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Ride The Coming Fourth Wave Of Wealth Creation With This ETF

Summary Rising yields generally mean the economy is improving, which should benefit companies that depend on corporate and consumer spending. Technology is at the edge of another transformative wave. The acceleration of global population aging is going to drive demand across the biotech sector. Ride the coming transformative wave with this unique ETF that targets both technology and biotech and has consistently outperformed the broader market by a wide margin. Michio Kaku is a world-renowned, American futurist and theoretical physicist. He is a Professor of Theoretical Physics at the City College of New York (CUNY). Kaku has written several books about physics and related topics and has made frequent appearances on radio, television, and film. I recently had the pleasure of listening to him speak at an event in Boston. During his talk, he described the past three waves of wealth generation and shared his vision of how technology will shape the future. The question today is: what is the fourth wave? The first wave was steam power, the second wave was electricity, the third wave was high technology – all of it unleashed by physicists. What is the fourth wave of wealth generation? It’s going to be on the molecular level: nanotech, biotech and artificial intelligence . – Michio Kaku. According to Kaku, we’re at the edge of another wave of technological transformation. The world is growing increasingly dependent on technology. Products and services based upon or enhanced by information technology have revolutionized nearly every aspect of human life. The use of IT and its new applications has been extraordinarily rapid across all industries and an IT-Biotech convergence is already well underway. The acceleration of global population aging and technological breakthroughs are going to drive demand across the biotech sector. Longer life spans and increasing rates of chronic conditions will continue to fuel demand for new products and services. Nanotech breakthroughs will spur innovations across a wide range of applications in biotech and healthcare, potentially curing human illness. Multiple platform technologies working in combination – nanotechnology, biotech/genomics, artificial intelligence, robotic and ubiquitous connectivity – are going to lead to increasing profits for the dominant players utilizing these technologies. Many ETF issuers are coming up with innovative concepts targeting these technological transformative areas. The iShares Exponential Technologies ETF (NYSEARCA: XT ), with an annual expense ratio of 0.30%, attempts to track the developed and emerging market companies which create or use exponential technologies such as big data and analytics, nanotechnology, medicine and neuroscience, networks and computer systems, energy and environmental systems, robotics, 3-D printing, bioinformatics, and financial services innovation. (click to enlarge) There are funds targeting cloud computing such as the First Trust ISE Cloud Computing Index Fund (NASDAQ: SKYY ), which has annual expense ratio of 0.60%. The Robo-Stox Global Robotics and Automation Index ETF (NASDAQ: ROBO ), with an annual expense ratio of 0.95%, targets the robotics industry or you could own the Purefunds ISE Cyber Security ETF (NYSEARCA: HACK ), for 0.75% per year, which holds a portfolio of companies in the cyber security space. SKYY and HACK both follow the technology sector solely while ROBO and XT follow multiple sectors. Although many of these ETFs hold a few well-known, large-cap companies, most are fairly expensive and have so far proven to be more volatile than the broader technology sector. Because they have a short history, and until many of the smaller Exponential Technology companies achieve consistent profit growth, I prefer to ride the coming tech-biotech transformative wave with a portfolio of large, high-quality companies – market leaders within their respective industries, with a history of delivering consistent revenue growth. These large-cap market leaders are, no doubt, aware of how emerging technologies might bring them new customers or force them to defend their existing bases or even inspire them to invent new strategic business models. Many successful small-cap companies with disruptive technologies will eventually become dominant large-cap players. In