Friday, December 22, 2017

Best Wishes & Happy Holidays!















Happy Holidays from all of us here at ETF Global, we hope that you and your families are enjoying a wonderful holiday season!

We want to express our sincerest appreciation to all of our subscribers, clients, strategic partners, colleagues and supporters for helping to make 2017 another great year for our firm. Our 2018 goals are simply to deliver an even more agile and comprehensive data and research platform to those searching for insight on Exchange-Traded-Funds.

We wish you all a wonderful holiday season filled with great health, happiness and prosperity for the New Year!

The ETF Global Team

Thank you for reading ETFG Perspectives!

Monday, December 18, 2017

Another Week, Another Record

Monday, December 18, 2017 - The markets continue to show strength and resiliency this year as the S&P 500, Dow Jones Industrial Average and Nasdaq Composite finished the week at records highs. Their surges of 0.9%, 1.3% and 1.4% respectively were driven mainly by the tax-reform legislation making its way through Congress. Wall Street is banking on this legislation being a done deal and believes that this lower corporate tax rate will continue to spur growth throughout the industry.

In ETFs, we also saw more growth in the form of inflows.  As of Wednesday, we saw over $18B go into the equity-based products last week, according to our ETFG Fund Flow summary.

The only thing more unbelievable than the growth in the ETF industry this year has been the growth in Bitcoin. As futures started trading on Bitcoin last week, investors poured money into the products so fast that the CBOE had to halt trading momentarily because of the sharp volatility upwards. The race to creating the first Bitcoin ETF is also heating up with more issuers looking for approval of a product by the SEC. Rex Shares and Van Eck joined the long list of issuers trying to push a product through and the fact that there are futures now can only help their cases.

Going back to the lower tax rates, they would inherently help small and mid-cap companies and our ETFG Quant model, which is forward looking, found some ETFs that track those types of companies to be in favor last week. In our ETFG Quant Movers, Vanguard Mid-Cao Growth ETF (VOT), SPDR S&P International Small Cap ETF (GWX) and Vanguard Small-Cap ETF (VB) all placed in the top 10 for weekly gains to their overall score. They added 10.19, 8.35 and 7.93 to their scores respectively.

On the losers side of our scoring, we saw Oil and Gas products fall out of favor as the SPDR S&P Oil and Gas Exploration and Production ETF (XOP) and the First Trust Nasdaq Oil and Gas ETF (FTXN) lost 7.61 and 7.07 to their reward scores respectively.

With two weeks left in the year, will the markets be able to continue their surge? Up to this point, it does not look like anything will be able to stop it from moving forward which would only make the holiday season that much more special to cap the end of a great year in the investment world.

Thanks for reading ETF Global Perspectives!

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

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

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

Wednesday, December 13, 2017

Final Results - Fall 2017 ETF Global® Portfolio Challenge

Wednesday, December 13, 2017 - For all those participants that will be continuing their studies, we invite you to take part in next semester’s competition, which will be opening on Monday 12/18! Registration is free and on the contest website at www.etfportfoliochallenge.com

Five young collegians displayed investing acumen beyond their years and established themselves as the winners of the Fall 2017 ETF Global® Portfolio Challenge. Students pursuing 86 different majors from 220 schools, 34 states, 25 countries and 6 continents competed in this semester’s competition, underscoring the wide-ranging appeal that ETFs have among emerging investors. With a record number of participants from a diverse range of geographic, cultural and academic backgrounds, it was clear that there would be no shortage of competition.

