OREANDA-NEWS. Federal Reserve officials signalled this week they are poised to raise interest rates at their December policy-setting meeting, as the US economy continues to expand at a moderate pace and the jobs market remains robust.

Fed Chair Janet Yellen was cautiously upbeat on the outlook for the world’s largest economy, according to prepared remarks delivered before Congress’s Joint Economic Committee on Thursday. She indicated that conditions requiring a rate increase had been met and hopes to tighten policy gradually after liftoff.

Yellen’s comments were similar to parts of another speech she gave on Wednesday to the Economic Club of Washington. Then, she warned against waiting too long to end the era of near-zero interest rates, noting that it could force the central bank to tighten too quickly, which in turn would risk disrupting financial markets, and perhaps tip the economy into recession.

The Fed Beige Book, released also on Wednesday, showed a modest pace of expansion across most of the United States in October and November, amidst increasing consumer spending. The Beige Book, published eight times a year, provides anecdotal information on economic conditions by district and sector from each Federal Reserve Bank.

The economy also expanded at a faster pace in the third quarter than previously reported, with gross domestic product rising at a 2.1% annualised rate, up from an initial estimate of 1.5%, according to data from the Commerce Department released last month.

Payrolls also climbed by 271,000 in October, the strongest increase this year, while the jobless rate sank to a seven-year low of 5%. Applications for unemployment benefits are hovering near a four-decade low.

Even as the Fed prepares to tighten policy, its first move since 2006, the European Central Bank on Thursday extended its quantitative easing program until at least March 2017. But it didn’t expand the monthly volume of purchases, designed to support lending and revive inflation. While leaving borrowing costs unchanged, the ECB cut its rate on overnight deposits to minus 0.3% from minus 0.2%.

The Fed, which has kept its benchmark fed funds rate at a record low of zero to 0.25% since December 2008, will meet next on 15-16 December. Officials delayed a liftoff at their September meeting on concerns over heightened uncertainties in the global outlook, slower growth in China and recent volatility in financial markets. 

ETFs with US Equity Exposure

SGX lists nine ETFs with US equity exposure – DB X-Trackers S&P 500 UCITS ETF, DB X-Trackers S&P 500 Inverse Daily UCITS ETF, DB X-Trackers MSCI USA Index UCITS ETF, SPDR Dow Jones Industrial Average ETF, SPDR® S&P 500® ETF, ISHARES Dow Jones US Technology Sector Index Fund, ISHARES Core S&P 500 ETF, Lyxor ETF Dow Jones Industrial Average, and Lyxor ETF Nasdaq-100.

These nine ETFs have averaged total returns of 2.3% in the year-to-date and 2.8% over a 12-month period.

The nine ETFs are detailed below and sorted according to MTD total returns.

 Name SGX Code Total return MTD % Total Return YTD % Total Return 12M % Total Return: 3 Yrs %

Long ETF
Lyxor ETF Nasdaq-100 H1Q 0.5 10.5 10.0 N/A
SPDRs® S&P 500® ETF S27 0.1 1.8 2.5 60.8
db x-trackers S&P 500 UCITS ETF K6K 0.1 2.3 2.5 55.8
Lyxor ETF Dow Jones Industrial Average JC6 0.2 0.5 1.1 N/A
SPDR® Dow Jones Industrial Average ETF D07 0.2 1.3 1.9 N/A
db x-trackers MSCI USA Index UCITS ETF KF8 0.1 1.7 2.5 55.0
iShares Core S&P 500 ETF I17 -0.4 3.2 5.9 58.1
iShares Dow Jones US Technology Sector Index ETF I21 N/A 4.4 4.8 51.2

Short ETF
db x-trackers S&P 500 Inverse Daily UCITS ETF HD6 -0.2 -5.4 -5.8 -41.1
Average   0.1 2.3 2.8 40.0

Short ETFs – also known as Inverse ETFs or Bear ETFs – are synthetic ETFs that tracks the underlying index in the opposite direction. Investors who expect the index to fall can buy these Short ETFs, whose values rise when the underlying falls.

These funds use short selling, derivatives and other leveraged investment techniques to achieve the inverse (i.e. opposite) performance of the underlying index.

Most inverse ETFs reset each day, which means they are designed to achieve their stated objective on a daily basis. With the effects of compounding, over longer timeframes the results can differ significantly from their objective.

ETFs are investment funds listed and traded intraday on a stock exchange. The majority aim to track the performance of an index and provide access to a wide variety of markets and asset classes, including local stocks, international securities, bonds, commodities or money markets.

Each ETF gives investors access to the performance of the asset that comprises the underlying index. Investing in the ETF is also less costly if one was to build a similar portfolio by buying the individual stocks. It also provides exposure to international markets and asset classes that may be inaccessible to individual investors.