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ETF News

PIIGS Bring Home the Bacon For The Eurozone

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MarketMuse update is courtesy of Tom Lydon from ETF Trends. 

Continuing with what has turned out to be exhausting coverage of European ETFs, the Portuguese, Irish, Italian, Spanish and Greek stocks (the PIIGS) ETFs are showing a bright immediate future for the Eurozone. 

Though still controversial, due in part to looming speculation that Greece could potentially depart the Eurozone, exchange traded funds tracking Portuguese, Irish, Italian, Spanish and Greek stocks (the PIIGS) have the look of value propositions.

Even with Greece’s change in government, one that threatens the country’s ability to pay its debts, meet funding needs and could hasten the country’s Eurozone departure, the Global X FTSE Greece 20 ETF (NYSEArca:GREK) has mustered a small year-to-date gain.

Earlier this month, Standard & Poor’s pared its rating on Greece’s sovereign debt to B- from B. The ratings agency is keeping the long- and short-term ratings on Greece on CreditWatch with negative implications. Greece’s B- rating is just one notch above CCC, a rating that implies vulnerability to nonpayment “and is dependent upon favorable business, financial, and economic conditions for the obligor to meet its financial commitment on the obligation,” according to S&P, scenarios that Greece is unlikely to meet in the near-term.

The iShares MSCI Italy Capped ETF (NYSEArca: EWI) and the iShares MSCI Ireland Capped ETF (NYSEArca: EIRL), often seen as the steadiest hand of the five PIIGS ETFs, have been far more alluring than GREK this year. EWI and EIRL are up an average of 6.5% with average volatility of about27%. GREK is up about 2% with 93% volatility.

Investors looking for exposure to multiple PIIGS through the convenience of one ETF that emphasizes value investing can turn to the actively managed Cambria Global Value ETF (NYSEArca: GVAL).

Cambria’s Mebane Faber “Faber employs a statistic called the Cyclically Adjusted Price-Earnings (CAPE) ratio to evaluate countries. First developed by Nobel Prize winner Robert Shiller, the CAPE has proven effective at predicting the future performance of U.S. stocks. The lower the ratio is, the higher the expected return. Faber has applied the CAPE to other countries in his own research. Examining a period from 1980 through 2013, he found that those countries’ markets with a CAPE below seven subsequently produced a 14.4% 10-year annualized return while those with the highest CAPE above 45 produced only 1.2%,” reports Lewis Braham for Barron’s.

GVAL targets the cheapest, most liquid picks in countries where political or economic crisis have depressed valuations. GVAL’s eligible country universe includes Greece, Russia, Hungary, Ireland, Spain, Czech Republic, Italy and Portugal.

At the end of 2014, the five PIIGS member nations combined for 46% of GVAL’s weight,according to Cambria data.

Portugal’s CAPE is 7.7, Italy’s 9.6, Ireland and Spain about 11. The U.S.’s, by contrast, is 27, according to Barron’s.

Helped by its PIIGS exposure and what was an 8% weight to suddenly resurgent Russian stocks at the end of last year, GVAL is up 6.4% over the past month, giving the ETF an advantage of 60 basis points over the iShares MSCI ACWI ex U.S. ETF (NasdaqGM: ACWX).

For the original article from ETF Trends, click here

ETF News

Catch Europe’s Rebound With $GVAL ETF

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MarketMuse update profiling Europe’s market rebounding is courtesy of ETF Trends’ Tom Lydon. 

With Greece seemingly in the headlines every day, and rarely with good news, it is easy for investors to perceive European equities as damaged and vulnerable to more declines.

On the brighter side of the ledger, history is littered with examples that highlight the profitability of contrarian investing and buying when others are fearful. Enter the Cambria Global Value ETF (NYSEArca: GVAL).

GVAL debuted in March to 2014 and to say the ETF was the victim of inauspicious timing is to understate matters. While an ideal way to gain access to some attractively valued developed European markets, GVAL also features ample emerging markets exposure. Neither emerging nor non-U.S. developed markets were the places to be soon after GVAL debuted.

“GVAL has gotten off to a humble start. But if you’re a believer in value investing as a discipline, then GVAL deserves a serious look. In a market in which the U.S. has outpaced its foreign competitors for years, I consider GVAL to be an excellent, diversified rebound play on Europe and emerging markets,” according to Charles Sizemore.

GVAL’s current emerging markets exposure among its top 10 country weights does not lack for controversy. Brazilian stocks, embroiled in a graft controversy surrounding Petrobras (NYSE: PBR), made up 12% of GVAL’s weight at the end of the fourth quarter. Russia and Greece, rarely deliverers of good news, combined for another 14% of GVAL at the end of 2014, according to Cambria data.

“But herein lies the beauty of GVAL. Few investors would have thick enough skin to take a large position in any of these countries individually. But even investors with nerves of steel would have trouble building a viable portfolio of stocks from most of these markets due to the lack of available U.S.-traded ADRs to buy.   Very few investors have access to the small and mid-cap foreign stocks that dominate GVAL’s portfolio,” notes Sizemore.

