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MLP ETFs Trading At A Huge Discount To NAV

The collapse in oil price has battered the energy sector as a whole, not sparing the master limited partnerships (MLPs) either. In fact, some MLP ETFs have fallen faster than the value of their underlying securities, creating a huge discount to their net asset value or NAV. This suggests an attractive entry point for long-term investors. This is especially true as the authorized participants (NYSE: AP ) of a discounted ETF steps in and redeems the underlying shares to remove the discount and restore the fund’s value back to its NAV. This process results in profits for the ETF holder when the market price rises relative to NAV (read: Is This the Worst Time For MLP ETF Investing? ). MLP: Is A Good Bet Right Now? Trading at deep discounts, the outlook for MLPs is bright amid the oil price rout. This is because most MLPs, which are engaged in the processing and transportation of energy commodities such as natural gas, crude oil, and refined products, are best positioned to withstand the decline in oil prices and be the major beneficiaries of an oil boom in the long term. Acting as toll-takers, these MLPs earn revenues on the volumes flowing through pipes and not on the commodity price. This nature of business will definitely give a boost to these stocks given that worldwide oil production is on the rise. Unlike exploration and production companies whose profits are directly correlated with commodity prices, MLPs have relatively consistent and predictable cash flows, making them safer and less risky than other plays in the broader energy space (read: Oil Hits 12-Year Low: Short Energy Stocks with ETFs ). Beyond the stability, yields are also pretty high thanks to some favorable tax rules – like we see in the REIT space – that push firms in the MLP space to pay out substantially all of their income to investors on a regular basis. Further, MLPs represent a great way of tapping the growing revolutionary developments in the field of unconventional energy. As a result, the steep decline in MLP stocks and ETFs provides an attractive investment opportunity to long-term investors, looking for growth and income. Below, we highlight some products that were trading at a steep discount to NAV as of January 15 (as per Fidelity ): UBS ETRACS Alerian MLP Infrastructure Index ETN (NYSEARCA: MLPI ) : Discount – 5.32% This product tracks the Alerian MLP Infrastructure Index, which comprises 25 mid-stream energy infrastructure MLPs. It has attracted $1.5 billion in AUM and trades in solid volume of 967,000 shares per day. The note charges 85 bps a year in fees and pays out a hefty yield of 8.04%. Credit Suisse Equal Weight MLP Index ETN (NYSEARCA: MLPN ) : Discount – 5.13% This ETN follows the 30 MLP Index, an equally weighted index that uses a formulaic, proprietary valuation methodology and comprises of 30 midstream MLPs. It has attracted $365.5 million in its assets base so far and sees good average daily volume of more than 325,000 shares. Expense ratio came in at 0.85%. The note pays out 7.53% in annual yield. UBS ETRACS Wells Fargo MLP Index ETN (NYSEARCA: MLPW ) : Discount – 4.69% This note tracks the Wells Fargo Master Limited Partnership Index, which provides exposure to all energy MLPs listed on the New York Stock Exchange or NASDAQ with market cap of at least $200 million. It failed to garner enough investor interest with AUM of just $7 million and sees paltry volume of about 13,000 shares. MLPW charges 85 bps in annual fees and expenses, and pays a solid yield of 9.82%. UBS ETRACS Alerian MLP Index ETN (NYSEARCA: AMU ) : Discount – 4.68% This product tracks the performance of the Alerian MLP Index, which provides exposure to 50 publicly traded energy MLPs. It has amassed $351.4 million in its asset base and trades in solid volume of nearly 468,000 shares. It charges 80 bps in annual fees and sports a dividend yield of 7.16%. RBC Yorkville MLP ETN (NYSEARCA: YGRO ) : Discount – 4.57% This note seeks to offer return of the Yorkville MLP Distribution Growth Leaders Liquid Index, which offers access to 25 MLPs exhibiting the highest distribution growth and superior liquidity profiles. It is also unpopular with AUM of $14.5 million and average daily volume of around 15,000 shares. Expense ratio came in at 0.90% and dividend yield stands at 8.54%. MLP ETNs vs MLP ETFs Unfortunately, there are some tax headaches when using the MLP structure, namely the possible need of a K-1 form at tax time. But this issue can be avoided by looking at MLPs that use an exchange-traded structure. This is because ETNs do not actually hold the securities of an underlying index. Instead, an ETN is an unsubordinated debt security that promises to pay out a return that is equal to an index. This is completely unlike an ETF that buys and sells the securities making up a particular benchmark. Due to this advantage, investors can buy MLP ETNs without the hassle of K-1 at tax time, making the above-products excellent choices for those seeking high yield without the taxation headache. Link to the original post on Zacks.com

