Monday, August 31, 2015

Polar Opposites

The beginning of last week saw some of the weakest days since the start of the bull market only to be followed by a modest bounce off the lows set during last falls “Taper Tantrum.”  Largely overlooked now, last October’s rally off oversold levels was ignited by dovish comments from Fed President Charles Evans about not raising rates before the economy had been stabilized.  Not surprisingly, we’re living in the Fed’s shadow as the back and forth between the NY Fed and the Vice-Chairman plays out in headlines. Across every data point between now and the next FOMC meeting could be a market turning event, but at ETFG we’re all about finding the bigger trends so we turned to our Quant Screener to study how the last two weeks have shifted the market dynamics.

The hands down biggest winner last week was the energy sector where a nearly 12.5% gain by West Texas Intermediate Crude helped propel energy stocks higher with the broad Energy Sector Select SPDR up 3.59% compared to .91% for the S&P 500.  Domestic energy stocks weren’t the only ones to benefit from the crude recovery as single market ETFs with heavy energy exposure enjoyed a strong week despite a rising dollar with the small SPDR S&P Russia ETF (RBL) seeing a double digit advance along with a 68% increase in its weekly ETFG Behavioral quant score.  Prognosticators were quick to declare this strong advance was nothing more than short covering; after all before last week’s rally crude oil was down nearly 60% and had dropped all the way back to levels not seen since the dark days of 2009 with no recent change in global production to help support the move higher.  Supporting the case for short covering was the weakness in non-energy commodities where both the IQ Global Agribusiness Small Cap ETF (CROP) and the iShares Global Timber & Forestry ETF (WOOD) made our list of funds that saw the biggest percentage drop in the quant scores over the last week.  Last week’s liftoff occurred even with the U.S. dollar making strong headway as comments by monetary policy rock star Stanley Fischer indicated that the Fed was sticking to its “data dependent” policy on future rate hikes.

It was a different story for the utilities and REITs because while energy stocks enjoyed strong performance on the back of rising crude prices, a reversal in sentiment and contradictory statements from the Fed took the wind out of the sails of the defensive favorites.  Both sectors closed down for the week with the two bell weather funds, the Utilities Sector Select SPDR (XLU) and the iShares U.S. Real Estate Fund (IYR), losing 4.2% and 2.8% respectively.  Late July had been especially generous to the utilities as broader equity weakness helped propel the sector to the top of our momentum lists, where it was later joined  by REIT’s as their underperformance last spring (and a stable if uninspiring economy) made their stable dividend yields look all the more attractive.  But both of these classic defensive wagers may have committed the only unforgiveable sin in a bear market; not only did they capture almost all of the broader market’s downside during the rout, the public debate within the Fed over the timing of interest rate hikes hit these two sectors the hardest and subsequently they delivered only a fraction of the markets upside in the latter half of the week and left them deeply in the red overall.  Further complicating the picture is their relatively high valuations and somewhat uninspiring dividends with both XLU and IYR yielding above 3% which while about 100 bps above the ten year Treasury pale in comparison to the 8.25% offered by the largest MLP ETF, the Alerian MLP fund (AMLP.)

And if XLU and XLE trading places was the market equivalent of the magnetic poles beginning to shift, just wait for the week ahead.  One fact about the rally in the second half of last week was that it was on lighter volume than the pullback just days before, a worrisome trend as we move into the week before Labor Day which traditionally has been a period of even lighter volume and when coupled with the first week of the month’s heavy economic release schedule means more volatility is ahead.  After a relatively quiet Monday, manufacturing will take center stage on Tuesday followed by productivity and factory orders on Wednesday before all eyes turn to Friday’s employment report which could be the final factor many traders will consider before the next FOMC meeting in mid-September.  No matter which way the data goes, higher volatility and more rotation is sure to be the order of the day.

