ETF in Focus

Submitted by Dave Fry on 04-06-2015

4-6-2015 12-23-14 PM Metals

It seems timely to review the metals markets in the context of future market action since most precious metals have been, with the exception of silver, struggling in dollar terms thus far in 2015.

In non-dollar terms results have been better given the rise in the dollar over the past six months. Much of this struggle is linked to the possible increase in US interest rates. As US interest rates rise it puts pressure on commodity markets in general; gold, in particular.4-6-2015 2-48-05 PM Gold weekly4-6-2015 2-49-45 PM Gold Monthly


ETF Securities has focused almost exclusively on precious metals ETFs over the past six years. These include a variety of ETFs including: SIVR (Physical Silver ETF), GLTR (Physical Precious Metals Basket Shares), PALL (Palladium Physical Palladium Shares), and PPLT (Physical Platinum Shares). Other issues include Swiss and Asian Gold Shares SGOL & AGOL.

According to Mike McGlone, Head of Research US, one interesting assumption investors have made is US interest rates will rise propelling the dollar higher given its superior economic behavior against other currencies. This may have changed abruptly given last Friday’s much weaker Employment Report which no doubt will challenge this popular consensus view. In fact, prior to this report, the correlation between Fed Fund futures and gold is near the highest level ever at 80% on weekly basis.

4-6-2015 12-04-34 PM Gold


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Submitted by Dave Fry on 03-27-2015

3-26-2015 7-34-30 PM Muni

Whether yields are 2% or 7% investors will continue to buy municipal bonds.

Institutional buyers include banks and casualty insurance companies among others and do so dependent on their tax brackets.

This steady buying wasn’t lost on ETF where sponsors have created products.

One major hurdle has been creating indexes which can be dynamic enough for the ETF to track. Because pricing mechanisms for some municipals can be difficult, especially if some issues are small and may not trade daily, investors must trust that prices reasonably reflect reality. This inefficiency can lead to drift from published NAV or premiums and discounts. Absent other considerations, discounts should be purchased.


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Submitted by Dave Fry on 03-17-2015

3-17-2015 1-58-32 AM BW

My recommendation with new ETF products you may find attractive is to put them in your “watch” folder to see how they perform over a market cycle. This can be a few months to a few years clearly. As an investor you need to see assets under management and liquidity build. Then you can assess how the fund performed in accordance with their mission.

New ETF provider Lattice Strategies Founder and Managing Partner Thomas Lucas, a 26 year industry veteran, has developed what he terms an “upside-down” philosophy on risk and return. To create an effective new ETF is a hard thing to do with the space now so crowded. Therefore, each new issue on the same sector, in this Emerging Markets, must have a unique feature and approach to appeal to investors. Time will tell if this product performs as intended.

Lucas believes investors may been getting the notion of how we manage “risk” in our portfolios wrong lately or at least we may not be thinking about risk holistically enough. Investors were reminded again recently the toll that excessive volatility can have on a portfolio as volatility returned to markets driving the MSCI All County World Index down to -3.4% for the month.

Most investors are well diversified and the impact of this event on their portfolio was likely muted by the allocation across multiple asset classes. For years, investors who rely on diversification across asset classes as the source of risk management have been relatively well served. What investors haven’t been thinking about as much – or perhaps that they haven’t had the tools to do so – is how to manage risk at the “last mile,” in each of the individual asset classes within their portfolios.

Many investors own either the “market portfolio,” which is a passive portfolio weighted by the size or capitalization of companies, or they own an actively managed portfolio that is similarly benchmarked. Many investors may not be aware that these simple, low-cost approaches introduce all kinds of concentration and other risk distortions in their portfolios. For example, in emerging markets – a widely disparate group of economies – more than 60% of the index is composed of only five countries. As China, South Korea, Taiwan, Brazil, and South Africa go, so goes your emerging markets portfolio. Lattice Strategies asserts a different, perhaps better, risks be taken to broaden the opportunity. What affect might this have had on returns in the emerging markets portion of the diversified portfolios noted above? How about when applied across the entire equity component of the portfolio, which by some estimates account for approximately 90% of the risk in investor portfolios.

