Opinion: Investors avoiding both stocks and bonds looks bearish for market – MarketWatch 11-05-15

Salient to Investors:

Conrad de Aenlle at Conrad de Aenlle’s Funds for Thought writes:

Louise Yamada at Louise Yamada Technical Research Advisors says ICI’s report of net withdrawals from both stock and bond mutual funds in July and August is a pattern not seen since the fall of 2008.

Todd Rosenbluth at S&P Capital IQ says mutual fund withdrawals around August were soaked up by ETFs: mom-and-pop investors accounted for the majority of mutual fund flows and institutions were behind the ETF flows – The trend away from mutual funds and toward ETFs represents an ongoing shift to passive products as people do not want to pay up to lose money.

Morningstar found 5 prior months over the last decade when investors had net withdrawals from stock mutual funds and ETFs combined, and from bond funds: 2 coincided with minor blips in long bull markets, and 3 occurred just before or in the middle of corrections or bear markets.

Read the full article at http://www.marketwatch.com/story/investors-avoiding-both-stocks-and-bonds-looks-bearish-for-market-2015-11-05

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Emerging ETFs Turn Positive for 2014 as Outflows Reversed Bloomberg 07-25-14

Salient to Investors:

  • Flows into emerging-market ETFs have turned positive for the year, reversing outflows in the first 2 1/2 months of 2014. The most inflows in 2014 have gone to India-focused ETFs. Investors have withdrawn $1.5 billion from China-targeted ETPs over concern over economic imbalances there.
  • The RSI of the BlackRock ETF is approaching the 70 mark that indicates overbought. The MSCI Developing-Nation stock index is at 11.2 times estimated earnings, the highest since 2011.
  • Adam Laird at Hargreaves Lansdown said emerging markets have grown in popularity in the past few months because nobody is 100 percent sure where the growth is going to come, but they know that the emerging economies are likely to see it.
  • Arko Sen at Bank of America said stronger US Treasuries and a more stable China has supported the entire emerging market complex. Sen said the major risk is geopolitics, like in Russia and the Middle East.
  • Mark Mobius at Templeton Emerging Markets predicts Chinese shares will rally, and likes state-owned banks and energy companies because of cheap valuations and plans to open up state-dominated industries.
  • Irene Bauer at Twenty20 Investments said they increased their emerging markets allocation to 25 percent of their portfolios, versus near zero 5-6 months ago, as the macro economic data has improved for many emerging-market countries, with India and China having particularly good outlooks.

Read the full article at http://www.bloomberg.com/news/2014-07-25/emerging-etfs-turn-positive-for-2014-as-outflows-reversed.html

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Shorts Reload in S&P 500 Ritual That Signaled Gain Before – Bloomberg 06-09-14

Salient to Investors:

  • American short sellers have been hurt for 5 years by the biggest market rally since the Internet bubble.
  • Bearish wagers in the SPDR ETF are near 11 percent of its shares, the highest level since 2012. Bearish wagers against a technology ETF are 67 percent above the 12-month average.
  • Hedge Fund Research said short selling hedge funds have endured losses in four of the past five years and returned -1.8 percent in 2014 through May 31.
  • Markit says the average company in the S&P 500 has 2.3 percent of its shares borrowed by shorts, near an all-time low.
  • US stock valuations are approaching 2007 levels.
  • Walter “Bucky” Hellwig at BB&T Wealth Mgmt said not too much market optimism is bullish.
  • $4 billion exited in May from the S&P 500 ETF, which has $164 billion in assets. Domestic share funds have received $4.8 billion in 2014 versus $25 billion in bonds.
  • Frank Maeba at Breton Hill Capital is short the S&P 500 ETF said the market is not worried about immediate tail risks.
  • The CBOE Volatility Index is at a 7-year low.
  • The S&P 500 is at 16.5 times estimated earnings, the same as at the end of the last bull market in late 2007. Tech stocks are among the most expensive stocks, with Salesforce.com, Amazon.com, Facebook and Autodesk all above 39 times expected earnings.
  • Ed Hyland at JPMorgan Chase Private Bank said US equities will move higher while the economy is growing and earnings are rising, and feels very good about market levels and the economy.
  • Stephen Solaka at Belmont Capital said this is one of the most-hated bull markets, with many praying for the market to drop.

Read the full article at http://www.bloomberg.com/news/2014-06-08/shorts-reload-in-s-p-500-ritual-that-signaled-gain-before.html

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How to Play Africa: One ETF Banks on GDP – Bloomberg 07-22-13

Salient to Investors:

AFK is the most actively traded Africa ETF and the first ETF to move to weighting holdings based on GDP of the countries it tracks.

The vast majority of ETFs that focus on foreign countries and regions are weighted by market cap, which captures only the shares outstanding that are freely traded, excluding shares owned by insiders or the government and leaves smaller, more emerging countries and companies out of the equation. However, GDP weighting rewards past achievement, as GDP is reported quarterly and often revised, and including companies with larger insider or government ownership increases the risk of manipulation or corruption.

The IMF says Africa will grow 5.7 percent on average in 2013.

