ETF Deathwatch For January 2020


By Ansh Chaudhary

The ETF Deathwatch list decreased in size in January. Ten exchange-traded products (“ETPs”) were added to the list, and 23 funds were removed. Of the removals, 17 were removed due to increased health and six were due to asset managers closing their funds. Equities continued to rise in January, so the decrease in the size of the Deathwatch list was to be expected.

The funds added in January were a mix of actively managed, international, and niche products. One fund was added because its assets under management (“AUM”) was consistently below $5 million for three months. The rest were added due to low average daily volume. These additions may have enough AUM to keep them from closure; however, our system takes into account both AUM and volume, so it’s likely that should volume and interest remain low, these funds may be considered for closure. The low volume in these funds could be due to the nature of the investment product. Many of the funds on the Deathwatch list are actively managed funds. Because equity markets have been strong recently, investors may be opting to stick with passive equity funds rather than actively managed funds and strategies that offer downside protection.

The addition of niche ETF products to the list wasn’t a surprise. The returns in the overall U.S. equity market have been strong, giving investors less reason to move money to actively managed and niche products. January has been rough for investors due to the outbreak of the coronavirus, fears of escalating tension between Iran and the U.S., and the impeachment trial of President Trump. Despite the overall negative sentiment at the start of January, U.S. equities continued their rally until the last week of January, when fears about the coronavirus increased. The fact that there were more removals from the Deathwatch than additions indicates January has been a strong month for markets. With so many negative headlines, it wouldn’t have been a shock for it to have been a little rougher for overall volume in ETFs. What we saw instead is that investors are still confident in this economic expansion.

Fifty-three ETFs and ETNs on the January Deathwatch list have been in the market for more than 10 years. This is a long time for ETPs to exist while remaining on our Deathwatch list. Leveraged and short ETF instruments, as well as a number of commodity ETPs, dominated our list of funds older than 10 years. It’s possible that the fund companies managing these products will allow them to remain active, as they may play a larger role for clients interested in active management.

The average asset level of the threatened ETFs on ETF Deathwatch decreased from $8.35 million to $8.01 million, and 66 products had less than $2 million in assets. The average age of products on the list increased from 50.53 months to 51.45 months, and the number of products more than 5 years of age remained at 131. The largest ETF on the list had an AUM of $25 million, while the smallest had assets of just $492,000.

Here is the Complete List of 468 ETFs and ETNs on ETF Deathwatch for January 2020 compiled using the objective ETF Deathwatch Criteria.

The 10 ETFs/ETNs added to ETF Deathwatch for January:

  1. ProShares UltraShort MSCI Japan (NYSEARCA:EWV)
  2. iShares Evolved US Consumer Staples ETF (BATS:IECS)
  3. Principal International Multi-Factor Core Index ETF (NASDAQ:PDEV)
  4. Principal US Large-Cap Multi-Factor Core Index ETF (NASDAQ:PLC)
  5. Principal US. Small-MidCap Multi-Factor Core Index ETF (NASDAQ:PSM)
  6. FlexShares Emerging Markets Quality Low Volatility Index Fund (NYSEARCA:QLVE)
  7. First Trust RiverFront Dynamic Asia Pacific ETF (NASDAQ:RFAP)
  8. Barclays Return on Disability ETN (BATS:RODI)
  9. ProShares UltraShort Basic Materials (NYSEARCA:SMN)
  10. Barclays ETF Linked to the S&P 500 Dynamic Total Return Index (BATS:VQT)

The 6 ETFs/ETNs that were closed:

  1. WisdomTree Dynamic Bearish U.S. Equity Fund (BATS:DYB)
  2. Virtus Glovista Emerging Markets ETF (NYSEARCA:EMEM)
  3. Cushing 30 MLP Index ETNs due June 15 2037 (NYSEARCA:PPLN)
  4. NYSE Pickens Oil Response ETF (NYSEARCA:RENW)
  5. WisdomTree CBOE Russell 2000 PutWrite Strategy Fund (BATS:RPUT)
  6. WisdomTree Balanced Income Fund (NYSEARCA:WBAL)

The 17 ETFs/ETNs removed from ETF Deathwatch due to improved health:

