QE To Wind Down, Phones On Planes And An S&P ETF In China?

Ulli Market Commentary Contact

Thur pic

[Chart courtesy of MarketWatch.com]

1. Moving The Markets

As an imminent QE wind-down is allegedly likely, Fed officials are beginning to take more seriously the proposal of a cut to the rate paid on excess reserves. The interest rate the Fed pays on excess reserves currently sits at 25 basis points.  Stocks of major U.S. banks were very strong on Thursday, after the Senate Banking Committee approved Janet Yellen’s nomination to succeed Ben Bernanke as the next chair of the Federal Reserve.

An interesting development in the cell phone world today, as the nation’s top telecom regulator will propose allowing passengers to make cell phone calls and use their data plans while on an airplane, officials said Thursday.  The proposed rule change by the Federal Communications Commission would allow phone use once a plane reaches 10,000 feet. Restrictions would still be in place during takeoffs and landings.  This could lead to a large incentive for telecom and data providers to ramp up their in-flight operations and service offerings.

In ETF news, Bosera Asset Management, one of the longest-established fund management companies in China, has launched the first ever exchange-traded fund (ETF) listed in Mainland China to be linked to the S&P 500 Index. The new fund is Bosera’s fifth ETF and its first to offer exposure to non-China markets. By offering access to an overseas market, the launch represents a material acceleration of the development and sophistication of the ETF market in Mainland China.  It will be interesting to see how enticed investors will be to take a bite of this western delicacy in the Chinese market.

Let’s review our ETFs in the spotlight:

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The German Surplus And Some Insight Into An Overlooked ETF Segment

Ulli Market Commentary Contact

Wed pic

[Chart courtesy of MarketWatch.com]

1. Moving The Markets

Wall Street closed in the red on Wednesday as traders responded to slightly more hawkish-than-expected minutes from the Federal Reserve.  Many members of the Federal Reserve’s policy-setting committee said they could see the central bank trimming its $85-billion-a-month bond-buying program at ‘one of its next few meetings,’ minutes from the October meeting indicate.

In global news, the euro fell sharply on a report saying the European Central Bank was considering a negative deposit rate.  Germany’s high current account surplus, which the United States has blamed for hindering the global economy, shrunk in the third quarter, the Finance Ministry said in its monthly report on Thursday.  The long-running surplus (of over 6%) has drawn criticism from Washington that Germany is relying too heavily on exports and that Berlin should focus more on boosting domestic demand to put growth on a sounder footing.

Although ETFs have been performing well overall this year, one segment that is doing quite well is that of the actively managed ETFs. Though actively managed ETFs account for a tiny fraction of the $1.5 trillion plus U.S. ETF market, these are slowly gaining popularity with 15 new product launches so far this year. This corner of the ETF market is still in the initial stage of development and often overlooked by investors due to its lower liquidity and higher costs compared with passive funds.

There are a total of 65 unleveraged active ETFs in the space with total AUM of nearly $15 billion. While these funds may not be the popular or liquid (not a good thing in my mind), these could be interesting picks for those investors considering a more active approach and seeking to target the growing aspects of the ETF industry with innovative strategies. Keep in mind, howver, that an actively managed ETF will not protect you in a bear market scenario. Only a move out of the market and to the sidelines will help limit the downside risk.

Let’s review our ETFs in the spotlight:

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7 ETF Model Portfolios You Can Use – Updated through 11/19/2013

Ulli Model ETF Portfolios Contact

At this very moment, nothing seems to be able to stop the run of equities. Since last week’s ETF portfolio report, the S&P 500 managed to climb above the 1,800 milestone marker on an intra-day basis, and added 1.13%.

What everyone expects to happen, such as the markets tanking either during September/October, did not take place as the indexes rallied to new highs. The lesson learned is simply to stay with the major trends and disregard mainstream media’s onslaught of forecasts and wild guesses as to what might happen next.

Sure, the fundamentals are anything but rosy; however, as long as the Fed is in charge of market direction via its easy money policies, it’s best not to fight the trend.

As a heads up, I will discontinue this section as of the first of the year since it has been replaced already with the daily update and posting of the “ETFs in the Spotlight,” which is more appropriate for the current market environment.

