Monday, October 29, 2018

Markets Resume Downward Decline

Monday, October 29, 2018 - It was another roller coaster week for investors as the markets ended down and Investor sentiment quickly shifted from inflationary concerns to a global recession. The Large Cap weighted S&P 500 closed at 2,665.69 and the broader NASDAQ Composite closed at 7,167.21 for a weekly move of -3.34% and -3.78 %. This week moved the S&P 500's YTD gain to a negative .56% while the NASDAQ Composite is now down some 12% from its high on August 29th.  Nevertheless, the NASDAQ Composite managed to stay in positive territory up some 3.82% YTD while MSCI EAFE Index is down approximately 13.31%% and the MSCI Emerging Markets Index is down some 18.9% in USD.

Given all that is going on, we decided to call upon our friends Jessica Rabe and Nick Colas at DataTrek to get their insights.  Below is their view...

Markets have been heavy, so let’s start with a light but brief story before digging through some of the important issues as we start the week…

In 1973, the editors of British magazine New Music Express put Keith Richards at the top of their annual “rock stars most likely to die within the year” list. He remained at the top of this stack for the next decade. It was a logical guess, given Keith’s hard driving lifestyle. After a decade, however, NME had to face the inevitable: Keith Richards is immortal.

Plenty of market observers have the 2009, present bull market on a similar deathwatch, but that story (courtesy of a 2010 New Yorker article) is a good reminder that the seemingly obvious doesn’t always come to pass. With that, three things to know as we kick off what will certainly be another volatile week in US and global equities:

#1. Last week’s 3.9% selloff for the S&P 500 notwithstanding, corporate earnings reports were actually much better than the prior week. In fact, Q3 earnings season is now actually ahead of the 5-year average “beat” percentage. The numbers (source: FactSet):

Through October 19th (when just 17% of the S&P 500 had reported earnings), the average company had beaten their Q3 earnings expectations by 3.9%. The mean year-on-year earnings growth rate was 19.5%.

Through last Friday (with 48% of companies reporting), the average S&P company has beaten expectations by 6.5%, above both the prior week and the 5-year average of 4.6%. Average earnings growth now stands at 22.5%, which represents a notable acceleration from last week.

Last week’s financial reports also showed better revenue growth than the prior week. The numbers: 7.6% year-on-year growth versus 7.4% last week.

So why did stocks sell off if everything is so good? Worries about the Fed, yes. But despite the better beat percentages, analysts actually cut their Q4 2018 estimates. Last week, they were looking for 16.5% year-on-year growth. Now that number is 16.1%. Wall Street is also reluctant to boost their 2019 numbers, which remained unchanged this week despite the better tone of earnings reports.

Bottom line: Q4 numbers may continue to come down this week even if last week’s better beat rates continue, an unwelcomed development. This is something we did not see mentioned anywhere, but it neatly explains why the pullback has a fundamental as well as macro explanation.

#2. The market’s game of “I double dare you” with the Federal Reserve continues. The latest odds on rate increases (source: CME):

Fed Funds Futures show a 30% chance the Fed skips the widely expected December 2018 rate increase. A week ago the odds were 16%. If the Fed does go in December, futures now make the odds of a March 2019 increase at just 40%, down from 50% a week ago.

Bottom line: while Fed Funds Futures may be repricing rates, the 2-year Treasury market isn’t really buying it yet. Yields of 2.81% are the same as at the start of October. That’s important, since this is the most visible measure of riskless opportunity cost for equity investors. We’ll need to see 2-year Treasury rates come down further to see equity prices stabilize, in our opinion.

#3. Trends in US equity sector correlations explains a large part of why the CBOE VIX Index remains lower than feels “right” given recent volatility. The numbers and some background:

Back during the February – April 2018 volatility spike, the average S&P 500 sector was 0.80 – 0.80 correlated in terms of daily price action to the S&P 500 as a whole. (We use 30 day trailing correlations for this measure.)

Over the last 30 days, the average S&P 500 sector is 0.72 correlated to the index, even with the recent volatility. That is 14% lower than the vol shock earlier this year. Why the difference? Utilities, Consumer Staples and Real Estate are decoupling – something they did not do from February – April.

