OREANDA-NEWS. February 02, 2016. Federal Reserve officials left interest rates unchanged on Wednesday, and said they expect to raise borrowing costs at a gradual pace, while “closely monitoring” global economic and financial developments to assess their impact on the outlook for the US economy.

This is a contrast from their previous statement in December – when the Fed raised rates for the first time in almost a decade – which stated that risks to the outlook were “balanced”.

Emerging market stocks have lost nearly US\\$3 trillion in value this month due to volatility in global markets, following a prolonged slowdown in China’s economy and a slump in commodity prices. Oil pared its decline this year to 10% after reaching a 12-year low on concern over excess supply and the uncertain global outlook.

US labor market conditions advanced further even as economic growth slowed late last year, Fed officials said in the statement, released after a two-day meeting in Washington.

Household and business spending have increased at moderate rates in recent months, and the housing sector has continued to improve, but net exports have been soft and inventory investment slowed, the statement said.

Meanwhile, the growth outlook for the world’s largest economy remains mixed. Factory orders for durables goods shrank a larger-than-expected 5.1% in December, the sharpest decline since August 2014, extending a revised 0.5% fall in the previous month, data released on Thursday showed. Business investment was also at its weakest in 10 months.

While the median projection of policy makers’ forecasts in December signalled four quarter-point rate increases this year, fed fund futures show traders anticipate just one or two hikes, with the next increase in the second half of 2016, according to data tracked by Bloomberg.

The Federal Open Market Committee (FOMC), which kept the target range for their benchmark fed funds rate at 0.25% to 0.5%, will meet next on March 15-16.

Excerpts from FOMC statement (see full statement)

“The Committee is closely monitoring global economic and financial developments and is assessing their implications for the labor market and inflation, and for the balance of risks to the outlook.”

“Given the economic outlook, the Committee decided to maintain the target range for the federal funds rate at 0.25 to 0.5 percent. The stance of monetary policy remains accommodative, thereby supporting further improvement in labor market conditions and a return to 2 percent inflation.”

“The Committee expects that economic conditions will evolve in a manner that will warrant only gradual increases in the federal funds rate; the federal funds rate is likely to remain, for some time, below levels that are expected to prevail in the longer run.”

US ETFs on SGX

SGX lists nine ETFs with U.S. 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 negative 5.7% in the month-to-date and 2.4% over the past 12 months.

Name Stock Code Price (S\\$) MTD Turnover 2016 (S\\$) MTD Turnover 2015 (S\\$) 12M Turnover (S\\$) Total Return MTD % Total Return 12M %
db x-trackers S&P 500 Inverse Daily UCITS ETF HD6 23.45 2,937,106.85 596,721.92 15,085,222.17 8.9 4.8
SPDR® Dow Jones Industrial Average ETF D07 157.02 1,122,616.59 2,310,444.46 13,387,175.58 -8.0 1.0
SPDRs® S&P 500® ETF S27 185.26 1,084,701.73 305,900.89 9,406,802.26 -7.2 1.7
db x-trackers MSCI USA Index UCITS ETF KF8 47.36 642,997.69 126,648.65 13,716,028.22 -7.4 0.5
Lyxor ETF Nasdaq-100 H1Q 16.27 617,031.01 33,827.86 3,287,452.54 -9.3 7.6
iShares Core S&P 500 ETF I17 181.66 75,016.31 444,182.53 2,846,117.41 -9.5 -1.9
db x-trackers S&P 500 UCITS ETF K6K 31.78 22,690.52 295,077.28 7,770,561.63 -7.0 2.2
Lyxor ETF Dow Jones Industrial Average JC6 15.8 7,275.33 137,612.01 817,890.86 -8.1 0.1
iShares Dow Jones US Technology Sector Index ETF I21 99.4 4,298.25 1,345.76 50,416.01 -3.8 5.6
Average           -5.7 2.4

Source: SGX (data as of 28 January 2016)

Meanwhile, US institutional investors plan to increase their use of ETFs in 2016, according to a study by Greenwich Associates, released on 20 January. The study, in its fifth year and sponsored by BlackRock, found that institutions are increasingly using ETFs for longer term, strategic allocations as well as cost-effective replacements for bonds and derivatives. Insurance firms are also adopting ETFs as a means of investing both surplus and reserve assets.

Between August and November 2015, Greenwich Associates interviewed 183 US institutional investors about their use and perceptions of ETFs. This included 41 asset managers, 51 institutional funds (pensions, endowments and foundations), 47 RIAs, 24 insurance companies and 20 investment consultants. Click here for more details.

