Tag Archives: development

A Taste Of Turkey ETF Before Thanksgiving

The great quote ‘what’s in a name?’ by William Shakespeare probably falls inappropriate in some cases. Let us say why. Thanksgiving is just around the corner, and demand for turkey is high. While turkey is good only for a blessed dinner, investors can give special attention to a specific country named ‘Turkey’ on Thanksgiving – for any insightful investing opportunity – thanks to the similarity in name with the bird turkey, which is a must for most Americans on the special day. For those investors, we would like to dish out the economic and the stock market outlook of the equities and ETFs of Turkey. The timing is also apposite as the pure-play Turkey ETF, the iShares MSCI Turkey ETF (NYSEARCA: TUR ), has gained about 2% in the last one month (as of November 23, 2015), though the product is down about 23.8%. What’s Behind the Recent Bullishness? The Turkish market has been enjoying a bullish stretch recently thanks mainly to political hopes. Its ruling Justice and Development Party (AKP) won a surprising majority in this month’s election to rule till 2019. The significant win put an end to the months-long political unrest and boosted the demand for risky assets in anticipation of a stable government. In fact, consumer confidence in Turkey also leaped post AKP’s win. Economy Edges Up This once-woebegone economy is also sending positive vibes on the economic front. In October, its government doled out the Medium-term Economic Program and the Financial Plan for 2016-2018, wherein softer growth targets were mentioned but increased spending on social policies and defense areas was also hinted at, per Organization for Economic Cooperation and Development (OECD). Investors should note that the Turkish economy, normally known for its wide current account deficit, recorded the ‘ largest surplus in six years’ in September, breezing past both year-ago number and analysts’ expectations. Persistently weak oil prices and a soft import demand led to this jump. Notably, slumping oil prices is vital to the Turkish economy as the country imports more than 90% of oil for about 70% of its total energy needs. Imports fell 24.4% in the month – the steepest monthly plunge in five years – which in turn lowered trade deficit. Sky-high inflation – the key botheration in the Turkish economy – eased in October after hitting a four-month high in September. Turkey’s central bank guides inflation at 7.9% at the end of 2015 and at 6.5% in 2016. The economy stepped up in Q2 and grew 3.8% year over year, beating market expectations. The growth rate was the best since the first quarter of 2014 thanks to strong domestic demand . In the first quarter of this year also, the growth rate came ahead of forecasts. As per OECD , the economy’s GDP is likely to increase from 3% in 2015 to more than 4% in 2017 on abating political upheaval, improving job growth and a falling Turkish lira which in turn will boost exports in association with a global economic recovery. Lira has lost about 17.5% so far this year (as of November 23, 2015). Deterrents Despite this optimism, the market is exposed to risks. A spike in geopolitical crisis at the southern region, terror attacks in the Middle East and the related entry of refugees are huge threats to the economy, per OECD. Moreover, the Fed is preparing for a lift-off, though gradual, in December. This will lead to a flight of capital from the Turkish economy and weaken the currency further. In any case, the Turkish lira is one of the worst-performing currencies this year. Further weakness in the currency will put pressure on the country’s huge oil imports, exaggerate foreign exchange outflows and lead inflation to jump. Lira’s decline has already lowered the average Turkish income from more than $10,000 to around $9,000 . If this trend continues, it would be tough for Turkey to emerge out of this vicious cycle. All in all, though tensions persist, things are slowly turning for the better. Considering both pros and cons, investors should take a closer look at the Turkey ETF before investing. Below we highlight the key details of the fund. TUR in Focus The ETF follows the MSCI Turkey Investable Market Index and provides a pure play exposure to 76 Turkish stocks. The fund is highly concentrated on its top 10 holdings which make up for nearly 60% of assets. Financials dominate the fund’s returns with less than half of the portfolio while industrials and consumer staples take double-digit exposure in the basket. The fund has amassed around $359.6 million in its asset base and trades in solid volume of about 360,000 shares per day in average. The fund charges 62 bps in annual fees from investors and yields 2.59% annually (as of November 23, 2015). TUR has Zacks ETF Rank #3 with a ‘High’ risk outlook. Technical Look If we take a closer look at TUR, hopes for a surge find some basis. From a technical perspective, TUR is poised for a surge in the coming weeks. Its short-term moving average (9-Day SMA) is above the mid-term average (50-Day SMA), suggesting near-term bullishness. Further, RSI is close to 50, meaning that the fund is about to slip in the oversold territory and might reverse the trend anytime. TUR trades at a P/E (ttm) of 10 times, lower than the broader emerging market fund, the iShares MSCI Emerging Markets ETF’s (NYSEARCA: EEM ), P/E of 11. Original Post

