Category Archives: etf

U.S. Fund Flows Report: Investors Shy Away From Equity Funds

By Patrick Keon Click to enlarge Thomson Reuters Lipper’s fund macro-groups (including both mutual funds and exchange-traded funds [ETFs]) experienced net outflows of approximately $266 million for the fund-flows week ended Wednesday, May 11. This almost-static outcome was the result of negative net flows from equity funds (-$6.1 billion) and taxable bond funds (-$514 million), offset by similar positive net flows into money market funds (+$5.1 billion) and municipal bond funds (+$1.2 billion). Equities bounced back from two straight weeks of losses on the strength of one trading day. After losing roughly 2.5% combined in the previous two weeks the S&P 500 Index posted a gain of 0.3% this past week, all of which was captured on Tuesday, May 10, as the index appreciated 1.25% for the day. This one-day spike represented the best daily return for the index in two months and was driven by a surge in oil prices as well as a rally in some beaten-down sectors. Oil prices rose on the news that U.S. crude inventories would not increase as much as they have in recent weeks. Meanwhile, sentiment on the street was that the interest in healthcare and biotech stocks was not sustainable, since it was most likely driven by value hunters and was not an actual bullish view of the sectors. The outflows from equity funds were basically split down the middle between mutual funds (-$3.1 billion) and ETFs (-$3.0 billion). Among mutual funds domestic equity funds saw $3.2 billion leave their coffers, while nondomestic equity had net inflows of $100 million. For ETFs nondomestic products accounted for the majority of the net outflows, with the iShares MSCI Eurozone ETF (BATS: EZU ) ( -$950 million ) and the iShares MSCI Emerging Markets ETF (NYSEARCA: EEM ) ( -$933 million ) leading the way. Taxable bond ETFs (-$1.1 billion) were responsible for all of the net outflows for the group, while taxable bond mutual funds took in almost $700 million of net new money. The iShares iBoxx High Yield Corporate Bond ETF (NYSEARCA: HYG ) ( -$1.5 billion ) and the iShares 20+ Year Treasury Bond ETF (NYSEARCA: TLT ) ( -$697 million ) had the largest net outflows among the ETFs, while funds in Lipper’s Core Plus Bond Funds category had the largest net inflows (+$1.1 billion) among the mutual funds. Municipal bond mutual funds extended their string of net inflows to 32 weeks-taking in $1.1 billion of net new money this past week. Funds in the High Yield Muni Debt Funds (+$287 million) and General and Insured Muni Debt Funds (+$278 million) classifications were the largest contributors to the week’s inflow totals. This past week’s flows activity (+$5.1 billion net) marked the third consecutive week of positive flows for money market funds, during which time they took in $16.7 billion of net new money. Funds in Lipper’s Institutional Money Markets Funds classification were responsible for all of the net inflows for the group this past week (+$9.2 billion).

Inside Guggenheim’s U.S. Large Cap Optimized Volatility ETF

Low volatility exchange-traded products are in vogue this year due to global growth worries. Be it in China or in several developed economies, fears of a slowdown are widespread. The U.S. earnings picture is also in shambles with a moderation in GDP growth. Oil price, though recoiled from the pit of crisis, is nowhere near full-fledged recovery (read: Low Volatility ETFs Still in Play ). With no definite clues of sustained recovery in the market, edgy investors may want to invest in safe or low volatile products. The current low volatility ETF suite is performing well and probably this is why Guggenheim recently added a new one to the low volatility investing list. The name of the product is the U.S. Large Cap Optimized Volatility ETF (NYSEARCA: OVLC ) . Let’s dig a little deeper. OVLC in Focus The fund looks to track the Guggenheim U.S. Large Cap Optimized Volatility Index, which gives exposure to the advantages of low-volatility investing while “attempting to outperform these strategies during market rallies .” In short, the fund has been launched to act as a defense for most of the time but be more ‘aggressive when the market is rewarding risk characteristics’, per the issuer. This strategy results in the fund holding a basket of 93 stocks with Apple (NASDAQ: AAPL ), AT&T (NYSE: T ) and Procter & Gamble (NYSE: PG ) as the top three holdings with a total allocation of 7.28%. Sector-wise, the fund has double digit weight in Consumer Staples (19.97%), Health Care (18.02%), Financials (13.23%), Utilities (12.76%), Information Technology (12.20%) and Consumer Discretionary (11.69%). The fund charges 30 bps in fees. The underlying index is rebalanced on a quarterly basis. How Does It Fit in the Portfolio? The fund is a good choice for investors looking to play a volatile market. As per the issuer, it uses the S&P 500 index as its selection universe and then applies a proprietary formula to compute the risk-to-reward returns for the trailing 12-month period and figure out each stock’s volatility and correlation to the other stocks in the basket. The strategy is mainly ‘risk- controlled ‘ in nature but reacts to varying market conditions. Unlike low volatility products that normally underperform in bull markets, OVLC may play an aggressive role when risk-on sentiments are prevailing. Needless to say, if the proposed model works out, this ETF can be a great choice for risk-averse investors. ETF Competition Given that the fund seeks to lower portfolio volatility, it might face competition from other low volatility products in the space. The PowerShares S&P 500 Low Volatility Portfolio ETF (NYSEARCA: SPLV ) has an asset base of $7.17 billion. The fund charges 25 basis points as fees. The iShares MSCI USA Minimum Volatility ETF (NYSEARCA: USMV ) is another fund in the space with an AUM of $12.9 billion and a fee of 15 basis points. But the real competition is likely to come from the SPDR SSgA Risk Aware ETF (NYSEARCA: RORO ) that looks to offer capital gains and competitive returns with respect to the broad U.S. equity market (read: Beyond Miners, 5 ETFs Crushing the Market to Start Q2 ). Link to the original post on Zacks.com

