Sell in May and Go Away?

Tuesday, May 29, 2018 – As we approach the end of May, recent market moves and some historical perspective are important, but the traditional rhyme “sell in May and go away” might prove unsatisfying to some investors. While the S&P 500 is up over 3% for this month, the small-cap Russell 2000 Index has lagged, reversing a recent stretch of outperformance. Energy shares performed worst within the S&P 500 Index, while Utilities recorded solid gains as longer-term bond yields fell, making their relatively high dividend yields more attractive.

In general, the U.S. markets edged slightly higher last week, driven by several key factors. Trade negotiations with China prompted swings between optimism and pessimism, while ongoing diplomatic tensions with North Korea weighed heavily on the market's mood. The Fed’s decision on interest rates was also in focus, signaling that the path of gradually rising rates remains intact. Of particular note are the prospects of inflation temporarily running slightly above their long-term 2% target, providing some comfort to investors. Meanwhile, corporate earnings are rising at a strong pace. While prevalent risks are likely to drive further volatility, the combination of a healthy consumer and healthier bottom lines for businesses provide support for the market.

The week was perhaps most notable for the nosedive in oil prices and energy shares. On Monday, oil prices reached their highest level since late 2014 - mostly due to the speculation that the U.S. would impose new sanctions on Venezuela after the country’s leadership congealed its control in allegedly corrupt elections. Ironically, the threat of U.S. sanctions appeared to be partly at work in this case as well, with some speculating that OPEC was seeking to compensate for the loss of Iranian and Venezuelan supply.

These key market highlights were reflected our ETF Global dynamic and prospective Quant Rankings. The week’s winners include both iShares U.S. Energy ETF (IYE) and iShares Global Energy ETF (IXC) both gaining approximately 15% in their respective total Quant Score. The biggest drop in ETFG Quant ratings were SPDR Portfolio Emerging Markets (SPEM) and iShares Currency Hedged MSCI South Korea ETF (HEWY). Looking ahead, economic data in the coming week will be plentiful, with May's jobs report and construction spending all being reported on Friday. For those investors looking for a real winner for their portfolio, with a total Quant Score of 82.42 the WisdomTree U.S. MidCap Dividend Fund (DON) is expected have the most potential in capturing positive market movements.

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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.

Rising Rates Reintroduce Concerns

Monday, May 21, 2018 – Trade, Treasury, Trump. Three Ts that have caused a mixed week for investors, as trading was scattered amid a flurry of both positive and negative headlines. The 10-year Treasury yield reached 3.11%, its highest level since 2011 and headlines regarding trade negotiations were also in the spotlight. The good news is that rates are rising for the right reasons. Inflation expectations have been set with the confidence of continued gradual rate hikes, led by a lift in wage growth, reflecting a healthier economy and full employment. But government borrowing costs are continuing to grind upwards, putting pressure on U.S. stock indexes: Dow Jones -0.1%; S&P 500 -0.2%; Nasdaq -0.4%.

However, unlikely interest rates have reached a level that will begin choking off economic growth. In prior stock market peaks back to 1987, the 10-year yield averaged 6.5% at the market’s peak. That being said, rising interest rates are the most credible threat to the economic cycle and while we are not there yet, this expansion will ultimately end as Fed rate hikes and longer-term rates reach restrictively high levels.

Looking ahead, geopolitical tensions will provide some ongoing underlying support to oil, which will help limit crude prices from returning near that triple-digit mark. It must be noted that crude prices have risen to a three-and-a-half-year high, driven by concerns over potential sanctions limiting Iranian supply along with production cuts in the Middle. At over $78 per barrel of Brent Crude, oil prices have risen sharply but remain well off of the $100 mark for the next few years. On the upside, higher crude prices are will provide a boost to energy-sector profits and have thus contributed to the recent stock market rebound.

Turning to emerging market equities, an asset class that has struggled somewhat in 2018 after a very strong performance last year. The main culprit, a rise of the U.S. dollar, because emerging market companies have a load of debt denominated in US dollars. The dollar index has risen nearly 4% over the past month, rising to a five-month high last week. At the same time, roughly 40% of S&P 500 profits come from international markets. However going forward, we expect to see outperformance in emerging markets as the dollar’s rise tampers off.

Watching for any key stocks making big moves last week along with the ETF Global Behavioral 25 and ETF Global Quant Movers, we saw big movement in Global Markets, specifically Europe and Latin America, as well as a blowout in utilities. Key funds included Utilities Sector SPDR Fund (XLU), iShares Edge MSCI Multifactor Utilities ETF (UTLF), First Trust Latin America AlphaDEX Fund (FLN), and Shares MSCI Italy Capped ETF (EWI). We do expect the prospective focus to be on interest rates, trade negotiation and corporate cash flow, which will be a driving force for volatility for the remainder of the year. Sorting this week’s ETFG Quant scores based on momentum, you’d see essentially nothing but hedged equity funds. Investors should prepare by rebalancing their portfolios with a mix of stocks and bonds based on their risk comfort.