  1. AlphaClone Alternative Alpha ETF (BATS:ALFA)
  2. ProShares MSCI Emerging Markets Dividend Growers ETF (BATS:EMDV)
  3. First Trust S&P International Dividend Aristocrats ETF (NASDAQ:FID)
  4. LibertyQ Global Dividend ETF (NYSEARCA:FLQD)
  5. WisdomTree US Short-Term High Yield Corporate Bond Fund (BATS:SFHY)
  6. WisdomTree Fundamental US Corporate Bond Fund (BATS:WFIG)
  7. X-Links Monthly Pay 2xLeveraged Alerian MLP Index ETN (NYSEARCA:AMJL)
  8. AdvisorShares Focused Equity ETF (NYSEARCA:CWS)
  9. iShares US Dividend and Buyback ETF (BATS:DIVB)
  10. Direxion Daily Industrials Bull 3x Shares (NYSEARCA:DUSL)
  11. Global X MSCI SuperDividend EAFE ETF (NASDAQ:EFAS)
  12. Principal Millennials Index ETF (NASDAQ:GENY)
  13. iShares Evolved US Discretionary Spending ETF (BATS:IEDI)
  14. Defiance Quantum ETF (NYSEARCA:QTUM)
  15. Global X MSCI SuperDividend Em (NYSEARCA:SDEM)
  16. ProShares Ultra FTSE Europe (NYSEARCA:UPV)
  17. ProShares Ultra Industrials (NYSEARCA:UXI)

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Editor’s Note: The summary bullets for this article were chosen by Seeking Alpha editors.





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Tradeweb Government Bond Update – January 2020


In a month filled with central bank decisions and notable political events, yields on 10-year benchmark bonds fell in January across sovereign bond markets. The biggest move came from Australia’s 10-year note, whose mid-yield plunged 48.5 basis points to finish January at 0.91%. Despite the economic disruption caused by the country’s bushfires, the Reserve Bank of Australia left the cash target rate at 0.75%, following three prior cuts in 2019.

Canada’s 10-year government bond yield experienced the second-largest drop, ending the month nearly 43 basis points lower at 1.27%. The Bank of Canada maintained its overnight rate target at 1.75%, where it has stayed since October 2018. The central bank noted that while business investment had a “strong” third quarter in 2019, hiring had slowed with “unexpectedly soft” consumer confidence and spending indicators. It also reduced its growth forecast for the fourth quarter to an annual rate of 0.3%, but said that the economy would expand by 1.6% in the coming year.

Significant moves were also on display throughout Europe. The yield on Italy’s 10-year benchmark bond tumbled 39 basis points to close the month at 0.92%, while its French equivalent declined 30 basis points to -0.18%. Meanwhile, Germany’s 10-year Bund saw its yield drop 29 basis points to finish at -0.47%. After keeping monetary policy unchanged at its January meeting, ECB President Christine Lagarde indicated that negative interest rates would stay in place for some time. The current deposit rate is -0.5%.

In the U.S., the 10-year Treasury yield dipped 39 basis points to end January at 1.52%. The Federal Reserve left the target range for its benchmark interest rate unchanged at 1.50-1.75%, with Chairman Jerome Powell citing stabilizing growth and reduced uncertainty around trade. While his statement did not describe any immediate changes to the Fed’s USD 60 billion monthly Treasury bill purchases, he said it would scale back that amount later this year.

Elsewhere, the UK’s 10-year Gilt yield fell by 30 basis points to 0.52% as the country prepared to formally exit the European Union on January 31 despite uncertainty around trade agreements and financial market access. Falling the least among its counterparts, the yield on Japan’s 10-year benchmark note dropped four basis points to -0.07%. The Bank of Japan kept its interest rates and asset purchase targets unchanged, but raised growth projections.

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Why the stock market’s January slump matters to your 2020 return


Maybe there is something special about January after all. For years I have been searching for a plausible theory for why the January Barometer should work — for why the stock market’s direction in the first month of the year should foretell its direction from February through December. On numerous occasions I have argued that, even if the January Barometer’s track record met traditional standards of statistical significance, we still shouldn’t follow it unless such a theory existed.