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

Saturday, August 29, 2015

Fall 2015 ETF Global Portfolio Challenge

#etfwizards

Please welcome all the students from the fine academic institutions listed below who recently joined the Fall 2015 ETF Global Portfolio Challenge!
  • Auburn University
  • Baruch College
  • Purdue University
  • Saint Joseph's University
  • St. John's University
  • Syracuse University
  • University of  Michigan-Ann Arbor
  • University of  Nebraska
  • University of  North Carolina at Chapel Hill
  • University of  South Carolina
  • University of  Southern California
  • Xavier University
  • Yeshiva University
Undergraduate and Graduate students worldwide from all academic disciplines are eligible. Registration remains open through September 18th and all contest details can be found at www.etfportfoliochallenge.com

We wish our players all the best in this virtual investment competition and thank you for reading ETF Global Perspectives!

Thursday, August 27, 2015

Save-the-Date: 11/20/15 Fall 2015 ETP Forum - NYC

The Expert Series recently announced that ETF Global will again Chair the upcoming Fall 2015 ETP Forum–NYC on Friday, November 20th at The New York Athletic Club.

Please join this all-star lineup of expert speakers and panelists including Shark Tank's own "Mr. Wonderful" Kevin O'Leary, who will kick off the day with his opening presentation - it is sure to be entertaining!

This one day symposium convenes widely recognized experts in Exchange-Traded-Funds and some of the brightest minds in Capital Management. The ETP Forum is a very different type of conference that features renowned leaders addressing cutting-edge topics within a vibrant learning atmosphere.

Video footage from the most recent ETP Forum which was held on 4/1/15 and counted over 500 financial professionals in attendance is available on Expert Series TV at Expert Series TV

For all details including upcoming Agenda and featured Speakers, please visit the event website at www.etpforum.org   Registration will open in the coming weeks - we look forward to seeing you there!

Thank you for reading ETF Global Perspectives!

Monday, August 24, 2015

Green Shoots

Volatility has replaced the iPhone as China’s chief export as second devastating week saw the venerable Dow Jones Industrial Average and the NASDAQ tip into technical corrections while the S&P 500 is now off 7.5% since peaking on July 20th.  The relative calm at the start of the week was shattered first by Wednesday’s early release of the FOMC minutes followed by Thursday’s release of the Caixin PMI report that showed Chinese manufacturing continued to contract for a six straight month.  The outcome was that the S&P 500 closed at the lows on both Thursday and Friday, losing 5.2% in two days and now more than 100 points below the 200 day moving average and also erasing most of the gains since last October’s pullback.  There were a few pockets of green to be found on ETFG’s heat map, so this week we turn back to the ETFG Scanner to find opportunities for the more adventurous investor.

While only a handful of utility stocks closed in positive territory, it shouldn’t come as a surprise that the behavioral scores for the Utilities sector continue to climb as investors seek safety in this classic defensive play.  Nearly all the domestic utility funds currently tracked by ETFG, appear somewhere in the top 50 of ETFG technical scores and measure relative momentum on either a short or intermediate term basis.  Investors continue to show their love towards two of the biggest funds, despite their negative performance for the week, with the Utilities Select Sector SPDR Fund taking in $125 million in new assets last week while their smaller competitor, the iShares U.S. Utilities ETF (IDU), had to be content with a mere $22 million.  For those who are curious as to why neither fund appears in our Behavioral Top 25 List, the problem has to do with the nature of utilities funds that typically have much lower implied volatility than other sectors although one fund does make the grade.  As the name implies, the PowerShares DWA Utilities Momentum Portfolio (PUI) is a momentum based strategy of at least 30 names built around the Dorsey Wright Utilities technical leader’s index and carries a much higher ETFG Risk Rating in part due to its higher volatility.  One little fund that did manage positive performance last week was the Deutsche X-trackers Regulated Utilities ETF (UTLT) thanks largely to the 16% of its allocation in Greater Europe where both the Euro and Pound outperformed the dollar last week.

