3 ETFs for a Green Portfolio on St. Patrick’s Day
Thanks to volatility and uncertainty, the stock market across the globe saw solid gains over the past one year. In fact, some generated incredible returns, easily crushing the broad benchmarks by wide margins. Lower interest rates and the global easing monetary policies drove the stocks higher. However, the relentless surge in dollar and the uncertain timing of U.S. interest rates hike later this year are putting some pressure on the returns.
While many stocks have been outperformers, the best way to make one’s portfolio greener is through ETFs, which reduce the risk from betting on a particular company and capitalize on the strength in the portfolio. Below, we have highlighted ETFs from three different corners of the world that could bring some Irish luck to your portfolio given the current optimism and fundamental strength.
China A-Shares ETFs
Chinese stocks have been riding higher with the Shanghai Composite Index hitting the highest level in almost seven years on the expectation of further government stimulus. The launch of the Shanghai-Hong Kong Stock Connect program, current Renminbi internationalization, and policy easing measures including cuts in reserves requirement ratio and interest rates are boosting the appeal for the Chinese stocks, in particular A-Shares, among global investors (read: Policy Easing Puts China ETFs in Focus).
While any of the A-Shares ETFs could be a good play, Deutsche X-trackers Harvest CSI 300 China A-Shares Fund (ASHR) with a Zacks ETF Rank of 2 or ‘Buy’ rating should continue to outperform. This fund tracks the CSI 300 Index and holds a basket of 306 stocks with a slight tilt toward the top firm – Ping An Insurance Group – at 4.09%. Other firms hold less than 3% of assets. From a sector look, about 40% of the portfolio is allotted to financials, followed by industrials (15.5%) and consumer discretionary (11.6%).
The product is relatively popular and liquid in the China A-shares market with AUM of over $ 1 billion and average daily volume of around 939,000 shares. It is a bit costly with an expense ratio of 0.80%. ASHR generated 68.7% returns over the last one year but is down 1.5% so far this year, indicating a nice entry point.
Currency Hedged ETFs
The popularity of currency hedging strategies has been on the rise over the past several months on a strengthening U.S. dollar and the prospect of higher interest rates in the U.S. against lower interest rates in other countries. These products are expected to perform better than the traditional funds in the coming months thanks to the global currency war (read: Top Ranked Currency Hedged ETFs in Focus on Dollar Surge).
While there are many currency hedged ETFs providing global exposure minus currency exposure to a foreign economy via the use of currency forwards or other instruments that bet against the non-dollar currency, WisdomTree Europe Hedged Equity Index Fund (HEDJ) seems more compelling at present. This is because the European Central Bank (ECB) began its bond-buying program early this week as part of the plan to purchase €60 billion bonds per month through September 2016. This will provide boost to the European economy and push the stocks upward.
The fund, with an asset base of around $ 14.8 billion and average daily volume of about 3 million shares, tracks the WisdomTree Europe Hedged Equity Index. It holds 123 securities with none of these accounting for more than 6.90% of assets. The fund is pretty well spread across a number of sectors with consumer staples, consumer discretionary, industrials, health care, and financials taking double-digit exposure each.
Among countries, Germany and France take the top two spots with at least 25% share each while Spain and the Netherlands round off the next two spots. Expense ratio came in at 0.58%. The fund returned about 27.2% in the trailing one-year period and 19.8% in the year-to-date timeframe. This trend is likely to continue given that it has a Zacks ETF Rank of 1 or ‘Strong Buy’ rating (read: Bulls Riding Europe with These Top Ranked ETFs).
U.S. Biotech ETFs
The biotech corner of the broad U.S. market has been shining not only this year but also from a long-term look. It was badly hit many times due to failed trials, FDA concerns and pricing issues, but the merger and acquisition frenzy, encouraging industry trends and the Affordable Care Act or Obamacare are fueling growth into the sector. Apart from this, since biotechnology is a defensive sector, it remains unaffected by a global slowdown and political or economic turmoil.
The major beneficiary in this sector is SPDR S&P Biotech ETF (XBI), which gained 46.7% over the last one year and 22.5% so far this year. This is by far the most popular choice in the biotech corner with AUM of $ 2.2 billion and average daily volume of about 575,000 shares.
The fund tracks the S&P Biotechnology Select Industry Index and holds about 87 securities in its basket with none accounting for more than 1.99% of assets. Intercept Pharmaceuticals, Foundation Medicine and Halozyme Therapeutics occupy the top three positions in the basket. It charges 35 bps in fees per year from investors and has a Zacks ETF Rank of 2 (read: 3 Biotech ETFs Crushing the Market in 2015).
With the positive trends likely to continue, the above-mentioned products could be interesting buying opportunities this St. Patrick’s Day. Investors seeking to profit from the most current positive trends could try their luck with currency hedged ETFs or China ETFs for the short term. For long-term risk adverse investors, the biotech ETF remains an attractive choice. With a top Zacks Rank, the trio could be hiding the pot of gold that every investor wants.
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