Our contestants began the semester with a virtual balance of $100,000 and with the task of constructing the best performing portfolio of ETFs. Students were afforded weekly rebalancing opportunities and were allowed to invest in 4 to 10 ETFs from the universe of U.S listed ETFs. The Fall 2017 portfolio challenge officially kicked off Monday, September 25th and concluded on Friday, December 8th. After 11 weeks of competition marked by frequent change atop our leaderboard, these 5 students emerged with the top performing portfolios -

Fall 2017 ETF Global® Portfolio Challenge Winners
Name
School
Class
Return
Ryan Hannifan
U of Wisconsin - Madison
2017
22.90%
Patrick Michael
Saint Joseph’s University
2018
21.52%
Edwin Lee
Rutgers University
2018
19.64%
Berenice Andaur
Pace University
2018
19.22%
William Zhu
U of California, Santa Barbara
2020
19.10%

The Fall 2017 winners were propelled to victory by a variety of timely and astute investment choices. As volatility continued to plumb new lows, technology and semiconductor stocks soared to record highs, oil prices rebounded and financials surged on the prospects of pro-growth tax reform during the course of our Fall competition, our winners shrewdly identified these trends and constructed their portfolios to take advantage of these developments. Investments in products such as ProShares Short VIX Short-Term Futures ETF (SVXY), Direxion Daily Semiconductor Bull 3x Shares (SOXL), ProShares UltraPro QQQ (TQQQ), VelocityShares 3x Long Crude Oil ETN (UWT) and Direxion Daily Financial Bull 3x Shares (FAS) enabled our winners to capture these trends and generate outperformance.

As the Top 5 Winners of this semester’s challenge, these students will be featured and recognized during the ETF Global® Portfolio Challenge Awards Ceremony at the upcoming Spring 2018 ETP Forum (www.etpforum.org) on Tuesday, April 24 at the New York Athletic Club. These students will also be joined by the rest of our top 25 finishers, who are all awarded free passes for their performance –

Fall 2017 Final Leaderboard 6-25
Name
School
Return
Si Young Choi
Hong Kong U of Science and Technology
17.84%
Brian Toy
Binghamton University
16.54%
Christopher Martinez
University of Texas – Rio Grande Valley
16.52%
Priyanka Saha
University of Houston
14.49%
Adam Ross
University of Detroit Mercy
13.73%
Mengqin Huang
Hong Kong U of Science and Technology
13.29%
Christopher Tie
University College London
13.06%
Paige Fairchild
University of Detroit Mercy
12.96%
Carolina Luna
Pace University
12.32%
Spiro Pliakos
University of Detroit Mercy
12.06%
Huarui Qin
University of Manitoba
11.88%
John Matthew Garcia
Fresno City College
11.64%
Luke Palmer
University of New Hampshire
11.60%
Anthony Calderone
Arizona State University
11.16%
Rafael Kusuma
Monash University Malaysia
11.13%
Holly Hedemark
University of Detroit Mercy
11.09%
Connor Pritchard
Arizona State University
10.85%
Ryan James
University of Wisconsin – Madison
10.83%
Huy Thang Chu
Erasmus University
10.68%
Ho Fan Wu
University of Buffalo
10.63%

An analysis of our students’ investments reveals an extremely research-intensive and knowledgeable group, as their investments ventured far outside the mainstream of the ETF ecosystem. Among the 2,000+ U.S. listed ETPs from 122 fund sponsors, our students invested in 813 products from 56 issuers. Of these 813 products, 67 were ETNs, 67 were inverse and 129 were leveraged based products. Their investments cut across blended, developed, emerging, and frontier markets. From an asset class perspective, our contestants favored equity-based products with investments in 578 equity ETPs or 71% of the total products invested in. Their asset class allocations were rounded out with 12% to fixed income products, 8% commodities, 4% multi asset, 3% currency, and 2% real estate.

Using our taxonomy, we were able to further examine how granular our students were with their product selections. In category, the first level of our taxonomy, our contestants invested in everything from broad equity and sector products to Swedish krona and Chinese renminbi based products. In focus, the second level of our taxonomy, our students’ ETF investments ran the gamut from financials and high yield to esoteric livestock and coffee focused products. Overall, here were the most traded securities in our fall competition -

















With each successive edition of the portfolio challenge, we continue to be more and more impressed by the ETF knowledge and investment skills of our student contestants. We look forward to hosting our sixth edition of the portfolio challenge in the Spring and continue to observe the enthusiasm for ETFs and investing talent our next group of students bring to bear.

Registration for the Spring 2018 competition will open on Monday, December 18.  For more information and to sign-up for the challenge, please visit: etfportfoliochallenge.com.