But if you were really looking for green last week, you had to focus on gold where many of the mining stocks delivered positive (for a change) double digit performance.  Gold and its more volatile and publicly traded cousin, the gold miners, have seemingly returned to the role of a defensive equity play that they occupied for nearly twenty years during the great bull market that began in 1982.  While the miners saw a tremendous erosion of value throughout that period, they would find temporary favor by delivering positive performance during the intermittent pullbacks only to surrender those gains as soon as the bull market resumed.  That historically negative correlation between the gold miners and the rest of the equity market, seems to be back in force; since closing at a low of $103.93 on August 5th, the SPDR Gold Trust Shares Fund (GLD) has gained 6.9% while the Market Vectors Gold Miners Fund (GDX) is up nearly 17.57% in the same period compared to a 6.1% loss for the S&P 500.  Both funds have seen strong buying in the last thirty minutes of each trade day, indicating that the smart money might be behind much of the recent accumulation with GLD seeing $278 million in new assets in the last two weeks compared to $28 million in GDX whose recent performance and skyrocketing behavioral scores still hasn’t taken the sting out of the 76% drop the fund endured since September of 2011.

Not everything that glittered last week was gold and the volatility of the gold miners almost pales in comparison to that of two of the Quantshares Market Neutral funds that saw their ETFG behavioral scores skyrocket thanks to last week’s market pandemonium.  The QuantShares U.S. Market Neutral Anti-Beta Fund (BTAL) and the QuantShares U.S. Market Neutral Momentum Fund (MOM) both recorded strong gains last week (3.95% and 2.25% respectively) as their unique long/short strategies helped them outshine their more popular competitors in the alpha-seeking and low volatility spheres.  Both funds focus on spread returns with BTAL’s strategy built around a long portfolio of low beta stocks and a short portfolio of high beta with a substantial gap between the two according to their last quarterly fact sheet with the long portfolio at .78 and the short portfolio at 1.3.  MOM has a similar strategy focusing on momentum stocks although the difference in beta between the long and short portfolios was less substantial and decidedly offered less power during last week’s rout.  Before investors rush out to give ALL their money to the two funds, consider their Red Diamond Risk scores which are remarkably high given their lack of leverage.  MOM and BTAL both have deviation scores in excess of GDX’s while their small asset size and low daily trade volumes give them elevated liquidity scores.

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.

Saturday, August 22, 2015

Student ETF Investment Contest - Registration Open!

We are excited to announce a fun, new, virtual investment contest for College Undergraduate and Graduate students - all details of which are available at www.etfportfoliochallenge.com
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Exchange-Traded-Funds remain one of the fastest growing instruments for current investors and an investment of choice for emerging investors. To further the investment education of collegians, we have launched the ETF Global Portfolio Challenge which provides college students the opportunity to select a virtual portfolio of ETFs and compete on its performance. The contest is FREE and requires no purchase at any time.


Through our collaboration with Stockfuse, students can compete against their fellow classmates and other schools for some very cool prizes intended to benefit both their educations and their careers. Students can register at www.etfportfoliochallenge.com through September 18 - so sign up today!

Here is the contest flyer:  Flyer - ETF Global Portfolio Challenge - Fall 2015.  Please forward to any college students who may have interest.

Thank you for reading ETF Global Perspectives!

______________________________________________________________
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 

Thursday, August 20, 2015

New-to-Market: CDL

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.

Our “New-to-Market” series finds products offering something more than just a better mousetrap, so you can imagine our surprise when we found ourselves drawn to the saturated high dividend fund space to review the recently released Compass EMP US Large Cap High Dividend 100 Volatility Weighted Index ETF (CDL).

With 67 different funds and nearly $88 billion in assets largely dominated by the biggest names in the ETF market like Vanguard, iShares and SPDR, the high dividend category may not seem a likely place to find innovative products, but CDL is the seventh new fund to enter the space in 2015 as smaller sponsors seek to challenge the handful of solutions that have dominated the marketplace for over a decade.  How it seeks to do that is by combining the best features offered by the largest funds and for a reasonable 35 bps a year in fees.  If you’ve been torn between a high dividend yield today or a sustainable dividend tomorrow while potentially taking on less volatility, the Compass EMP US Large Cap High Dividend 100 Volatility Weighted Index ETF might just be the fund.