fact, the NASDAQ’s dominant players have changed drastically in the last 15 years and probably will look much different in the future. You can capture this large-cap dynamic dominance with one of our favorite, can’t miss ETFs, the tech-heavy PowerShares QQQ ETF (NASDAQ: QQQ ), a unique fund that targets both technology and biotech and has outperformed the broader market by a wide margin for more than a decade. (click to enlarge) The QQQ is an ETF based on the NASDAQ 100 Index. The Index includes 100 of the largest domestic and international non-financial companies listed on the Nasdaq Stock Market based on market capitalization. The fund is rebalanced quarterly and reconstituted annually. Besides being a 5-Star Morningstar-rated ETF with an expense ratio of just 0.20%, QQQ has delivered consistently superior returns during most time periods over the last decade. QQQ Sector Allocation: (click to enlarge) The top 10 holdings of QQQ consist primarily of U.S. technology, and also include Gilead Sciences (NASDAQ: GILD ), a major biotechnology firm, Amazon (NASDAQ: AMZN ), an e-commerce retailer and Comcast (NASDAQ: CMCSA ), a media/entertainment giant. QQQ Top 10 Holdings: (click to enlarge) In addition to the technology names in the above graphic, the QQQ holds another 36 big-tech firms including Qualcomm (NASDAQ: QCOM ), Texas Instruments (NASDAQ: TXN ) and Baidu (NASDAQ: BIDU ) to name a few. Besides Amazon and Comcast , there are 31 additional Consumer Discretionary names including Netflix (NASDAQ: NFLX ), Tesla (NASDAQ: TSLA ) and Priceline (NASDAQ: PCLN ). And besides Gilead, the QQQ’s biotech holdings consist of 15 more companies including Celegene (NASDAQ: CELG ), Amgen (NASDAQ: AMGN ) and Biogen (NASDAQ: BIIB ). Over 55% of the QQQ is tech. Technology is a cyclical industry. When the economy gets stronger, cyclical sectors like technology have tended to generate higher revenues from increased consumer and corporate spending. So its relative performance tends to rise and fall with the strength, or lack thereof, of the economy. However, a number of technological innovations – from nanotech applications to cloud computing to mobile connectivity – are spurring migration to new technologies. This migration may continue regardless of the overall condition of the global economy. Some solid, pure technology funds include the Technology Select Sector SPDR ETF (NYSEARCA: XLK ), the iShares U.S. Technology ETF (NYSEARCA: IYW ), the Vanguard Information Technology ETF (NYSEARCA: VGT ) and the Fidelity Select IT Services Portfolio (MUTF: FBSOX ). However, the aforementioned funds are primarily all tech and not the unique mix of the QQQ. The world’s dependence on technology and the acceleration of global population aging are two megatrends that should drive performance for years to come. Seventy percent of the QQQ’s holdings focus on well-established, high-quality technology and biotech companies. The fund’s consumer discretionary stocks should also benefit from an improving economy while the fund’s consumer staples stocks add a defensive component to the mix. Let’s take a look at how the QQQ has performed over various time frames. The newer Exponential Technology ETFs don’t have a long-term performance record so they cannot be included in this comparison. As you can see in the table below, the QQQ, with its unique structure of one-half tech, one-fifth consumer discretionary and one-seventh biotech, has outperformed the S&P 500 and just about every other large-cap technology fund during most time periods over the past decade, including the iShares S&P 500 Growth ETF (NYSEARCA: IVW ), which holds the fastest growing half of the S&P 500 stocks. QQQ is a kind of quirky fund, but it works. It delivers a unique combination of tech-biotech, growth and large-cap exposure. 10-Year Performance: (click to enlarge) Conclusion Rising yields generally mean that the economy is improving, which should be good for technology and growth companies that depend on corporate and consumer spending. Big tech and biotech companies have the potential to capitalize on two mega-trends for years to come – the increasing global dependence on technology and the acceleration of global population aging. QQQ is in a strong position to benefit from these favorable trends. As Michio Kaku says, “Don’t bet against technology. Be a surfer. Ride the wave of technology, see the wave coming, get on the wave”.