Go On The Offensive To Preserve And Build Wealth

By Carl Delfeld I’ll never forget the advice given to me by the CEO of UBS Wealth Management. “Carl, remember one thing. Before you go out and tell your clients all the ways you’re going to make them money, try your best not to lose any.” And it’s certainly great advice for all of us, as we move into 2016 amid a high degree of uncertainty. Preserving capital should always be the top priority. Unfortunately, the traditional defensive strategy recommended to achieve this goal – high-quality bonds and blue-chip U.S. stocks – is obsolete. Rising interest rates could crush many bond portfolios, and you only have to look back at the global financial crisis to see how many blue-chip stocks lost almost half of their value in the blink of an eye. Let me share with you two potential ways to protect wealth that you won’t hear about anywhere else. They’re also a low-risk method to build wealth. One: Don’t Become Too Cautious and Defensive First, as any coach or smart sports fan will tell you, the surest way to lose a game when you’re ahead is to become too cautious and defensive. Why? You tend to become tentative, miss opportunities, and lose the initiative that built your success in the first place. It’s far better to intelligently stay on offense, pushing ahead while trying not to take any undue risks. Above all, this is never the time to try the same old tired plays. Two: Stay Open-Minded and Flexible This brings me to the second way to protect wealth, the need to be open-minded and flexible. For the past four or five years, a portfolio of U.S. stocks has performed pretty well, with the flat 2015 being an exception. Part of this is due to the Fed pumping in massive amounts of liquidity, no competition from zero rate Treasuries, and to the strong U.S. dollar attracting capital and hurting international stock returns. It certainly appears to me that at least some of these trends are reversing. This means you need to adjust by taking off the blinders and searching for new opportunities. And to do this you need to fight “home bias.” Going on the Offensive Home bias is the tendency to invest too much in your home country, thereby neglecting overseas opportunities. It’s very comfortable to lean towards the home stock market, but it is contrary to a cardinal rule of investing – not putting all your eggs in one basket. It’s also at odds with common sense since no one country – even America – has a monopoly on growth, value, and progress. When you really think about it, this home bias is puzzling. Why should the world’s best companies with the best growth prospects just happen to be in America or wherever your home country happens to be? I say this even though I’m a huge believer in America’s future, if we pursue the right policies and reforms. This is why I authored a book outlining what needs to be done: Red, White & Bold: The New American Century. In short, where a company is based means less and less; and what it does, and how well it performs, means more and more. And this is especially true for emerging markets, as the value of their stock markets plays catch-up with their contribution to global economic growth and share of the global economy. Just take a glance at these two great charts by JP Morgan. U.S. stock markets still dominate, accounting for 46% of the value of all listed companies in the world, while Japan’s share has dropped sharply from its peak in 1989 at over 30% to just 8% today. The share going to emerging markets has grown sharply, but still sits at around 13%, even though emerging markets represent 83% of the world’s population and half of global growth and output. This big gap between the value of all emerging-market-publicly traded companies and their contribution to global growth and the world’s economy will narrow – and this is your opportunity to cash in. The key trend to watch is the direction of the U.S. dollar. If the greenback levels out or begins to pull back in early 2016, undervalued emerging markets will really take off. The strategy you use to take advantage of this mismatch is critical. Stick with high quality companies showing good growth and strong balance sheets. Diversify across many countries, while favoring those that respect private capital, rule of law, a free press, and open markets. Most importantly, always use a trailing stop-loss to minimize risk. It’s the best hedge to protect your portfolio from a weaker U.S. dollar, and it could really supercharge your returns in 2016. Original Post

