New-to-Market: VETS

Thursday, June 28, 2018 - 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!

When it comes to ETF trends, the only thing that may be hotter than Strategic Beta is Impact Investing, an umbrella term for a wide range of investment practices focused on investing in companies that share their investors’ principles. Call it a natural extension of the “voting with your dollars” concept. Seemingly opposed to the more mathematically driven world of strategic beta, the two share one key similarity; a deluge of new products allowing investors to put their capital to work supporting nearly any cause you can imagine. That included everything from alternative fuels to gender equality and even biblical values but until 2018 one cause beyond reach was supporting the men and women of our armed forces after they put their life in uniform behind them.

Enter Pacer ETFs who has partnered with VETS Indexes to create an innovative product and the subject of our latest “New-to-Market” post, the Pacer Military Times Best Employers ETF (VETS). This ETF allows the public to easily invest in those companies that believe hiring veterans and good business go hand-in-hand. Launched on April 10^th, the fund is among the first of its kind focused on investing in companies that both make veterans a priority as well as reap the benefits of this unique group of employees.

So how does VETS work? Like all ESG funds, the first step is to build an "investable" universe. Instead of employing a black box or private consultant, the initial screening process is done via the annual Military Times Best for VETS Employers List, perhaps the country’s most comprehensive and well-respected evaluation of companies devoted to hiring and developing veterans. Published annually by the Military Times, the survey is an exhaustive list of 90 questions and hundreds of sub-questions focused on issues such as veteran recruitment policies, company culture and support of employees who continue to serve as reservists. The responses are scored and the top 60% is included in the Employers List, currently a record 82 companies spread across a variety of industries with ample statistics available on the Military Times website to support their inclusion.

While 82 holdings would be a deeper roster than most ESG funds offer, the Employers list is just the first step in the process. VETS  then screens for both liquidity and consistency selecting only those companies with a market cap of $200 million or greater and at least three consecutive years on the Best for VETS Employers List. Those criteria quickly cut down the current allocation to a more manageable 36 names (see full list here: Index Components) that are then equally weighted, although we should note that there is no limit on how many names can be included in the fund or on sector weights, meaning the fund could grow and take on more benchmark-like characteristics or substantial factor exposure depending on how the Employers list changes over time.

Reconstituted annually in September, the current make-up of the portfolio is hardly what first comes to mind when most people think about what companies would make veteran recruitment and support a priority. Potential investors thinking this is another aerospace and defense fund are in for a surprise with only a handful of defense names in the portfolio and with Lockheed Martin (LMT) the most-well known although it’s hard to find a public company who doesn’t count the government as a crucial client. Consider the case of VETS' strongest performer, Amazon (AMZN), whose foray into secured cloud hosting for the CIA and DoD has helped push the company into profitability and put Washington D.C. on the short-list for its next corporate headquarters.

Instead of defense stocks, the current holdings report not surprisingly reads as a “Who’s Who” of the large-end of Corporate America with most of the portfolio consisting of Large Cap and Mega Cap names who can devote extensive resources to veterans' initiatives. What is surprising is the industry make-up. The largest single sector weighting going to financial stocks including megabanks like Citigroup (CITI) and J.P. Morgan (JPM) along with well-known insurance names like Progressive. Industrial names like General Motors (GM) and Union Pacific (UNP) are a close second thanks to their constant need for mechanically skilled and motivated workers.

How does that portfolio work as a whole? VETS has a short track record with the fund up 1.62% from inception on April 10^th through June 26^th but studying the portfolio attributes might help address one of the oldest concerns about sustainable investing. One widely repeated argument against sustainable investment practices has been the idea that they will typically take on unintended factor exposures, exposing investors to unknown and potentially uncompensated risk. While the future allocations can and will change depending on who makes the cut on the Employer’s Survey, the current allocation is underweight in technology and overweight in Utilities relative to the Russell 1000. That might give VETS a more value-oriented tilt, although it retains an overall “Large Blend” feel to the portfolio that can best be understood by studying some of the most common price multiples. VETS has lower price-to-earnings, book and cash flow multiples and offers a slightly higher dividend yield than the iShares Russell 1000 ETF (IWB), offering a more attractive way to gain large core exposure than a pure index replicator while avoiding a more energy and healthcare-oriented pure value.

Ultimately, impact investors are less concerned about whether one investment style or another will outperform from one year to the next but rather whether the companies in which they invest, engage in practices that keep them awake at night. For those investors who believe both that supporting our troops and hiring veterans can be good business, VETS may be the right choice.

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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.

