Tag Archives: basic-materials

Bulls Weigh On Gold As Losses Mount In NUGT

The Direxion Daily Gold Miners Bull 3x Shares ETF (NYSEARCA: NUGT ) shares were down yet again on Friday morning after a day of huge losses on Thursday. Most of Wall Street has turned its back on gold as the U.S. heads toward a rate rise later on in 2015, and the risk of both inflation and deflation melt away. We’ve seen a wide range of negative outlooks on gold since the fall in the price of the metal began earlier in July. The bulls have, for the most part, stayed out of the limelight. There’s good reason for that. Most of those who are bulls now were bulls three months ago, and they’ve been proven wrong. Right now most are trying to rework their models or abandon gold altogether. Here’s what some of them are saying. Stepping back, doubling down, and staying quiet An old adage says to buy into gold as soon as the last bull has left town. We’re not sure if that’s true just yet, but it’s clear that many former gold bugs have left their positions and are trying to recover losses in the market. Jonathan Barratt, chief investment officer at Ayers Alliance has long been happy to put money in gold, but he’s turning against the metal right now. “From a technical perspective,” he told CNBC, “it doesn’t look hot.” He said that the price of the metal has “broken through some very critical areas.” On the other hand, some observers are doubling down on the metal. In a report published on July 3, Bank of America Merril Lynch forecasted that gold prices would rise to $1,300 in 2016 . “We are on the cusp of a bull market,” reads the report. The investment house says that “gold can be supported even if the U.S. central bank turns less accommodative, as long as the Fed just normalizes monetary policy.” John Paulson and David Einhorn, two hedge fund managers known for their bets on gold , will have to disclose their positions in ETFs and miners of the metal next month. The final date for 13F filings is on August 14. Then, or perhaps the day before, we’ll be able to see if gold’s big hedge fund fans are still backing the metal. Gold ETFs remain a danger Leveraged ETFs carry risks that don’t exist in pure metal trading. That’s why NUGT has lost more than 70 percent of its value in the last three months. There are very few outspoken Wall Street voices who will advise a bet on the ETF as a result. Leverage is dangerous, and it’s not for the faint of heart. The NUGT ETF tracks an index of gold mining shares and seeks to deliver returns of three times those on the index. The price of NUGT has become very separate from the price of gold as a metal in recent weeks as a result. Even gold bulls aren’t likely to advise a bet on the ETF. The risks are simply too great for all but the most thrill-seeking of traders. There’s no outspoken bulls of the index in the limelight, and there isn’t likely to be, at least until the price of gold turns around.

Seeing The Forest Through The Trees; Timber ETFs

In the never ending search for new and interesting betas, perhaps few betas are as unique as that related to wood products. Perhaps apart from the occasional reality TV show, wood and industries related to it, aren’t the trendiest of products these days, but from snazzy car and home interiors, to humble old fashioned writing tablets and pizza boxes, wood, and its derivatives, everywhere one may look. Though the betas of wood ETFs may not be too far away from 1.0 on average ( WOOD ; 1.09, CUT ; 1.22), they may still perhaps supply a portfolio with an interesting route towards further diversification, and hence perhaps deserve a look. ________ Two of the most notable timber ETFs seem to be the surprisingly named WOOD and CUT. Though they are largely similar there seem to be certain qualities of each which make them slightly different from one another, but none the less interesting perhaps. _________ Apart from the year to date returns(price based); 1.86% for CUT, and 2.39% for WOOD, they also have different dividend based yield profiles per se, with W having a ~1.6% div. yield (according to Google finance), and C having a ~2.6 div yield. Apart from these sorts foreground, if one will, differences, the two ETFs also have different geographical allocations as far as their holdings’ are concerned. While Both have a US centric skew to their holdings, CUT seems to ultimately have a lesser percentage of its holdings invested in US based investments. One might argue that from largest to smallest position, WOOD also seems to be more concentrated(albeit slightly) in top holdings more so than CUT as well. These two ETFs share different subsector concentrations as one might expect, but before we get to that lets spice things up with an exciting picture of paper products. _______ For, though WOOD has so far held the crown in so far as skewness is concerned, CUT does show some more skewness in some regards, most specifically in so far as its subsector concentrations are concerned. For, though one may most often associate timber and wood products ETFs with a gentleman “leaping from tree to tree” in the forests of “British Columbia”, this death of the tree per se, is seemingly just the beginning of the flume ride if one will, that wood and its derivatives take through the world of industry. Image Source , Log Flume rides, soaking innocent bystanders at amusement parks since 1963 For when looking at these two wood ETFs one may notice that while WOOD is more concentrated in the paper products sector and “Reits”, presumably timber bearing land, with ~26% of said assets being held in said Reits, CUT seems to just sort of ” cut to the chase”; with a full 80 percent of its holdings specifically being in the “basic materials” subsector, presumably being wood or timberlands in general. Hence if one will it might be said that WOOD seems to be the more paper or wood derivatives centric of the 2 ETFs, with CUT being the more ” wood” centric of the two. Hence for the more specifically timber heavy play if one will, CUT might be the better ultimate choice, with WOOD being the favorite for paper products, etc. Hence perhaps the choice in between which of these two ETFs to allocate some cap., may come down to that age old discussion of wood vs. paper, and hence perhaps in a way perhaps they are, despite some broad overlap, somewhat complimentary. ______ Hence perhaps discussions of timber ETFs are also very much discussion of paper ETFs if one will. Ultimately whether one is looking for the felling of trees, or for some action regarding that semi-ancient medium of human writing etc., hopefully everyone’s investments are doing great, and everyone is having a good summer, and perhaps enjoying a log-flume ride or two, or whatever one chooses as a method to “beat the heat”. Thanks again for reading. ______ Prose of the post; an excerpt of lumberjack poetry; “spilling the fruit and chipping the bark, measuring, cutting into four by fours, and two by sixes,– numbering now instead of naming, until, even the complicitous apple was felled”

