Author Archives: Scalper1

AT&T, T-Mobile Step Up Prepaid Wireless Battle Amid Economy Worries

The one-fifth of U.S. mobile phone users that buy prepaid wireless services stand to get much better data deals as AT&T ( T ),  T-Mobile US ( TMUS ), and Sprint slug it out. “The prepaid market is heating up with surprising deals,” said Roger Entner, chief analyst at consulting firm Recon Analytics. So-called postpaid wireless subscribers historically got the most bang for their money. Postpaid subscribers had two-year service contracts and were billed monthly. Service contracts have been phased out recently along with retail subsidies for Apple ( AAPL ) iPhones and other high-end smartphones. Most postpaid subscribers now buy phones in monthly installment plans. Prepaid customers, who typically bought less pricey phones upfront, generally were provided slower data services. But that’s changing. “Prepaid users are getting more 4G data at cheaper rates than ever,” Entner said. “When you look at the fighter brands (Cricket and MetroPCS, the most aggressive), you see the old days of prepaid being more expensive (per megabyte) than postpaid are gone.” Entner says MetroPCS customers get unlimited voice calls, texting and 3 gigabytes of 4G data for $40. A similar deal at Cricket provides 2.5GB of data. T-Mobile sells prepaid services under the MetroPCS brand, while AT&T has Cricket. AT&T acquired Leap Wireless and its Cricket brand for $1.2 billion in March 2014. Since then, AT&T has stepped up Cricket advertising while opening more retail stores. AT&T has expanded Cricket’s marketing reach through deals with Wal-Mart ( WMT ), Target ( TGT ) and GameStop ( GME ). T-Mobile acquired prepaid specialist MetroPCS in 2013 and has kept the brand alive. Both T-Mobile and AT&T, by coincidence, said they added 469,000 prepaid subscribers in the December quarter, while Verizon Communications ( VZ ) shed 157,000 and Sprint ( S ) lost 491,000. Some of Sprint’s prepaid subscribers upgraded to postpaid plans. On T-Mobile’s Q4  earnings conference call Feb. 10, CEO John Legere said that he expects the prepaid battle to heat up. “We’re killing it in prepaid,” Legere said. T-Mobile also sells prepaid services under the Boost Mobile and Virgin Mobile brands. “The majority of our growth is on MetroPCS, as opposed to our other brands,” Legere said. “Cricket has had some success, but AT&T is bleeding postpaid subscribers. We see MetroPCS’ main target not to be Cricket per se but to be Sprint. And I think you’ll see a lot more competition between MetroPCS and Sprint.” AT&T has lost postpaid phone subscribers for five quarters in a row, including 256,000 shed in Q4. Prepaid, Postpaid Wireless Lines Blur Marketing lines have blurred between the prepaid and postpaid customer segments, analysts say. Many prepaid plans renew automatically every month. Phone financing plans still lock in postpaid subscribers, though it’s easier for consumers to exit deals. “We’ve seen a shift in consumers from low-end, pay-as-you-go type (prepaid) plans to higher-quality plans,” Legere said. Prepaid plans start at around  $25.  America Movil ’s ( AMX ) TracFone subsidiary, with 25.6 million U.S. customers, focuses on the lower-spending part of the prepaid market. TracFone’s growth has stalled, though. Analysts say the prepaid market could be more important strategically if the U.S. economy slows down. Most economists do not forecast a recession in 2016. Some of T-Mobile’s postpaid subscriber growth has come from prepaid users converted to postpaid plans, with monthly installment plans for phone upgrades. Sprint in the second half of 2015 began adding postpaid phone subscribers for the first time in five years, including its Nextel brand. Some of Sprint’s prepaid subscribers also have migrated to postpaid plans. One concern among investors, said Oppenheimer analyst Tim Horan in a 2016 outlook research report, “remains that T-Mobile and Sprint are financing low-credit-quality customers and will get hurt in any potential economic weakness.” In Q4, T-Mobile reported “bad debt expense” of $228 million, up 52% from the year-earlier period. But Craig Moffett, an analyst at MoffettNathanson, says that worries could be overblown. “T-Mobile has never been able to fully shake the perception that its subscriber base is of lower credit quality than that of its peers,” said Moffett in a report. “Those customers would be hard hit in a recession. “The counter-argument is equally compelling. (It) holds that in a recession price sensitivity generally rises and that T-Mobile would actually benefit.” T-Mobile has gained share with its Uncarrier-branded marketing and price cutting. In November, T-Mobile launched “Binge On Demand,” which offers free video streaming. In Q4, T-Mobile added 917,000 postpaid phone subscribers. Verizon added 449,000, while Sprint added 366,000. In 2015, T-Mobile added 4.5 million postpaid subscribers, including about 1 million tablet users, and it added 1.3 million prepaid customers. AT&T lost 1.27 million postpaid phone subscribers, while gaining 1.36 million prepaid subscribers in 2015. “We expect AT&T will continue to be active with prepaid Cricket promotions while focusing on profitable, high-value customers in postpaid,” said UBS analyst John Hodulik in a report. Image provided by Shutterstock .