Trade Tariff Tensions Continue

Monday, June 25, 2018 – As summer officially arrived last week, major indices fell and were driven in particular on continuing themes. The S&P 500 dropped .9%, the Dow Jones Industrial Average was down 2% and NASDAQ fell by .7%. Energy and Industrials were the worst performing sectors dropping 3.39% and 4.07% respectively, while Real Estate and Utilities were the only 2 sectors that had a positive week, gaining 2.46% and 2.5%.

Tensions continue to rise between the U.S and China. China announced its consideration of creating tariffs on U.S. exports, with  the Trump administration countering with an announcement of higher tariffs on an additional $200 billion in Chinese imports clearly worrying investors of potential inflation and the hindering of economic growth.

The rebalancing of one of the most widely followed indexes, the FTSE Russell drove record 1.2 million shares worth over $39 billion to be traded in less than a second on Friday during Nasdaq’s close. It was announced that General Electric would no longer be part of the index being replaced by Walgreens Boots Alliance (WBA). After the announcement Walgreens gained 5.2%. In the ETFG Equity Exposure Report, we can see which funds have the greatest exposure to WBA. RTH, Vaneck Vectors retail ETF, has  4.69% weight of WBA, XLP, Consumer Staples Select Sector SPDR Fund, which holds 3.94% of WBA, and PKW, Invesco BuyBack Achievers ETF, which has  3.87% of WBA.

This week, in the ETFG Quant Movers, the biggest gainers were SCHA, Schwab US Small CAP ETF, which gained 26.34% in their ETFG Quant score, REMX, Van Eck Vectors Rare/Earth Strategic Metals ETF, which gained 19.78%, and IQDE Flexshares International Quality Dividend Index Fund, which  gained 18.76%. On the flip side, VTV, Vanguard Value ETF, ETFG Quant score decreased by 18.47%. VCR, Vanguard Consumer Discretionary ETF decreased by 18.08%, and HFXE, IQ 50 percent hedged FTSE Europe ETF, decreased by 18.07%.

In the ETFG Select List, we had FDVV, Fidelity Core Dividend ETF, go from being unranked last week to be the number 1 scored fund in the High Dividend Yield category. XLP, Consumer Staples Select Sector SPDR Fund, went from being number 5 rated last week to number 1 this week in the Consumer Staples  category. UTLF iShares Edge MSCI Multifactor Utilities ETF, went from being 4 last week to 1 this week in the Utilities category.

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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.

Headlines Near and Far

Monday, June 18, 2018 – Last week was headlined by Trump’s meeting with Kim Jung Un at the Singapore Summit as the world seemed to have some relief that there is now a dialogue between North Korea and the U.S. The summit however, seemed to have little impact on the markets. On Tuesday, however, the Labor Department reported that inflation in May had reached 2.8% on a year-over-year basis and on Wednesday, the Fed raised the Fed Funds rate by 25 basis points which combined provided the primary cause of stocks dropping following the second interest rate hike in 2018. Investors had an even bigger reaction to trade news on Friday as the Trump administration announced that it was following through with the imposed tariffs on imports of $50 billion worth of goods from China. Overall for the week, the Dow Jones dropped .9%, the S&P ended flat and NASDAQ increased by 1.3%.

AT&T Broadband announced that it will merge with Comcast Corporation in a $72 Billion Transaction. The new company, AT&T Comcast Corporation, will be one of the leading communications, media and entertainment companies in the world. AT&T shareholders will receive approximately 0.34 shares of AT&T Comcast Corporation for each share of AT&T they own, while Comcast shareholders will receive one share of AT&T Comcast Corporation for each Comcast share they own. With the ETFG exposure report we can see which funds have the biggest exposure to Comcast and ATT and how they will be affected. The biggest ETF holders of ATT (T) are FCOM, Fidelity MSCI Telecommunication Services Index ETF, which has 21.76% exposure, VOX, Vanguard Communication Services ETF, which holds 20.83%, and IXP, iShares Global Telecom ETF, which holds 17.6%. The biggest holders of Comcast (CMCSA) are IEME, iShares evolved U.S media and Entertainment ETF, which holds 5.19%, XLY, Consumer Discretionary Select Sector SPDR Fund, which holds 4.98%, and IYC, iShares US Consumer Services ETF which holds 4.37%.

In the ETFG Quant Mover section we had MDYG, SPDR S&P 400 Midcap Growth ETF, gain 46% in their quant score, SLYV, SPDR S&P 600 Small Cap Value ETF which had a 40% increase in their score and SLY, SPDR S&P 600 Small Cap ETF, which had a 39% increase in their score.

