The First Gulf War started in August 1990
The Asian Contagion began in August 1997
The Russian Debt Crisis started in August 1998
US Credit Ratings were downgraded in August 2011
China devaluated the Yuan in August 2015
China again devaluated the Yuan in August 2019
The Financial Times just labeled this the Summer of
Fear. Why? A quick look around the globe
we see a number of hot spots which easily spook investors: rioting in Hong Kong
which dares Beijing to send in the troops, challenges to continued Euro
stability via rising tensions in Italy, renewed tension between India and
Pakistan over India’s crackdown on Kashmir, financial instability in domestic
Chinese Banks, Currency and Trade Cold War between China and the US, weakness
in oil markets, signs of economic slowdowns worldwide, hard landing Brexit, continued
populist uprisings and lastly an increasing
percentage of zero interest rates in government bond markets.
US stocks rose or fell with the news headlines on the US – China
Trade War. Relations fell to a new low when China reduced its support of the
Yuan leading it to break thru the psychologically important FX rate of 7 to the
dollar which lead the US administration to label China as a Currency
Manipulator. The consensus view among investors that a deal was around the
corner is now dead.
Stocks seesawed and ended the week relatively flat with the large
cap weighted S&P 500 closing at 2918.65 and the broader NASDAQ Composite
closing at 7959.14 for a weekly loss of .46% and .56%. Nevertheless, the indexes are up YTD at a
respectable 16.47% and 19.95%
respectively. Gold closed above $1500 for the first time since 2013 and the US 30 Year Bond briefly yielded 2.13% as
bond prices rallied as investors sought safety. We expect market volatility to
continue for the foreseeable future.
Looking around the globe the trend toward zero and negative
interest rates in the G7 peeked our attention. A recent graph from showing that
43% of global bond markets outside of the US now at zero or at negative
interest rates. We found to our surprise a particular case in Denmark which may
become more widespread. Last week, Jyske
Bank, the 3rd largest bank in Denmark announced that it would offer
10 year mortgages at an interest rate of negative .50%. That means that the mortgage loan declines 50
bps per year before the creditor makes a payment! That is a first to our knowledge.
This got us thinking that around the world, investors are willing
to give governments their cash for up to 50 years (in the case of Switzerland)
for the promise to get back some of their money. This means that investors are
willing to forego interest for the peace of mind of storing their cash and
hedging i.e., limiting their potential loss with the govt in lieu of parking it
elsewhere and risk losing substantially more.
Investors seeking safety in this environment should consider locking
in their gains or reallocation into utility, US intermediate and long-term bond
ETFs and REIT ETFs. Bond ETFs if rates drop, should provide yield and some
price movement participation. Investors who share this view should use the ETF
Screener in conjunction with the Select List to place their bets. This creates
opportunities for traders and active investors who can use ETFs to take
advantage of real-time market volatility – both up and down!
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 for investors given our views.
In the Consumer Staples KXI is our top pick. JHMU
is our top ranked in the Utility Sector.
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
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