Here’s the latest ETF Model Portfolio update:

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JP Morgan Strikes Deal With U.S. Govt. Maybe They Can Pay In Bitcoins?

Ulli Market Commentary Contact

Tue pic

[Chart courtesy of MarketWatch.com]

1. Moving The Markets

Stocks ended lower as investors digested a mixed batch of retail earnings reports and benchmark indexes struggled to surpass major milestones. However, a recovery in the U.S. housing market helped Home Depot top profit and sales estimates for the third quarter, prompting the No. 1 home improvement chain to raise its fiscal-year outlook for the third time this year.

Major news today centered on the JPMorgan settlement that was reached with the U.S. Government.  JPMorgan Chase has reached a $13 billion agreement with the U.S. government settling claims that the nation’s largest bank by assets misrepresented the quality of its mortgages in the lead up to the financial crisis. The deal is the largest settlement ever between the government and a corporation. While this was the big chunk of cash that JPMorgan Chase will have to fork over to the government, JPMorgan said last month that it has set aside $23 billion to cover further litigation expenses.

In the ETF world, the majority of sectors closed the day in the red except for energy, financials and healthcare.  Consumer staples still maintain their lead in terms of Q4 performance, posting an 8.14% gain thus far.  If you may not already know, the Winklevoss twins are planning to launch an exchange traded product holding Bitcoinns, which has been met with some over-the-top negative reactions from many financial journals and bloggers.

Winklevoss and his brother Cameron reportedly own about 1% of the Bitcoin market, or roughly $10 million. Of course, that number fluctuates because Bitcoin prices can be extremely volatile.  However, it can sometimes take years for the SEC to declare a product “effective,” so don’t expect an ETF tracking a virtual currency to come out anytime soon.

Instead, let’s let’s look at some real numbers via our ETFs in the spotlight:

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The Bull Market Remains Charging Forward

Ulli Market Commentary Contact

Mon pic

[Chart courtesy of MarketWatch.com]

1. Moving The Markets

Many spectators held their breath today as both the S&P and Dow both strained to reach their all-time highs of 1,800 and 16,000 respectively.  But alas, neither index could hold on to the mighty achievements as both eventually dropped to 1,791 and 15,976.  Still, the Dow and S&P 500 are up more than 20% so far in 2013.  This 5-year bull market that we have experienced has been phenomenal, but might reverse if simulative monetary policies are scaled back.

Major market movers for Monday were Boeing, Tesla, Sony and Bitcoin.  An interesting note on Bitcoin is that since October the digital currency has more than quadrupled its value to now stand at $675.

In the ETF markets, all sectors except industrials closed out the day in the negative.  However, this is not reflective of the spectacular overall Q4 performance that ETFs have shown.  Thus far in Q4, all sectors have realized gains greater than 5%, with consumer staples (XLP) leading the pack at 8.54%.  As ETFs have been basking in the sunshine of the S&P’s glory this year, one can only stay optimistic as the index continues to perform.

Let’s head over to our ETFs in the spotlight:

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ETFs/Mutual Funds On The Cutline – Updated Through 11/15/2013

Ulli ETFs on the Cutline Contact

Below are the latest ETF Cutline reports, which show how far above or below their respective long-term trend lines (39 week SMA) my currently tracked ETFs/MFs are positioned.

The first report covers the ETF Master List from Thursday’s StatSheet and includes 398 ETFs, of which currently 339 (last week 322) are hovering in bullish territory.

The second report includes only High Volume ETFs. To clarify, High Volume (HV) ETFs are defined as those with an average daily volume of $10 million or higher.

These ETFs are generated from my selected list of some 93 that I use in my advisor practice. It cuts out the “noise,” which simply means it eliminates those ETFs that I would never buy because of their volume limitations. 71 ETFs (last week 68) have managed to remain in bullish territory after the recent market volatility.

The third report covers Mutual Funds on the Cutline. There are currently 799 (last week 797) above the line and 51 below it out of the 859 that I follow.

Take a look:

1. ETF Master Cutline Report     

2. ETF High Volume Cutline Report

3. MF Cutline Report

In case you are not familiar with some of the terminology used in the reports, please read the Glossary of Terms.

If you missed the original post about the Cutline approach, you can read it here.