Ride The Coming 4th Wave Of Wealth Creation With This ETF

Summary Rising yields generally mean the economy is improving, which should benefit companies that depend on corporate and consumer spending. Technology is at the edge of another transformative wave. The acceleration of global population aging is going to drive demand across the biotech sector. Ride the coming transformative wave with this unique ETF that targets both technology and biotech and has consistently outperformed the broader market by a wide margin. Michio Kaku is a world-renowned, American futurist and theoretical physicist. He is a Professor of Theoretical Physics at the City College of New York (CUNY). Kaku has written several books about physics and related topics and has made frequent appearances on radio, television, and film. I recently had the pleasure of listening to him speak at an event in Boston. During his talk, he described the past three waves of wealth generation and shared his vision of how technology will shape the future. The question today is: what is the fourth wave? The first wave was steam power, the second wave was electricity, the third wave was high technology – all of it unleashed by physicists. What is the fourth wave of wealth generation? It’s going to be on the molecular level: nanotech, biotech and artificial intelligence . – Michio Kaku. According to Kaku, we’re at the edge of another wave of technological transformation. The world is growing increasingly dependent on technology. Products and services based upon or enhanced by information technology have revolutionized nearly every aspect of human life. The use of IT and its new applications has been extraordinarily rapid across all industries and an IT-Biotech convergence is already well underway. The acceleration of global population aging and technological breakthroughs are going to drive demand across the biotech sector. Longer life spans and increasing rates of chronic conditions will continue to fuel demand for new products and services. Nanotech breakthroughs will spur innovations across a wide range of applications in biotech and healthcare, potentially curing human illness. Multiple platform technologies working in combination – nanotechnology, biotech/genomics, artificial intelligence, robotic and ubiquitous connectivity – are going to lead to increasing profits for the dominant players utilizing these technologies. Many ETF issuers are coming up with innovative concepts targeting these technological transformative areas. The iShares Exponential Technologies ETF (NYSEARCA: XT ), with an annual expense ratio of 0.30%, attempts to track the developed and emerging market companies which create or use exponential technologies such as big data and analytics, nanotechnology, medicine and neuroscience, networks and computer systems, energy and environmental systems, robotics, 3-D printing, bioinformatics, and financial services innovation. (click to enlarge) There are funds targeting cloud computing such as the First Trust ISE Cloud Computing Index Fund (NASDAQ: SKYY ), which has annual expense ratio of 0.60%. The Robo-Stox Global Robotics and Automation Index ETF (NASDAQ: ROBO ), with an annual expense ratio of 0.95%, targets the robotics industry or you could own the Purefunds ISE Cyber Security ETF (NYSEARCA: HACK ), for 0.75% per year, which holds a portfolio of companies in the cyber security space. SKYY and HACK both follow the technology sector solely while ROBO and XT follow multiple sectors. Although many of these ETFs hold a few well-known, large-cap companies, most are fairly expensive and have so far proven to be more volatile than the broader technology sector. Because they have a short history, and until many of the smaller Exponential Technology companies achieve consistent profit growth, I prefer to ride the coming tech-biotech transformative wave with a portfolio of large, high-quality companies – market leaders within their respective industries, with a history of delivering consistent revenue growth. These large-cap market leaders are, no doubt, aware of how emerging technologies might bring them new customers or force them to defend their existing bases or even inspire them to invent new strategic business models. Many successful small-cap companies with disruptive technologies will eventually become dominant large-cap players. In fact, the NASDAQ’s dominant players have changed drastically in the last 15 years and probably will look much different in the future. You can capture this large-cap dynamic dominance with one of our favorite, can’t miss ETFs, the tech-heavy PowerShares QQQ ETF (NASDAQ: QQQ ), a unique fund that targets both technology and biotech and has outperformed the broader market by a wide margin for more than a decade. (click to enlarge) The QQQ is an ETF based on the NASDAQ 100 Index. The Index includes 100 of the largest domestic and international non-financial companies listed on the Nasdaq Stock Market based on market capitalization. The fund is rebalanced quarterly and reconstituted annually. Besides being a 5-Star Morningstar-rated ETF with an expense ratio of just 0.20%, QQQ has delivered consistently superior returns during most time periods over the last decade. QQQ Sector Allocation: (click to enlarge) The top 10 holdings of QQQ consist primarily of U.S. technology, and also include Gilead Sciences (NASDAQ: GILD ), a major biotechnology firm, Amazon (NASDAQ: AMZN ), an e-commerce retailer and Comcast (NASDAQ: CMCSA ), a media/entertainment giant. QQQ Top 10 Holdings: (click to enlarge) In