While the fund’s benchmark is the CEMP U.S. Large Cap High Dividend 100 Volatility Weighted Index, that benchmark is itself derived from another index, the CEMP U.S. Large Cap 500 Volatility Weighted Index that has been offered as an open-ended mutual fund by Compass since 2012.  The focus of the fund is strictly on larger U.S. equities although the benchmark’s universe consists of all domestic equities that is first whittled down using only one criterion, profitability, specifically four consecutive quarters of what the managers call “consistent” profitability.  The goal is to avoid buying “dividend traps” or those stocks whose high dividend yield is because of a recent decline in price usually due to some major change in the company’s financial status.  Screening companies based on profitability is nothing new; the sector heavyweight, Vanguard’s Dividend Approach Fund (VIG), operates on a similar principal but rather than screening based on underlying profitability of the business, Vanguard focuses on companies that have raised their dividends each year for at least the last ten consecutive years. VIG then allocates using a market cap weighting system which stretched across 184 holdings gives the fund the feel more of a large blend core fund and a yield only fractionally above an S&P 500 index fund.  Compass screens explicitly on dividends with the 100 highest dividend payers from the Large Cap 500 Volatility Weighted benchmark becoming part of CDL’s benchmark.

Perhaps the most evolutionary aspect of the fund’s benchmark is the volatility weighting system that the management team at Compass hopes will keep the fund’s volatility low and its risk-adjusted return high. Investors have long been familiar with the ramifications of indexes weighted by market capitalization; as a sector or even just a handful of names become investor darlings, their volatility tends to increase while simultaneously driving an increase in price with the net result that market becomes beholden to its new masters.  Think of market cap weighting as a double helping of portfolio risk and Compass seeks to manage that risk by weighting the benchmark components not by market capitalization but by their volatility. CDL determines individual position weights during semiannual reconstitutions by first determining the daily volatility of all 100 components over the prior 180 days then estimating the mean volatility and finally adding or subtracting from position weights accordingly.  The net result is that the largest ten stocks that make up just 15.4% of the fund at the moment have a strong focus on consumer staples, insurance and bank stocks while the more volatile energy and consumer discretionary names bring up the rear.  But for those potential investors who think a focus on dividends and low volatility means buying another utilities fund should have no fear because the portfolio has one other constraint besides profitability; namely, that no one sector can make up more than 25% of the portfolio’s allocation - utilities comprise the largest weighting at 22% thanks to their low volatility and steady profits.

We tend to view backtested results with a grain of salt although the straightforward strategy of CDL lends credibility to the impressive history where the fund’s hypothetical results showed an annualized alpha of 3.72% for the ten year period ending June 2015.  We believe in taking new funds for a test drive and even though CDL has only been in the market place for six weeks and is currently thinly traded, we decided to contrast the funds’ performance with that of the #2 fund in the space and most direct competitor, the iShares Select Dividend ETF (DVY) which also uses a unique weighting system that gives higher weights to higher dividend paying stocks. Both funds have 99 holdings and because of their unique weighting systems also have lower average market caps than most of their peers although CDL lands firms in the large value space with an average weighted market cap of $27 billion while DVY’s $15.7 billion puts it in the mid-cap value box.  They even have similar expense ratios with CDL and DVY at .35% and .39% respectively!

And while they might look alike and talk alike, they surely don’t act alike as CDL has returned 2.44% from inception through 8/19 compared to DVY’s .29% thanks in large part to their different weighting systems. Utilities are a large part of both allocations with DVY holding over 33% to CDL’s 24% but one major difference between the two funds is their allocation towards energy stocks where CDL has slightly more than half the exposure of DVY. And because of DVY’s dividend weighting system, energy stocks occupy much larger allocations within the portfolio; Helmerich & Payne’s (HP) has inflicted some trauma on DVY because of its 1.45% weighting (compared to .49% for CDL) and even more damage has been done by Chevron (CVX) whose 14% drawdown has weighed heavily on DVY thanks to an allocation more than 3x higher than that of CDL.  But there’s more to it than simply avoiding energy stocks; both funds hold trash king Republic Services (RSG) which is up 7.9% since the launch of CDL, but because of the stocks lower volatility CDL has a 1.47% allocation to the stock where DVY has less than half that at .7%.

