Hungary Too in the Rate-Cut Club: ETFs in Focus

central bank took the step citing low imported inflation, European Central Bank (ECB) easing measures and continued slump in oil prices.
 
Hungary slashed its benchmark three-month deposit rate to a new low of 1.20% from 1.35%. It also lowered the overnight lending rate to 1.45% from 2.1%. The overnight deposit rate is now in negative territory from 0.1%.to -0.05%.
 
Meanwhile, the bank also lowered its forecast for inflation this year. The bank now expects inflation to be around 0.3% as compared to the previous expectation of 1.7% announced in December. The target inflation the bank seeks to achieve is 3%. Thus, it plans to set a benchmark rate at such levels, which can be maintained for an extended period to reach its inflation target.
 
Earlier this month, the ECB came up with a more intensified economic stimulus and opted for multiple rate cuts and the expansion of its quantitative easing program to boost the economy (read: Surprise ETF Winners & Losers Post ECB Easing).
 
Meanwhile, several other countries are undertaking easing measures and cutting rates. Last week, Norway indicated that it could join other European countries Sweden, Denmark and Switzerland in sub-zero levels of interest rate (read: Sector ETFs to Benefit from Global Negative Interest Rates).
 
On the other side of the pond, the Fed kept a dovish stance and dialed back its number of rate hikes to two instead of four as was projected last December (read: ETFs to Watch Post Fed Meeting).
 
The rate cut measures by the Hungarian central bank, which was undertaking initiatives like cheap lending to small firms, subsidized funds to retail banks and buying government bonds, represent a huge shift in policy. Although the possibility of further rate cuts can’t be excluded, the central bank warned that too low rates may be counterproductive, forcing the banks to tighten lending conditions.
 
Keeping these points in mind, we highlight four ETFs – Oppenheimer Global Growth Revenue ETF (RGRO), Cambria Global Value ETF (GVAL), Guggenheim MSCI Emerging Markets Equal Country Weight ETF (EWEM) and EGShares Emerging Markets Quality Dividend ETF (HILO) – that have high exposure of 11.7%, 7.7%, 5% and 4.8%, respectively, to Hungary (see: all World ETFs here).
 
RGRO
 
This ETF looks to track the RevenueShares Global Growth Index comprising the top 5 developed and top 5 emerging countries in the Standard & Poor’s Global Broad Market Index based on year-over-year GDP growth from the prior two quarters. The fund charges 70 basis points a year and has 95 stocks in its basket. Energy takes 21% of the fund’s exposure followed by basic materials and financials. As much as 74% stocks in the fund are large caps. The fund has total assets of $2.1 million with paltry volumes of less than 1,000 shares. It has gained 6% so far this year (as of March 23, 2016).


GVAL
 
GVAL seeks to match the performance of the Cambria Global Value Index. With 126 stocks in its basket, the fund is well diversified with none of the stocks holding more than 3% weight, while financials has the highest exposure at 23%. With total assets of $65.7 million, the fund has average volume of 17,000 shares and an expense ratio of 69 basis points. It has returned 3.3% so far this year.


EWEM
 
EWEM is based on the MSCI Emerging Markets Equal Country Weighted Index and has 346 stocks in its basket with none holding more than 4% of total assets. The fund has AUM of $11 million and trades in average volumes of 5,000. Financials dominates in terms of sector exposure, accounting for an almost 39% of total assets. The fund charges an expense ratio of 76 basis points. It has gained 7.1% in the year-to-date period (read: Can Emerging Market ETFs Sustain the Rally?).

HILO
 
HILO is based on the EGAI Emerging Markets Quality Dividend Index and has 49 stocks in its basket with none holding more than 2.3% of total assets. The fund has AUM of $17.3 million and trades in average volumes of 6,000. Financials dominates in terms of sector exposure with telecommunication services and materials rounding off the top three. The fund charges an expense ratio of 85 basis points. It is up 9.8% in the year-to-date period.
 
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OPP-GLBL GR REV (RGRO): ETF Research Reports
 
CAMBRIA GLB VAL (GVAL): ETF Research Reports
 
GUGG-M EM MK E (EWEM): ETF Research Reports
 
EGS-LO VT EM DV (HILO): ETF Research Reports
 
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