Bottom line: to our thinking it is a spike in sector correlations that signals an investable bottom for US stocks, and this is an underappreciated input into the behavior of the VIX “fear” Index. Watching correlations worked during the February – April selloff and accurately tracked the 2-month bottoming process. The current 0.72 reading is not yet back to the +0.80 readings that signifies the start of an investable low. In Churchill-ian terms, we’re more at the end of the beginning than the beginning of the end.

Summing up: everything here points to more US/global equity volatility and the real chance for further losses this week. Cuts to Q4 earnings expectations and correlations tell that story well enough.  A sticky 2-year Treasury yield only reinforces it. Like Keith Richards, these aren’t likely enough to kill stocks outright.  But they are enough where the bearish deathwatch will continue.

For a more in-depth commentary, visit www.datatrekresearch.com
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Now let’s look at our ETFG Weekly Select List 

To best support the ETF selection process, the ETFG Weekly Select List highlights the 5 most highly rated ETFs per Sector, Geographic Region and Strategy as ranked by the ETFG Quant model.  Below we highlight the ETFs that attracted our attention:

For those looking for defensive sectors the top slots this week went to KXI in Consumer Staples, IBB in Health Care, KIE in Energy—jumping from 5 to top place and FUTY in the Utility Group.

For the more adventurous, check out EFA which jumped from 5 to 1 reflecting a value play in the benchmark EAFE index, while EMIF continued to stay in the top slot being a play on Emerging Markets Infrastructure.   For those looking for income, PFXF was ranked top in the Preferred Sector.

Volatility is likely to return this week however, at some point the markets will find a bottom which will yield buying opportunities. We suggest keeping 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.

Monday, October 22, 2018

US Markets Stabilize

Monday, October 22, 2018 - It was a roller coaster week for investors as volatility whipsawed the markets with the markets essentially ending the week flat. Headlines concerning Italian Budget worries, rising interest rates, ongoing trade tensions with China and new to the spotlight, ongoing US relations with Saudi Arabia over the Khashoggi international incident. This was unexpected as the Kingdom is one of the largest holders of US Treasuries as well as a large military client state. Weakness in the US housing market resulting from higher interest rates and effects of the new cap on SALT deductions of $10K also concerned investors.

Indeed, investor’s mantra for the week was “safety first.”

US indexes ended the week basically flat overall. The large cap weighted S&P 500 which closed at 2,767.78 and the broader NASDAQ Composite closing at 7,449.03  for a weekly move of plus .02% and minus .64 %. Nevertheless, the S&P 500 Index is up some 3.52% YTD while MSCI EAFE Index is down approximately 7.5% and the MSCI Emerging Markets Index is down some 15% in USD.

Investors are revaluing assets not only based upon rising interest rate environments, but also accelerating De-Globalization trends particularly in technology due to emphasis on intellectual property protection and national security. The effect on the tech sector cannot be understated as the parts to many devices are manufactured in China and other APAC countries. The recent news stories from Bloomberg on China installing chips in servers which can be used as a back door to enter corporate IT centers cannot be underestimated.  To relocate manufacturing facilities to more “secure” regions would result not only in time delays but increased costs.

Perhaps less spoken but nevertheless a probability is concern over the continuation of the  “Greenspan Put” writes David Rosenberg, Chief Economist for Gluskin, Sheff. Rosenberg writes that Fed Chairman Jerome Powell may end the Greenspan Put which has allowed creation of asset cycles to promote economic growth at the expense of actual economic productivity. This would be a significant departure from Fed policies since Chairman Greenspan.

ETFG Weekly Select List - To best support the ETF selection process, The ETFG Weekly Select List highlights the 5 most highly rated ETFs per Sector, Geographic Region and Strategy as ranked by the ETFG Quant model.  We highlight a couple of ETFs that attracted our attention.

The top slot in Large Cap this week went to the Direxion NASDAQ-100 Equal Weighted Index ETF  (QQQE) with a change in ranking of +3.  In the Energy Sector, First Trust North American Energy Infrastructure ETF (EMLP) ranked #1 and in High Dividend Sector, the S&P 500 High Dividend SPDR (SPYD) took the top spot.

Volatility is likely to return through year end which means prudence would dictate holding diverse assets.  We suggest keeping 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 the 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.

Thursday, October 18, 2018

Calling All Hedge Funds - Rocktoberfest ALTSO

Thursday, October 18, 2018 – Please come out and support a worthy cause produced by our good friends at ALTSO – A Leg To Stand On

Hedge Fund Rocktoberfest
ALTSO’s signature Hedge Fund Rocktoberfest event in NYC unites more than 1,400 leaders from the hedge fund and finance industries for a night of rock & roll and acoustic music performed by industry professionals – to help treat more of ALTSO’s children.