Month-to-Date Performances

The 10 most active ETFs on SGX in the month-to-date are SPDR® Straits Times Index ETF, iShares MSCI India Index ETF, SPDR® Gold Shares, db x-trackers MSCI AC Asia Ex Japan Index UCITS ETF, iShares Barclays Capital USD Asia High Yield Bond Index ETF, iShares J.P. Morgan USD Asia Credit Bond Index ETF, db x-trackers CSI 300 UCITS ETF, Nikko AM Singapore STI ETF, db x-trackers MSCI China Index UCITS ETF (DR) and db x-trackers FTSE Vietnam UCITS ETF.

In the month thus far, these 10 most active ETFs averaged a 7.4% decline in total return, taking the one-year and three-year total returns to -12.5 % and 0.5% respectively. The three best performers in terms of month-to-date total returns were SPDR® Gold Shares, iShares J.P. Morgan USD Asia Credit Bond Index ETF and iShares Barclays Capital USD Asia High Yield Bond Index ETF.

Higher risk aversion amidst heightened volatility in global investment markets and increased uncertainty over global growth outlooks has buoyed investor demand for haven assets such as bonds and gold.

The above-mentioned ETFs saw a 120% YoY increase in turnover for the month thus far, rising from S\\$167.2 million in the January 2015 month-to-date to S\\$200.1 million in the same period this year. This brings the total 12-month turnover to S\\$2.2 billion.

The three most active ETFs over the first nine sessions of 2016 were SPDR® Straits Times Index ETF, iShares MSCI India Index ETF and SPDR® Gold Shares.

The 10 most active ETFs in the January 2016 month-to-date are detailed below and sorted by MTD turnover.

Name Stock Code Price (S\\$) MTD Turnover 2016 (S\\$) MTD Turnover 2015 (S\\$) 12M Turnover (S\\$)
SPDR® Straits Times Index ETF ES3 2.60 61,202,288.00 9,549,871.00 451,410,302.00
iShares MSCI India Index ETF I98 6.08 42,227,871.32 61,241,890.59 565,352,131.88
SPDR® Gold Shares O87 105.23 38,119,507.48 57,059,220.97 450,659,453.11
db x-trackers MSCI AC Asia Ex Japan Index UCITS ETF IH1 27.72 12,595,906.46 14,859,721.67 233,129,720.88
iShares Barclays Capital USD Asia High Yield Bond Index ETF O9P 10.15 10,818,137.19 4,734,994.07 100,122,837.17
iShares J.P. Morgan USD Asia Credit Bond Index ETF N6M 10.25 9,810,721.85 2,302,286.36 85,326,862.58
db x-trackers CSI 300 UCITS ETF KT4 7.86 7,006,545.34 10,083,585.33 90,970,704.89
Nikko AM Singapore STI ETF G3B 2.59 6,493,277.00 3,242,461.00 64,321,040.00
db x-trackers MSCI China Index UCITS ETF (DR) LG9 10.27 6,118,331.09 1,256,944.22 89,985,149.51
db x-trackers FTSE Vietnam UCITS ETF HD9 20.30 5,684,136.68 2,911,970.88 66,703,407.41

Source: SGX (data as of 28 January 2016)

Name Stock Code Total Return MTD % Total Return 12M % 3 Yr Total Return Annualized % 3 Yr Total Return % 30 Day Volatility %
SPDR® Straits Times Index ETF ES3 -11.1 -21.5 -5.0 -14.2 17.0
iShares MSCI India Index ETF I98 -6.8 -18.9 2.6 7.9 17.9
SPDR® Gold Shares O87 6.0 -8.2 -8.5 -23.3 10.7
db x-trackers MSCI AC Asia Ex Japan Index UCITS ETF IH1 -8.9 -16.7 N/A N/A 20.5
iShares Barclays Capital USD Asia High Yield Bond Index ETF O9P 0.3 8.6 8.1 26.3 10.5
iShares J.P. Morgan USD Asia Credit Bond Index ETF N6M 1.4 6.2 8.1 26.4 5.9
db x-trackers CSI 300 UCITS ETF KT4 -23.9 -19.9 1.4 4.2 48.8
Nikko AM Singapore STI ETF G3B -11.3 -22.2 -4.9 -14.1 19.5
db x-trackers MSCI China Index UCITS ETF (DR) LG9 -14.1 -19.5 -1.3 -3.9 27.6
db x-trackers FTSE Vietnam UCITS ETF HD9 -5.3 -13.3 -1.6 -4.7 21.2
Average   -7.4 -12.5 -0.1 0.5 19.9

Source: SGX (data as of 28 January 2016)

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.