Morning in America

Break out those miniature American flags because after the strong Durable Goods and GDP reports, it’s time to declare that “It’s Morning Again in America!”  We know, that’s a little extreme but 2016 is quickly becoming the year for extremes and exploiting divergences is a good way to make a living in a market like this.  Investors who at the start of the year were quick to conclude that the Fed had missed its mark and loaded up on “safe haven” plays like utilities and gold miners saw some of those gains eroded on Friday following the better-than-expected GDP print and left us wondering how long before they go rushing in the opposite direction? The financial media will be quick to conclude that the economic worm has turned and that it’s time to go bullish after three strong weeks have pushed the S&P 500 above the Danger Zone at 1880 with although on the whole the situation was more complicated as equities stumbled and closed out the day in the red on profit taking.  With equities at a point where the situation could go either way, we turn to our ETFG Behavioral Top 100 Scorers to see if they can shed some light on whether a new day is truly about to dawn.

No one is disputing that manufacturers desperately need a win after the Manufacturing ISM Index contracted for the fourth straight month in January albeit at a slower rate as improvements in production and new orders couldn’t overcome the slowdown in exports or the drop in employment.  Naturally you would think that Thursday’s strong beat on the Durable Goods report would have sent the industrial sector surging and left our weekly ETFG Quant Report looking like a “who’s who” of manufacturing ETF’s, but instead the report shows only one industrial ETF with a big enough score change to merit inclusion on our short list.  The reason why is fairly obvious; in January when most investors were rushing into defensive favorites like the Utilities Sector Select SPDR (XLU), a few more intrepid souls began buying when there was still blood in the streets, slowly pushing up scores for some of the larger industrial funds.  One of the dirty little secrets of the market’s rally over the last few weeks was that it was being led by the sectors you would consider to be least likely to spark a major move higher, with the Industrials and Materials Select Sector SPDR Funds (XLI and XLB) up 9.25% and 12.16% respectively from their lows on January 20^th while the S&P 500 was up a mere 4.8%.  However despite that strong performance, just five of the twenty-two industrial funds we rank (levered and inverse excluded) make the Behavioral Top 100 list which is still dominated by utilities and low volatility funds.

Three of the funds are broad sector funds located close to the bottom of the list with the iShares U.S. Industrials ETF (IYJ) coming in at #69 while the Guggenheim S&P 500 Equal Weight Industrials ETF (RGI) is at #77 and the Fidelity MSCI Industrials ETF (FIDU) is at #83 while XLI is conspicuously absent from the list all together.  Not exactly awe inspiring.  Comparing these three funds to XLI, you find very little of note beyond a slight underweight towards transportation stocks and one of the sector’s worst performers, Boeing (BA), along with a slightly overweight to 3M (MMM.)  As an equal weight product, RGI naturally has the lowest allocation to BA which along with an allocation to ADT has helped the fund outperform its peers so far in 2016 with a YTD return of -.72% compared to -2.51% for IYJ.

The biggest non-surprise of them all is that the top ranked industrial fund is in a market which in an election year can be considered as a sacred cow with the iShares U.S. Aerospace & Defense ETF (ITA) holding court all the way at #42.  ITA remains mired in the red with a -4.92% return so far in 2016 (thanks again Boeing) and while Honeywell’s potential acquisition of United Technologies is the deal on everyone’s list; we think investors are thinking ahead to a time when you take growth wherever you can find it.  Two of its strongest performers are Sturm Ruger (RGR) and Smith & Wesson (SWHC) and although it’s possible that Bernie Sanders might have mentioned cutting the defense budget, for every other candidate in 2016 it’s a sine qua non and the market knows it with five of ITA’s top ten positions in positive territory.

So while we remain skeptical of a new dawn for American manufacturing, for those bullish investors who think the S&P 500 might see 2000 or even 2075 in the near future, Friday’s biggest reveal wasn’t the latest GDP report or the rise in personal incomes but that the baton of sector leadership might soon be handed off from industrial to financials, which along with the healthcare sector remains mired below its fifty day moving average.  Investors and generals are equally guilty when it comes to “always fighting the last war” because no one has felt the market’s wrath over the Fed’s actions more than bank stocks which experienced a short-lived rally last fall only to get demolished in December when investors began to fear that the global downturn would turn 2016 into an instant replay of 2008. To show just how dire the situation has become, even after Friday’s big rally you can buy Bank of America (BAC) and Citigroup (C) at a price-to-book multiple of .56 which according to Bloomberg is only slightly BELOW the going rate for China’s undercapitalized and overly stressed “Big Four” banks!  No wonder that the only financial fund to make the Behavioral Top 100, the PowerShares KBW Property & Casualty Insurance Portfolio (KBWP), represents the insurance sector which employs less leverage and subsequently has less volatility.