Thursday. Oct 25, 2018/6 pm - 11 pm
Hard Rock Cafe Times Square
ALTSO is an NYC-based non-profit organization working in the developing world, bringing free orthopedic care to children with untreated limb disabilities whose families cannot afford treatment. Our goal is to provide high-quality continuous care until the age of 21 for all patients treated under ALTSO’s program. Since 2003, through local treatment providers in Asia, Africa and Latin America we've provided free orthopedic care to more than 17,000 children in need. Join us to help level the playing field.

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.

Monday, October 15, 2018

Volatility and Volatility Subdued

Monday, October 15, 2018 – The word "crash" made several appearances in the headlines last week, and while this may be useful in selling newspapers or attracting clicks, it's often not an accurate characterization of the market’s environment. Yes, the stock market fell sharply, producing the worst week for equities since late-March. However, this brief decline still leaves the market 5.7% below its all-time high, a not-too-shabby metric.

What started as a bout of sector rotation out of technology and into late-cycle favorites like bank stocks shifted into a full-blown retreat on Wednesday and into Thursday as the carnage at the top of the S&P 500 pushed it out of its uptrend channel. The CBOE Volatility Index (VIX) spiked and hit its highest level since late March on Thursday with the Dow falling more than 1,300 points in two days and the S&P 500 retreating about 4.2% for the week.

The third quarter earnings season began on a mixed note on Friday morning when big banks JPMorgan Chase (-1.1%), Citigroup (+2.1%), and Wells Fargo (+1.3%) reported Friday before the opening bell. The financial sector added as much as 1.6% following bank earnings, but eventually rolled over, bringing the broader market with it. The group did rebound in the final stretch, closing higher by 0.1%. It also must be noted that 10 of 11 sectors finished in the green and information technology was the top performer with a gain of 3.2%.

Within the tech sector, giants Apple (+3.6%) and Microsoft (+3.5%) outperformed, as did chipmakers, evidenced by a 2.0% jump in the Philadelphia Semiconductor Index. Meanwhile, in the communication services sector (+2.1%), Netflix (+18.46) rallied 5.8% after Citigroup said its recent tumble represents a buying opportunity. Investors ought to utilize ETFG's Equity Exposure Summary, to compare these best opportunities: Communication Services Select Sector SPDR Fund (XLC), Vanguard Communication Services ETF (VOX) and iShares Global Communications Services ETF (IXP).

ETFG Weekly Select List - To best support the ETF selection process, The ETFG Weekly Select List highlights the 5 most highly rated ETFs per Sector, Geographic Region and Strategy as ranked by the ETFG Quant model.

Industrials and materials stocks performed worst this week, while utilities stocks fared best. Because of the sector’s success this week, it is important to note substantial movements in the Utilities subsection when comparing the most current Select List to last.

Although the top slot remained constant and Fidelity MSCI Utilities Index ETF (FUTY) came in at number 1, Utilities Select Sector SPDR Fund (XLU) clinched the second highest position. There was also substantial turnover in the third and fifth spots when the funds John Hancock Multifactor Utilities ETF (JHMU) and Vanguard Utilities ETF (VPU) made an appearance, respectively.

For full coverage of this week’s ETFG Weekly Select, one can download from our site or click here: ETFG Select List - October 15, 2018

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.

Monday, October 8, 2018

Winds of Change?

Monday, October 8, 2018 – Happy Columbus Day and the weather isn’t the only thing cooling down this fall season. In a move that mirrored the beginning of the year, equity markets took a drop last week due primarily to the rising rates of the 10-year treasury yield. The Dow Jones Industrial Average dropped over 200 points to 26,447 while the S&P 500 took a 50 point hit. The Nasdaq Composite was by far the biggest loser of the week falling over 300 points, a decline of about 3.2%, as Tech stocks led the way.

In ETFs, banking and tech ETFs saw some of the greatest outflows in this first week of October, according to our ETFG Fund Flow summary. One of the ETFs that took the biggest hit was  FTXO, the First Trust Nasdaq ETF. In the month of October, FTXO has lost just under $1B or about 43% of its AUM. QQQ, which is Invesco’s Nasdaq Composite ETF, has followed suit with outflows of over $700m or 1.14% of its AUM.