Read the full article at http://www.bloomberg.com/news/2013-07-22/how-to-play-africa-one-etf-banks-on-gdp.html

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ETF Simplicity Betrayed by Volatility in Market Selloff – Bloomberg 07-11-13

Salient to Investors:

Share prices for the 10 largest diversified emerging-market ETFs on average were 42.6 percent more volatile than their underlying indexes from May 22 to June 24, when Bernanke triggered the sell-off that sent emerging-market stocks to a 1-year low, while the 5 biggest emerging-market index mutual funds were only 4.8 percent more volatile than their indexes.

Todd Rosenbluth at S&P Capital IQ said this proves that you are not just buying a benchmark when you buy an ETF, but also the related costs, including volatility and the spread price and net asset values.

Jack Bogle at Vanguard says ETFs encourage investors to trade frequently, undermining the long-term investment philosophy of indexing – traitors to the cause of classic indexing,

The only difference between an index fund’s price and the per-share value of its underlying index will come from the manager’s inability to exactly replicate the index in the fund’s holdings.

Volatility is less of an issue for ETFs that track large and liquid markets and whose shares trade during the same hours as the underlying assets.

Dennis Hudachek at IndexUniverse said emerging-market ETFs and certain fixed-income ETFs, such as those that invest in munis, may also see increased relative volatility during periods of market stress because it’s too difficult to buy thousands of different bonds and the funds may not track the indexes exactly.

EPFR Global said emerging-market equity ETFs had $10.3 billion in redemptions in June, the most since it started tracking the data in 2001.

ETFs that track emerging stocks tend to suffer bigger price swings than their underlying indexes.

Rodney Comegys at Vanguard said these premiums/discounts have limited impact over longer periods since they typically revert to around zero.

Read the full article at  http://www.bloomberg.com/news/2013-07-12/etf-simplicity-betrayed-by-volatility-in-market-selloff.html

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BlackRock Net Rises 10% as Demand for ETFs Boosts Assets – Bloomberg 04-16-13

Salient to Investors:

Laurence D. Fink at BlackRock said we have not seen any large major change in attitude in bonds are not seeing the same investor appetite for long-dated bonds, which will persist for some time. Fink sees no evidence of a large-scale rotation into stocks from bonds as global and high-yield bonds continue to attract investors – investors are moving money from low-yielding cash accounts into equities but remain cautious about the stock market.

ICI says assets of ETFs, the fastest-growing segment of the asset-management business, in the US increased 19 percent to $1.4 trillion versus a 0.5 percent rise for mutual funds to $13.5 trillion.

Read the full article at http://www.bloomberg.com/news/2013-04-16/blackrock-net-rises-10-as-demand-for-etfs-boosts-assets.html

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Wall Street Junk Kings Selling Debt Poised to Lose Value – Bloomberg 02-26-13

Salient to Investors:

Wall Street firms are once again selling debt that may be poised to lose value. Wall Street is selling junk bonds at a record pace after they returned 19 percent in 2012, but says it’s obvious that prices will drop when interest rates rise. The amount of junk bonds underwritten so far in 2013 is 36 percent higher than the same period in 2012.

Debt underwriting was among the fastest-growing revenue lines for the world’s 9 biggest investment banks in 2013, some 40 percent to 63 percent of advisory and underwriting revenue. Banks earned an average 1.4 percent fee on dollar-denominated high-yield debt in 2013 versus 0.54 percent fee on all investment-grade issues.

Junk-bond ETF holdings have risen to $30 billion in less than 6 years, attracting $2 billion in January – these funds must buy junk bonds, helping support the market. Morningstar said investors poured $33 billion into mutual funds and ETFs dedicated to junk bonds in 2012, 55 percent more than in 2011.

Craig Packer at Goldman Sachs said our job first and foremost is help companies – the interest-rate risk is just a law of nature. Packer said the Fed is telling you to take the risk, and investors are but it’s a risk that’s bound to backfire, and 5 years from now we’re going to look back and realize that investors were taking on real interest-rate risk when they were buying any of these products and that risk came to fruition.

Marc Warm at Credit Suisse says investors and underwriters in the junk bond market are showing credit discipline, while the rate environment is more of a risk. Debt underwriters and investors say they don’t know what might happen if Treasury yields climb by more than a percentage point or two.

The Bank of America Merrill Lynch Global High-Yield Index shows the spread between junk bond yields and government debt has fallen 16.69 percent since 2008 to 5.24 percent.

Economists expect 10-year T-yields to rise less than a percent through half1 2014.

William Demchak at PNC Financial Services expects long-term rates to rise before the Fed starts raising rates as the long end of the curve gets out of their control – will happen sooner than people expect.

The Treasury Borrowing Advisory Committee warn that the Fed’s policies may be inflating bubbles in speculative-grade bonds and other asset classes.

Jeanne Branthover at Boyden Global Executive Search said managing directors in debt capital-markets units at the top banks were awarded bonuses ranging from $600,000 to millions of dollars.

Michael Holland at Holland & Co. said we have never had a situation like this because it is totally manufactured by the Fed – the prices of bonds acting like dot-com prices. Holland said the smartest fund managers — a small handful — are closing their doors to new money, but most managers continue to take the money and invest it, a la the dot-coms. Holland cited the maxim that more money has been lost reaching for yield than at the point of a gun.

