Tag Archives: etf-hub

Forget Semiconductor ETFs, Try Other Options In The Tech Space

The technology sector saw pretty choppy trading ahead of the Q2 earnings season, with most tech ETFs falling by the wayside. The sector is likely to see lower earnings in Q2, relative to the same-period last year. The sector posted 6.2% earnings growth in Q1 while it is expected to post a decline of 4.9% in Q2. The chances of the Fed rate hike coming sometime later in 2015, global growth worries, the rout in the Chinese market, the ongoing Greek debt crisis strengthened the risk-off trade sentiment in the market and took the shine out of the cyclical tech stocks. While the impact was broad based, semiconductor stocks had to bear the brunt, having bled the most in the tech sector. The semiconductor space was investors’ darling and one of the best performing sectors in 2014, courtesy encouraging industry fundamentals. But, of late, its fundamentals have worsened with the struggling PC market. The second quarter of 2015 witnessed PC shipments falling 9.5% year over year, marking the steepest decline since the third-quarter 2013, per Gartner (read: Chipmakers Q1 Earnings Fail to Fuel Semiconductor ETFs ). A strong greenback, higher inventories in the semiconductor and electronics supply chain and the launch of Windows 10 were held responsible for this decline, per the research agency. In fact, these factors will continue to remain an overhang on PC shipments in the rest of 2015. This coupled with semiconductor giant Intel Corporation’s (NASDAQ: INTC ) underperformance wreaked havoc in the space. The INTC stock is down over 18% this year (as of July 14, 2015). Over the last one month, the stock has shed about 5.5%. Though Micron Technology’s (NASDAQ: MU ) (stock is down 44% YTD as of July 14, 2015) potential takeover deal could push semiconductors in the short term; overall sentiment remains grim. If this was not enough, IBM’s (NYSE: IBM ) successful development of 7-nanometer chips might act as another deterrent to chip market leader Intel’s growth. Semiconductor ETFs including SPDR S&P Semiconductor ETF (NYSEARCA: XSD ), Market Vectors Semiconductor ETF (NYSEARCA: SMH ), and iShares PHLX SOX Semiconductor Sector Index ETF (NASDAQ: SOXX ) were down 9.7%, 6.7% and 6%, respectively in the last one month. Where Does the Focus Shift to Now? While the semiconductor sell-off continued to weigh on the tech space, the Internet, mobile, and broad social media markets have survived the recent sell-off pretty well. Below, we have highlighted three such ETFs in detail (read: ETF Strategies for 2H ): PowerShares NASDAQ Internet Portfolio ETF (NASDAQ: PNQI ) This ETF tracks the NASDAQ Internet Index, a benchmark of about 97 companies in the Internet segment of the economy. The product has about $223.5 million in assets, though volume is a little light at around 20,000 shares a day. Internet software and services make up about 61% of the portfolio while Internet retail constitutes about 34% of the fund. Large caps do account for roughly half the assets while growth stocks account for roughly 75% of PNQI. Top three holdings include Facebook (NASDAQ: FB ), Amazon.com (NASDAQ: AMZN ) and Google (NASDAQ: GOOG ) (NASDAQ: GOOGL ) with over 25% exposure of the total. PNQI is up about 12% year-to-date and added about 3.2% in the last one week (as of July 14, 2015). However, PNQI has a Zacks ETF Rank #4 (Sell) with a High risk outlook. First Trust DJ Internet Index ETF (NYSEARCA: FDN ) This fund follows the Dow Jones Internet Index, a cap weighted benchmark of Internet companies based in the U.S. market. FDN is pretty popular with investors, as over $3.08 billion is invested in the product while average daily volume is over 260,000 shares a day. Information Technology accounts for over half the portfolio, followed closely by Consumer Discretionary at 25% of assets. Facebook (10%), Amazon (9.69%) and eBay (NASDAQ: EBAY ) (6.1%) are the fund’s top three holdings. The fund charges 57 bps in fees. The fund is up 13.4% so far this year and added over 2.8% in the last one week. The fund has a Zacks ETF Rank #3 (Hold) with a High risk outlook. iShares North American Tech-Software ETF (NYSEARCA: IGV ) This ETF provides exposure to the software segment of the broader U.S. technology space by tracking the S&P North American Technology-Software Index. The fund holds a basket of 63 securities. It is quite popular with AUM of over $1.2 billion while volume is moderate as it exchanges nearly 120,000 shares a day. The product charges 47 bps in annual fees and has gained about 9.8% so far this year. The fund was up 2.7% in the last one week. IGV has a Zacks ETF Rank #3 with a High risk outlook. Bottom Line The broader technology sector may be lagging, but not the specialized corners of Internet and software. Firms in this corner of the market have led the way higher, and have seen market-leading performances over the past week. Thus, a look at the aforementioned ETFs could be a way to earn smart gains out of a slackening sector (read: Beyond XLK: 3 Great Tech ETFs ). Original post