On the flip side, ARGT, Global X MSCI Argentina ETF, dropped 22% of their ETTFG Quant score, DEMG, X-Trackers FTSE Emerging Comprehensive Factor ETF, dropped 17.55%, and CN, X-trackers Harvest MSCI All China Equity ETF, dropped 15.89%.

In the ETFG Select list, we had 3 new funds that were unranked last week claim the top in their respective categories. CNSF, iShares Edge MSCI Multifactor Consumer Staples ETF, in the Consumer Staples category, TUR, iShares MSCI Turkey ETF, in the Europe category and RDIV, Oppenheimer Ultra Dividend Revenue ETF, in the High Dividend Yield category.

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.

"Summer in the City" ESG Conference - July 18th - NYC

Saturday, June 16, 2018 - We have long believed that ESG would transition to the core of the world's investment theses. As time has progressed, we now think that transition will happen even earlier and requires investors to truly understand this space and its far reaching implications.

In support of fostering more understanding of ESG, we are proud to sponsor this year's Summer In the City Conference on July 18th in New York City. This is an all-day conference and forum for engaging with thought leaders who discuss their viewpoints on how to define, manage and measure responsible investing. The event gathers together expert practitioners from investment management firms, RIAs, retirement plan fiduciaries, endowments, consultants, NGOs, and academics.

Please join us at this wonderful event, below are all the details and the link to register:

• Website: The Summer in the City 6th Annual CSR Investing Summit

• When:     Wednesday, July 18, 2018, 8:30 AM – 6:30 PM

• Where:    Thomson Reuters, 3 Times Square – 30th Floor, New York, NY

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.

Best and Worst of Worlds

Monday, June 11, 2018 - Depending on where you stand, we live in the best or worst of times for investors. Last week, the tech heavy NASDAQ Composite Index continued to set new highs, US household wealth hit $100 Trillion in Q1 for the first time, copper prices continued to rise reflecting strong economic activity in China and the recent US jobs report indicated that for the first time in recent memory, available jobs exceeded the supply of workers available.

US indexes ended the week registering gains for the S&P 500 and the NASDAQ Composite rising to 2,779.03 and 7,645.51 respectively for a weekly gain of 1.62% and 1.21%. All US Sectors registered positive gains except utilities.

Yet, a brief tour around the globe would raise some yellow and red flags for seasoned investors.  The usual concerns of rising US interest rates and increasing trade tensions with China were somewhat alleviated by a play to pay solution ($1 billion fine) for ZTE to reenter the US cell phone market. Most unwelcoming however, was a contentious G7 Meeting culminating in the US not signing the customary joint statement at the conclusion of the conference. This was a clear punch to the multinational international trade and monetary regime constructed after WWII under the leadership of the US. While a lot of this might be posturing by the various members under populist pressure at home, investors cannot but wonder what will replace it…. 

Headline news around the world will dominate this busy week, starting with the much anticipated North Korean US Summit in Singapore which begins Tuesday. If a deal is announced, traders should expect a short term rally. Country Funds focusing on Korea, China and Japan could provide a nice pop.

Next in the headlines will be the outcome of the Open Market Committee of the Federal Reserve when it meets on Tuesday and Wednesday. Investors will be looking for signs of additional tightening on top of the two already expected. The Bank of Japan and the European Central Bank also meet this week. While BOJ is expected to continue its expansionary monetary position, investors will be looking closely at the ECB to see for signs of accommodations to Italy and Spain as we discussed last week.

The risk of contagion from Emerging Markets cannot be ignored. The canary in the coal mine may have been the bigger than 6% drop last week in Brazilian Stocks in USD terms and the op-ed article in the Financial Times last week by Urjit Patel, Governor of the Reserve Bank of India, who wrote that the Fed policies will create a shortage of US dollar liquidity in global markets which will squeeze in particular highly indebted countries.

Those Emerging Markets which went on a borrowing binge benefited for years from ultra low US interest rates now face a stronger US Dollar along with rising US interest rates. This hits countries running large current account deficits particularly hard such as Brazil, India, Indonesia, Turkey and South Africa. Investor money is fleeing these markets for the safety of US money markets as evidenced by fund flows. Should these markets come under pressure, one could have investors seeking to cover losses in these assets by selling high priced US stocks – a situation similar to that seen in 1997-1998 during the period of the Asian Contagion.

In fact, JP Morgan’s EM Currency Index has fallen 9% from its mid-February peak and trades near the lows not seen since late 2016.   See below graph.

Now let’s take a look at EM debt and Developed Market Countries debt as a percentage of GNP (courtesy of Mauldin Economics).  Both have borrowed heavily since 1997 but the Developed world is far more leveraged than the Emerging Markets.  Emerging Markets, however, often lack the economic stabilizers that developed countries have should a problem arise.