Roy Smith at NYU said banks are not supposed to make up their minds for their customers as to what’s good for them – they are to supply them with what they want.

Moody’s Investors Service said borrowers are selling speculative-grade bonds with the weakest covenants in at least 2 years.

Stanley Martinez at Legal & General said his firm has rejected 75 percent of high-yield offerings in 2013 on concern that companies borrowed too much and debts may lose their value. Martinez said some offerings of high-yield loans and term bonds coming in 2013 and 2014 will be the raw material for the default cycle of 2015 and 2016.

Bob Jacksha at New Mexico Educational Retirement Board is positioning for an increase in junk-bond defaults and interest rates. saying it could be building  into a bubble if not already one.

Some of the world’s most sophisticated investors have sounded alarms about the prices of fixed-income investments, including Warren Buffett who says bonds should come with a warning label because such low-yielding investments would be eaten away by inflation. Jeremy Grantham at Grantham Mayo Van Otterloo said some stocks are brutally overpriced while fixed income is “fugetaboutit”.

Howard Marks at Oaktree Capital said investors are buying debt with a 6 percent yield that they would not have bought 5 years ago at 10 percent.

Dan Fuss at Loomis Sayles Bond Fund said the fixed-income market is the most overbought market he has ever seen and that interest rates will rise.

Economists expect the Fed to keep rates unchanged at least through mid-2014.

Richard Zogheb at Citigroup said investors are well aware of interest-rate risk, and so strongly prefer larger, more-liquid issues which they can sell if rates start to move against them.

The Bank of America Merrill Lynch Global High-Yield Index has produced a 1.65 percent total return, which includes interest income and price gains, so far this year after a 19 percent return last year. The index is composed of 3,147 issues with a face value of $1.66 trillion.

Dan Toscano at Morgan Stanley said if you’re a long-only manager – a large chunk of the market – you’re effectively shorting the market if you sit in cash, and the opportunity cost of shorting can be very high. Toscano says there is not much conviction out there that this market will change tonight or tomorrow night.

Gary Cohn at Goldman Sachs says interest rates can only go up and is concerned the public may not understand how that could imperil fixed-income investments.

Read the full article at http://www.bloomberg.com/news/2013-02-27/wall-street-junk-kings-selling-debt-poised-to-lose-value.html

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Abe Election Is Steinhardt Win as WisdomTree ETF Triples – Bloomberg 02-14-13

Salient to Investors:

The assets of Michael Steinhardt’s WisdomTree Investments’ Japan Hedged Equity Fund have tripled since the start of 2013.

The rapid growth of the fund highlights investors’ embrace of ETFs as vehicles for short-term trades in a way traditional mutual funds, with their higher fees and trading restrictions, haven’t been used. IndexUniverse  said investors invested a record $188 billion into US ETFs in 2012.

Jeremy Schwartz at WisdomTree said the yen and the Japanese stock market often move in opposite directions, and since the Japanese market moved in one direction for a long time, the new trend could last a considerable period. Most of WisdomTree’s products focus on dividend-paying stocks.

Jeffrey Gundlach at DoubleLine Capital said on December 18 that the yen would weaken and Japanese stocks would rise as currency debasement was the only policy tool left for Japan. The average economist expects Japan to grow 0.9 percent in 2013.

George Soros expects Japanese stocks to rise and has 10 percent of the money managed internally in Japanese stocks.

Macrae Sykes at Gabelli & Co. said we are seeing a migration to ETFs.

Patricia Oey at Morningstar said that because the money flowing into WisdomTree’s Japan fund is the result of a popular trade, it could disappear if the yen strengthened.

Read the full article at http://www.bloomberg.com/news/2013-02-15/abe-election-is-steinhardt-win-as-wisdomtree-etf-triples.html

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BlackRock Junk-Bond ETF Has Record Withdrawal as Rally Fades – Bloomberg 11-14-12

Salient to Investors:

BlackRock’s junk bond ETF reported an outflow of 2.4 million shares yesterday, the biggest daily withdrawal in its five-year history.

The five largest junk-bond ETFs have lost $1.97 billion of assets since Sept. 20 as investors sour on a four-year rally in junk debt.

Read the full article at http://www.bloomberg.com/news/2012-11-14/blackrock-s-junk-bond-etf-has-record-withdrawals-as-rally-fades.html

ETFs Culled as Investor Disinterest Spurs Record Liquidations – Bloomberg 11-09-12

Salient to Investors:

More US ETFs and ETNs are being liquidated than ever before, victims of investor disinterest after their and assets expanded 111 percent versus 11 percent increase for active managers. Competition has squeezed smaller funds after BlackRock cut fees and the five-biggest securities collected 25 percent of the industry’s assets.

The most successful ETFs are attracting more money than ever – ICI reports $211 billion was added from 1/1/11 to 9/30/12, versus $126 billion added to equity and fixed-income mutual funds.

Read the full article at http://www.bloomberg.com/news/2012-11-09/etfs-culled-as-investor-disinterest-spurs-record-liquidations.html