With the SPDR Dow Jones Industrial Average ETF (NYSE:DIA) and the SPDR S&P 500 (NYSE:SPY) up 11.1 and 9.8 percent, respectively year-to-date, some investors might be left thinking there is currently little value to be had with ETFs.
Indeed, fewer than 420 ETFs, less than a third of the total exchange-traded products universe, are down on a year-to-date basis. Toss out the leveraged products, and the number falls. Screen for those ETFs and ETNs that are down at least five percent since the start of the year, and the number dwindles to about 150 funds, including leveraged fare.
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A daunting task though it may seem, it is possible to find some compelling opportunities with ETFs that are currently down year-to-date that also have the potential to reverse course and deliver for investors as the year goes along. Here are a few examples.
WisdomTree Australia & New Zealand Debt Fund (NYSE:AUNZ) The WisdomTree Australia & New Zealand Debt Fund is down just 1.8 percent this year and while this may seem like a boring bond ETF, consider this. AUNZ is a far more compelling bet than a TIPS or Treasuries ETF.
Investors are not sacrificing anything in terms of credit quality with AUNZ. Actually, because Australia has an AAA rating and the U.S. does not, a case can be made that AUNZ is a step from a Treasuries ETF. It certainly is terms of yield with a 30-day SEC yield of 2.89 percent. More than 75 percent of AUNZ's holdings are AAA-rated and the rest are rated AA.
Importantly, AUNZ's holdings are denominated in Australian and New Zealand dollars, two of the world's strongest currencies and the two top-performing developed market currencies against the U.S. dollar since the end of the financial crisis. For its part, New Zealand appears unlikely to change interest rates until next year and if a change comes along, it will likely be an increase.
Recent jobs data out of Australia underscores the notion that another near-term rate cut is unlikely. That implies the Aussie should remain strong, which could bolster AUNZ.
iShares Emerging Markets Dividend Index Fund (NYSE:DVYE) Diversified emerging markets ETFs have struggled this year and DVYE has not been able to escape that situation with a 4.4 percent loss.
Still, there are plenty of reasons for investors to consider DVYE if they do not own the ETF already or be patient with it if they currently hold the fund. A 30-day SEC yield of 6.64 percent indicates investors are, at the very least, compensated for cutting DVYE some slack. An annual expense ratio of 0.49 percent is better than what the iShares MSCI Emerging Markets Index Fund offers.
JPMorgan Private Bank is forecasting increased earnings quality across the emerging world. Combine that with the fact that some developing nations are forcing some of their companies to pay higher dividends, and DVYE could be entering a sweet spot of emerging markets dividend growth.
What is important to note about the aforementioned JP Morgan comments is that emerging markets dividends usually track earnings growth. That could be a good thing for DVYE.
"If in the long-term, EM GDP and earnings growth rates exceed those in DM, we should by extension also expect relatively more of this to show up in future dividend growth and yield," HSBC said in Barron's earlier this year.
Two other things to like about DVYE: First, It allocates about 18 percent of its weight to high-growth markets Turkey, Thailand and Indonesia. Second, the ETF's tracking error in its first 13 months of trading was 15 basis points in favor of investors. Said another way, DVYE outperformed its underlying index by 15 basis points and that can help lower costs.
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