Lattice Strategies, a San Francisco-based investment management firm recently introduced a new suite of ETFs that they refer to as “risk-first ETFs.” The firm seeks to deliver capital growth by thinking first and foremost about how to “deliberately and intentionally allocate risk.” Three weeks ago, the firm launched its inaugural ETFs – Lattice Emerging Market Strategy (NYSE: ROAM), and also Lattice Developed Markets (ex-U.S.) Strategy ETF (NYSE: RODM), Lattice U.S. Strategy ETF (NYSE: ROUS).

“All too often, risk allocation is the consequence rather than the driving force behind portfolio composition,” Lucas said. “This can lead to inferior long-term growth potential and it undermines the most fundamental goal of investing – meaningful return.”

Here’s what Lattice thinks make their ETFs distinct – With upwards of 61% of capital allocated to only five countries (43% in the top 3), Lattice points to the “unintentional and inefficient risk allocation” that results from the capitalization-driven weighting.

“The majority of capital – and risk – is inefficiently allocated to larger, more developed emerging economies, leaving a relative sliver of capital to access the more compelling long-term opportunity in ‘true’ emerging markets,” Lucas said.

3-17-2015 6-03-21 PM ROAM

For investors who believe that growth could come from a wider array of emerging economies, they might put ROAM, which balances risk across such countries and companies, on their watch list. It increases exposure to smaller, more locally driven emerging economies that are difficult to access for most investors. The ETF tracks the Lattice Risk-Optimized Advancing Markets Strategy Index.

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Submitted by Dave Fry on 11-05-2014


There isn’t a much hotter trend in equity investing than social media. Many relatively young but successful companies dominate the sector. One ETF provider, Global X, jumped the gun beating its peers to this competitive industry, where first to the space generally wins, launching a new ETF, the Global X Social Media Index ETF, SOCL. It’s linked to the Solactive Social Media Index.

The case for investing in SOCL is as follows:

In 2013, approximately two-thirds of adult internet users used a social networking suite, more than double the percentage that reported social network usage in 2008 per the Pew Research Center.

Social Media is among the top accessed activities across different devices like computers, mobiles and PCs.

Ad revenues accruing to Social Media companies is expected to grow from $4.6 billion in 2012 to $9.2 billion in 2016, at a compounded annual rate of 18.9% (BIA/Kelsey, 2012).

Mobile use is increasing with nearly 46% of social media users accessing content directly from their mobile phones, while 15% connecting through tablets (Nielsen 2012). And nearly 46% of online users rely on social media for making a purchase. (Social Media Today, 2013).

Approximately 87% of Fortune 100 companies utilize branded social media channels. Nearly 81% of the top Asian companies had expanded into branded social medial channels in 2011 (Buson-Marsteller, 2012 and 2011)

The potential for international growth is excellent as is demonstrated by the following:

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Submitted by Dave Fry on 10-30-2014

There isn’t any way around it, the lion’s share of investors these days are more interested in yield than growth. Demographics play a large role as boomers retire and a respectable return from most conventional and safe choices doesn’t exist due to the Fed’s ZIRP policies.

We’ve covered a variety of choices previously whether from dividend issues and/or bonds. Given the conventional High Yield or Junk Bond sectors there are a handful of choices with most tied to similar high yield indexes meaning there’s little to choose from.

There are other choices in the High Yield bond category from PIMCO and today’s featured active managed ETF, Advisor Shares Peritus High Yield Bond ETF (HYLD). The active high yield market is growing and is nearing $3 trillion. The current asset size of HYLD is relatively small allowing them to move quickly to spot opportunities bigger funds can’t take advantage of.

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