Apple Bull Sees Path To $1 Trillion Market Cap

Ever since Apple ( AAPL ) stock peaked last summer, few on Wall Street have talked about the iPhone maker potentially reaching a market capitalization of $1 trillion, as they once did. But on Wednesday, Bernstein analyst Toni Sacconaghi resurrected the possibility. In a research report, Sacconaghi said the company’s “recipe for a $1 trillion market cap” could be a shift from being a hardware company to a service provider. Today, Apple is valued as a computer hardware company, making it vulnerable to replacement cycles and falling average selling prices and margins, Sacconaghi said. Apple would be valued more highly if it offered its devices on a service plan, he said. Apple stock was up nearly 1%, above 94, in afternoon trading on the stock market today , giving it a market cap of $516 billion. Sacconaghi rates Apple stock as outperform, with a price target of 135. “Consumers have become accustomed to paying monthly bills for various services, such as internet, cable, Netflix ( NFLX ), and Spotify, to name a few,” Sacconaghi said. “Even among the quantitatively-minded investment community, many find it easier to justify a $30 monthly charge (for an iPhone) than a $720 purchase every 2 years … even though they’re essentially the same.” Apple’s Slowing Upgrades Argues For Recurring Model By offering Apple products as a service, the company could switch to a recurring business model, which would likely get customers to spend more over time. In return, Apple customers could avoid hefty upfront payments for hardware and get the latest devices sooner, he said. Apple’s main business problem today is getting users to upgrade to newer devices when their current iPhones, iPads and Macs are working just fine. Apple isn’t like other makers of PCs and smartphones because it has a much stronger brand attachment. People love their iPhones, he said. “The challenge and opportunity for Apple is whether it can migrate from a transactional monetization model to a subscription model,” Sacconaghi said. Companies that have successfully shifted their business models to subscriptions include Adobe Systems ( ADBE ), Microsoft ( MSFT ) and Amazon.com ( AMZN ), he said. “We see the monthly cost of a family plan of Apple products amounting to similar or less than what U.S. consumers spend for cable television and wireless service,” Sacconaghi said. “We estimate that an Apple package needed for our family (3 iPad Minis, 1 iPad Air – each with a three-year replacement cycle; and 3 iPhones, each with a 2-year replacement cycle) would cost ‘only’ about $140 per month — well below the price of our current monthly cable bill and wireless bill. “Even if we included additional Apple services (Apple Music for $15 per month; iCloud storage for $10 per month; and a speculated but yet to be released over-the-top television offering for $40 per month), our hypothetical Apple monthly would be an estimated $207 per month.” If Apple were to pursue such a strategy, it would face resistance from its wireless carrier partners and would have to educate consumers of its benefits, Sacconaghi said. Apple already offers a smartphone subscription plan called the iPhone Upgrade Program. That program charges a monthly fee for iPhone hardware and handset upgrades every year. RELATED: Apple To Double iPhone Memory With Next Handset: Report Apple Has Reportedly Started Production On iPhone 7 Apple Should Be Valued Like Internet, Not Hardware, Company