Have Silver Prices Reached A Bottom? ETFs In Focus

There is no doubt that silver has taken cues from the recent free fall in gold prices amid concerns of an interest rate hike by the Fed in their December meeting. A rising interest rate environment lowers the appeal for zero-yielding precious metals like silver. Spot silver prices were recovering for most of October but started dropping from the end of the month following the Fed’s hawkish meeting and stellar jobs report. After enjoying a short-term spike in the wake of the gruesome Paris terror attack last Friday, spot silver prices fell again to its three-month low this week and are currently down more than 9% year to date and below the one-year high by 22%. Therefore, it remains a matter of debate whether silver prices are really crashing or have already reached their bottom. There are a number of factors which indicate that silver prices will indeed rebound and that too even strongly. First, although there is a strong chance of an interest rate rise, the most recent Federal Open Market Committee (“FOMC”) meeting hinted that the hike will be soft. This has led to a pullback in the U.S. dollar and again brightened the prospect of precious metals as an investment asset. Second, recent growth forecasts suggested that the global economic slowdown is more pronounced than expected. Recently, the Organization for Economic Co-operation and Development (“OECD”) cut its 2015 global growth forecast to 2.9% from 3% expected earlier. The sluggish growth will largely be due to China, which is projected to grow by 6.8% in 2015, its lowest in 25 years. Precious metals like gold and silver are considered as an excellent economic hedge during a prolonged period of economic downturn, as investors prefer them over riskier assets such as stocks. The present slide in silver prices also presents a good buying opportunity. Finally, since silver is used in a number of key industrial applications, China’s economic slowdown is expected to hurt its demand. However, the white metal is expected to draw leverage from its use as the best metallic conductor in solar panels. About 3 million ounces of silver are required to generate one gigawatt of electricity from solar energy. Increasing government efforts to curb carbon dioxide emissions are boosting the demand for solar panels across the world. Most of the demand is likely to come from China, which is expected to become the world’s largest installer of solar panels this year. Despite the white metal hitting a three-year low price this week, silver mining ETFs rebounded in the last five days (as of November 19, 2015). Investors should closely monitor the movement of these ETFs as the rally is expected to continue in the coming days. Global X Silver Miners ETF (NYSEARCA: SIL ) This ETF follows the price and yield performance of the Solactive Global Silver Miners Index, measuring the performance of the silver mining industry. The fund holds 25 stocks in its basket. Industrias Penoles Cp, Silver Wheaton Corp. (NYSE: SLW ) and Tahoe Resources Inc. (NYSE: TAHO ) are the top three holdings in the fund with allocations of 11.59%, 11.17% and 11.08%, respectively. The top 10 holdings account for 74.24% of the fund’s assets. The ETF is also highly focused on Canadian firms with a 57.96% share, followed by U.S. (12.34%) and Mexico (11.15%). SIL has gathered about $131 million in assets and trades in an average volume of roughly 78,000 shares per day. It charges 65 bps in fees from investors per year. The product lost 29.7% so far this year but was up 4.4% in the past five days. iShares MSCI Global Silver Miners (NYSEARCA: SLVP ) This ETF tracks the price and yield performance of the MSCI ACWI Select Silver Miners Investable Market Index, which provides exposure to companies primarily engaged in the business of silver mining in both developed and emerging markets. The fund holds 30 stocks in its basket. Canadian firms dominate the fund’s portfolio with a 59.49% share, followed by U.K. (13.52%) and the U.S. (9.58%). Silver Wheaton, Fresnillo Plc ( OTCPK:FNLPF ) and Industrias Peñoles occupy the top three positions in the basket with shares of 23.52%, 10.93% and 7.54%, respectively. The top 10 holdings comprise 71.4% of the fund. Notably, the fund also offers some exposure to the broader precious metals and minerals sector (29.72%) and gold (9.23%), apart from silver (60.84%). The product has amassed over $12 million in its asset base and trades in a paltry volume of around 17,000 shares a day. It charges investors 39 bps in fees per year. The fund shed 32.1% in the year-to-date timeframe but returned 2.9% in the last five days. Original Post Editor’s Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.