The actively managed GVAL targets the cheapest, most liquid picks in countries where political or economic crisis have depressed valuations. GVAL’s eligible country universe includes Greece, Russia, Hungary, Ireland, Spain, Czech Republic, Italy and Portugal. At the end of 2014, 56% of the ETF’s country weight was allocated to Eurozone nations.

Investors can also access a sliver of GVAL via the Cambria Global Asset Allocation ETF (NYSEArca: GAA). Known as the ETF without an annual fee, GAA debuted in December and holds other ETFs. At the time of launched, GAA held a 4% weight to GVAL.

ETF News

Upcoming Elections in Greece Make ETF Markets Volatile

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MarketMuse update courtesy of Todd Shriber from ETF Trends.

The Global X FTSE Greece 20 ETF (NYSEArca: GREK) is off 3% to start 2015 and with anxiety running high that Greece is still a candidate for departure from the Eurozone, global equity market volatility and investors’ skittishness is on the rise.

With Greek elections slated for Jan. 25, global investors are understandably nervous about what the Eurozone will look like in the future. While Moody’s believes Greece’s Eurozone departure probability is not as high today as it was in 2012, there are still negative implications with such an event for fellow Eurozone nations.

Investors can mitigate Greek volatility with a familiar source: U.S.-focused low volatility ETFs, which outperformed traditional benchmarks in 2014. That group includes thePowerShares S&P 500 Low Volatility Portfolio (NYSEArca: SPLV).

“The relative performance of the S&P 500 Low Volatility Index during the Greek crisis in 2011 and 2012 offers insight into risk mitigation,” according to a recent note by PowerShares.

A favored measuring stick for gauging Eurozone volatility is 10-year government bond yields, but combining that with how SPLV’s underlying index performed against the S&P 500 during periods of elevated Eurozone stress proves instructive for investors.

In the chart below, “the red line shows the performance of the S&P 500 Low Volatility Index relative to the S&P 500 Index, based on weekly closing data. When we compare the red line with the blue line, we see that the S&P 500 Low Volatility Index outperformed the S&P 500 Index during each wave of credit stress in the Eurozone,” notes PowerShares.548x445xsplv.png.pagespeed.ic.RdYuDOmWxM

 

 

 

 

 

 

 

 

 

 

 

For original article from ETF Trends, click here.

ETF News

Euro Exposure? Eurozone Bond ETFs In Advance of ECB’s QE

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MarketsMuse.com update courtesy of extract from Jan 6 ETF.com article by Dennis Hudacheck, with a look at Eurobond ETFs $HEDJ,$DBEU, $HEZU, $EZU, $DBEZ, $VGK, $FEZ, $DFE

All eyes are on the European Central Bank’s Jan. 22, 2015 meeting, as it’s no secret that ECB President Mario Draghi has been hinting at a large-scale quantitative easing program for some time.

There’s no guarantee the ECB will actually implement any such program in January, but the consensus seems to be that there will be some type of big announcement on that front sometime in the first quarter of 2015.

At the same time, the U.S. Federal Reserve is expected to begin raising rates in mid-2015. This opposing force between the world’s two largest central banks has strategists calling for a currency-hedged strategy to capitalize on a rising-equity/falling-euro scenario in Europe.

An Equity ETF Designed For A Weakening Euro For currency-hedged options, the $5.6 billion WisdomTree Europe Hedged Equity Fund (HEDJ | B-47) is by far the leading ETF in the space.

Despite its “Europe” name, HEDJ focuses exclusively on eurozone securities. That means that for better or worse, it excludes the U.K., Switzerland and Sweden, which account for roughly 50 percent of Europe’s equity market capitalization, combined.

More importantly, it carries a significant exporter bias, attempting to capitalize on a weakening-euro scenario. The dividend-weighted ETF does this by screening out any company that gets more than 50 percent of its revenues from within Europe.

This makes HEDJ geared toward investors with a strong bearish view on the euro. Naturally, the fund favors consumer sectors over financials compared with vanilla, cap-weighted European indexes (MSCI Europe IMI Index).

This now-blockbuster fund tracks its index well and trades more than $80 million a day at 3 basis point spreads, keeping overall trading costs very low.

‘Neutral’ Currency-Hedged Products Contrary to popular thinking, investors interested in currency-hedged Europe ETFs don’t necessarily have to be bearish on the euro. They might have a neutral view, and simply prefer a purer equity exposure by taking any currency fluctuations out of the equation.The Deutsche X-trackers MSCI Europe Hedged Equity ETF (DBEU | B-66) is also a leading ETF in the space, and takes a broader approach, including all of developed Europe, beyond the eurozone.

It tracks a cap-weighted index and neutralizes exposure to the euro, the British pound, the Swiss franc and a few other European currencies against the dollar. DBEU has more than $710 million in assets and trades with robust liquidity that’s sufficient for small and large investors alike.

For a neutral currency take on the eurozone, rising in popularity is the iShares Currency Hedged MSCI EMU ETF (HEZU), which literally holds the $7.5 billion iShares MSCI EMU ETF (EZU | A-63) with a forward contract overlay to neutralize euro exposure.

For the entire analysis from ETF.com, please click here