Market Fears Flare Up: Volatility ETFs On Edge

The start of the New Year has been brutal for the global stock market with volatility levels at scary heights. The relentless slide in crude oil and persistent weakness in China are intensifying fears of a global slowdown, compelling investors to dump risky assets. In particular, oil price tumbled to levels not seen in more than 12 years with Brent dipping to below $28 per barrel and U.S. crude being below $27 per barrel. Additionally, the spate of negative U.S. economic data, weak corporate earnings, geopolitical tensions, a strong dollar, slumping commodities, and sluggishness in other developed and emerging markets contributed to the woes. If the stock market slide persists, it could put a pause on the slowly recovering U.S. economy. Volatility level is best represented by the CBOE Volatility Index (VIX). This fear gauge measures investor perception of the market’s risk and tends to rise when markets are sliding or investor panic starts to set in. It is constructed using implied volatilities of the S&P 500 index options, taking both calls and puts into account. The index climbed 12.8% in the past trading session and 48.3% since the start of the year, suggesting that risks are rising and investors could definitely benefit from this trend. While investors can’t directly buy up this index, there are several ETF/ETN options available in the market that can provide some exposure to volatility. These products have proven themselves as short-time winners in turbulent times. Below, we have highlighted short-term volatility products that will continue to move higher as long as the China-led deceleration and plunging oil price plague the global markets: Simple Volatility ETFs iPath S&P 500 VIX Short-Term Futures ETN (NYSEARCA: VXX ) – a popular ETN option providing exposure to volatility – sees truly impressive volume of about 71.5 million shares a day. The note has amassed $734.7 million in AUM and charges 89 bps in fees per year. The ETN focuses on the S&P 500 VIX Short-Term Futures Index, which reflects implied volatility in the S&P 500 Index at various points along the volatility forward curve. It provides investors with exposure to a daily rolling long position in the first and second month of VIX futures contracts. VXX jumped 9.9% in the past trading session and has surged 32.8% so far this year. Two more products – ProShares VIX Short-Term Futures ETF (NYSEARCA: VIXY ) and VelocityShares Daily Long VIX Short-Term ETN (NASDAQ: VIIX ) – also track the same index. VIXY has $101.9 million in AUM and sees good average daily volume of around 3 million shares while VIIX is the unpopular of the two with just $11.4 million in its asset base and good volume of more than 271,000 shares per day. While VIXY charges 85 bps in annual fee, VIIX is costlier, charging 0.89% annually from investors. Both products gained nearly 10% on the day and are up 33% in the year-to-date time frame. Another product – C-Tracks on Citi Volatility Index ETN (NYSEARCA: CVOL ) – linked to the Citi Volatility Index Total Return, provides investors with direct exposure to the implied volatility of the large-cap U.S. stocks. The benchmark combines a daily rolling long exposure to the third- and fourth-month futures contracts on the VIX with short exposure to the S&P 500 Total Return Index. The product has amassed $4.6 million in its asset base while charging 1.15% in annual fees from investors. The note trades in good volume of about 167,000 shares per day and gained 16.4% in Friday’s session. It is up 53.5% since the start of 2016. The newly introduced AccuShares Spot CBOE VIX Fund Up Class Shares (NASDAQ: VXUP ) was up 8.8% on the day and has surged 31.2% so far this year. It provides direct access to the spot price return of the CBOE Volatility Index, or VIX and charges 95 bps in fees per year from investors. The fund trades in a paltry volume of about 2,000 shares a day on average. Leveraged Volatility ETFs Investors seeking huge gains in a very short time frame could consider leveraged volatility ETFs. Currently, there are two options available in this category – ProShares Ultra VIX Short-Term Futures ETF (NYSEARCA: UVXY ) and VelocityShares Daily 2x VIX Short Term ETN (NASDAQ: TVIX ) . Both products provide two times (2x or 200%) exposure to the daily performance of the S&P 500 VIX Short-Term Futures Index. Both gained over 20% on the day and are up more than 69% in the first few weeks of 2016. Out of the two, TVIX is more popular with AUM of $446.5 million and average daily volume of 23.3 million shares. However, it charges a higher fee of 165 bps than 0.95% for UVXY. Bottom Line Investors should note that these products are suitable only for short-term traders. This is because most of the time, the VIX futures market trades in a condition known as ‘contango’, a situation where near-term futures are cheaper than long-term futures contracts. Since the volatility ETFs and ETNs like VXX must roll from month to month in order to avoid ‘delivery’, the situation of contango can eat away returns over long periods. However, though ‘volatility of volatility’ is pretty high, this seems a good time to remain invested in this market. Original Post