Thank you for reading ETF Global Perspectives!

ETFG 21 Day Free Trial:  https://www.etfg.com/signup/quick

_____________________________________________________________
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, December 11, 2017

Brisk December Buying

Monday, December 11, 2017 - As December rolled in, it seemed as though investors were pulling their yearly gains out of the market in order to purchase some holiday gifts but that quickly changed course as we finished the week up yet again in US markets. The S&P 500 and Dow Jones Industrial Average both finished the week off at record highs closing at 2,651.50 and 24,329.16 respectively. The Nasdaq finished slightly down at 6,840.08 closing down just .1% for the week.

Even bitcoin experienced some holiday cheer as it climbed up above 17,000 last week before moving down and then back up again in what has seemingly been the only volatile asset for people to invest in this year. As of Sunday morning, it was sitting at roughly $15,300 and is looking like it may be getting closer and closer to being investable in the form of an ETF as futures are starting to launch on the asset class this week.

In ETFs, the gains continue to roll on but in the form of inflows. Globally, ETPs have witnessed over $600B worth of inflows this year which continue to blow past any records set in previous years. In the US, which controls roughly 3/4 of the AUM globally and was responsible for $424b worth of $600b, we saw over $30b has flowed into equity ETPs since just November 29th.

An interesting fact about the inflows in the US is that Charles Schwab has more products with flows of over $1b than State Street YTD showing that the low fee structure put into place by the discount broker may be paying off.

In our ETFG Quant Movers, which ranks all US listed equity products, the Powershares India Portfolio (PIN) saw the biggest gain in its overall score followed but VanEck Vectors Steel Index Fund (SLX) and the SPDR S&P Capital Markets ETF (KCE). They had gains to their score of 8.10, 8.04 and 7.76 to their overall scores respectively.

On the loser’s side of the Quant model, we saw scores go down in growth ETFs. WBI SMID Tactical Growth Shares (WBIA) and iShares S&P 500 Growth ETF (IVW) saw the greatest declines in their scores losing 9.16 and 7.63 to their rewards respectively.

We will see how the markets and ETPs continue to perform before the year end but it seems as though they both have nothing in their way to continue their rise upwards. A tax plan looks as though it will continue to make progress throughout the house and senate, and same goes for deciding on next year’s budget as they have agreed to extended the deadline until December 22nd to come up with the numbers. On top of that, the economy added over 220,000 jobs in November which kept the unemployment rate at 4.1%.

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.

Thursday, December 7, 2017

Cause and Effect

Thursday, December 7, 2017 the below is a contributed post by Dan Carlucci, member of the ETF Global Research Advisory Board

“Cause and Effect” is the relationship between events where one event is the result of the other or others. In most areas of life, we look for these relationships. It should not be surprising that in the field of investment management, we also look for cause and effect. We look for certain signals to determine when assets are overpriced or underpriced, when to allocate among asset classes or optimal times and strategies to trade assets. These signals may be based on valuation, that is, buy assets when they are cheap and sell when they are expensive. They may be momentum-based or they may be based on growth prospects. While investors may base their decisions on a diverse set of factors, they are still looking for cause and effect.

The rise of assets allocated to ETFs and the underperformance of active managers has caused many to claim that ETFs are distorting the market and creating a bubble. Some claim that since most ETF assets are passively managed, they must buy all securities in a benchmark regardless of the underlying fundamentals. Therefore, ETFs lead to stocks with unattractive fundamentals that are overvalued. Flows into ETFs are said to be causing crowded trades where liquidity may dry up in the event of a downturn. Many believe that the increasing popularity of ETFs will lead to the next market crash. Is this criticism warranted?

Everything affects the market. First, it would be foolish to say that ETFs are not having any effect on the market. Every trade influences the market, however minute that influence. Once a trade has been executed, it is difficult to determine what would have been had that trade not been executed.  ETFs influence the market just as does the execution of any investment strategy.