VGHCX – An Investment Pick In The Health Care Sector

Summary Is this a good time to invest in Health Care Sector? What are some trends in the health care sector? How can investors capitalize on the health care trends to make good investment decisions? All investors have considered investing in specific sectors to bolster the return on investment portfolio. This approach while increasing the risk of the overall portfolio also has the potential to magnify returns if the sector performs well. Health care, considered as a defensive sector will likely outperform many other sectors due to a variety of reasons- aging baby boomers who are likely to need more care, increasing life expectancy, ever pervasive need to develop drugs to treat diseases, cutting edge innovations in medicines and state of the art medical equipments. According to an article in Forbes, health care spending per capita in US is around $10,000 this year with a total of $3.2 trillion in national health care expenditure. Here is my favorite pick in the health care industry: Vanguard Health Care Sector Fund (MUTF: VGHCX ): (click to enlarge) Source Data: Vanguard.com Key performance measures NAV Assets Expense ratio PE ratio $225.21 $48 B .34 37 VGHCX is well diversified fund in the health care sector with a good mix of investments in pharmaceuticals, bio technology, medical equipment companies, managed health care and health care facilities. The largest investment is in pharmaceutical firms which constitute about 45% of the portfolio. The fund focuses on well established large cap companies with average market capitalization around 45 B. Some of its top holdings include Bristol Myers Squibb (NYSE: BMY ), Allergan (NYSE: AGN ), Ely Lily (NYSE: LLY ), United Health Group (NYSE: UNH ), Merck &Co (NYSE: MRK ). About 80% of its portfolio is allocated to companies in US and the remaining 20% is invested in other countries. The foreign holding includes well established companies such as Roche Holdings and Novartis (NYSE: NVS ) based in Switzerland, Sanofi (NYSE: SNY ) located in France and Astra Zenaca (NYSE: AZN ) in United Kingdom. The expense ratio of .34 is very low compared to other healthcare funds. The fund is actively managed with a low turnover ratio of 20%. The turnover ratio indicates the number of times the fund manager buys/sells the securities within the fund. The low turnover ratio will result in lower transaction costs and higher returns to fund holders in the long run. It also reflects the expertise of the fund manager in picking companies with great growth potential and holding for longer periods as opposed to trading frequently. The average annual return on the fund has been around 17.28% since the fund’s inception in 1984 and well above the industry average. According to Vanguard interactive chart, an investment of $10,000 in 2005 would now be worth around $35000 in 2015. This return includes the impact of US and worldwide recession during 2007 to 2009. The total distributions including dividends, Short term, and Long term capital gain was $19 in 2014 which amounted to approximately 8% of NAV. According to Vanguard website, the realized gain as of September 2015 was 4.32% of NAV and the unrealized price appreciation of the fund was a whopping 38%. The median market cap of the assets within the fund is 42.8 billion with a total of 83 holdings. The PE ratio of 37 seems high compared to the industry average (as measured by the MSCI ACWI Health care index) of 24.4 as of October 2015. The health care sector has been characterized by blockbuster mergers/acquisitions, collaborative deals among big pharmaceuticals to develop the next breakthrough treatments for diseases. According to the Pharmaceuticals and Life Sciences insights by PWC.com, there were a total of 59 deals with a value of 67.6 billion during 2015. The low interest rate environment has fuelled a surge in mergers/acquisitions as well as organic growth within the health care sector in US and around the world. The rising share prices have facilitated mergers by enabling companies to use stock as a currency for acquisitions. The VGHCX fund has significant stakes in many of the pharmaceutical/biotech firms companies involved in mutually beneficial deals/consolidations. These deals are expected to shore up the future cash flows considerably for the portfolio companies within the fund and boost the return to holders of VGHCX fund. Highlights of Mergers/Acquisitions/ Partnership deals on top holdings companies within the VGHCX Fund: Actavis, a Dublin based pharmaceutical acquired Allergan for $70.5 billion creating one of the world’s largest pharmaceutical companies. The combined firm anticipated revenues around $23 billion during 2015. Some excerpts from Actavis.com Supporting the growth of this innovative industry model is our strategically