But the sharp Treasury sell-off following Friday’s GDP report could signal that investors are starting to wonder if they were too quick to get defensive after top investors and economists pummeled Janet Yellen and the rest of the FOMC for hiking rates last December.  After running en masse into defensive plays like utilities, treasuries and gold, could we see a similar rush back into those funds most likely to benefit from easing concerns over economic output?  If mega-banks like BAC and C are going be the biggest winners, our Grey Market Report shows the most concentrated holder of those names is the PowerShares KBW Bank Portfolio (KBWB), which with just 24 holdings and 84% of its portfolio in bank stocks saw a 1.76% boost on Friday and more than a 10% boost in its Behavioral Quant score for the week.  If you like banks but want a bit more diversification, the iShares U.S. Financial Services ETF (IYG) with 116 names might be more to your liking.

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.

Stop the ride, I want to get off!

We’re starting to wonder if the biggest winner of 2016 isn’t going to be Donald Trump or the recently “vindicated” John Hussman but Johnson & Johnson (JNJ), maker of Tylenol, antacids and a bunch of other stuff that we’re all going to need to get through a year that’s seen the world turned upside down.  While the political arena continues to contemplate that the next presidential election might feature two extreme candidates unlike any previous election, last week’s failed attempt by the S&P 500 to break out of a new downtrend channel left investors to face the fact that it’s the Feds world, we just happen to live in it.  Investors and momentum managers have every right to be confused; since rate hike fever began in earnest last summer, stocks have been through three major trend changes, two down and one up, with each followed by a multi-week consolidation that for retail investors has either been a great spot to take profits and get-out or worse, let themselves be convinced there’s nothing to be done but buy the dip and hope it turns around by the time they retire!  No wonder that our fund flows and ETFG Quant Movers Reports are telling us that investors are fed up and sticking with low volatility favorites rather than trying to time the market.

Instead of pointing to the relatively weak volume that accompanied last week’s rally (at least compared to the selling that predominated at the start of the month) or the S&P 500’s ability to regain 1920 or just any number of technical data points, Exhibit A for our case of investor exhaustion is the fact that low volatility funds continue to be among the biggest asset gatherers.  The iShares MSCI USA Minimum Volatility Fund (USMV) and the PowerShares S&P 500 Low Volatility Fund (SPLV) pulled in so much new capital that we’re starting to wonder if those two funds are on the verge of becoming the default core holding in every investor portfolio.  It’s not hard to see what investors love about the two; both funds are only down slightly in 2016 with USMV off 1.05% compared to a 1.18% loss for SPLV and nearly a 5.9% loss for the S&P 500 while simultaneously carrying some of our lowest ETFG Risk Rankings.  That strong performance involves more than just missing the downside; both funds were up over 2% this week and saw surging ETFG Behavioral Quant scores.  We’ve talked about both funds before plus their success has made them widely copied so what’s in the secret sauce isn’t much of a secret anymore but allocations to strongly performing REIT and consumer staples names (Realty Income and Campbell Soup) have helped keep these two on the right side of the S&P 500 while their trend-following or actively managed peers have stumbled in 2016.  You don’t need a crystal ball to tell you which retail investors would prefer in troubled times; a 1% loss with USMV or a negative 7.8% paper return with PowerShares DWA Momentum Portfolio (PDR)?

We know that at the end of the day, the only question that matters is just how much money are we talking about here?  Over the last three months, USMV has taken in $1.92 billion (yes, with a B) while smaller rival SPLV has had to be contented with a mere $755 million or so but we’re still talking double digit growth here.  Compare that with the SPDR S&P 500 ETF (SPY) which has taken in over $9 billion, although we’d like to point out that at least SOME of that share creation has been for shorting purposes and most of it came in the last few weeks of 2015.  Even relative newcomers to the low volatility/quality names space like the O'Shares FTSE U.S. Quality Dividend ETF (OUSA) have been able to pull in big dollars, in this case $37.55 million (doubling its asset base), which helps beget a virtuous cycle as investors clearly prefer bigger and therefore (supposedly) more stable funds in volatile markets which of course results in the fund becoming even larger and more (still supposedly) stable, etc.  And while institutional investors and our CFA comrades-in-arms are still concerned about the outcomes of having everyone rush into one active beta strategy at the same time, equity funds aren’t the only ones benefiting from the desire for “safety” and the money flowing into low volatility funds might be a drop in the bucket compared to what could be brewing with bond funds.