Do TIPS ETFs Deserve A Look As Inflation Rises?

Inflation has been floppy for most developed economies, including the U.S., for quite some time now. Reaching 2% inflation – as targeted by most of the central banks – has become a tall order, with both the eurozone and Japan struggling to ward off deflation. The nagging oil price crisis over the last one and a half years seems to be the main culprit. While the ECB and Bank of Japan were compelled to pursue QE measures to fight deflationary threats. Back home, subdued inflation checked the Fed from being aggressive on the policy tightening issue. Even after the lift-off in December, market watchers were under the impression that the Fed will likely apply a single hike, at the most, this year, thanks to the global market upheaval and subdued inflation. In such a scenario, the U.S. inflation rate rose 1.4% for the fourth successive month in January – the best annual gain last seen in October 2014, and surpassing market expectations of a 1.3% gain. Core consumer price index (CPI) jumped to 2.2% in January. The reading was the highest since June 2012, and it came above the goal set by the Fed at 2%. Higher rents, healthcare and transportation costs boosted inflation in January. Excluding food and energy, consumer prices rose 0.3% in January – a four and-a half year high, and higher than the last month’s increase of 0.2%. Time for TIPS ETFs? TIPS offers robust real returns during inflationary periods, unlike its unprotected peers in the fixed-income world. These securities pay an interest on an inflated principal amount (principal rises with inflation), and when the securities mature, investors get either the inflation-adjusted principal or the original principal, whichever is greater. As a result, both principal amount and interest payments will keep on rising with increasing consumer prices. This mechanism makes TIPS ETFs investors’ darlings in times of rising inflation. Presently, the iShares TIPS Bond ETF (NYSEARCA: TIP ) is one of the biggest beneficiaries of this trend, having hauled in $256.5 million last week. The fund is up 1.5% this year (as of February 19, 2016). Is the Bet Worth It? Though the decline in oil prices has slowed, things are yet to stabilize in the oil patch. So, it is too early to take a call on the inflation picture. Of course, the recent trend is pointing toward solid inflation, and the upbeat January data has made the case stronger for faster Fed tightening. However, a lot of the future trend of inflation depends on the movement of energy prices. Still, investors with a long-term view can count on the potential uptick in inflation, as the U.S. economic backdrop remains more or less ,steady and issues in the energy space should be sorted sooner or later. With the economy and the job market mending, inflation will definitely increase in coming months. Below, we highlight a few outperforming TIPS ETFs which could be compelling investments if U.S. inflation continues to rise (see all TIPS ETFs here ). PIMCO 15+ Year U.S. TIPS Index ETF (NYSEARCA: LTPZ ) This fund targets long-term securities of the TIPS market by tracking the BofA Merrill Lynch 15+ Year US Inflation-Linked Treasury Index. In total, the product holds 7 bonds having effective maturity of 26.41 years and carrying a high interest rate risk, given the effective duration of 21.83 years. In terms of credit quality, the fund boasts top-rated bonds from Moody’s and the S&P, suggesting lower default risk. The ETF is less popular and less liquid, with AUM of $98.1 million. LTPZ has generated excellent returns of about 3% so far this year (as of February 19, 2016). SPDR Barclays Capital TIPS ETF (NYSEARCA: IPE ) This fund targets long-term securities of the TIPS market by tracking the Barclays Capital U.S. Government Inflation-Linked Bond Index. In total, the product holds 37 bonds having effective maturity of 9.08 years and carrying a moderate interest rate risk, given the effective duration of 4.90 years. In terms of credit quality, the fund boasts top-rated bonds. The ETF is moderately popular and less liquid, with AUM of $637.5 million. IPE has gained about 1.6% so far this year (as of February 19, 2016). PIMCO Broad U.S. TIPS ETF (NYSEARCA: TIPZ ) This $66.4 million fund looks to track the BofA Merrill Lynch US inflation-linked Treasury index. The fund holds 19 securities and has an effective maturity of 9.09 years, while its effective duration is 8.26 years. It charges 55 bps in fees, and is up 1.8% so far this year (as of February 19, 2016). Original Post

