Why You Should Pay Attention to Non-Correlated Assets

Bond Yields Drop While Non-Correlated Assets Soar

When a major benchmark in the market falls to near-historic lows, you had better pay attention. That’s certainly what’s happened with long-term interest rates, i.e. the yield on the benchmark 10-year Treasury Note.

The chart below of $TNX shows the rapid decline in bond yields since July, a decline that continues today.

Now, there are many reasons for the decline in bond yields and the subsequent rise in bond prices (remember that bond yields move the inverse of bond prices), and this situation tells us a lot about what’s happening in the world right now.

There’s a lot of geopolitical uncertainty around the globe. Violence in Gaza, Ukraine and Iraq are the three serious hot spots right now, and that’s got traders more than just a little nervous. Perhaps more importantly, we have the rocky European economy, which has slowed down quite a bit of late. If Europe’s economy starts to get significantly weaker, it could mean an even bigger flight to quality in long-term bonds and an ever further decline in bond yields.

During periods of rising bond yields and faltering U.S. equity prices such as we’ve seen since late July, it behooves us to look into what are called “non-correlated” asset classes. These are asset classes that tend not to move along with the wider U.S. stock market.

Assets such as gold and silver are considered traditional non-correlated investments, but the other non-correlated asset class I like is China. Stocks that trade on the Chinese stock market as “A-shares” generally do not track the movement of U.S. equities. During periods like we’ve seen in the past several weeks, and also throughout July, Chinese stocks handily outperformed the U.S. stock market.

In the next two sections of today’s Weekly ETF Report, I’ve expounded more on some other non-correlated markets, as well as ways to play the non-correlated China market. Let’s take a look at those now.

ETFs That Rock While the Market Rolls

The U.S. stock market, as well as the European equity market, has struggled mightily since late July. Stocks on the Dow Jones Industrial Average are barely clinging to year-to-date gains. European equities also are in the red now for 2014, with the benchmark regional exchange-traded fund, the iShares Europe (IEV), recently plunging below its long-term, 200-day moving average.

The fall of European equities, as well as the recent downtrend in U.S. markets, might make you think that the bear has invaded the entire globe. Well, if you thought that, then you haven’t been looking far enough to the east.

Take a look at the table below of the top-performing exchange-traded funds (ETFs) in July. (Data as of 8/6/14)

Top 10 ETF Winners in July

As you can see, the frontier markets of the United Arab Emirates and Qatar were the two top-performing markets. That performance was followed closely by five China sector funds, including a relatively new China A-shares fund. The volatility we witnessed in July helped boost the VIX, and that was reflected in the gains in the ProShares VIX (VIXY).

The July top 10 ETF list clearly shows that frontier markets, emerging markets and China funds are rocking while their domestic and European brethren are rolling over. The outperformance of the Chinese market is of particular interest to readers of my Successful ETF Investing newsletter, as we are currently recommending several China-focused ETFs for inclusion in our model portfolios.

If you’d like to find out how to make your portfolio rock alongside China, then I invite you to check out Successful ETF Investing today.

China ETFs: Now You Have ‘Class A’ Choice

The world of exchange-traded funds (ETFs) just keeps getting bigger and better, with fantastic new choices spanning the entire globe. The latest sector demonstrating what I think is an extremely investable innovation is with ETFs pegged to the Chinese stock market.

As subscribers to my Successful ETF Investing advisory newsletter know, I have been bullish on China and the growth story for some time. Recent metrics from that country, such as the outstanding manufacturing sector readings showing the best growth in that critical segment in 18 months, argue nearly conclusively that the Chinese economy now has virtually no chance of the so-called “hard landing” that China skeptics have been predicting.

The positive China data, as well as economic growth around the globe, hasn’t been lost on the smart money. Take a look at the table here of Chinese ETFs. As you can see, the gains over the past one month, three months and year to date have been outstanding. (Data as of 7/30/14)

These ETFs represent strong candidates for a China-focused portfolio, and my subscribers currently have several of these funds on their recommended buy lists. Yet these funds aren’t the only China ETFs out there I have my eye on.

The latest development is the advent of China A-shares funds, or shares traded primarily on the Shanghai Composite ($SSEC). Prior to ETFs that feature Chinese A-shares, it was very difficult for U.S. investors to buy stocks that trade on Chinese stock exchanges.

Yet thanks to funds such as the db X-trackers Harvest CSI 300 China A-Shares Fund (ASHR) and the Market Vectors ChinaAMC A-Share (PEK), investors now can get direct exposure to stocks that trade in China.