Exhibit B in this discussion would be the steady amount of money finding its way into bond funds, including a surprisingly large amount into some of the “riskier” names.  Investors seeking safety in bonds is nothing new, but what makes this movement into bond funds so remarkable is how it comes against the backdrop of not just concern over the stability of credit markets brought on by the rise of ETFs but the near loathing so much of the retail investment community has had for the asset class of late.  Bond funds did their job well in 2008 but too many advisors stayed defensive during the early stages of the bull cycle and probably still have some ringing in their ears from angry clients who, like all angry clients, want 100% of the upside (even if the market is down) and none of the downside.  But bond funds have been benefiting from the “take me out” trend although we’re starting to think that investors are either shifting their mental benchmarks for what they consider to be the “market” or how to get that 100%.  Compared to some of the low volatility funds, the iShares Core U.S. Aggregate Bond ETF (AGG) pulling in a little over 8% in new assets in the last three months and a mere 2.74% in February isn’t too impressive and while we will grant that AGG is a large fund, that inflow pales in comparison to the iShares iBoxx High Yield Corporate Bond ETF (HYG) which pulled in $770 million just last week for an almost 6% asset gain.

So like the early stages of the last bull market, investors could be looking to high yield bonds as an easy way to gain equity like exposure with less volatility although a simpler answer would be that traders have decided that high yield spreads, trading close to 2011’s high’s, are likely to fall if market stability resumes and if they don’t, how much further could they widen without a major equity meltdown?  But then again, there’s a significant chunk of the market that’s planning for more trouble (or deflation) ahead with data from Factset showing YTD inflows into the iShares 20+ Year Treasury Bond Fund (TLT) at nearly the same level as the more defensive iShares Short Treasury Bond (SHV) and nearly 70% greater than AGG.

Clearly some out there aren’t afraid of duration, or at the very least, they’re more afraid of living in Janet Yellen’s market than they are about interest rate risk.

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.

Is it the End of the Affair?

The mood in the markets at the start of last week could easily be summarized by a few lines from Ghostbusters:  “Fire and brimstone coming down from the skies…Rivers and seas boiling…Forty years of darkness…Earthquakes, volcanoes…dogs and cats living together!”  But a simple tweet late on Thursday  that OPEC might finally be ready to collude (which is its function after all) to limit oil production plus some bond buying by Deutsche Bank turned sentiment around and sparked a 4% rally for the Financials Sector Select SPDR (XLF) which left the fund just outside bear market territory.  And while many were willing to write it off as a dead cat bounce since none of the underlying issues facing global banks have really changed, internationals markets screamed higher on Monday while everyone’s favorite “defensive” holding, gold, took it on the chin leaving many wondering if Friday’s action was the beginning of a new trend.  It seems almost guaranteed that the U.S. equities will continue the party when we reopen but we turned to our list of Quant Movers on the fate of those funds containing two diametrically opposed investments, bank stocks and gold miners, to find out which might prove to be a short-lived affair.

Bank stocks had all the right pieces in place leading up to Friday’s face-ripper; first, there was the brutal start to the year with the iShares U.S. Financial Services ETF (IYG) and the PowerShares KBW Bank Portfolio (KBWB) both down over 20% as of last Thursday.  Contrarian investors would tell you that sentiment couldn’t have gotten much worse as concern over DB’s CoCo Bonds and Janet Yellen’s speculation on negative interest rates have investors wondering if the latest crisis was more reminiscent of 2008 or 1932?  But while the doom and gloom might have extended all the way from Zero Hedge to more mainstream media, a number of funds saw their ETFG Behavioral Scores bottom out at the beginning of the week as a shift in their momentum scores coincided with an improvement in their performance relative to the broader market.  If financial funds only appeared on our daily list of biggest movers, we’d be more inclined to look at this as a “one and done” affair but our weekly list is dominated by financial funds including IYG, the SPDR S&P Bank ETF (KBE) and even broader funds like the iShares Russell Mid-Cap Value ETF (IWS) which has a nearly 30% weighting towards financial stocks although nearly half of that exposure is in REIT names.