With time the Compass EMP US Large Cap High Dividend 100 Volatility Weighted Index Fund might not prove itself to be the fund for all seasons, but for those demanding investors who want both dividend income and lower volatility, this fund might be a welcome addition to the portfolio.

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, August 17, 2015

Following the money!

Long time readers of our Monday morning posts know that we often use our lists of top scoring Behavioral funds to identify trends; sometimes looking at the top 25 for a coincidental indicator and sometimes looking for patterns.

After a difficult year where energy stocks have steadily lost ground while the broader markets have held their own, it’s hardly surprising that the sector is noticeably absent from the top 100 with only two energy funds making the list.  But the market has a way of surprising you - with the Energy Sector Select SPDR (XLE) outperforming the S&P 500 for the first time in almost two months as problems at the largest oil refinery in the Midwest has sent gas prices surging.  And while that has offered succor to refining stocks, the love was felt throughout the energy sector as even natural gas and MLP funds enjoyed a strong week of outperformance.  Since we’re knee deep in 13F filings we’re going to check in on that most favored of indicators, the smart money, and see how they’re invested but whether you use it as a coincidental or contrarian signal is entirely a matter of debate.

Making the biggest splash this quarter was Berkshire Hathaway where the announcement of their acquisition of Precision Castparts nearly obscured that company has closed out most of its remaining positions in the energy sector after several quarters of trimming by selling its remaining shares of National Oilwell Varco (NOV) and Phillips 66 (PSX).  While NOV closed down slightly for the week, PSX found some buyers who were okay with diving in Warren Buffets dumpster as the stock rose over 4% last week.  With energy stocks now making up just 6% of the Berkshire portfolio, Warren Buffet finds himself in good company according to the 13F data.  Paulson & Company, Metropolitan Capital Advisors and Soros Fund Management all have energy allocations in the mid-single digits while the most watched 13F that of Appaloosa Management shows no energy sector exposure at all. Most of the smart money has instead allocated capital for merger mania with Perrigo and Mylan making the list for most popular new or expanded holdings.  Even among the top performing energy names last week, like Williams Company (WMB), Baker Huges (BHI) and EOG Resources (EOG), there was a steady trend over the quarter of money managers trimming positions in the stocks.

So if the smart money is busy chasing pharmaceuticals, who snapped up energy stocks early last week?  There was a clear trend last week of smaller energy names with higher debt-to-equity ratios outperforming, a common smart money tactic to use financial leverage to their advantage but one overlooked group might be looking at the second for another reason.  To abuse one of John F. Kennedy’s most famous utterances, investors might be coming back to the energy sector not because P/E ratios are low but instead BECAUSE they’re high.  So why are some investors seeking out high P/E stocks?  Because they remember the wisdom of investment gurus like Peter Lynch who advised investors to look at cyclical stocks on the basis of a normalized P/E ratio that encompassed an entire business cycle rather than just the trailing twelve months.  Using the ETFG Quant tables, energy funds might appear cheap when looking at three of the metrics we use including the P/B, P/CF or historic yield but they also seemingly trade at record P/E ratios as well with both the Vanguard Energy Index Fund (VDE) and XLE trading above the 4th percentile which is hardly surprising given XLE has seen its price drop nearly 30% since the recent high on 6/24/14 through last Friday while earnings are down more than 50% in the same period.

