also helps to eliminate another common issue within the biotech ETF arena, large cross holdings.  Despite the 71 biotech IPOs in 2014, the relatively low number of publicly traded biotech stocks and large inflows into biotech funds over the last several years has led to either large concentrations in top holdings (IBB has nearly 55% in its top ten positions) or large cross holdings between funds that increases the likelihood that the rejection of one or two potential drugs by the FDA could wreak havoc across the entire sector. The LifeSci Biotechnology Clinical Trials Index is equally-weighted with currently over 68 constituents and lives up to its promise of offering exposure to companies beyond what the traditional indices can offer.  Besides having no position in Biogen (BIIB) that currently constitutes almost 10% of IBB, the 68 holdings in the benchmark only make up slightly more than 14% of the assets at their larger iShares rival.

The chief complaints against BBC lie in the nature of the benchmark; the unique construction methodology and thorough review process by a team of industry experts has made the funds expense ratio higher than many of its competitors, .85% compared to .48% for IBB, .6% for FBT and .35% for XBI.  While the performance track record is relatively short given its recent inception, investors willing to pay those higher fees have been well compensated with BBC up over 21.2% since 12/17 compared to 12.1% for IBB, 6.16% for the broader Healthcare Select Sector SPDR and 4.25% for the S&P 500.

One of the biggest winners for the fund has been Orexigen Therapeutics Inc. (OREX) whose stock has risen over 46% in the last two days as the recent announcement that its anti-obesity drug currently in Stage III clinical testing, Contrave, may have a significant impact on reducing the likelihood of cardiovascular problems in severely overweight patients.  While the study isn’t expected to be completed until 2017, the clamor for OREX and the multiple upgrades by analyst’s covering the stock shows the impact of the funds’ equally weighted allocation system as well as the role BBC could play as part of a larger healthcare position.

Thank you for reading ETF Global Perspectives!



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, March 2, 2015

All About Bonds

The recent addition of the TOTL (SPDR DoubleLine Total Return Tactical ETF) to the active bond fund space provides some much need diversification to the broad market debt roster.  While we currently list 40 actively managed debt funds, the ETFG Scanner shows only 13 funds in the broad debt category where most funds focus on either one portion of the yield-curve (short maturity) or a specific asset class like EM debt or high yield bonds.  One fund, the PIMCO Total Return Active Exchange-Traded Fund (BOND), controls the bulk of the assets.

Like BOND, TOTL is designed to offer an active management solution for investors looking for a core bond fund  that offers more diversification than buying AGG and was designed to offer different asset class exposure than can be found in the popular DoubleLine Total Return mutual fund.  While the fund is only a few days old, the initial allocation offers to little beyond what the mutual fund already provides.  Both funds offer lower duration than AGG and even though TOTL was not intended as a mortgage backed securities vehicle, the initial allocation at 52% of the portfolio is nearly twice that of AGG and allocates only a small portion of the funds’ assets to the high yield and emerging market space that outperformed in February.

Continuing our hunt for actively managed sector rotation funds, we’ll admit that our prejudice against cloned funds nearly caused us to overlook one of PIMCO’s offerings, the PIMCO Diversified Income Active Exchange-Traded Fund (DI) which unlike “core bond” strategies such as BOND, has delivered on the promise of the funds intended strategy.  Built around investment and non-investment grade corporate debt as well as international bonds (developed and emerging) and with serious underweighting towards Treasuries, DI delivered strong performance in February as high yield spread compression and stabilization in the EM bond market helped lift the fund higher.  But these returns aren’t without their risks as the funds ETFG Red Diamond Risk rating of 5.95 is one of the highest in the space and with significantly higher volatility and deviation than traditional core bond funds.  By way of comparison, the two largest funds in the space, AGG and BND have Red Diamond Risk ratings of 3.11 while core holding BOND is at 3.82.

For those seeking something besides the “usual” from PIMCO or mutual fund clones might want to put two newer and smaller funds on their watchlist; the RiverFront Strategic Income Fund (RIGS) and the AdvisorShares Newfleet Multi-Sector Income ETF (MINC.)  While both funds are actively managed and offer rotation strategies designed to optimize return through a “go anywhere system”, the similarities between the two ends there.  RIGS offers a much more tactical approach, with 99% of the funds allocation in corporate bonds with a heavy focus on short-term high yield debt.  That focus gave RIGS a major shot in the arm in February thanks not just to lower duration than AGG (2.98 to 5.14 as of 12.31) but with the duration coming almost exclusively from high yield bonds where the nearly 100 bps drop in spreads has breathed new life into the high yield sector.

MINC might be more appropriate for those investors seeking sector rotation without the white knuckle experience offered by RIGS.  MINC’s 1 month return of .11% may seem anemic compared to the 1.43% offered up by RIGS, but the fund delivered its outperformance of AGG by offering lower duration, low treasury exposure and a focus on delivering income through asset-backed securities as well as corporate bonds.

Thank you for reading ETF Global Perspectives!



*Please note that ETFs are eligible for ETFG Red Diamond Risk Ratings following 3 months of trading and ETFG Green Diamond Reward Ratings following 12 months of trading.


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.