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Top ETF Stories to Watch for in November

Zacks Equity Research

The third quarter of 2015 was shockingly downbeat for the broader U.S. market and the global indices with the China-led tumult culminating into a bloodbath in August and September. Needless to say, investors will keenly watch the market movement in the fourth quarter.

With the first month of Q4 finally bringing back the strong stretch for the U.S. market, investors must now be hoping for more and seeking to carve out some solid gains. Traditionally, the three months from November through January mark the most successful run of the stock market. A consensus carried out from 1950 to 2014 shows that November ended up offering positive returns in 43 years and negative returns in 22 years, per moneychimp.com (read: Sector ETFs & Stocks for Sweet November Returns).

In fact, all the three major indices are now positive from the year-to-date look with the S&P 500 rising 2.5%, Dow Jones Industrials Average gaining over 0.5% and Nasdaq composite climbing 8.6%. With vacations, holiday season buying and seasonal optimism taking charge, investors might reap more returns to close out 2015.
 
However, before riding on the cyclicality, one should not cast out the presently-hot areas of the global investing arena, which will play the kingmakers in November. This is why we highlight the top financial stories and the related ETFs which should be strongly watched this month.

Fed Rate Lift-off Talks and Rising U.S. Bond Yields

Turning on rounds of hearsay about the lift-off, the Fed brought the December rate hike possibility back on to the table in October end. Yes, the central bank is supportive now, citing a slowing job market, moderating U.S. economic growth and subdued inflation. But it was finally the easing of the upheaval in the global market that led it to mull over policy tightening this year, if possible.

Post Fed meeting at October end, investors rapidly shifted their bets with futures contracts entailing a 52% December hike possibility (at the current level) compared with 34% preceding the statement. In anticipation of a faster lift-off, the 10-year Treasury bond yields jumped 18 bps to 2.23% in six days (as of November 3, 2015) (read: Guard Against Rising Rates with These ETFs).

The rising yields give cues of the fact that though Q3 U.S. economic growth tallied 1.5% in Q3, falling short of the 1.6% expectation, investors are hardly paying heed to the soft GDP data, rather wagering on a sooner-than-expected lift-off.

As a result, sectors benefitting from higher rates showed strength in recent trading. Financial ETFs like SPDR S&P Regional Banking ETF (KRE) and U.S. dollar ETF Powers hares DB US Dollar Bullish Fund (UUP) performed nicely and could be in watch this month.

High Yield Bond ETFs Back into Business

After having a troublesome time in the first half of the year, the scope of outperformance for the high-yield bond ETFs is now opening up. Investors seeking to beat the yields provided by the benchmark U.S. treasury bonds might flock to this segment. Corporate bonds are also showing an uptrend on rising issuance. In October, as much as $100 billion worth of U.S. corporate bonds were sold.

This dynamics in the high-risk fixed-income market should put bonds like BulletShares 2016 High Yield Corporate Bond ETF (BSJG), High Yield Long/Short ETF (HYLS) and High Yield Interest Rate Hedged ETF (HYHG) in focus.

Biotech Bounce

The biotech space saw choppy trading in the past few weeks on drug pricing concerns. While the sell-off made the space affordable, a few more days of easy money from the Fed should be supportive of this high-beta sector. Needless to say, the operating fundamentals of the biotech space are stronger than many other sectors. As a result, ETFs like Dynamic Biotech &Genome ETF (PBE), SPDR S&P Biotech ETF (XBI) and ALPS Medical Breakthroughs ETF (SBIO) would be in focus throughout this month (read: Biotech ETFs Looking Attractive After Sell-Off).

Inside the Chinese Wall 

Now who can forget China? Surprises and shocks from the world’s second largest economy are rampant these days. In October, China reduced the key interest rates by 25 bps which marked the sixth slash since last November.

Apart from these, China enacted a volley of accommodative measures to boost domestic consumption. Of which, scrapping of its long-standing ‘one-child’ policy was eye-catching. Since, the so-far-rolled-out measures to jumpstart the ailing economy went down the drain, investors can very well expect some other stimulus measures this month. Chinese ETFs including Market Vectors ChinaAMC SME-ChiNext ETF (CNXT) and iShares MSCI China Small-Cap ETF (ECNS) are worth a watch.

European Delight 

Though Q3 was patchy for the continent, Q4 has so far been joyous for the European region. No, economic data hasn’t been great; but it is ECB’s promise to beef up the ongoing QE measure (if need be) that has started showering gains on the European stocks and ETFs. As a result, all currency-hedged European ETFs including Europe Hedged SmallCap Equity Fund (EUSC), Europe Hedged Equity Fund (HEDJ) and Currency Hedged MSCI Germany ETF (HEWG) are set for a northbound journey since last month and are likely to top investors’ list in November too (read: 3 European ETFs Rebounding Sharply). 

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