QE3 Continues To Rev Up Emerging Market Corporate Bonds And Currencies
In the steamy September days (9/13-9/14) of central bank euphoria, Federal Reserve Chairman Ben Bernanke announced that the Fed would immediately begin purchasing $40 billion in mortgage-backed securities each month. What's more, the chairman did not include an end date for the quantitative easing program known as "QE3."
Bernanke's summertime bazooka sent S&P 500 stocks skyward, as the heralded benchmark hit an intra-day level of 1474. And scores of media players began chatting up the possibility of year-end highs in the mid-1500s.
One month later, however, the S&P 500 has shed some 50 points off of its 52-week peak. Perhaps ironically, the declines have occurred in spite of the best consumer sentiment reading in five years, as well as the lowest unemployment rate reading in three and a half years.
Does this mean that QE3 has essentially lost its mojo? Is it a classic case of buy the rumor, sell the news? To some extent… yes on both.
There has also been a shift in focus back to a number of poor earnings reports, as well as a rekindling of the European debt crisis. Most notably, Spain has yet to budge on agreeing to the European Central Bank's (ECB) bailout terms.
Nevertheless, QE3 is still benefiting ETF investors with a longer-term focus . For instance, the electronic creation of new U.S. dollars, coupled with waning demand for treasuries is bolstering corporate debt. Even more eye-catching, investors are attracted to emerging market corporate debt as well as currencies backed by countries with less desperate monetary policies.
For instance, WisdomTree Emerging Market Bond ( EMCB ) hasn't missed a beat over the prior month, surging 5.3% in price over the previous three months. EMCB remains well above its 50-day moving average and reports an annual distribution yield of 4.5%.
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WisdomTree also offers the Dreyfus Emerging Currency Fund ( CEW ). Some of the constituents include the Mexican peso, Brazilian real, Chilean peso, South African rand, Chinese yuan and Malaysian ringgit. For those who believe that the "emergers" are doing less damage to their currencies, CEW is proving to be a sensible way to diversify currency exposure across the developing country landscape. In addition, CEW is above both its 50-day, as well as its 200-day trendline.
Others may be more comfortable with individual currencies that have shown remarkable strength since the president of the ECB, Mario Draghi, pledged to do whatever it takes to save the euro. One of the most impressive currencies in terms of relative strength has been the Indian rupee. ETF enthusiasts could consider the WisdomTree Dreyfus Indian Rupee Fund ( ICN ).
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Disclosure: Gary Gordon, MS, CFP is the president of Pacific Park Financial, Inc., a Registered Investment Adviser with the SEC. Gary Gordon, Pacific Park Financial, Inc, and/or its clients may hold positions in the ETFs, mutual funds, and/or any investment asset mentioned above. The commentary does not constitute individualized investment advice. The opinions offered herein are not personalized recommendations to buy, sell or hold securities. At times, issuers of exchange-traded products compensate Pacific Park Financial, Inc. or its subsidiaries for advertising at the ETF Expert web site. ETF Expert content is created independently of any advertising relationships.
See also Mounting Pressure on seekingalpha.com