Focusing in one specific stocks, start by considering the historical P/Es for sector titan Exxon Mobil (XOM) which coming out of the great tech collapse in the early 2000s saw the stock hit a high trailing P/E of 26.32 at the start of July 2002.  While the company underperformed the S&P 500 for the rest of 2002, it marked the low-point for the stock as Exxon outperformed the S&P 500 every year for the next six years during the great commodities super cycle.   A more recent example for Exxon was the stock hitting a post-Lehman high P/E ratio at the start of 2010 around 17.7 and while the company underperformed slightly in 2010, it outperformed the market again from 2011 to 2012 by 900 bps until losing momentum as the P/E ratio began to rise as investors started to over pay for the stock.  The return patterns around cyclical stocks are rarely ever neat and clean, there does seem to be some validity to the idea that investors should be looking to buy when P/E multiples are close to highs.  And while one week does not a trend make, it seems that some investors are staking out their claims on energy stocks.

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, August 10, 2015

ETFG Grey Market Insights

It was another shaky week as domestic equities confronted the reality that the Fed is likely on course to raise rates this September.  With investors focused on prepping their portfolios, they can almost be forgiven for overlooking that we’re still in earnings seasons with another seven percent of the S&P 500’s market cap due to report in the next two weeks.  And while there’s still more fun to come, most of the largest components of the S&P 500 have reported and according to the Factset Earnings Insight report, Q2 2015 will have the first negative earnings growth rate since 2012 with many analysts expecting earnings growth to stay negative throughout 2015.  Given the doom and gloom, we thought that it was time to check in on the ETFG Grey Market Report and find out which stocks with disappointing earnings have the most potential to drag on equities in the weeks ahead.

A quick glance at the ETFG Grey Market Summary page can shed some light on one of the biggest drags on domestic equities over the last few weeks as Apple (AAPL) has risen steadily over the last few years to be the biggest name in ETF portfolios with nearly $30 billion tied up in the stock across the ETF universe.  It was only a few months ago that investors were debating whether Apple would have the honor of being the first company to have a market capitalization greater than $1 trillion but since its quarterly earnings on July 21st, the stock has dropped 11.25% as investors and equity analysts reacted to slightly slower iPhone sales growth and weaker Chinese market.  That 11.25% drop is roughly equivalent to shedding $85 billion in market cap or to put it into perspective, it would be like McDonalds, Boeing or 3M suddenly just vanishing from existence and taking roughly .5% of the SPDR S&P 500 ETF (SPY) with it.  While SPY’s 1.6% loss since the Apple earnings release can’t be laid entirely at the feet of the company’s rapidly vanishing market cap (looking at you energy stocks), the ETFG Grey Market report can help pinpoint which ETF’s are hurting the most from Apple’s woes.  35 funds currently have an allocation greater than 5% of their assets in Apple from broad market bellwethers like the PowerShares QQQ with a 12.5% weighting (and $40 billion in AUM) to tech funds such as the Technology Select Sector SPDR Fund (XLK) with 16.2% and growth funds such as Vanguard Growth Fund (VUG) at 8%.

Apple’s missteps might be weighing heavily on the market but entertainment and media stocks are partly behind the recent sector rotation where utilities and consumer staples have seen a powerful momentum shift to displace consumer discretionary stocks.  If SPY took it on the chin, the Consumer Discretionary Select Sector ETF (XLY) got its teeth kicked in, shedding 2.5% in the last days as concerns over cord-cutting finally hit old-media titans like Viacom (VIAB) which dropped over 20% last week along with Fox (down 11%), cable companies like Comcast (so long 6%) but most of all Disney who’s prized ESPN asset and it’s supposedly rabid fan base were supposed to shield it from the on-demand reality.

Going back to our ETFG Grey Market Summary page you’ll find Disney currently holds the 23rd spot with a nominal long exposure of $6.6 billion and where a 8.8% drop last week rippled throughout the markets but fell most squarely on XLY where the stock makes up 7.2% of the allocation.  Media stocks on the whole make up nearly 30% of the fund’s assets and generally investors will find a very old media feel with Disney being closely followed by a number of last week’s other biggest losers like Comcast with a 6.28% weighting along with Time Warner Inc at 2.8 and Fox at 2.3%.  New Media giants like Netflix make up a much smaller percentage of the overall portfolio at 2.28% although there aren’t many funds with a larger allocation than XLY’s.  The Grey Market Report shows a nominal long exposure of $2.47 billion and only six funds with a larger allocation to Netflix than XLY.