ETFG Quant Movers - In the ETFG Quant Movers, we saw risk averse ETPs gain the most percentage points to their overall scores. The Cambria core equity ETF (CCOR), Credit Suisse S&P MLP ETN (MLPO) and the JPMorgan Diversified Return International Currency Hedged ETF (JPIH) added 20.51%, 19.90% and 18.71% to their overall Quant scores respectively.

In the Losers column, we saw international based ETPs dropping several percentage points to their overall score. The VictoryShares International High Dividend Vol. Weighted ETF (CID), Schwab Emerging Markets Equity ETF (SCHE) and the iShares Edge MSCI Min Vol Europe ETF (EUMV) lost 20.81%, 19.67% and 15.86% to their overall scores respectively.

ETFG Weekly Select List - the 5 most highly rated ETFs per Sector, Geographic Region and Strategy as ranked by the ETFG Quant model.

Because of the sector’s success in the major indexes this week, we’d like to highlight some substantial movement in the Consumer Discretionary portion when comparing this week’s Select List to last. The Columbia Emerging Markets Consumer ETF (ECON) jumped up two spots to be the top ranked fund in the sector. It took over for the Invesco Dynamic Leisure and Entertainment ETF (PEJ) which is now in the 4th ranked spot. The SPDR S&P Retail ETF (XRT) held steady at the 2nd spot for two consecutive weeks while the Invesco Dynamic Retail ETF (PMR) moved up to 3rd place. The biggest change in the sector was (FXD), the First Trust Consumer Discretionary AlphaDEX Fund, which jumped into the 5th ranked spot knocking out the John Hancock Multifactor Consumer Discretionary ETF (JHMC).

For full coverage of this week’s ETFG Weekly Select, please see here: ETFG Select List - October 8, 2018

Thanks 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.

Tuesday, October 2, 2018

4Q 2018 Rebalance – ETF Global® Dynamic Model Portfolios

Tuesday, October 2, 2018 - This summer may have been dominated by the three “T’s” of tariffs, trade wars and Trump, but if you only studied the markets you’d be hard put to tell anything was amiss as investors who heeded that sage advice to “sell in May and go away” were once again disappointed. Strong performance by Large-Cap names in the industrials, healthcare and technology sectors helped lift the S&P 500 to new heights as the index closes in on the 3,000 mark, but stocks might have caught an early chill as September closed out on a weak note. The most visible culprits might be interest rate sensitive financials and utilities, but weak showings by Alphabet (GOOG, GOOGL) and Facebook (FB) along with a flat return for Amazon (AMZN) once again confirm the dangers of a market-cap weighted index in the late stages of a bull market.

Perhaps that’s why our ETFG Dynamic Model Portfolios continue to favor equally-weighted and Small-Cap funds in the most recent reconstitution which was completed on October 1st. All 4 of the base portfolios and the 8 “tilts” were updated and for the first time in recent memory, the domestic sleeve of the portfolio remains relatively static with only minor changes to the positioning of the funds without impacting their overall makeup. All four of the funds from the third quarter allocation, the Direxion NASDAQ 100 Equal Weighted Fund (QQQE), the SPDR S&P 400 Mid Cap Value ETF (MDYV), the SPDR S&P 600 Small Cap Value ETF (SLYV) and the SPDR S&P 600 Small Cap ETF (SLY) return for another quarter with QQQE holding onto its top spot in the line-up once again. The only significant change was a shift towards more Small-Cap exposure with MDYV’s weight in the portfolio dropping as higher sentiment scores raised SLY and SLYV’s overall ETFG Quant scores.

While U.S. equities (and our domestic sleeve) may have been a sea of calm in the third quarter, international ETFs continued to struggle despite a seesawing dollar. But while international funds as a whole may have underperformed, the dynamics of individual markets and currencies mean there were several bright spots for discerning investors as certain funds did quite well including iShares MSCI South Korea ETF (EWY) along with a number of Asian funds including iShares MSCI Japan (EWJ) and iShares MSCI Taiwan (EWT) although the biggest winner for the quarter was the iShares MSCI Poland ETF (EPOL) up over 9.5%!  The key criteria for their success seems to come down to the third of our “T” factors, President Trump, as all four are considered increasingly important U.S. allies in the burgeoning trade war.