Contributing close to 15% of the S&P 500’s market cap, any rally by bank stocks is going to be welcomed by the bulls who’ve been relying on the value sectors like energy, utilities and consumer staples to keep the broader market afloat. Despite their making up only 20% of the market, what has us curious is the possible longevity of this rally if it fails to spillover to smaller banks.

A quick glance at our heatmap will show you that while nearly every bank outperformed the broader market on Friday, there was a clear relationship between their market capitalization and the one day return with behemoths like Bank of America and Citigroup up over 7% compared to 5% for regional firms like M&T Bank while even smaller institutions and numerous savings and loans lagged at less than 3%.  It’s not surprising that larger banks have reaped more of the benefits because after all, they’ve suffered more than regional banks have in 2016 with IYG and KBE down 20.7% and 21.6% respectively before Friday’s rally compared to a 16.3% loss for the more micro-capped focused First Trust NASDAQ ABA Community Bank Index Fund (QABA.)  Plus those megabanks are more likely to have the resources to survive if the event rates go to zero or worse, go negative, but that lack of spillover to smaller institutions is at least troubling given their focus on loan creation.  Another item that gives us pause is that despite having 116 holdings, a significant factor in getting IYG onto our list of top movers is that Bank of America, Citigroup and J.P. Morgan make up close to 24% of the funds allocation with 58% in the top ten names overall!

The surge in bank stocks may have helped lift the market while taking a predictable toll on some of the “safe-haven” plays like utilities and long-term Treasuries but even that powerful rally couldn’t dent investor enthusiasm for the gold miners as a late-afternoon surge by the Market Vectors Gold Miners Fund (GDX) helped the fund close up 2.56% on the day and up over 10.5% for the week!  Even after five straight years of losses, it’s almost hard to imagine how far has GDX come since the start of its rally on January 20th, going from oversold to overbought territory while gaining over 51% in the process!  This week brought a major development that might warm even a gold bug’s heart as GDX was outpaced for the first time since the start of the rally by its rivals that focus on smaller-cap names including the Market Vectors Junior Gold Miners ETF (GDXJ) and the Global X Gold Explorers Fund (GLDX) while high volatility and momentum have propelled GLDX and the Global X Silver Miners ETF (SIL) to higher rankings on the ETFG Top 100 Behavioral List at #45 and #57 respectively.  But the fact that GDX continues to have trouble making the top 50 has us wondering if the miner rally is about the pause.

The technicians in the audience would tell you that being overbought on a short-term (and almost on an intermediate-term) basis is a signal that the first phase in a rally might be coming to an end, especially as GDX enters the range between $18-$23 that is littered with numerous moving averages and prior resistance/support levels that could slow down any further momentum.  More troubling for us is that GDX’s behavioral score continues to fall despite the strong price gains and has wondering if we might be in for a replay of mid-2014 when GDX enjoyed a six week rally off concerns on the Fed’s tapering program only to see interest in the miners “taper” off into the summer as more promises from the Fed soothed investor anxiety and if there’s one weapon left in the Fed’s arsenal, it’s making promises.  So while investors might say they love enough for both the miners and bank stocks, they’re going to have to choose to which they are willing to commit.

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.

ETF Portfolio Challenge - Register through this Friday

Since our last update, the Spring 2016 ETF Global Portfolio Challenge has added hundreds of students from over 100 great schools and now spans six continents - we're not sure if Antartica has any universities, so it may be a tough nut to crack!

Registration closes this Friday, February 12th at 4:00 pm ET.  The performance period will commence on Tuesday, February 16th at the market's open. We encourage all Undergraduate and Graduate students to take advantage of this unique virtual opportunity to begin learning how to invest with ETFs before they go on to make their own decisions in the real marketplace.

To sign up, please visit: www.etfportfoliochallenge.com

Thank you for reading ETF Global Perspectives!

Golden Fetters

It’s that time of year again when technicians, traders and the generally superstitious nervously watch the Super Bowl, and despite Denver’s victory, pray for an NFC victory to deliver a positive year and after last Friday’s stunning 1.85% loss, who could blame them?  Their confidence must have taken a hit as 2015’s invincible “FANGs” pulled the S&P 500 lower where it almost closed the week below the 1880 level that has provided major support since 2014 and the Super Bowl Indicator does have a great “track record,” except around major turning points like 2001 and 2008.  Plus 2016 is the third year in a row where the market recorded an early loss in January and looking back, the Dow Jones did go on to finish 2014 in the green after the Seahawks won Super Bowl XLVIII while the Patriot’s victory in 2015 was followed by our first down year since 2008.  But they aren’t the only ones looking for hope in historical patterns as for the third year in a row, gold mining stocks have turned market weakness to their advantage and started off the year strong leaving investors to wonder if they have the strength to go the distance and or will they falter again on the thirty-yard line?

