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ETF News And Commentary

Though the U.S. stock market kicked off second quarter with a record high, it lost steam in the past five trading days due to a broad sell-off in the high growth and high beta stocks. Investors are apprehensive of lofty valuations and warnings on Q2 earnings (read: The Momentum Stock Crash Puts These ETFs in Focus).

Global activity is picking up but the recovery is still subdued. This is primarily thanks to Chinese slowdown, geopolitical tensions in Ukraine, prospect of interest rate hike sooner than expected in the U.S., persistently low inflation in developed economies and higher borrowing cost in emerging markets.

The trend is likely to continue at least in the near term, suggesting an uncertain outlook on the stock markets. Meanwhile, commodities are also seeing bumpy trading this month due to higher volatility and global demand/supply dynamics.

Given this, while many ETFs have seen terrible trading so far in the month, some ETFs have managed to stay in the green in the current turbulence. Below, we have highlighted three ETFs that stood out in the early days of April and will likely to continue to do so as we move ahead in Q2.

First Trust ISE-Revere Natural Gas Index Fund ((FCG - ETF report))

This ETF offers exposure to the U.S. stocks that derive a substantial portion of their revenues from the exploration and production of natural gas. It follows ISE-REVERE Natural Gas Index and holds 30 stocks in its basket, which are well spread out across a single component (read: 3 Energy ETFs Marching Higher in the Past Week).

Stone Energy, Goodrich Petroleum and Penn Virginia occupy the top three positions in the portfolio with nearly 4% of total assets each. The fund has a blended style and is also diversified across various market cap levels with 45% in large caps, 37% in small caps and the rest in mid caps.

The fund has amassed $470.1 million in its asset base while sees solid volume of nearly 509,000 shares per day. Expense ratio came in at 60 bps. FCG has gained about 20% so far in Q2.

QuantShares U.S. Market Neutral Value Fund ((CHEP - ETF report))

This ETF uses a slightly active approach and offers investors spread return between high and low ranked stocks. This is easily done by tracking the Dow Jones U.S. Thematic Market Neutral Value Index, which takes long position in the undervalued stocks and short position in the overvalued stocks in equal weights and equal dollar amount within each sector.

This approach results in a value tilt for this product, and long and short positions in 400 stocks, divided equally. Due to this unique feature and active management, the fund charges higher annual fee of 1.49% from investors (see: all Long-Short ETFs here).

CHEP failed to attract investors as depicted by its AUM of just $1.4 million and average daily volume of 9,000 shares. However, it has added about 2.80% so far this month.

iShares Residential Real Estate Capped ETF ((REZ - ETF report))

This fund follows the FTSE NAREIT All Residential Capped Index and provides exposure to the U.S. residential real estate stocks and real estate investment trusts (REITs). Holding 34 securities in its basket, the product is largely concentrated on the top firm – Public Storage (PSA) – at 11% while Equity Residential (EQR) and Ventas (VTR) round off to the next two with combined 18.2% share.

More than half of the portfolio is tilted toward large caps and about three-fifths to value stocks. From a sector look, equity apartment takes the top spot with 41.6%, followed by equity healthcare (37.8%) and equity self storage (17.2%).

The product has amassed $251.1 million in AUM while trades in volume of under 50,000 shares a day. It charges 48 bps in fees per year and is up 2.40% month-to-date.

SPDR S&P Metals & Mining ETF ((XME - ETF report))

This ETF looks to give investors broad exposure to the metal and mining industry, holding 41 stocks in its basket. This is accomplished by tracking the S&P Metals & Mining Select Industry Index. The fund uses equal weight methodology and does not put more than 3.7% of assets in single security (read: A Comprehensive Guide to Mining Industry ETFs).
 
In term of industrial exposure, steel make up 39% of the portfolio, while diversified metal and mining space (18.4%) and coal & consumable fuels (18.3%) round out the top three. From a cap look, the product puts more focus on small cap focus with 59% of assets while value stocks also dominate the fund portfolio.

XME has $658.5 million in AUM and is liquid with solid trading volumes of more than 2.3 million shares per day on average. The ETF charges 35 bps in fees and expenses and added over 2% so far this month.

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Read the analyst report on FCG

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Read the analyst report on XME


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