Focusing on the week ahead, there are 13 earnings reports coming out from S&P 500 constituents making up 1.7% of the index’s market cap with perhaps the biggest coming on Wednesday after the close when Cisco (CSCO) is due to report.  CSCO’s nominal long value of $6.9 billion comes largely from being a small part of large funds such as SPY and QQQ where it makes up .78% and 2.72% of the assets respectively although the fund compromises more than 8% of the assets of smaller tech funds like the iShares North American Tech-Multimedia Networking ETF (IGN) and the First Trust NASDAQ Technology Dividend Index Fund (TDIV) so it could still have market moving implications for tech investors.  Oddly enough one possible market mover comes from the utility sector where AES Corporation reports before the open on Monday.  While AES’ nominal long exposure of $532 million is around 1.8% that of Apple, the stock makes up 1.6% of the Utilities Select Sector SPDR Fund (XLU) that has rocketed to the top of our technical scores for the select sector SPDR series thanks to recent strong price momentum as utility investors finally see the light after a difficult first half of the year.  Friday’s 1.23% gain put the fund in the black for the week and the market will have to wait and see if AES can help keep the momentum going for the fund.

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.

Friday, August 7, 2015

Calling all FPA Members...........

For all of our users who are members of the Financial Planning Association, please see below for an upcoming educational webcast......
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Press Room > Kevin O’Leary of ABC’s Shark Tank to be featured on Webcast for Financial Planners, Journalists Invited

​​DENVER – The Financial Planning Association® (FPA®) and ETF Global® (www.etfg.com), will host an exclusive webcast for FPA members regarding the importance of Earnings and Balance Sheet Quality when investing on Wednesday, August 12 at 11 a.m. ET featuring Kevin O'Leary, founder of O'Leary Financial Group, O'Shares Investments and noted "shark" on ABC's Shark Tank.

Hosted and moderated by Chris Romano, CFA, Director of Research at ETF Global®, the 20-minute webcast on "The Value in Balance Sheets When Selecting Dividend Stocks" will feature Mr. O'Leary's thoughts on the subject and how he uses quality of earnings and balance sheets when investing his Family Trust. Brad Zucker, Product Manager – Alternatively Weighted Indexes & Strategic Beta at FTSE Russell, will also join the program to discuss how they develop indexes to target quality, yield and low volatility metrics for long-term investment cycles.

FPA members who want to register can visit https://www.webcaster4.com/Webcast/Page/1215/10014.

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, August 3, 2015

Falling in Love...Again

2015 has been a hard year to call one way or the other as the only consistent trend among domestic equities has been steady outperformance by consumer discretionary stocks (thank you Amazon) and more of the same from the energy sector.  While one month does not a trend make, there was a distinct shift last month that could show investors are falling in love again with some of their old favorites.

July was a major month for the classic defensive equity plays as both utilities and consumer staples managed to deliver solid outperformance against the broader market after a challenging start to 2015. “Less Bad” was all it really would have taken to capture the attention of investors after the wild ride that markets took in July but both sectors managed to turn heads by delivering positive returns instead of just “less negative” performance. Utilities were the stand out performer among the different sectors with a 6.1% return for the Utilities Select Sector SPDR Funds’ (XLU) compared to a more modest 1.9% gain for the S&P 500 which is still small compensation to those investors who held the fund through the first half of the year when it delivered an uninspiring loss of 10.7% after a 28.7% gain in 2014 that outperformed the S&P 500 by 1500 bps.  That solid outperformance helped the fund add over $1.7 billion in new assets in 2014 but easy come, easy go and $1 billion flowed right out of the fund again in the first half of the year. But thanks to a major shift in momentum in late June, the fund started the third quarter off on the right foot with a solid $360 million inflow for the month of July.

