Author Archives: Scalper1

International Treasury ETFs: Winners Amid Gloom

Recent developments in the domestic and global markets have led to a rise in volatility across all asset classes. None of the economies around the world are looking up with the most developed economies facing recessionary threats. The U.S. is also losing momentum and the emerging economies, mainly China, is facing hard-landing fears. Developed market inflation remains abysmally low while emerging markets, normally known for sky-high inflation, have also been seeing price level abating. The major reason behind this weakening in price level goes to the energy sector rout as crude prices lost around 75% in the last two years. Moreover, most of the commodities are slouching on lower global demand and ample supplies. Central banks across the board are striving to beef up asset values, charge up their sagging economies and boost inflation. Following the European Central Bank, Bank of Japan recently introduced negative interest rates. A reduction in rates would spur activities in economy which in turn should translate into higher growth. All these sparked-off a rally in international treasuries and the related ETFs. First, risk-off trade has led investors to flee the risky asset classes and seek solace in the so-called safer bond segment and then rock-bottom interest rates dragged down the Treasury bond yields giving a push to their prices. Yields on Decline Yields on Japan’s benchmark 10-year government bond recently slid to below zero ( negative 0.007% ) for the first time. The dropdown in yields mainly came in the wake of a negative interest rate policy adopted by BoJ. In fact BoJ chief indicated a slash in the Japanese interest rates – deeper into the negative territory if needed. However, as investors rushed toward a safe refuge following global market sell-off on February 8, which was triggered by the European banks’ sell-off, global government bonds came under the spotlight. The 10-year German and U.S. government bond yields also slid to multi-month levels lately. The benchmark U.S. treasury yields fell to as low as 1.75% on February 8, 2016, down 49 bps from the start of this year. More than $7 trillion of government bonds – accounting for 29% of the Bloomberg Global Developed Sovereign Bond Index – offered negative yields globally as of February 8, 2016. If the trend of negative interest rates continues, the negative-yielding bonds load is likely to increase. Given this, the International Treasury ETFs could provide investors with an opportunity of capital gains and safer bids. ProShares German Sovereign/Sub-Sovereign (NYSEARCA: GGOV ) The fund looks to track the performance of the Markit iBoxx EUR Germany Sovereign & Sub-Sovereign Liquid Index. The fund has a weighted average maturity of 5.86 years and a modified duration of 5.52 years. It charges 45 bps in fees and yields 0.17%. The fund is up 4.6% so far this year (as of February 8, 2016). SPDR Barclays Capital International Treasury Bond ETF (NYSEARCA: BWX ) BWX measures the performance of investment grade sovereign debt securities located outside the U.S. The ETF targets the longer end of the yield curve and has an average maturity of 9.48 years. The ETF is more sensitive to interest rate movements as indicated by an average duration of 7.77 years. From a holdings perspective, BWX allocates 23.32% of its total assets in the Japanese Government bonds. The fund allocates more than half of its assets in European nations. BWX is up 3.3% in the year-to-date frame. iShares S&P/Citigroup International Treasury Bond (NASDAQ: IGOV ) The ETF tracks the S&P/Citigroup International Treasury Bond Index Ex-US which measures the performance of foreign currency denominated treasury bonds issued by developed countries other than the U.S. Like BWX, IGOV also mostly places its bets on the Japanese government bonds which account for almost 22.6% of its total assets. The ETF has a weighted average maturity of 9.44 years and effective duration of 7.66 years. IGOV yields 0.1% annually and has added 4.3% so far this year (as of February 8, 2016). iShares S&P/Citigroup 1-3 Yr International Treasury Bond ETF (NASDAQ: ISHG ) This product targets the shorter part of the yield curve. Its weighted average maturity is 1.74 years and effective duration is 1.71 years. From a weightings perspective, the ETF holds 23.08% in Japanese short-term bonds and around 65% in the European nations’ near-dated securities. ISHG yields 0.09% annually and has added 2.6% so far this year (as of February 8, 2016). DB 3x Japanese Govt Bond Futures ETN (NYSEARCA: JGBT ) JGBT focuses on the triple-leverage performance of a long position in the 10-year Japanese Government Bond Futures. The assets of 10-year JGB Futures are Japan-government issued debt securities with a remaining term to maturity of not less than 7 years and not more than 11 years as of their date of issue and the futures contract delivery date. The fund is up 7.2% so far this year. Original post

