The ETF industry saw lots of volatility in the first quarter of
this year thanks to the start of the QE taper, polar vortex in
North America, deepening slowdown in China, return of deflationary
worries in Euro zone and the geo-political issue in Russia which
had a ripple effect in other countries. All these have goaded the
"risk-off" investing theme in investors' minds last quarter and
should be felt in the second quarter as well.
If these were not enough, investors should note that the months of
April and May are normally seasonally downbeat for the U.S. stock
markets. After a mid-month tax deadline, investing in April
normally loses some steam. On a separate note, April denotes the
last month of the
seasonally bull phase of the stock markets.
To add to this, we have also witnessed some sort of sector rotation
lately, with some high-flying sectors like technology being hard
hit, and defensive sectors like utility gaining strength (read:
3 Utility ETFs Surviving the Market Turmoil
). Meanwhile, the Fed's Chair hinted at hiking short-term interest
rate in mid 2015, leaving an impact on the bond market.
Thanks to all these worries, one needs to be hawk-eyed while
choosing ETFs for a portfolio in Q2. Thus, identifying some ETF
winners would be a prudent idea to make an investment decision.
Here we focus on three funds with favorable Zacks ETF Ranks and
moderate risk outlook that you can capitalize on in order to enrich
iShares S&P Mid-Cap 400 Value ETF (
While U.S. small caps had an astounding run last year, making the
segment slightly overvalued, the large-cap segment is vulnerable to
ongoing global shocks. Amid such a backdrop, investors should have
a middle-of-the-road approach choosing mid-cap ETFs.
This often-ignored slice of capitalization offers the best of both
worlds. Lesser vulnerability to international tremors compared to
larger ones and lower risk profile than their small-cap
counterparts make mid-cap ETFs a safe bet. The U.S. economy appears
as one of the most stable and decently growing global regions this
Mid-cap ETFs should benefit from this improving U.S. economy. Also,
investors should look for some value focus even in this slice of
the market, given heightened global volatility. And to do this, IJJ
could a good way to target the best of the segment.
The fund zeroes in on the S&P MidCap 400 Citigroup Value Index
for exposure to about 292 domestic mid-cap names having diversified
exposure to various sectors. The product is well spread out as it
puts about 10.27% of its assets in the top 10 holdings with no
stock accounting for more than 1.27% of the basket. Hollyfrontier
(1.25%), SL Green Realty (1.20%) and Fidelity National (1.13%)
occupy the top three positions.
However, the product is heavily dependent on financials, which make
up for 29% of the total assets, while industrials, information
technology and consumer discretionary round out the next three
spots. IJJ is one of the most popular and liquid choices in the
mid-cap value ETF list.
The fund has returned 3.60% year-to-date. It has a Zacks ETF Rank
of 2 (Buy) with low risk outlook.
DB Agriculture Long ETN
The year 2013 was not good for agricultural commodity investing
thanks to easing supply concerns and favorable weather conditions
which caused this fund to hurtle lower. However, the scenario has
been turning around since the start of 2014 on supply crunch for
some soft commodities and global recovery which led to enhanced
3 Commodity ETFs Surging on Russia Sanctions
While we currently have some top-ranked Zacks ETFs in the
agricultural space including
eucrium Corn ETF
) based on one of the most important U.S. crops, corn, and some
sugar ETFs, we prefer to bet on all top-performing
agricultural-based commodities through a single investment, AGF
Zacks ETF Rank Guide
AGF delivers an array of various soft commodities such as corn,
sugar, soybean, and wheat all of which have been exhibiting a
favorable pricing trend currently. Corn and wheat are gaining on
the Ukrainian issue and inclement weather in some major growing
regions. Though, short-term in nature, we expect these price
drivers to remain in place in the quarter ahead.
With AUM of only $3.5 million, the ETN is unpopular and less liquid
in the agricultural commodities space. The product is expensive
when compared to other choices in the segment. It charges investors
75 bps in fees per year and an extra cost in the form of wide
bid/ask spread thanks to low daily trading.
The fund has a Zacks ETF Rank of 3 (Hold). AGF was up about 45%
over the last one month against 3.5% gain in the broader and the
largest agro ETF
PowerShares DB Agricultural ETF
iShares MSCI EAFE Value ETF (
Investors with significant exposure in the U.S. can use EFV for
geographic diversification of their portfolio. With an asset base
of $2.5 billion, EFV is among the largest ETFs in the foreign large
cap equities space. The fund looks to offer exposure to the MSCI
EAFE Value Index.
The Index seeks to pick value-oriented securities having higher
book value to price ratios, higher forward earnings to price
ratios, higher dividend yields and lower long-term growth rate
projections than securities that have a growth focus.
More than 65% of the holdings are invested in Europe with UK being
the front runner accounting for a quarter of the portfolio.
Japan (19%), France (11%) and Germany (10.59%) round out the
next three positions (read:
Is This a Better Europe ETF?
The ultra-low interest rates prevailing in these regions with no
possibility of a rise in rates down the line, unlike the U.S.,
might compel some investors to look for dividend yields instead.
And for that group of yield-hungry investors, EFV is one of the
best suited options. EFV's 30-day SEC yield stands at 3.99%
(as of March 31, 2014).
The fund has low concentration risk from an individual securities
perspective, as it puts only 19.45% of share in the top 10
holdings. HSBC Holdings Plc (2.89%), BP Plc (2.28%) and Total SA
(2.14%) are the three top elements in the basket. The ETF focuses
mostly on the financial sector with two-fifth of assets invested in
it. The product charges investors 40 basis points a year in fees,
which is lower than most comparable ETFs.
EFV presently carries a Zacks ETF Rank # 2 (Buy). The fund was up
about 3% in the last week.
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DB-AG LONG (AGF): ETF Research Reports
TEUCRM-CORN FD (CORN): ETF Research Reports
PWRSH-DB AGRIC (DBA): ETF Research Reports
ISHARS-MS VL (EFV): ETF Research Reports
ISHARS-SP MC VL (IJJ): ETF Research Reports
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