Putting aside the bad sports analogies, our readers know that the miners aren’t a regular Monday morning topic at ETF Global because, like the Super Bowl, they only tend to catch the interest of investors about once a year in the first quarter and we’re assuming it isn’t just mere coincidence.  A lot of damage has been done to the miner’s reputation as a “safety play” during their long rout over the last five years, but the mining stocks did typically outperform the S&P 500 throughout the long bull market of the 80’s and 90’s whenever the broader market went into the red only to give up those gains when equity sentiment again turned positive.  In fact, not only is this the third year in a row that the miners have outperformed the S&P 500 in January (while the market has been down), but since good things like to travel in packs of three, if they can manage to stay positive for the rest of this month, it will be just the third time since the Great Gold Bear Market began in 2011 that the Market Vectors Gold Miners ETF (GDX) will have been up for three consecutive months.  Laugh if you want but intrepid investors who were willing to wager on the miners over the last three months have seen the sort of point spreads that make tactical managers go all sweaty with the GDX go up over 22% while the S&P 500 is down nearly 10%!

Even with a seemingly perfect backstory for the miners, how come the only place you can find any of the mining funds on the weekly ETFG Quant Movers report is among those funds with the biggest percentage drop in their fundamental score?  Partly, it’s structural as the miners face almost the opposite dilemma we discussed several weeks ago that plagues the utilities funds; there the issue was that their relatively low implied volatility meant that price momentum had to reach almost extreme levels for them to make the list of top scoring behavioral funds while for the miners, the situation is reversed.  The miners typically have such high volatility and short interest that it takes a fairly significant price move for their momentum score to rise enough to make the list of top movers so instead they tend to creep their way up the list and even then they aren’t well-represented at the top.  In fact, a 19.99% return last week was only enough to help keep GDX at #62 while an 18% gain for the Sprott Gold Miners pushed it up to #100.  But what has us wondering whether GDX and the rest of the miners have what it takes to break out and end the year higher is the fact that even with that 19.99% return, GDX’s weekly behavioral score actually fell.

How was that possible?  We’re guessing that a big part of GDX’s gains last week came from short covering as piling on the miners might have seemed a safe bet as Federal Reserve became on the only central bank to hike rates and support a rising dollar while five straight years of losses made shorting the fund the only “safe” way to make money off it.  But when is the “safe story” ever truly safe as central banks across the globe open the spigot leaving the Fed the odd man out and leaving traders to ask how much longer that can last?  Short covering might also explain why GDX, the largest and most well-known mining fund, also strongly outperformed funds whose focus was on the more volatile junior minors like the Market Vectors Junior Gold Miners ETF (GDXJ) with an average market cap of $599 million and up a mere 14% last week.  Or consider the Global X Gold Miners Fund (GLDX) whose highly concentrated portfolio of 21 names and micro-cap focus with an average market cap of just $146 million would seem almost too good for a gold bug to resist and instead ended up “only” 14.1% last week to bring its three month gain to 8.4% compared to GDX’s 22% take.  So again, either investors are putting their capital to work with the name they’re most familiar with, or those overconfident long dollar/short gold positions are being covered as speculation grows that the Fed’s rate hike agenda might be on an indefinite hold.

Does that mean the miner’s last breakout is too good to be true?  Possibly, but that all depends on your holding period as GDX’s parabolic move last week pushed the fund into short-term overbought territory while the miners could still be in the very early stages of a positive trend if the Fed does choose to halt its rate hikes or even worse, goes negative and eliminates the opportunity cost of holding GDX completely.  But no matter what, the outcome doesn’t depend on who wins a football game.

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.

Spring 2016 ETP Forum - NYC on Wednesday, April 6, 2016

Reminder - please save the date – April 6, 2016!

ETF Global will again Chair the upcoming Spring 2016 ETP Forum – NYC on Wednesday, April 6^th at The New York Athletic Club!

This one day symposium convenes some of the most widely recognized experts in Exchange-Traded-Funds and the brightest minds in Capital Management.  The ETP Forum features renowned speakers addressing cutting-edge topics within a vibrant and intimate learning atmosphere.