That trade war may explain the on-going shift in the international, developed sleeve as three of the four funds left after the end of the quarter with only EWY remaining in the program. The new funds in the allocation give it a decidedly European flair thanks to the addition of the SPDR STOXX Europe 50 ETF (FEU) along with the iShares MSCI Italy ETF (EWI), which has suffered over the last few months as their new government, led by the Five Star Movement, enacts a more populist agenda at odds with the E.U.’s focus on balanced budgets. The net result is likely to be more short-term pain, although the high sentiment and fundamental scores could add more fuel to the fire of an eventual rally, if the Italian government’s deficit spending plans help ignite a period of stronger growth much as it has here in the U.S.

Finally, our emerging markets allocation also saw noticeable changes as the iShares MSCI Emerging Markets ETF (EEM) was replaced by the iShares Latin America 40 ETF (ILF), which offers a more direct approach to two of the better performing markets over the last quarter, Brazil and Mexico. Whether that performance continues is likely going to be driven by politics, including the winner of the upcoming Brazilian election, although recent polling suggests that voting will likely extend to a second round. That could create more volatility and opportunities, as the situation develops in October.

You can find an overview and performance information for the ETF Global Dynamic Model Portfolios at http://www.etfg.com/about-model-portfolios

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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.

Monday, October 1, 2018

Tesla Thrill Ride

Monday, October 1, 2018 – U.S. stocks finished Friday little changed, securing big gains for the third quarter. The S&P 500 kept near its flat line throughout the session, closing just a tick below its unchanged mark. The Nasdaq and the Dow added 0.1% apiece. For the quarter, the S&P 500 added 7.2%, the Dow added 9.0%, and the Nasdaq added 7.1%. Financial shares fell once again on Friday (-1.1%), extending the heavily-weighted financial sector's weekly loss to 4.1%. On the flip side, the lightly-weighted real estate (+1.3%) and utilities (+1.5%) sectors rallied, closing atop the sector standings. Conversely, the newly-added communications services sector was the top performer with a weekly gain of 1.1%.

The headlines weighed on Tesla as well, when TSLA tumbled 13.9% after its CEO, Elon Musk, was sued by the SEC over his tweet about taking the electric automaker private. Mr. Musk and the SEC were reportedly close to reaching a no-guilt settlement that would have barred him from being chairman for two years, but Mr. Musk backed out at the last minute. Investors should expect an ETF Sell off and can examine these movements by utilizing ETFG’s Equity Exposure Summary. Three of five top ETFs which own Tesla include ARK Industrial Innovation ETF (ARKQ), ARK Innovation ETF (ARKK) and ARK Web x.0 ETF (ARKW) all down approximately 1% have a weighting of 11.06%, 9.91% and 7.91% respectively.

ETFG Quant Movers - Regular readers know that we rank U.S listed, equity ETFs based on several forward-looking indicators which offers a powerful tool for investors who are either seeking confirmation of a move or as a contrarian indicator for future trends. EM equity funds in our ETFG Behavioral Top Scorers list favored more broad market with the Schwab Emerging Markets Equity ETF (SCHE) coming in at #23 while the granddaddy of all EM funds, iShares MSCI Emerging Markets Index Fund (EEM), was at #63. Nor was the strong showing confined to just broad-based funds with iShares MSCI Brazil ETF (EWZ) at #14 and multiple China funds making the cut with iShares China Large-Cap ETF (FXI) and iShares MSCI China ETF (MCHI) both appeared in the top 25.

ETFG Weekly Select List – This weekly report features the 5 most highly rated ETFs per Sector, Geographic Region and Strategy as ranked by the ETFG Quant model.

After tepid movements on Wall Street we saw an astonishing amount of consistency within the ETFG Weekly select List. SPDR S&P 600 Small Cap Value ETF (SLYV), iShares Nasdaq Biotechnology Index Fund (IBB), AdvisorShares Dorsey Wright ADR ETF (AADR), iShares MSCI EAFE Value Index Fund (EFV), Fidelity MSCI Telecommunication Services Index ETF (FCOM) and SPDR KBW Insurance ETF (KIE) all maintained the top rating in their respective categories. Those categories in order are Small Cap, North America, Global Ex-U.S., Developed Markets, Telecommunication and Financials.

For full coverage of this week’s ETFG Weekly Select, please see here: ETFG Select List - October 1, 2018

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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.