addition to the technology names in the above graphic, the QQQ holds another 36 big-tech firms including Qualcomm (NASDAQ: QCOM ), Texas Instruments (NASDAQ: TXN ) and Baidu (NASDAQ: BIDU ) to name a few. Besides Amazon and Comcast , there are 31 additional Consumer Discretionary names including Netflix (NASDAQ: NFLX ), Tesla (NASDAQ: TSLA ) and Priceline (NASDAQ: PCLN ). And besides Gilead, the QQQ’s biotech holdings consist of 15 more companies including Celegene (NASDAQ: CELG ), Amgen (NASDAQ: AMGN ) and Biogen (NASDAQ: BIIB ). Over 55% of the QQQ is tech. Technology is a cyclical industry. When the economy gets stronger, cyclical sectors like technology have tended to generate higher revenues from increased consumer and corporate spending. So its relative performance tends to rise and fall with the strength, or lack thereof, of the economy. However, a number of technological innovations – from nanotech applications to cloud computing to mobile connectivity – are spurring migration to new technologies. This migration may continue regardless of the overall condition of the global economy. Some solid, pure technology funds include the Technology Select Sector SPDR ETF (NYSEARCA: XLK ), the iShares U.S. Technology ETF (NYSEARCA: IYW ), the Vanguard Information Technology ETF (NYSEARCA: VGT ) and the Fidelity Select IT Services Portfolio (MUTF: FBSOX ). However, the aforementioned funds are primarily all tech and not the unique mix of the QQQ. The world’s dependence on technology and the acceleration of global population aging are two megatrends that should drive performance for years to come. Seventy percent of the QQQ’s holdings focus on well-established, high-quality technology and biotech companies. The fund’s consumer discretionary stocks should also benefit from an improving economy while the fund’s consumer staples stocks add a defensive component to the mix. Let’s take a look at how the QQQ has performed over various time frames. The newer Exponential Technology ETFs don’t have a long-term performance record so they cannot be included in this comparison. As you can see in the table below, the QQQ, with its unique structure of one-half tech, one-fifth consumer discretionary and one-seventh biotech, has outperformed the S&P 500 and just about every other large-cap technology fund during most time periods over the past decade, including the iShares S&P 500 Growth ETF (NYSEARCA: IVW ), which holds the fastest growing half of the S&P 500 stocks. QQQ is a kind of quirky fund, but it works. It delivers a unique combination of tech-biotech, growth and large-cap exposure. 10-Year Performance: (click to enlarge) Conclusion Rising yields generally mean that the economy is improving, which should be good for technology and growth companies that depend on corporate and consumer spending. Big tech and biotech companies have the potential to capitalize on two mega-trends for years to come – the increasing global dependence on technology and the acceleration of global population aging. QQQ is in a strong position to benefit from these favorable trends. As Michio Kaku says, “Don’t bet against technology. Be a surfer. Ride the wave of technology, see the wave coming, get on the wave”.

Exelon: Utility Selling At 10-Year Lows, Again

Exelon’s share price bottomed in 2013 at $26.91, rose to $36.83 in Aug 2014 and Dec 2014, only to drop to $26.60 this month. The long-term investment thesis remains the same. Exelon’s profitability is still dependent on competitive wholesale prices driven by natural gas pricing. Two years ago, almost to the day, I penned an article discussing Exelon (NYSE: EXC ) trading within a hair’s breath of its 10-yr low. Unfortunately, I can write a follow-up as this is the case again. It seems EXC is just as controversial today as it was back then, and uncertainty remains the major obstacle. New income investors looking for higher relative yields should review EXC and current shareholders should continue to hang in and even add to their position. In the previous article, the investment thesis was laid out: Management and investors are making a huge bet that demand will increase, wholesale pricing will increase, and base-load capacity will decrease. Demand will increase with strengthening economic activity in the Northeast and Midwest. Pricing will pick up with a turn in natural gas pricing. Base-load capacity will decrease as coal-fired plants are retired and as more intermittent-load wind replaces investments in additional base-load capacity. When these three events positively influence EXC’s bottom line, share prices will be substantially above their current 10-year lows. However, these events have not happened, and the timeframe continues to get pushed out. With the growth of natural gas as a generating fuel, electricity pricing continues to be influenced by the price of natural gas. As we know, natural gas is once again sub-$2.00, applying pressure on electricity pricing. Below are three graphs from sriverconsulting.com that tell the story. The first is the Forward Market price for electricity in ISO New England. The most recent forward price matches its 10-yr low of March 2012. The second shows the relationship of the 5-yr forward price of natural gas and electricity and the third shows the same relationship on a 1-yr basis. The last two charts demonstrate the correlation between natural gas pricing and electricity pricing, and the trend over the previous 12 months has been for tighter correlations. As of the week of Dec 9, the forward 12-month NYMEX price for natural gas was $2.34. (click to enlarge) Source: sriverconsulting.com (click to enlarge) Source: sriverconsulting.com (click to enlarge) Source: sriverconsulting.com Natural gas pricing will continue to be a key factor in PJM markets. According to ISO New England, in 2000, natural gas represented 15% of the fuel used to generate power in the Northeast, and this percentage grew to 44% in 2014. The growth has been at the expense of coal and oil, with these fuels declining from 18% to 5% and 22% to 1%, respectively. Nuclear remained almost constant at 31% and 34%. The following 17-yr chart shows the growth in MW capacity by fuel type in the Northeast, as offered by the ISO New England 2015 Regional Electricity Outlook. (click to enlarge) One advantage of merchant power generators in other parts of the US is many utilize 20-yr purchase power agreements with electric distribution utilities, usually including a “fuel cost plus” formulation. However in the Northeast, Mid-Atlantic and eastern Midwest, pricing is controlled by the Regional Transmission Organizations RTO, of which PJM Interconnect is the largest. The silver-lined underbelly of the auction process is the premium PJM now allows for “reliability,” and EXC’s nuclear generation qualify for these premiums. During the Polar Vortex of early 2014, power generation along the East Coast was dangerously close to falling under demand as frozen coal stocks and frozen natural gas valves caused an uncomfortably large amount of generating capacity being off-line. In response, PJM instituted an added premium for power generation with higher commitments to remain online, backed by huge fines for those who take the premiums but can’t deliver during similarly stressful times. Nuclear power, of which Exelon is the largest provider, is a qualified fuel for this premium. Over the next two years, this premium will be implemented and will help EXC realize a bit higher price for its commodity product. Demand and capacity retirements have been progressing along as expected, with additional nuclear plants announcing their retirement. Even after the acquisition of Pepco Holdings (NYSE: POM ), which is now expected to be EPS-neutral over the short-term, power generation sold mostly using the PJM 3-Yr Rolling Auction process will still represent about 50% of EXC’s earnings. While this exposure to the merchant market has declined from 80% in 2008, the graphs above have a large impact on earnings for EXC. Concerning the proposed merger with Pepco, management seems to have satisfied DC regulators with the move of some executives and their offices to the Washington area, along with $78 million in payments to DC customers. Exelon agreed to relocate 100 jobs from outside D.C. into the city and create an additional 102 union jobs. The company also agreed to co-locate its headquarters in D.C. Exelon has six months after the merger is approved to relocate elements of its corporate headquarters from Chicago to D.C. It will shift the primary offices of CFO Jack Thayer and Chief Strategy Officer William Von Hoene Jr. to D.C., as well as the entire Exelon Utilities division, which is now based in Philadelphia, along with divisional CEO, Dennis O’Brien. The merger could be finalized before management’s commitment to walk away if not completed by April 2016. Over the longer term, management estimates the merger can increase earnings by $0.25 a share over the next 4 years, or about 9% of the estimated $2.57 2016 EPS. Management believes the acquisition of Pepco will accomplish two important goals: the ability to fund the dividend entirely through its regulated businesses and the ability to gain sufficient critical mass to separate the regulated and unregulated businesses, if advantageous to shareholders. On a valuation basis, EXC offers an inexpensive entry point. Below is a comparison of fundamentals for EXC vs. the utility average, as offered by Morningstar.com: Source: morningstar.com, Guiding Mast Investments Consensus earnings estimate for next year have been increasing since June 2015. Below is a chart of 12-month consensus EPS estimates for 2015 and 2016, as offered by 4-traders.com. Insidermonkey.com wrote a positive article on EXC earlier this month. In summary: It’s been a down year for most utility companies as big mutual funds rotate out of the sector due to normalizing yields. Although Exelon Corporation shares are down 23% year-to-date because of the Great Rotation, Exelon’s decline has made it an attractive dividend play. Shares now yield 4.57% and trade at a reasonable 10.6 times forward earnings. Seeing as the company’s payout ratio of 0.55, Exelon’s dividend is secure and has room to expand given the company’s predicted next five year average EPS growth rate of 5.03%. Hedge funds are certainly bullish as the number of elite funds long the stock jumped by 10 during the third quarter. According to morningstar.com, in 2014, EXC’s total return was +39.9% while year-to-date total return has been a negative -23.0%. This compares to +20.3% and -11.3% for Diversified Utilities and +28.7% and -6.9% for the S&P Utility ETF (NYSEARCA: XLU ), respectfully. While the past 2 years have not been as profitable for EXC shareholders as the average industry investment, the current yield of 4.9% should be sufficient for income investors to buy and hold for the “eventual turnaround” in the same investment thesis outlined above. These 10-yr lows in share prices only come around every 10 years… or every 2 years in the case of EXC. Author’s note: Please review Author’s disclosures on his profile page.