Video footage from the most recent ETP Forum is available on Expert Series TV at Expert Series TV

All information including registration, agenda and speakers will shortly be available on the event site at www.etpforum.org and in the interim please save the date for 4/6/16.

We look forward to seeing you there!

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 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.

New-to-Market: UTES

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.

For the latest edition of the ETFG New-to-Market series, we’re exploring the first actively managed utility ETF to hit the market, the Reaves Utilities ETF (UTES), built around the promise of pure sector exposure with all the liquidity and tax advantages of an ETF but with the promises of active management so far only found with mutual funds.  So stick around as we pull a 180 from our usual fare of smart beta strategies and turn our sights to UTES.

In our last review, we joked that thanks to the rise of smart beta funds you could generally learn all you needed to know about a new ETF just by studying its name, which is why we normally start by focusing on underlying benchmarks and how they’re constructed but that approach makes deconstructing UTES challenging because it doesn’t actually have one!  Sub-advised by Reaves Asset Management, a boutique research firm that was founded in the golden era of equity research (1961 to be precise) and focusing on energy and utility stocks, the firm employs a bottoms-up approach with no reference benchmark or trade schedule.  Instead, they outline an investment philosophy that would be easily recognizable to any disciple of Benjamin Graham or Warren Buffet with a focus on searching out opportunities among well-capitalized names with strong balance sheets and a history of stable and growing earnings along with rising dividends.  And how do they find these opportunities?  While they employ a variety of quantitative processes, ultimately it involves doing their own leg work through management meetings and field research which to many of our readers who focus on data mining and machine learning may sound unique.

And while you think you know what constitutes a “utility”, Reaves goes the extra mile to define their universe as companies either designated as utilities or those that derive at least 50% of their revenue, gross income or profits from the generation/distribution of gas, electricity or water which excludes the telecom and energy names that make up a large percentage of the average “utility fund.”  Why should that be important to you?  Because the statistics for the average utility fund show that typically, around 74% of its allocation is actually in utility stocks with another 11% in telecoms and 10% in energy names.  Now 74% is way more utility exposure than you’ll find in any index fund and while sound in theory, telecoms and utilities have had a relatively low correlation to each other in the last decade with the net result being actively managed mutual funds underperforming “less diversified” passive utility index funds thanks to persistently weak telecom stocks.

As the only actively managed utility ETF, it might be fairer to compare UTES with its mutual fund brethren (and we’ll get to that later) but advisers willing to consider investing in the strategy should know how it stacks up against the rest of space, especially the ubiquitous Utilities Select Sector SPDR (XLU.)  And to be fair, those harried advisers who only have time to compare the two might wonder what exactly the hubbub is all about, especially with an almost 80 bps difference in fees.  The 30,000 foot overview shows that both funds are highly concentrated and 100% invested in pure U.S. utilities although the management team at UTES retains the right to invest in ADRs or even to temporarily hold large amounts of cash (up to 100% of the fund) if they feel conditions warrant a defensive posture.  In fact, a quick glance might seem to indicate that the only noticeable difference being a slightly lower average market cap for UTES that also helps generate a portfolio with less of the deep value feel that either XLU or the S&P 1500 Utilities index exudes.  But once you get beyond the summary and start comparing the names, you’ll find UTES to be a remarkably different portfolio that so far has held its own in 2016.

The first question any advisor will ask is just how different can the portfolio of UTES be from any index fund in such a small sector?  The problems of concentrated portfolios with overlapping names are going to be difficult to avoid in any regulated market; the S&P 500 Utilities Index has a mere 29 stocks that make up just 3% of the index while the much broader S&P 1500 Utilities Index has just 59 for a whopping 3.3% of that much broader index.  So how much overlap are we talking about?  16 of the 21 names that currently make up UTES are also included in XLU and in terms of percentage of the assets those 15 common holdings make up slightly more than 82% of UTES.  But active management doesn’t mean you can’t hold the same names as your indexed competitors, you just have to be smart in how you use them and so far, the managers of UTES have lived up to the challenge.  There are significant weighting differences between the two funds with only 2 of those 16 common holdings at UTES having an allocation within 100 bps of the index with significant underweights to major names like Southern Holdings while Duke Energy is completely missing from UTES.  So what kind of performance differential can you expect with only 21 stocks and 16 of those in common with the much larger XLU?  More than you would expect in such a short period.