The Best And Worst Of January: Multialternative Funds

Multialternative mutual funds and ETFs averaged losses of 1.60% in January, bringing their average one-year returns through the end of the month to -4.23%. Over the longer three- and five-year periods, multialternative funds have generated positive annualized returns, but at just +0.87% (three-year) and +1.66% (five-year), those returns have delivered negative alpha of 0.81 and 0.99, respectively, relative to Morningstar’s long-only Moderate Target Risk Index. As a whole, the category is host to 163 funds with combined assets of $62.5 billion. At $8.9 billion, the John Hancock Global Absolute Return Strategies Fund (MUTF: JHAIX ) is the largest fund in the category with a 14.2% market share, while the top 10 funds hold a total of $31.7 billion in assets – just over 50% of the category’s total assets. Top Performers in January January’s top-performing multialternative fund was able to generate big gains of 7%, while the second- and third best funds added between 2-3%. The three best-performing multialternative funds in January were: CMG Global Macro Strategy Fund (MUTF: PEGAX ) Absolute Strategies Fund (MUTF: ASFIX ) Vanguard Alternative Strategies Fund (MUTF: VASFX ) PEGAX, the top-performing fund of January, only launched in December 2015. In its first full calendar month, PEGAX returned an impressive +7.00%. According to Morningstar, $10,000 invested in the fund at its inception would have grown by $120 as of February 17 – not bad for just over two months. ASFIX (one of the oldest funds in the category) and VASFX produced gains of 2.87% and 2.83%, respectively, in what was a volatile January for the markets. Of the two funds, only ASFIX has been trading at least a year, and it returned +0.31% for the 12 months ending January 31. The fund’s one-year alpha and beta numbers were -2.25% and -0.65 (relative to the Morningstar Moderate Target Risk Index), through that date, with a Sharpe ratio of 0.07 and volatility of 5.49%. These numbers compare somewhat favorably to the category averages of -2.29%, 0.49, -0.82, and 5.76%. Worst Performers in January While the bottom three funds struggled as equity markets sold off in January, there is a silver lining – the month’s worst-performing fund was solidly in the black for the year ending January 31. The three worst-performing multialternative funds in January were: Catalyst Macro Strategy Fund (MUTF: MCXAX ) Quantified STF Fund (MUTF: QSTAX ) Tocqueville Alternative Strategies Fund (MUTF: TALSX ) Although MCXAX was January’s worst-performing fund by a long shot at -10.24%, the fund was actually the category’s top performer for the year ending January 31, with gains of 32.05%! With a beta of 2.71 to the Morningstar Moderate Target Risk Index, these one-year gains produced an alpha of 42.08% and a Sharpe ratio of 1.19. However, volatility came in at a whopping 26.03% – numbers that are somewhat reminiscent of Barry Bonds’ late-career stats. QSTAX saw its shares fall by 8.05% in January. The fund, which only launched in November 2015, doesn’t have a long enough track record for further analysis. Finally, TALSX was the third-worst performing multialternative fund in January, with one-month losses of 6.53%. For the year ending January 31, TALSX lost 9.45%, thanks to an alpha of -5.30%. Its beta over the time period was 1.05, while its one-year Sharpe ratio stood at -1.00, and its annual volatility was 9.53%. Past performance does not necessarily predict future results. Jason Seagraves contributed to this article.