Money always flows into or out of the market. Billions of dollars are flowing into ETFs. However, to make the case that ETFs are distorting and causing the overall equity market to become overvalued, you must believe that this money would not have flowed into equities if ETFs were not available; that investors were diverting flows from other asset classes into ETFs. However, this money would have most likely flowed into equities even if ETFs were not available. Consider the graph below which depicts ETF and mutual fund flows.

The graph to the left (Source: Cirrus Research) indicates large flows of funds into ETFs as well as negative mutual fund flows. It does seem reasonable to presume that ETFs are not stealing money that would have flowed into other asset classes but rather capturing at least some portion of these flows that would have moved into equities anyway. ETFs have quickly become one of the vehicles of choice for equity investors. It appears to be a stretch to blame ETFs for high market valuations. Yes, some stocks must be held by ETFs that active managers might not hold, but, overall market multiples are probably not as dramatically affected as critics claim.

Equity Universe Shrinkage. Part of the reason for rising equity multiples is that there are fewer publicly traded companies in the United States. Following a peak in the mid 1990s, the number of companies listed on U.S. exchanges has declined by almost 50%. A report by JP Morgan noted that the number of companies listed on U.S. exchanges totaled over 8,000 in 1996. By 2016, that number was 4,333. The Wilshire 5000, created to capture the broad U.S. market now only has approximately 3,800 constituents. While there may be many reasons for this decline, the fact remains that there are fewer publicly traded companies. As the number of stocks declines, this pushes more money into a smaller number of names. The law of supply and demand dictates that when supply decreases, prices increase.

Low Equity Correlation.  If ETFs were distorting the market and pushing the prices of all stocks up as claimed, a high level of correlation among equities would be expected. The intuition is that since ETFs must buy all equities in a benchmark, those securities should all move together – a rising tide lifts all boats. However, the opposite is happening.  The illustration below (Source: Axioma) reflects that correlation among equities has decreased to very low levels.












News Matters. Equities still appear to be responding to fundamentals and news. Prices still react to earnings news. Companies that exceed (miss) expectations exhibit strong (weak) performance. The chart below (Source: FACTSET) depicts the performance of SUE – the Standardized Unexpected Earnings – a measure of earning surprise. The statistic measures the earnings surprise in terms of standard deviation above or below the consensus earnings. The chart shows that recent performance of this measure is above its long-term average and does not look out of place when compared to its history. Again, this shows that equities are still responding to fundamentals.












Additionally, indications of future earnings, e.g. product approvals, positive or negative performance of product trials, legal or regulatory issues, etc., still have an effect on price. A recent report by Cirrus Research reviewed the performance of the stocks within the S&P Midcap Index with the highest ETF ownership. In these securities, ETFs held 20%-30% of the shares outstanding. There was a sizeable difference in the performance of these securities, indicating that news and fundamentals still matter.

Is It Merely Sour Grapes?  Active managers are paid to outperform the benchmark. In fact, they are paid handsomely to outperform. When they fail to outperform, they must come up with an explanation as to why they underperformed. ETFs are a convenient culprit, however, the facts dispute the claim. The chart below depicts the number of large cap equity managers outperforming the Russell 1000.

The graph ot the left (Source: Jefferies) indicates that managers underperforming their benchmarks is not unique to the recent period of large ETF flows. Active managers have always had a hard time outperforming the market – a fact that has given rise to the increase of assets in passive strategies. In fact, while core managers are underperforming their benchmark, growth and value managers are doing well. S&P has also devised its SPIVA scorecard that measures manager performance. While in certain categories the level of underperformance is high, it is not unprecedented. There have been similar periods in the past – periods where ETFs were not as large of a factor – when active managers exhibited similar underperformance. If anything, underperformance of active managers is causing the increase in popularity of passive funds, not vice-versa.

New Products May Shift Focus Back to Fundamentals. Smart Beta strategies are growing and attracting large flows. While many of these strategies are passive or mechanical in nature, they are utilizing many of the same fundamental factors which active managers utilize. For example, they are looking at valuation measures such as P/E, P/B, dividend yield; measures of quality such as accruals, ROE, ROA and momentum factors. Additionally, active managers are dipping their toes in the water by creating ETFs versions of their active strategies. The point is that the next wave of ETFs may incorporate more fundamental measures of equity valuation.