The pain felt by XLU at being left to dance all alone was nothing compared to the Consumer Staples Select SPDR Fund (XLP) which enjoyed a much more modest 2014 where it solidly outperformed the S&P 500 by 200 bps and pulled in another $2.3 billion in new assets.  While the fund had a much better first half compared to XLU with a loss of only .62%, investors looking to make up missed performance all rushed to financials and tech stocks in unison and took over $2.6 billion of XLP’s assets with them in the process and leaving the fund a net asset loser in the process.  But like XLU, XLP steadily picked up momentum against the other sectors of the S&P 500 as it found its legs on June 16th with the consumer staples bell weather outperforming the broader market to the end of July by 141 bps.  That momentum improvement helped stopped the bleeding after a difficult five months; XLP saw $330 million leave the fund in May but only $70 million left in June and with the funds changing fortunes investors are finding something to love about one of the markets homelier sisters with over $530 million in new assets in July or about an 8% increase in one month!

That strong focus on shifting from offense to defense has pushed up XLU and XLP’s ETFG Behavioral Quant Scores with both funds surging up our lists with XLP now ranking ahead of former darling Health Care Select SPDR (XLV) while XLU could soon surpass XLV if the price momentum continues to pick up speed.  And while some buyers may be hoping for strength in numbers (specifically a higher dividend yield than SPY), three numbers they should be keeping an eye on are a little troubling to the value-oriented investors.  XLU and XLP have a lot in common beyond their tickers, sponsors and usual customers; both funds have relatively concentrated portfolios; XLU has 29 holdings and 60% in the top ten while XLP is relatively more diverse with 37 positions but over 63% in the top ten with one stock, Proctor & Gamble (PG) taking up over 11% of the portfolio and whose weak performance last week only slightly dragged on returns thanks to strong returns from Mondelez and Reynolds American.  The other two numbers to watch are valuations as XLP now trades at a significant premium to the broader market with a trailing P/E ratio of 20.64 to SPY’s 18.62 and an even more significant P/B premium of 4.5X compared to SPY’s 2.6X.  XLU would be the cheaper date with a trailing P/E ratio of 17.06 and P/B of 1.68 but price isn’t everything as even that lower than market P/E ratio is still in the top 5 percentile of where the fund has historically traded.

The one question left unanswered is where is the money coming from?  After all, if investors had rekindled their love affair with the defensive favorites, who else must be getting the cold shoulder?

Some Advisors are taking the view that the best protection against the coming rate hikes is to flee bonds all together, but on the whole the credit sector is seeing more rotation than panic selling as the iShares 1-3 Year Treasury Bond ETF (SHY) and iShares iBoxx $ High Yield Corporate Bond ETF (HYG) made our short list for largest inflows last month while the other side of the ledger showed a $650 million outflow from the Vanguard Total Bond fund (BND) as investors find more novel ways to reduce duration.

A more likely funding source was emerging market stocks where investors continued to take more chips off the table while they wait for the fall-out from the FOMC’s interest rate jawboning to stop. The iShares MSCI Emerging Markets ETF (EEM) saw a nearly 10% outflow in July and bringing the fund’s net asset loss in 2015 to nearly $6 billion or close to 20% of its assets at the start of the year. Foreign stocks may have supplied some of the capital, but small outflows from the technology sector helped the cause as the Technology Select Sector SPDR Fund (XLK) made our list of top outflows thanks to a loss $480 million or close to 3.5% of assets.  While XLK outperformed the broader S&P 500 last month, it’s year-to-date performance has been more uneven with the fund being lapped by SPY in 3 of the last 7 months leaving investors with a mere 50 bps of outperformance for their troubles.  With the markets being buffeted be concerns over the FOMC and more volatility out of China, tech stocks definitely don’t ignite the same passions they did in 2014.

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.