focused R&D engine, built on novel compounds in specialty and primary care markets where there is significant unmet medical need, and fueled by approximately $1.7 billion in annual investment. With an innovative product development portfolio exceeding 20 near-term projects and a world-class generics pipeline, which continues to hold an industry-leading position in First-to-File opportunities in the U.S. and more than 1,000 marketing authorizations globally, we are uniquely positioned within our industry to ensure our development activities support sustainable long-term organic growth. Subsequently, Teva Pharmaceutical (NYSE: TEVA ) an Israeli based pharmaceutical company acquired the generics unit from Allergan for $40.5 billion thereby giving the much needed cash infusion to Allergan to reduce its debt level according an article in Wall Street Journal. Bristol Myers Squibb a market leader in oncology recently acquired Flexus Biosciences a privately held biotechnology firm company which specialized in discovery and development of cancer medications for $1.25 billion. Eli Lily acquired Elanco, animal health division of Novartis for $5.4 billion partly funded by cash and debt. According to Eli Lily: Upon completion of the acquisition, Elanco will be the second-largest animal health company in terms of global revenue, will solidify its number two ranking in the U.S., and improve its position in Europe and the rest of the world. With a presence in approximately 40 countries and 2013 revenue of approximately $1.1 billion, Novartis Animal Health is focused on developing better ways to prevent and treat diseases in pets, farm animals and farmed fish. Lilly will acquire Novartis Animal Health’s nine manufacturing sites, six dedicated research and development facilities, a global commercial infrastructure with a portfolio of approximately 600 products, a robust pipeline with more than 40 projects in development, and an experienced team of more than 3,000 employees. Regeneron Pharmaceuticals has entered into collaborative deals with Bayer Health care for treatment of eye diseases, according to Regeneron.com. The companies will share the cost of developing the products as well as the profits. Renegeron and Sanofi have entered into immune-oncology collaboration with Sanofi providing 165 million for research and development of products in this field. Investment Risks: The risks are high since all stocks are concentrated in one sector. The big pharmaceutical firms face fierce competition with each other in coming up with a major breakthrough in treatments. If FDA does not approve the drugs, the biopharmaceutical companies are likely to experience a steep decline in revenues and earnings. Many of the firms may face litigations if the patient experiences adverse side effects due to the drug usage. The biopharmaceutical may experience a sharp decline in revenues after the patents expire. Future Outlook: According to American Public Health Association (APHA) majority of the deaths in US are related to heart disease, diabetes, obesity, high blood pressure and cancer. Money is spent more on treatments rather in prevention. It is hoped that this trend will be reversed as more and more people have health insurance and can afford to spend money on preventive health care. The Affordable Care Act, 2010 has the goal of expanding insurance coverage in US and it is hoped that the coverage will reach 24 million by 2023. The increased health care coverage will likely result in greater doctor and hospital visits. The average life expectancy is around 79 in United States according to World Bank estimates. Baby boomers are expected to spend substantially on health care treatments while Millinnials are likely to spend on preventive health care. Being the recipient of the additional funds spent by Baby boomers, Millennials, and Generation X, the Health Care Sector will continue its stellar performance well into the future. The VGHCX fund which has stakes in well established companies large cap companies will likely reap the benefits of trends in health care industry. With a majority of investments in large stable pharmaceuticals with a median market cap of 40 billion, the VGHCX fund will likely continue its trend of double digit growth rate in earnings and revenues. The fund is trading at approximately 8% below its all time high. With a PE ratio above industry average, the fund still looks expensive. In my opinion, investors can monitor the NAV and add positions when there is a temporary pull back of at least 10% to 15% of NAV. The markets are volatile and there are plenty of opportunities for investors to add positions on a day the market indexes slump. This actively managed fund with the optimal mix of winning companies within the health care sector will be a great investment choice for the long term.