While we’re just one month into 2016, UTES has managed to hold its own against XLU with a 5% return for the month compared to 4.94% for XLU and more anemic 1.75% for the average utility mutual fund with among the biggest returners in that pool of common holdings being NiSource Energy, up 7.69% and which carries a nearly three times greater allocation at UTES than XLU.  Cautious investors will note that NiSource is a distinctly midcap name although the management team at UTES also overweighted several large-cap names that are common holdings in the utilities space like Dominion Resources and NextEra Energy.  So then why is UTES just holding its own with XLU?  It certainly isn’t due to poor security selection in the portion of the portfolio invested in names not held by XLU where Friday’s surge made sure that none closed the month in the red.  UTES also managed to avoid holding some of the worst performers in XLU’s portfolio like Centerpoint Energy and the now notorious NRG Energy, whose 8.26% loss in January eroded nearly 20% of the gain from XLU’s strongest single name not held by UTES, Consolidated Edison, even though NRG is just a .58% position!

In fact, when we started our comparison of the two funds at the start of last week, UTES was solidly outperforming XLU and it’s only been in the last few days that the larger index fund has caught up with its new rival largely thanks to those weak performers like Centerpoint and NRG.  Saying that the utilities sector has been gaining momentum against the broader equity market in 2016 is an understatement; from January 4th to the 19th XLU gained over 1.8% while the S&P 500 lost almost 8%.  That sort of extreme outperformance wasn’t likely to last, so of course from the 20th through the 26th the market managed to recover 1.19% while XLU lost ground (.75% to be exact), but it was during that time that UTES and its management team really managed to shine, losing only a mere .1%.  But as volatility waned and investors returned to the markets in the second half of the week, they’ve been seeking out indexed products like XLU with a vengeance and that’s helped some of the sector’s worst performers like NRG and Centerpoint recover almost half of their losses in January.  Putting it another way, a focus on higher quality names with strong earnings growth has been what has held UTES back.

We agree that one month does not a year make, not to mention that comparing an active and passive fund during a period of high volatility might make for an unfair comparison, so consider the performance of UTES and that of the largest active (and top-ranked) mutual fund in the Utilities category, Franklin Utilities (FKUTX).  Franklin Utilities is managed by John Kohil whose fund carries four stars and a “Gold” ranking by absolutely dominating the space over the last decade with performance in the top decile in the three, five and ten year periods and often with significantly lower volatility than other funds in the space.  So far the story in 2016 has stayed the same with a 4.02% return compared to the category’s 1.75% gain and the secret of Franklin’s success is that they have avoided most of the telecom and energy names that have held back other funds in that space with FKUTX currently holding 93% of its portfolio in U.S. utility names with just over 5.6% in energy stocks including Williams Companies.  Compare that with the performance of MFS Utilities (MMUFX) with just 64% in utilities stocks and nearly 15% in energy stocks!  In fact, only 68% of the overall portfolio is in domestic names, all of which helps explain why the fund is down 1.24% in 2016 and over 15.9% in the last year compared to a loss of 9.95% for the category.

So if that kind of performance spread between active mutual fund managers makes you queasy, or you just prefer to daily liquidity and tax advantages of an ETF, then the careful advisor is only left with one major decision; to benchmark or not to benchmark and for many the question will be decided over fee’s.  At 16 bps, XLU is one of the lowest priced ETF choices available and as a well-established fund has much greater liquidity than UTES, which has only been trading since last September and at 95 bps is the most expensive exchange traded option for clients.  In a world of lowered expected returns, 79 bps isn’t an inconsequential number but perhaps the better question for advisors to ask themselves is what kind of defensive equity exposure their clients were seeking.  If they’re trend followers and comfortable chasing momentum (and timing their entry and exit points) then XLU might be the choice but for those looking for a “buy-it and forget-it fund” to offer the right amount of upside potential and downside protection, it might be worth adding UTES to your 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.

Groundhog Day Redux

One month into the New Year and we already regret burning through the “pattern” theme for our Monday updates as more easy monetary policy actions by a major central bank helped save equity markets for a second week in a row.  In fact, we even have the pattern down to the point where for two consecutive weeks the S&P 500 has advanced around .5% on Thursday before closing out the week with a 2% surge on Friday either because middling economic news here at home reinforces the hope that the Federal Reserve will be forced to abandon tightening or that OPEC might finally persuade the Saudi’s to join a concerted effort to reduce production and ease the oil glut.  Whatever the cause, the effect on market sentiment is undeniable with a surge of “buy the dip articles” as most major indices back away from oversold territory but according to our Quant Movers report, the make-up of where investors are putting their capital to work has been radically altered.  Even as energy and utility funds see their behavioral scores surge, do they have the staying power to help keep the S&P 500 from backsliding further?

