Fire, Fury & the VIX

Monday, August 14, 2017 - The global markets were met with Fire and Fury this week as political tensions between the US and North Korea continued to escalate. Major indexes closed mostly down for the week as corporate earnings and employment reports took a back seat in the news due to the rhetoric that North Korean Dictator Kim Jong Un and President Donald Trump have been spewing back and forth to one another.

The Dow Jones and Nasdaq finished off about 100 points each and the S&P 500 about 30 even after they pared their low points of the week with a day in the green on Friday. The political fears were not only seen by overall market prices dropping but also in the VIX index, which is used as Wall Street’s fear gauge by many. It surged over 62% this week alone and hit levels that were last seen in November during the presidential election.

Some ETFs felt obvious pressure from the growing tensions around nuclear warfare. The Deutsche x-trackers MSCI South Korea Hedged Equity Fund (DBKO) and the iShares MSCI South Korea Capped ETF (EWY) both finished lower this week due to the uncertainty as South Korea shares a peninsula with ground zero if there was any military action to take place.

Elsewhere in the ETF world, our Quant movers saw some undervalued funds in the healthcare and Biotechnology space. VanEck Vectors Biotech ETF (BBH), First Trust NYSE Arca Biotechnology Index Fund (FBT) and the Fidelity MSCI Health Care Index ETF (FHLC) all made the top 10 in gains to their overall reward score moving up 7.83, 5,32 and 4.83 respectively.

On the loser’s side, we saw scores drop in small-cap and dividend funds as our model has seen some less favorable characteristics of those funds. ETFs like the Vanguard Small-Cap ETF (VB),  WisdomTree Europe Hedged Small Cap Equity Fund (EUSC), WisdomTree Europe Dividend Growth Fund (EUDG) and the FlexShares International Quality Dividend Defensive Index Fund (IQDE) lost 8.40, 8.15, 7.78 and 7.56 to their overall scores respectively.

We will see how the markets will continue to react to the geo-political tensions and now some new ones domestically here in the United States with major protests in Virginia breaking out over the weekend. One thing is for sure, there is only so much straw that you can place on the camel’s back before you break it. When will the finally straw finally fall?

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