My wait may finally be over, courtesy of a study that appeared in October 2017 in the International Review of Financial Analysis. Entitled “The January Sentiment Effect in the U.S. Stock Market,” the study was conducted by two finance professors: Zhongdong Chen of the University of Northern Iowa and Phillip R. Daves of the University of Tennessee.

The professors’ theory is that many investors make 401(k) asset allocation decisions in January for the entire year, so what they decide in January affects how much of each of their subsequent 11 monthly 401(k) contributions goes into the stock market. They found support for this theory by focusing on the University of Michigan Index of Consumer Sentiment (ICS): When that index rises in January, the stock market produces above-average performance from February through December.

They found further support for their theory when measuring the impact of a sentiment increase in each of the other 11 months. They found no impact similar to what they found for January.

The professors add that the January Sentiment Effect (JSE) is more statistically powerful than the January Barometer. In fact, after controlling for the JSE, they found that the January Barometer disappears — but not vice versa. That is welcome news this year, since the January Barometer is forecasting a decline through the end of the year and the JSE is slightly positive.

This research into the JSE contains both good and bad news for 2020 in particular. The good news is that the ICS end-of-January reading was higher than the end-of-December reading, which suggests the stock market should have an upward bias for the rest of 2020.

The bad news is that the January ICS increase was quite modest — to 99.8 from 99.3, an rise of just one-half of one percent. Per the econometric model the professors constructed from the historical data, this translates to only a modest boost in expected stock-market return: Just 10 basis points per month above normal for the rest of 2020, equal to only a bit more than 1% for the full February-to-December. That may not be enough to even pay for transaction costs.

In any case, a big qualification is in order: The surveys on which each month’s ICS reading is based are not exclusively conducted in that month. The data cutoff for the Jan. 31 release was the 27th of the month, for example, and for December’s reading it was before Christmas. So the increase from 99.3 to 99.8, modest as it was, is not a pure reflection of how investors’ moods changed in January. Some of the January increase might actually have happened in late December; by the same token, sentiment shifts in the last four days of January won’t show up until the February reading.

Furthermore, Daves said in an interview, in some of the early years of the ICS the interviews were typically done in the first half of the month. For that reason, he and his colleague conducted their study on the assumption that they needed to wait until the end-of-February reading before estimating whether consumer sentiment had increased or decreased in January. Further research is needed to know with confidence that the relevant variable today is the difference between the end-of-January and end-of-December readings.

Daves added, however, that he will worry if the ICS experiences a big drop in February. In the meantime, you may not want to use the ICS increase in January as the occasion to throw caution to the wind. Still, given that the January Barometer is negative, there is some solace in knowing that another January-based seasonal pattern finds at least bit of a reason to be optimistic.

Mark Hulbert is a regular contributor to MarketWatch. His Hulbert Ratings tracks investment newsletters that pay a flat fee to be audited. He can be reached at mark@hulbertratings.com

Read: Longtime bull says he’s sitting on cash ahead of a possible market correction

More: Excessive optimism in the stock market suggests there are more declines ahead



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U.S. adds 225,000 jobs in January as hiring speeds up, unemployment rises to 3.6%


The numbers: The U.S. created a robust 225,000 new jobs in January to get off to a good start in 2020, reflecting surprising resilience in the labor market despite a contraction in manufacturing and softer economic growth.

The economy has added an average of 211,000 new jobs in the past three months, a marked acceleration from last fall and summer.

The unemployment rate edged up to 3.6% from a 50-year low of 3.5% as more people entered the labor force in search of work. The rate tends to rise if not all the new entrants find jobs right away, but it’s considered a sign of a strong labor market.

An ultra-tight labor market has put more upward pressure on wages, though paychecks are still not growing as fast as they usually do when unemployment is so low. The increase in worker pay over the past 12 months rose slightly to 3.1%, but it sits below the postrecession peak of 3.5%.

Before the employment report, premarket trading pointed to a lower opening for the stock market. The increase in new jobs easily surpassed the 164,000 forecast of economists surveyed by MarketWatch.

What happened: The construction industry, buoyed by lower mortgage rates and greater demand for new housing, led the way by adding 44,000 jobs.

Health-care providers and hotels and restaurants both created 36,000 new jobs. Transportation companies added 28,000 workers, mostly package deliverers and warehouse stockers. And professional businesses hired 21,000 people.

