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Sector ETF Winners And Losers From The Winter Storm

Finally, the northeast U.S. encountered the winter storm Jonas defying widespread talks about a warmer winter this year. Freezing temperatures not only took the region under the quilt of heavy snow, but also left a deep impact on the U.S. economy. Though the snow storm has stopped, up to almost 30 inches of snow will likely paralyze economic activity for the coming few days. However, pros and cons are probably related to every event. Among all the sectors, there are a few that stand to gain from this blizzard, and others that are likely to be badly hit. Below we highlight some sectors which are in focus after the winter storm Jonas. Gainers Energy Why the energy sector is a clear winner of this weather disruption is anybody’s guess. As almost 50% of Americans use natural gas for heating purposes, expectations of higher usage of natural gas pushed up the commodity’s prices recently. Not only this, the positive side of increased heating demand was also felt in to the most beleaguered commodity – oil. As a result, the First Trust ISE-Revere Natural Gas Index Fund (NYSEARCA: FCG ) added over 5% on January 22 while the crude oil ETF, the United States Oil ETF (NYSEARCA: USO ) , advanced about 8.3% on the same day both on the cold snap and compelling valuation (read : Oil and Energy ETFs That Hit All-Time Lows ). Retail Retail sales have been a cause of concern for quite some time now. The key barometer of economic well-being is not keeping pace with economic growth. Retail and food services sales declined 0.1% in December, while the consensus had estimated the figure to remain unchanged. Meanwhile, retail sales increased 2.1% in 2015, its weakest yearly progress since 2009. One reason for this could be that after seeing one of the worst recessions few years ago, consumers are saving more and purchasing less. But the latest monthly slump was mainly due to the second-most mild December since late 1800s which debarred consumers to shell out on winter essentials like sweaters, coats or boots (read: Weak Retail Sales Hurt These ETFs; What Lies Ahead? ). So, the latest volley of snow and the expectation of chilly days ahead may boost sales of winter garments and benefit retailers. This theory put retail ETFs including the SPDR S&P Retail ETF (NYSEARCA: XRT ) , the Market Vectors Retail ETF (NYSEARCA: RTH ) and the PowerShares Dynamic Retail Portfolio ETF (NYSEARCA: PMR ) in focus. XRT, RTH and PMR were up 1.8%, 1.9% and 1.7%, respectively, on January 22. Losers Transportation Since roads, railways and runways are under the coverlet of almost record amounts of snow and people are locked inside, transportation stocks and the related ETFs are expected to be hurt. As per CNN , the Long Island Rail Road, suffered considerable damage during the storm and five out of its 12 branches- that make up about 20% of traffic in the rail network – will remain closed even after the storm, for repairs. Roadways are still not ready for communication and will likely leave an adverse impact on transportation ETFs like the SPDR S&P Transportation ETF (NYSEARCA: XTN ) and the iShares Transportation Average ETF (NYSEARCA: IYT ) . Though XTN and IYT added 1.9% and 1.3% respectively on January 22, 2016 in line with the broader market rally, their first-quarter results are likely to have a bearing of this cold snap. Both ETFs have a Zacks ETF Rank #4 (Sell). Airlines This sector is yet another victim of the whiteout. Such a momentous snow event has already cancelled about 10,000 flights. A rapid resumption seems implausible given the loads of snow on the runways and the still-unclear weather. Though airlines are trying to cope with storm-related losses by issuing weather waivers for fliers, we believe that airlines have to bear with some losses as travel demand has weakened. So, investors need to be watchful on the airline ETF, the U.S. Global Jets ETF (NYSEARCA: JETS ) . Like transportation ETFs, this airline ETF may also have to face some weakness in the Q1 earnings results. Hospitality Tourism and hospitality sectors are also likely to be hit during this snow storm. So, the PowerShares DWA Consumer Cyclicals Momentum Portfolio (NYSEARCA: PEZ ) which invests over 25% in Hotels, Restaurants & Leisure and over 11% in Airlines, or the PowerShares Dynamic Leisure and Entertainment Portfolio ETF (NYSEARCA: PEJ ) having considerable weights in restaurants, resorts and airlines are likely to feel the brunt of the snow storm as the underlying companies will do less business as long as the freezing phase continues. The Restaurant ETF (NASDAQ: BITE ) , otherwise a strong bet on the improving restaurant sector, might also see some weakness thanks to a temporary slack in sales. Link to the original post on Zacks.com