Ceteris Paribus. This Latin term means “all other things equal.” In reality, all other things equal is difficult in practice. It is difficult to look at one thing in isolation. In evaluating the market, it is difficult to isolate the effect that ETFs are having on the market. Are ETFs having an effect on the market? Yes, all trading and strategies have an effect on the market. Are they responsible for causing a bubble, distorting the market and making it impossible for active managers to outperform?The answer is probably somewhere between these two extremes.

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.

Monday, December 4, 2017

Was That Vol We Saw?

Monday, December 4, 2017 - U.S. equities were whipsawed this past week by optimism sparked by tax reform progress in the Senate and fears conjured up by former National Security Advisor Michael Flynn's guilty plea in cooperation with Special Counsel Robert Muller's probe. The markets began the week with all eyes fixated on Washington, as investors awaited the Senate's impending vote on its version of the tax reform bill. Passage of the bill in the Senate Budget Committee on Tuesday and the newfound backing of several GOP holdouts on Thursday injected optimism into the markets and fueled gains. Positive tax reform developments in conjunction with an encouraging Fed Chair confirmation hearing for Jerome Powell, robust tech earnings, extension of OPEC production cuts, upward revision of U.S. Q3 GDP, rising October consumer spending, 17 year high consumer confidence reading and other upbeat economic data releases helped catapult equities to record highs through Thursday. Stocks appeared to be heading up towards an uninterrupted week of gains, as all 11 S&P 500 sectors rose on Thursday and the DJIA hit its fifth thousand-point milestone, after surging 330 points to close above 24,000 for the first time.

However, the markets hit a snag on Friday with the news of deficit hawks and other wavering GOP senators impeding tax reform progress and most importantly, the sudden announcement of Flynn's guilty plea and cooperation with the special counsel's inquiry into Russian election interference. These abrupt, ominous developments unleashed one of the most volatile trading days of the year, as the Dow registered its widest trading range since Brexit, gold and government bond prices spiked and the VIX shot up nearly 30% at one point during the day. Despite this bout of political uncertainty, the major indexes were able to pare their losses and remained in record territory following news of a compromise in the Senate tax push and the continued allure of a brightening global economic outlook. At the close of the week, the DJIA, S&P 500 and Russell 2000 all registered gains at 2.9%, 1.5%, and 1.2% respectively, while the Nasdaq decline 0.6%.

Expect this week's volatility to continue as the intensifying Mueller probe casts a pall over the markets and Congress has to hastily reconcile two competing tax bills from the House and Senate.

ETFG Quant - The leaders and laggards of this week's ETFG Quant rankings are closely tied to the trajectory of progress in this week's tax reform push. Several of our top rated funds are currently financial-oriented products. A tax overhaul is expected to particularly benefit financials, as it will raise their net-interest margins and lower their effective tax rate, which is currently one of the highest of the major S&P 500 sectors. Funds including the First Trust Nasdaq Bank ETF (FTXO), SPDR S&P Insurance ETF (KIE), and Fidelity MSCI Financials Index ETF (FNCL) experienced large gains in their ETFG Quant scores. FTXO is currently the 8th highest rated ETF according to our model and KIE and FNCL received the 6th and 9th largest weekly Quant score gains. Other perceived beneficiaries of a tax overhaul, like the Guggenheim S&P Small Cap 600 Pure Growth ETF (RZG) and SPDR S&P 600 Small Cap Growth ETF (SLYG), were among our top Quant gainers this week.

Conversely, ETPs representing sectors that will be adversely impacted by the proposed tax overhaul heavily populated this week's top quant losers. ETPs that have heavy exposure to minimum volatility, safe haven/dividend proxy, and multinational stocks were among the top losers this week. Among these ETPs were the iShares Edge MSCI Min Vol USA ETF (USMV), Schwab US Dividend Equity ETF (SCHD), Vanguard Utilities ETF (VPU), and SPDR S&P Technology Hardware ETF (XTH).

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.