Dual ETF Momentum February Update

Scott’s Investments provides a free “Dual ETF Momentum” spreadsheet which was originally created in February 2013. The strategy was inspired by a paper written by Gary Antonacci and available on Optimal Momentum . Antonacci’s book, Dual Momentum Investing: An Innovative Strategy for Higher Returns with Lower Risk , also details Dual Momentum as a total portfolio strategy. My Dual ETF Momentum spreadsheet is available here and the objective is to track four pairs of ETFs and provide an “Invested” signal for the ETF in each pair with the highest relative momentum. Invested signals also require positive absolute momentum, hence the term “Dual Momentum”. Relative momentum is gauged by the 12 month total returns of each ETF. The 12 month total returns of each ETF is also compared to a short-term Treasury ETF (a “cash” filter) in the form of iShares Barclays 1-3 Treasury Bond ETF (NYSEARCA: SHY ). In order to have an “Invested” signal the ETF with the highest relative strength must also have 12-month total returns greater than the 12-month total returns of SHY. This is the absolute momentum filter which is detailed in depth by Antonacci, and has historically helped increase risk-adjusted returns. An “average” return signal for each ETF is also available on the spreadsheet. The concept is the same as the 12-month relative momentum. However, the “average” return signal uses the average of the past 3, 6, and 12 (“3/6/12″) month total returns for each ETF. The “invested” signal is based on the ETF with the highest relative momentum for the past 3, 6 and 12 months. The ETF with the highest average relative strength must also have an average 3/6/12 total returns greater than the 3/6/12 total returns of the cash ETF. Portfolio123 was used to test a similar strategy using the same portfolios and combined momentum score (“3/6/12″). The test results were posted in the 2013 Year in Review and the January 2015 Update . Below are the four portfolios along with current signals. “Risk-Off” is the current theme among all four portfolios: Return Data Provided by Finviz Click to enlarge As an added bonus, the spreadsheet also has four additional sheets using a dual momentum strategy with broker specific commission-free ETFs for TD Ameritrade, Charles Schwab, Fidelity, and Vanguard. It is important to note that each broker may have additional trade restrictions and the terms of their commission-free ETFs could change in the future. Disclosure: None

Nevada PUC Refuses Solar Grandfathering Bid; Sunrun Plans To Sue

Nevada regulators voted unanimously late Friday to slash net-metering payments without grandfathering existing solar-energy customers, despite opposition from 55,000 Bring Back Solar Alliance supporters. Within an hour of the 3-0 vote by the Nevada Public Utility Commission, Sunrun ( RUN ) executives were already planning to file suit, Lauren Randall, the company’s public policy manager, told IBD. “Even NV Energy recommended grandfathering current solar customers for a period of 20 years, but once again, Governor (Brian) Sandoval’s commission gave the monopoly utility more than it asked for,” she wrote in an email. “This decision is clearly unjust and unacceptable for Nevadans. “We will sue to overturn the anti-solar rules, and we will win.” The decision follows a week of testimony, including commentary from Tesla Motors ( TSLA ) CEO Elon Musk, chairman of No. 1 solar installer  SolarCity ( SCTY ). Both Sunrun and SolarCity criticized the net-metering cut — payments that solar customers get for selling excess energy to utilities — and exited Nevada in December when the PUC first approved the new rates. Solar advocates’ hope momentarily gleamed last month when Warren Buffett’s Berkshire Hathaway ( BRKA )-owned utility, NV Energy, proposed a 20-year grandfathering caveat to the new solar rules. But Friday’s vote puts the final nail in Nevada’s solar coffin , according to Bryan Miller, Sunrun vice president of public policy and power markets. He’s also president of the Alliance for Solar Choice president. “(PUC Commissioner) Dave Noble was wrong when he predicted his initial order would not kill the industry,” Miller said in an email Thursday. “He has now flip-flopped and argues that the commission can legally kill the industry.” Nevada incentivized more than 17,000 residents to install solar, BBSA spokesman Bob Greenlee said in a statement Thursday. Since 1997, net-metering policies have required utilities to purchase excess power fed into the grid from solar customers at a retail rate. Under the new rules, the reimbursement rate will step down five times over 12 years to reach what the Nevada PUC calls a “cost-based structure.” Although TASC estimates that solar customers will still save about a third on their electric bills, the rate shift doesn’t allow them to recoup the costs of their systems, Greenlee said. Early Friday, he said the BBSA planned to cart “six wheelbarrows full” of signed commitment cards from supporters. “Fully 89% of Nevadans believe that the Public Utilities Commission made the wrong decision when it ended net-metering, refused to grandfather existing solar customers at their current rates and destroyed one of the fastest-growing solar sectors in the country,” Greenlee told IBD via email following the vote. Greenlee tallied 55,000 commitment cards — the same number of petition signatures needed to put the matter on a referendum ballot in November. The PUC, however, argued within its draft order Wednesday that grandfathering existing customers under the old rates would perpetuate the $16 million that utility customers now pay annually to subsidize solar customers. Proposals to delay the necessary correction in rates to a cost-based structure only serve to kick “the can down the road,” the PUC said. Over 40 years, the subsidy borne by non-solar customers would grow to $640 million. “These proposals do nothing to address the problem of antiquated rates that were instituted nearly 20 years ago to jump-start an industry,” the commission wrote. “The old net-metering rates are not reflective of accurate price signals or actual costs to serve.”