The next graph shows us that large tranches of the EM debt comes due this year thru 2020.

Investors should not fall into complacent even with dropping VIX levels.  A trigger could easy be a headline out of Spain or Italy or the imposition of a new tariff which could tip a country into crisis and create a domino effect.

Given these cautionary markers, if one goes to the beach be sure to bring a fully charged cell phone to be able to react to headline news. Investors must assess if their investment strategy reflects these realities. There are a variety of ETFs available to hedge a portfolio on the downside as well as play particular markets. We suggest a mindful eye on tools like our Select List and Risk and Reward Ratings that can be used to evaluate the vast set of opportunities in the ETF marketplace. Today’s market realities require a new approach to macro investing, one in which individual investors now have access to tools via ETPs to customize risk and return profiles in their portfolios. Use our Scanner to find those funds.

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.

New Italian Renaissance Triggers Equity Market Mini-Selloff

Monday, June 4, 2018 - Headline news around the world continued to drive stocks last week as investors focused concerns on rising US interest rates, new tariffs with allies, increasing trade tensions with China and most unwelcoming, Italy replacing Greece as the new trigger to pull apart the Euro Currency Zone.

Investors returned from the Memorial Day holiday weekend to surprising political news out of Italy that rekindled fears of a Euro crisis not seen since Greece. After a brief sell off Tuesday, investors breathed a sigh of relief with the week ending on a stronger than expected Jobs Report on Friday. US stocks’ resilience continued with the markets eeking out a slight gain on large caps while the broader Nasdaq Composite comprising a significant number of small–mid cap names, as well as, tech companies rose significantly more.

US indexes ended the week barely registering gains for the S&P 500 and the NASDAQ Composite rising to 2734.62 and 7554.33 respectively for a weekly gain of .49% and 1.62%. The indexes recovered being led by Energy and Technology stocks.

Now a word about why Italy matters more than Greece to the Euro….

The Italian economy is larger than either the Greek or Spanish economy within the Eurozone. While more industrial, rigidities in the societal and political sectors have prevented the country from modernizing like its more innovative neighbors. For example, the FTSE MIB Index (originally created by the Milan Stock Exchange) has only one technology stock, STMicroelectronics with a minor 3.3% weighting. The balance of the index is largely in banking (28%), Utilities (17%), Energy (11%), Auto (10%) and Industrials, Insurance, etc. That’s it. One stock is the tech sector.  A cautionary note for investors, the FTSE MIB hit its all time high in January 2000.

For the record, MSCI Italy classifies STMicroelectronics as a French company due to its dual country structure. Hence, Italy suffers from high unemployment particularly among its youth. There is no tech sector to drive the economy and create new wealth. The country runs huge government deficits to cover its social welfare net which has been strained by the influx of African migrants.

Since it cannot devalue its currency to become more competitive to attract investment, the current populist coalition Trumpian-like government has come up with a novel idea to launch a parallel internal currency called the BOT which sent a chill thru the Eurozone. The outcome of this new crisis is likely to be consolidation in the European Banking Sector lead by discussion of the merger between UniCredit and SocGen as well as some type of bailout by Germans and Dutch Governments of the weaker member states although in what form has not taken shape if the Euro is to remain intact.

The announcement of new tariffs on aluminum, steel and lumber on European and Canadian imports added to investors’ concerns. Emerging Market countries like Brazil and Argentina are starting to feel the pinch from a rising US Dollar and increasing US interest rates as well.  The weekend China US trade discussions have been indecisive.  Also, investors should maintain an eye on the stock price of Deutsche Bank, which hit a new low, as an indicator of the health of the European banking system.  These issues will dominate this week’s meeting of the G7.

In fact, we thought the most insightful quote of the week was from Mohammed El-Erian on CNBC:

"The downturn in global markets on Tuesday over concerns about Italy's political power struggle and the possible economic fallout as a result highlights the mistaken assumption that the world was in a phase of synchronized growth,"… People are now realizing the only economy with real legs to it was the U.S. economy."

Little reported was the vote by the Federal Reserve Board of Governors to relax the Volcker Rule that had severely limited banks from engaging in proprietary trading. Once other agencies relax their restrictions, we should see added liquidity to the bond markets. Also, regional banks should start expanding lending due to reduced reporting and stress test requirements.

Given these events, we suggest a mindful eye on tools like our Select List and Risk and Reward Ratings that can be used to evaluate the vast set of opportunities in the ETF marketplace. Investing in ETFs requires a new approach to macro investing, one in which investors are just beginning to realize.

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.