September Swoon For ETFs Could Continue In The Week Ahead
U.S. stocks ended last week in miserable fashion as all three major U.S. indexes slumped more than 1 percent on Friday. For the week, the S&P 500, Dow Jones Industrial Average and the Nasdaq Composite each lost at least 2.6 percent.
With those dismal numbers in mind, perhaps it is a good thing that the week ahead will be shortened by the Labor Day holiday because while the bull market is still in tact, investors' enthusiasm for riskier assets is clearly waning. Emerging markets stocks and exchange traded funds continue to confirm as much.
In terms of ETFs to put on your screen in the week ahead, let's start with an old friend, the Direxion Daily CSI 300 China A Share Bear 1X Shares (NYSE: CHAD). CHAD, the only inverse A-shares trading in the U.S., is an ETF we've highlighted multiple times in the past month and it is a trade that has paid off.
The reasoning for CHAD meriting a place on this week's preview is simple: Last week, three of the four worst-performing non-leveraged ETFs were China funds and two of those three were A-shares ETFs. CHAD likes that as evidenced by the ETF's 6.7 percent jump last week.
Speaking of emerging markets ETFs that Benzinga has frequently highlighted in recent weeks that merit consideration next week, there is the iShares MSCI Brazil Capped ETF (NYSE: EWZ). Remember the four worst-performing non-leveraged ETFs from last week that we just mentioned? EWZ was the one of the four that is not a China fund.
EWZ did not get a holiday reprieve last Friday as the largest Brazil ETF slid almost 4.7 percent on volume that was nearly a third above the daily average. That was a day after rumors swirled that embattled Brazilian Finance Minister Joaquim Levy could leave that job. EWZ heads into trading Tuesday, the next day U.S. markets are open, just half a percent below its recently touched 52-week low.
Knowing that international markets are adversely affecting U.S. stocks, investors are predictably looking for shelter-from-the-storm plays. That much is reflected in last week's top asset-gathering ETFs. While the nearly $4.7 billion hauled in by the SPDR S&P 500 ETF (NYSE: SPY), more than any other ETF, is something of a surprise, the fact that seven of last week's top 10 asset-gathering ETFs were bond funds is not stunning.
Said another way, with risk appetite dwindling alongside bets that the Federal Reserve is going to raise interest rates this month, the time could be right for funds like the iShares 20+ Year Treasury Bond ETF (NYSE: TLT).
Investors looking for just a tad more fixed income risk, but with the benefit of a much lower duration than what is found on TLT should consider the iShares iBoxx $ Investment Grade Corporate Bond ETF (NYSE: LQD). High-grade corporate bond ETFs have favored destinations in recent weeks. LQD has an effective duration of just eight years, less than half the duration on TLT, while sporting a 30-day SEC yield that is nearly 100 basis points higher than that of TLT.
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