Equal Weight Energy ETF: A Better Way To Tap Oil Rebound?

The energy sector has been gaining ground in recent months after the U.S. oil price rebounded strongly, gaining over 33% from a six-year low of around $45 per barrel hit in January. This is primarily thanks to the billions of dollars in spending cuts, shrinking U.S. oil rigs counts, higher crude oil processing by the U.S. refiners, and consolidation. Will the bullish trend continue in the coming months too? If we look at the demand/supply trends, demand is definitely on the rise but not enough to meet the growing global supply gut, suggesting range-bound trading for the oil and energy stocks. Additionally, strong dollar has been a major headwind for the oil prices. Mixed Trends The peak summer season will drive up the demand for the oil products, in particular gasoline, pushing the energy prices higher. As a result, the International Energy Agency (IEA) raised the global demand growth outlook by 280,000 barrels a day to 1.40 million barrels, bringing total daily demand to almost 94 million barrels for this year. While the agency projects a rise in global demand, oil supplies continue to exceed demand this year. This is because the Organization of Petroleum Exporting Countries (OPEC) is pumping up maximum oil in more than two-and-a-half years buoyed up by higher output from Iraq and Iran. It is currently producing about a million barrels a day against its target of 30 million barrels a day to protect market share and meet growing demand. Notably, the top oil exporter – Saudi Arabia – has boosted its production to at least a three-decade high. Further, oil production in the U.S. has been on the rise and reached another record high of 9.6 million barrels per day last week, in more than 40 years. However, it is expected to show some signs of slowdown in June through early 2016. This is especially true as oil production from the seven major U.S. shale plays will likely fall by 1.3% in June and further by 1.6% in July. The latest positive inventory data report from the U.S. Energy Information Administration (EIA) also showed that crude supplies fell for the sixth straight week (ending June 5). Given mixed fundamentals, investors are definitely looking for a safe and quality choice in this rebounding sector. While there are several energy ETFs available in the market, the Guggenheim S&P 500 Equal Weight Energy ETF (NYSEARCA: RYE ) could be an excellent play. RYE in Focus The fund offers equal weight exposure to 41 stocks in the basket by tracking the S&P 500 Equal Weight Index Energy. None of the firm holds more than 3.03% of the total assets. In terms of industries, oil, gas and consumable fuels takes the top spot at 70.5% while energy equipment and services account for the remaining portion. The product gained nearly 6.6% over the past three months, easily outpacing the broad sector fund – the Energy Select Sector SPDR ETF (NYSEARCA: XLE ) – by over 200 bps. Further, RYE is also leading the way higher from the year-to-date look, with gains of 0.06% against the loss of 1.03% for XLE. Why RYE is Beating XLE The outperformance was mainly driven by its equal allocation across various securities, which prevents heavy concentration and provides a nice balance across various securities. With quarterly rebalancing, the product tends to cash in on the overvalued stocks and reinvest in the underperforming ones, potentially allowing outperformance on solid fundamentals. RYE is also nicely spread out across the two spectrums of market capitalization levels with 52% in large caps and 40% in mid caps. Further, about three-fifths of the portfolio is tilted toward value stocks that appear safe and appealing for investors in a volatile market. Value investing strategy includes stocks with strong fundamentals – earnings, dividends, book value and cash flow – that trade below their intrinsic value and are undervalued by the market. As a result, value stocks often overreact to both positive and negative news, resulting in movement in the share prices that do not reflect the company’s true long-term fundamentals. This creates buying opportunities in such stocks at depressed prices and offers the potential for capital appreciation when the stock finally reflects its true market price. As a result, the combination of large or mid-caps and value stocks help to provide stability in the portfolio in an uncertain environment while also offer a significant upside potential when the trend reverses. While the fund goes a long way in reducing overall risk, investors should note that it is a relatively high cost choice in the space. It charges a bit higher fee of 40 bps compared with the expense ratio of 0.15% for XLE. Further, RYE is illiquid, exchanging just 43,000 shares a day in hand on average suggesting additional cost in the form of bid/ask spread, though it has a decent level of $173.8 million in AUM. Bottom Line Given its equal weighted strategy and diversification benefits, this energy ETF could prove more beneficial to investors compared to the other products in the space. The solid run in the product is expected to continue in coming months even amid volatile oil trading. Link to the original post on Zack.com