Cold Snap Sparks Sudden Rally In Oil Price: ETFs Surge

After crashing to below the 12-year low in Wednesday’s trading session, oil price spiked nearly 21% over the past two days, representing the biggest two-day rally since September 2008. It has also extended its gains in the early trading session today with both U.S. crude and Brent trading above $32 per barrel (read: Oil Hits 12-Year Low: Short Energy Stocks with ETFs ). The steep increase came on the back of short covering, bargain hunting as well as freezing conditions and snowstorms in parts of the U.S. and Europe that boosted the short-term demand for heating oil. Notably, speculators’ short position in WTI dropped 8.4% for the week ended January 19, as per the data from U.S. Commodity Futures Trading Commission. In addition, weekly data from oil services firm Baker Hughes (NYSE: BHI ) showed that the number of rigs fell for the fifth consecutive week by 5 last week to 510, the lowest level since April 2010. Further, hopes of additional stimulus in Europe and Japan, and China comments on no plans to devalue the yuan boosted the confidence in the overall economy, thereby bolstering the case for global oil demand. ETF Impact The tremendous trading in oil sent the oil ETFs space into deep green in Friday’s trading session. In particular, the United States Diesel-Heating Oil ETF (NYSEARCA: UHN ) surged 10% followed by gains of 9.5% for the United States Brent Oil ETF (NYSEARCA: BNO ) , 8.6% for the PowerShares DB Oil ETF (NYSEARCA: DBO ) and 8.3% for the United States Oil ETF (NYSEARCA: USO ) . While the returns of these funds are tied to the oil price, they are different in some way or the other. This is especially true as UHN tracks the movement of oil prices while BNO provides direct exposure to the spot price of Brent crude oil on a daily basis through future contracts. DBO provides exposure to crude oil through WTI futures contracts and follows the DBIQ Optimum Yield Crude Oil Index Excess Return while USO seeks to match the performance of the spot price of light sweet crude oil WTI. Out of the four, USO is the most popular and liquid ETF in the oil space with AUM of $2.3 billion and average daily volume of 34 million. UHN is unpopular and illiquid with AUM of $2.5 million and average daily volume of just 3,000 shares. Further, USO is the least expensive, charging just 45 bps in fees per year from investors. Meanwhile, leveraged oil ETFs also shot up with the VelocityShares 3x Long Crude Oil ETN (NYSEARCA: UWTI ) and the ProShares Ultra Bloomberg Crude Oil ETF (NYSEARCA: UCO ) surging 24.6% and 16.8%, respectively. The former seeks to deliver thrice the returns of the daily performance of WTI crude oil while the latter tracks the two times daily performance of futures contracts on WTI crude oil. What Lies Ahead? Despite the steep gains, oil price is down 13% so far this year and the long-term fundamentals remain bearish (read: If the Oil Crash Continues, Buy These 5 ETFs to Outperform ). This is because oil production has risen worldwide with the the Organization of the Petroleum Exporting Countries (OPEC) continuing to pump near-record levels, and higher output from the U.S., Iran and Libya. The lift in oil sanctions in Iran would add a fresh stock of oil to the already oversupplied global market as the country is expected to increase its crude oil exports by half a million barrels a day immediately and a million barrels a day within a year of lifting the ban. On the other hand, demand for oil across the globe looks tepid given slower growth in most developed and developing economies. In particular, persistent weakness in the world’s biggest consumer of energy – China – will continue to weigh on the demand outlook. The negative demand/supply imbalance would push oil prices and the related ETFs further down at least in the short term. Link to the original post on Zacks.com

Using Active Share To Evaluate High-Yield Bond Portfolios

There are two chief ways of measuring a portfolio’s deviation from its benchmark: tracking error and active share. The first, tracking error , is the older and more traditional. It gauges a portfolio’s performance deviation from a benchmark return over time – essentially telling an investor how different the returns are from the benchmark. The second, active share , is newer but steadily gaining steam. It specifically measures how unique a portfolio is, at the holdings level, relative to the benchmark. Tracking Error vs Active Share Of the two, which is best? That’s the question MFS Fixed Income Portfolio Manager David Cole, Chief Risk Officer Joseph Flaherty, and Quantitative Research Analyst Sean Cameron set out to answer in an October 2015 white paper Active Share: A valuable risk measure for high-yield portfolios . As evident from the title, the trio values active share – but not exclusively. While active share can be an alternative to tracking error, one can complement the other, particularly in measuring the relative risk of a high-yield bond portfolio, which is the subject of the paper. Their findings: Active managers are increasingly being asked to demonstrate just how active they really are. Active share is the best measure for making this determination, since it looks at portfolios on the holdings level, whereas tracking error merely shows deviation of performance. Both can be useful, but tracking error is more a proxy for “systematic factor exposure,” whereas active share provides “valuable information on the degree of conviction,” according to the paper’s authors. As stated earlier, active share and tracking error can be used together, and this is especially useful in classifying high-yield bond portfolio managers. Using both measures allows investors to gauge a manager’s “activeness” and determine the sources of that activeness. According to the authors, “relatively high active share in combination with relatively low tracking error would be consistent with an active, diversified, high-yield credit manager.” Portfolio Insights Active share has typically been used in evaluating equity portfolios, but Cole, Flaherty, and Cameron show its usefulness-sometimes in conjunction with tracking error-in assessing high-yield bond portfolios, too. Active share in particular can give investors insight into the drivers of risk and return in credit-oriented fixed-income portfolios, which may have low tracking error but are actually quite active. “This,” according to the authors, “is consistent with a high-yield manager’s investment process, which frequently entails minimizing systematic risk while seeking to maximize returns from the security selection process.”