There are a couple of other China A-share funds that currently trade, but not for long. Now there are 15 additional China A-share funds in the pipeline, awaiting regulatory approval. That means you’ll soon have about 20 China A-share funds to choose from, and that’s great for anyone who is a fan of Chinese stocks.

The advent of these funds also shows just how innovative the ETF world has become — so why would you buy anything else?

ETF Talk: Building Your Portfolio with Brazil’s Infrastructure

As the fifth-largest country in the world in terms of both square mileage and population, Brazil places great importance on its infrastructure. When the country hosted this year’s World Cup soccer tournament, visitors poured into Brazil from across the globe to 12 stadiums spread across the host nation, testing the limits of this infrastructure. And Brazil is not done with hosting the influx of visitors that an international sporting event can bring; the country will be the site of the 2016 Olympic Summer Games. If you believe Brazilian infrastructure is a sector with potential, you can take a look at EGShares Brazil Infrastructure (BRXX).

This non-diversified fund tracks the results of an index representing the performance of the 30 largest Brazilian companies that compose Brazil’s infrastructure industries. BRXX is down 3.58% for the year, though it has bounced back from an early-2014 decline and March lows. It offers a dividend yield of 3.33%.

As an infrastructure fund, BRXX has representative sector weightings: utilities, 42.84%; industrials, 26.26%; basic materials, 14.89; with smaller allocations to energy, communication services and healthcare.

This exchange-traded fund (ETF) positions 50.71% of its total assets in its top 10 holdings. The top five of these stocks are: Sid Nacional-ON, 6.09%; Cemig-PN N1, 5.28%; Tractebel Energia SA, 4.99%; Telefonica Brasil Pfd, 4.96%; and All America Latina Logistica SA, 4.94%.

As Brazil gears up to host another global sporting event, with related venue construction and tourism capacity upgrading, Brazilian infrastructure will continue to be supported by additional government monies for the special event. If you think this spending means a bright future for Brazil’s infrastructure, you may want to consider an investment in EGShares Brazil Infrastructure (BRXX).

If you want my advice about buying and selling specific ETFs, including appropriate stop losses, please consider subscribing to my Successful ETF Investing newsletter. As always, I am happy to answer any of your questions about ETFs, so do not hesitate to send me an e-mail. You just may see your question answered in a future ETF Talk.

Let Us Be Your Coach

So, did your portfolio outperform the market through the first half of the year? Are you disappointed by the results you’ve received this year? Do you have a lot of cash on the sidelines that you don’t know what to do with?

If your answer to any of these questions is “yes,” then you need our Wealth Coaching services. You see, when it comes to your money, it’s always personal. That’s why we offer One-on-One, personal Wealth Coaching sessions directly with me, Doug Fabian.

These 90-minute, One-on-One Wealth Coaching sessions begin with a review of your goals and your existing investments. Then, we develop a plan specifically tailored to you, including how Fabian Wealth Strategies can help you get where you want to be.

Contact us today at 1-800-391-1118 to schedule your FREE, no obligation one-on-one Wealth Coaching session, and find out how Fabian Wealth Strategies can work for you.

NOTE: Fabian Wealth Strategies is a Securities & Exchange Commission-registered investment adviser, and is not affiliated with Eagle Financial Publications.

Lombardi on Success

“The only place success comes before work is in the dictionary.”
–Vince Lombardi

We all want success in business, investing, family, etc. Yet I’ve found that most people aren’t willing to do what it takes to achieve that success. If you aren’t satisfied with your level of achievement, and you want greater success, then try working a little harder, and a little smarter. Sure, it might not feel that great putting in those extra hours or making that little extra effort, but the results will feel fantastic.

Wisdom about money, investing and life can be found anywhere. If you have a good quote you’d like me to share with your fellow Weekly ETF Report readers, send it to me, along with any comments, questions and suggestions you have about my audio podcast, newsletters, seminars or anything else. Ask Doug.

In case you missed it, I encourage you to read my e-letter column from last week on Eagle Daily Investor about July’s top 10 ETFs. I also invite you to comment in the space provided below my Eagle Daily Investor commentary.

All the best,

Doug Fabian

San Francisco MoneyShow, Hilton Union Square Hotel, Aug. 21-23: I’ll be speaking at the San Francisco MoneyShow this August, and I hope to see you there. Other speakers at this year’s event include Dr. Mark Skousen, Rich Karlgaard (publisher, Forbes), Roger Conrad, Elliot Gue and John Ransom. Admission is complimentary to my subscribers, but you must register: For details, call the Money Show at 800-970-4355 and mention priority code 035777.