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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.

More Market Resilience.....

Monday, May 14, 2018 - The market is once again showing its resilience as last week major indices posted big gains. The Dow Jones Industrial Average, Nasdaq Composite and S&P 500 all posted over 2% gains as investors did not overreact to President Donald Trump pulling out of the Iran Nuclear Deal and may have seen April’s “weak” economic numbers as a good thing. All this happening while there is continued fall out stemming from the 2016 presidential election as Trump’s Lawyer Michael Cohen is the focal point of a federal investigation of possible campaign tampering.

A big story in ETFs this week was the way passive investors would react to the election in Malaysia as the small Asian country is bracing for a total shift in its politics after a surprise win by their former prime minister. The iShares MSCI Malaysia ETF (EWM) fell 4.5% this week and took a hit in redemptions as investors pulled out over $50M of their money from the fund.

Elsewhere in Fund Flows, our ETFG summary shows that on a nominal basis, the iShares 1-3 year Treasury Bond ETF (SHY) has pulled in the most money MTD with over $1.5B during the month of May. Coming in second is the largest Technology ETF, the PowerShares’ QQQ which pulled in more than $650M during the month of May. This in part attracted assets as Facebook made a comeback from its 2018 lows following the data privacy fallout and the fact that Apple was able to show continued growth in their first Quarter earnings report. Apple is the largest position in QQQ with a weight of over 12% in the fund that holds 104 positions.

In our ETFG Quant Movers, we saw winners and losers across the investment spectrum last week. The losers column included the Powershares Golden Dragon China Portfolio ETF (PBJ), the iShares Russell 1000 Growth ETF (IWF) and the Vanguard Small-Cap Growth ETF (VBK) saw the biggest declines to their reward scores losing 8.95, 8.00 and 7.41 respectively.

The winners column had names such as Deutsche X-Trackers MSCI EAFE Small Cap Hedged Equity ETF (DBES), ProShares S&P 500 Ex-Energy ETF (SPXE) and the iShares MSCI Poland Capped ETF (EPOL) had the biggest gains to their ETFG Reward scores adding 10.92, 10.86 and 9.89 to their overall scores respectively.

We will see if the markets can continue their Spring strength throughout the remainder of May. Though they are about 6 months away, it is hard for investors not to start thinking of the mid-term elections in the US as they can have huge implications if the Republican controlled House of Representatives can’t keep their majority seating.

We here at ETF Global would like to wish all the mothers out there a belated Happy Mother’s Day!

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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.

Vol + Earnings

Monday, May 7, 2018 - There was a time not so long ago that volatility almost felt non-existent in the stock markets. Prices of securities kept rising and there wasn’t a clear picture on when that would change. Fast forward to our current state of the markets, we haven’t seen lasting declines but volatility has certainly returned.

Take the Dow Jones industrial Average that started the week off at 24,484. We saw declines by mid-week of over 900 points only to round out on Friday a measly 200 or so points down. The Nasdaq Composite also saw its own swings for the five day trading period but was the big winner of all the indices this week as the tech tracking index finished up about 56 points capping Friday off over the 7200 mark.

With the market trending mostly upwards from the start of the month, we saw inflows into some of the biggest index funds out there. SPY, the largest ETF on the market, saw almost $6B worth of inflows MTD according to our ETFG Fund Flow Summary. This was joined by the iShares Core MSCI EAFE ETF, IEFA, and the iShares Core U.S. Aggregate Bond ETF, AGG, which saw $1.50B and $1.06B in inflows respectively MTD.

In our ETFG Quant Movers, we saw gains to equity-based ETF tracking a multitude of Sectors and Geographic Regions. The top three were the iShares Global 100 ETF, IOO, the iShares Global Healthcare ETF, IXJ and the Deutsche Xtrackers Germany Equity ETF, GRMY. They gained 20.61, 13.26 and 10.86 this week to their respective scores.

On the Quant losers side, we saw many of the declines come from emerging market ETFs. The Hartford Multifactor Emerging Markets ETF, ROAM, the WisdomTree Emerging Markets Consumer Growth Fund, EMCG and the iShares MSCI Singapore Capped ETF, EWS all had the worst moves to their scores. They lost 9.56, 9.07 and 9.04 to their overall ETFG reward score respectively.

With earnings reports just about wrapping up for the first quarter of 2018, we will see if and what other factors can play a role to continuing volatile swings in the market. Some of those factors can be the anticipation  of the historic meeting coming between President Donald Trump and North Korea’s Kim Jong-Un in the next few weeks, there is still worry over trade wars and the Russia-Syrian situation in the middle east is still far from over.

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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.