Foreign equity funds with a distinctly emerging market flavor were the biggest winners last week with both of the funds discussed in our most recent post, the iShares Latin America 40 ETF (ILF) and the iShares MSCI Chile Fund (ECH), among the big winners although Latin American equities in general came out far ahead of the EM pack.  In fact, we witnessed a complete reversal of the point spread between Chinese A-share funds and Brazilian equities that dominated so much of the trading at the height of the China bubble in late 2014 with the Deutsche X-trackers Harvest CSI 300 China A-Shares ETF (ASHR) ending the week down 5.42% while the iShares MSCI Brazil ETF (EWZ) was up over 9.68%!  It shouldn’t take you more than two guesses as to the why as Uncle Buck continued to lose ground against the Chilean Peso last week while suffering its first major reversals against the Brazilian Real and Mexican Peso’s since November as the story supporting further Fed rate hikes continues to lose its narrative.  If you’re wondering why you don’t see more Latin American funds on our weekly list of biggest quant movers, it’s because their scores are already so high that even a 17 point (34%) jump in the behavioral score for the iShares MSCI Mexico Fund (EWW) last week wouldn’t make the top ten!

But the EWW wasn’t the only fund that failed to make the list of biggest quant movers as both the utilities and energy sectors were completely unrepresented and for more on the why, we’re moving over to the ETFG Behavioral Top 100.  Mexico, energy and utilities funds are all missing from the Quant movers list for the same reason; their behavioral scores have been steadily rising for a matter of weeks and we’re now at the point where they’re starting to dominate the Top 100.  EWW is already #3 on our list, just behind the PowerShares S&P SmallCap Utilities Portfolio (PSCU) and the Vanguard Consumer Staples Fund (VDC) which comes in at #1.  In fact, after looking over the list and excluding broad index or style box funds (along with levered and inverse products) and just focusing on those in our North American category, there we had a matching set of five utility and five consumer staples funds along with three energy funds in the top 100. Putting that into perspective, we only have nine domestic funds in both the utility (one of which is so new it doesn’t have a score yet) and consumer staples categories meaning that both sectors have become so popular that it’s hard to find any fund that hasn’t seen its momentum scores pushed up to historic highs!  That doesn’t mean either sector can’t keep outperforming in the near-term, but it would indicate that the upward bias might begin to cool at least in the near-term.

Energy funds are a different story as only three domestic funds currently make the top 100 and while a number of sector funds strongly outperformed even the Energy Select Sector SPDR’s 4.4% (XLE) last week, the fact that they did so and still remain off our top 100 list could indicate that the positive trend in energy stocks still has a ways to run.  Ultimately, what has us curious is whether the strong performances by the “value” sectors is going to be enough to keep lifting the S&P 500 beyond the 1950 level that acted as support last summer.  Value funds might have strongly outperformed growth funds last week, but the long rout in energy stocks has done significant damage to their standing in the broader market with the sector now making up just 6.5% of the S&P 500, which when added to the 10% made up by consumer staples and whopping 3% by utilities stocks means that all three of the biggest movers over the last few weeks make up less than 20% of the S&P’s market cap.  Technology stocks are still the biggest contributor at 18.5% but more troubling for investors should be the weakness in healthcare names since a five year long bull market has pushed their valuations to the point where they make up over 15.5% of the S&P 500!  A significant reason behind last week’s uninspiring 1.68% gain by the S&P 500 was the dead weight of those healthcare and especially biotech names, with the iShares Biotechnology Fund (IBB) down over 7.28%!

So does that mean equities can’t continue to make more headway and instead we’re doomed to an endless cycle of lower highs and lower lows like some nightmarish Groundhog Day?  Not necessarily, but to use a lazy analogy, we need the energy sector to pour more gas on the fire.  After last week’s data point driven rally, we need either more bad economic news or an agreement from OPEC on how to curb production to help the rally in energy stocks power higher and hopefully where it can spread to the other sectors to pull the rest of the market higher.  Otherwise that pattern that’s dominated equity markets for the last two weeks might just be the last hurrah before a minor correction turns into a full-blown roaring bear market.

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 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.