Employment in manufacturing, however, fell for the third time in the past four months. The industry shed 12,000 jobs as it struggles to recover from the trade war with China that dented exports in 2019.

Executives were hoping to see improvement in 2020 after the U.S. and China signed an interim trade deal, but the coronavirus has thrown a kink in those plans.

The amount of money the average worker earns, meanwhile, rose by 7 cents to $28.44 an hour.

In an expected change, the government reduced its estimate of how many new jobs were created in 2019. Employment gains were revised down to 2.09 million from an original 2.11 million.

Big picture: The pace of hiring is surprisingly strong more than 10 and a half years after the last recession, fueling the longest expansion in U.S. history. Companies aren’t adding as many workers as they were a few years ago, but many complain they can’t find enough skilled workers to fill a still-high number of job openings.

Hiring is likely to slow later in the year, analysts say, because of an extremely tight labor market and a somewhat slower economy. Yet the U.S. only has to add about 100,000 new jobs a month to keep up with the growth in new workers entering the labor force and nudge the unemployment rate even lower.

Perhaps more vexing — if it can be called that — is an apparent halt in wage growth at about 3% a year. The economy cannot grow much faster if worker pay doesn’t increase any faster. Economists predict the U.S. will expand about 1.5% this year compared to 2.3% in 2019.

The sliver lining to modest wage growth is stable inflation. Low inflation has allowed the Federal Reserve to cut interest rates to help support the economy and ward off the threat of recession.

Read: These states had the lowest unemployment rates in 2019. What about swing states?

Market reaction: The Dow Jones Industrial Average

DJIA, +0.30%

and S&P 500

SPX, +0.33%

were set to open lower in Friday trades. The S&P 500 and Nasdaq Composite Index

COMP, +0.67%

 have both rallied to records, clawing back from a big drop last week tied to worries over the coronavirus.

Read: Manufacturers grow for first time in 6 months—but that was before coronavirus

The 10-year Treasury yield

TMUBMUSD10Y, -2.48%

slipped to 1.61%.



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Wall Street rebounds as U.S. manufacturing expands in January By Reuters


© Reuters. Traders work on the floor of the New York Stock Exchange shortly after the opening bell in New York

By Medha Singh

(Reuters) – Wall Street main indexes rose 1% on Monday following their worst week in at least four months as Amazon (NASDAQ:) and Nike gained and U.S. factory activity showed a surprise rebound.

ISM data showed the manufacturing sector expanded in January after five straight months of contraction, offering hope that a prolonged slump in business investment has probably bottomed out.

Alphabet Inc (O:) gained 2.6% ahead of its quarterly results, which will wrap up earnings for the so-called FAANG group of stocks.

A 4.1% rise in Nike Inc’s (N:) shares after JP Morgan added the footwear maker to their focus list provided the biggest boost to the Dow Industrials ().

The consumer discretionary index () gained 1.6%, the most among the 11 major S&P indexes.

Also helping the mood was steps by China’s central bank to improve liquidity and relieve pressure on its economy from the impact of the coronavirus epidemic.

Fears surrounding the economic impact of the outbreak, which has been declared as a global emergency, had shaved off more than 600 points from the Dow Jones Industrials () and pushed the benchmark S&P 500 () into the red for the year on Friday.

“People are just looking at this as an opportunity to step in and do a little bit of buying,” said Robert Pavlik, chief investment strategist and senior portfolio manager at SlateStone Wealth LLC in New York.

“The coronavirus concerns are still at the forefront of investors’ minds.”

At 10:16 a.m. ET, the Dow Jones Industrial Average () was up 319.06 points, or 1.13%, at 28,575.09, the S&P 500 () was up 35.54 points, or 1.10%, at 3,261.06. The Nasdaq Composite () was up 131.46 points, or 1.44%, at 9,282.40.

Gilead Sciences Inc’s shares (O:) jumped 4.5% after the drugmaker said it has provided its experimental Ebola therapy for use in a small number of patients affected by the coronavirus in China.

Advancing issues outnumbered decliners by a 3.20-to-1 ratio on the NYSE and a 2.66-to-1 ratio on the Nasdaq.

The S&P index recorded 17 new 52-week highs and five new lows, while the Nasdaq recorded 37 new highs and 36 new lows.

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