Unloved In The Marketplace, Savvy Senior ‘Income Growth’ Portfolio Increases Cash Flow Payout

“Total return” results have been nothing to brag about for this author and many others focused on income and dividend investing in recent months. But through re-investing and compounding, my 10% yielding portfolio has increased its income flow by 14.7% from a year ago. In other words, the “income factory” continues to expand its output, even while the factory itself has seen its market price drop, making re-investment even more attractive. I would worry if I thought the income factory were worth less in an economic sense, but it is not. A lot of what is spooking markets these days (the Fed, Greece, Puerto Rico, inflation) is just noise. From a total return standpoint, it has been a tough first half in 2015 for many dividend-focused investors, including me. Fortunately, I focus on what my “income factory” produces, and not how the market values it from day to day or month to month. From that standpoint, the news is positive since “factory output” (i.e. income) continues to increase steadily, and I can re-invest that output in additional machines (i.e. income-producing assets) at bargain prices. To be specific, the cash income my factory produced for the first 6 months of 2015 was up 14.7%, higher than the cash income it generated during the first six months of 2014. The six-month cash yield was 5.1% (10.2% annualized) versus a total return that was just barely positive at 0.2%, so without the cash distributions, the return would have been a negative 4.9%. In a practical sense, having a 10% dividend stream that I can re-invest in assets that have essentially been “on sale” for the past nine months is a great opportunity and accounts for my income stream increasing at the rate it has. Since the end of the quarter (June 30), market values have dropped even more, so my current total return year-to-date as we go to press is a bit lower (minus 1%). I mention this in order to compare it to a few useful benchmarks that also report on a year-to-date basis: · Vanguard Dividend Appreciation ETF (NYSEARCA: VIG ): YTD total return of 1.6%, with a yield of 2.24% · Vanguard High Dividend Yield ETF (NYSEARCA: VYM ): YTD total return of -1%, with a yield of 3.26% · ProShares S&P 500 Dividend Aristocrats ETF (NYSEARCA: NOBL ): YTD total return of -.27%, with a yield of 1.85% · SPDR Dividend ETF (NYSEARCA: SDY ): YTD total return -2.32%, with a yield of 2.37% · Vanguard Wellesley Income Fund (MUTF: VWINX ): YTD total Return of -0.4%, with a yield of 2.7% · Vanguard Wellington Fund (MUTF: VWELX ): YTD total return of 1.05%, with a yield of 2.4% In short, it’s been a tough quarter for balanced fund or dividend growth type investors, with mostly flat or slightly down results. The poor total returns are offset, of course, by the ability to compound dividends. But that’s limited if you’re only earning 3% or 4% yields like so many “dividend growth” portfolios. That’s why I’m pretty satisfied at this point with my “income growth” strategy (that many readers are familiar with from past articles, like this one , and this one ) that focuses on growing the income stream through compounding high cash distributions (8-10% or so), and does not rely on organic growth (dividend increases) or market value appreciation. The potential “fly-in-the ointment” in a strategy like mine would be if the decline in market value were a genuine signal of a drop in the income generating potential of a particular asset. So we have to ask the question: · Is the current drop in prices, especially for high-yielding assets like utilities, high-yield credits, and leveraged closed-end funds and other vehicles, a sign that the high yields these assets generate are in jeopardy? · Or are they more a reflection of the “nervous Nelly” quality of the equity markets, where concerns about various issues can translate into selling pressure in unrelated markets and asset classes. I subscribe to the “nervous Nelly” view and believe that markets are seeing negatives that don’t actually exist or are not relevant to the high yield and leveraged markets. Some examples: · Concern about Janet Yellen and the Fed raising interest rates. First of all, when the Fed finally does raise rates, it is likely to only be 50-100 basis points, if that. While that may send a signal that the economy is “normalizing” and that the artificially low interest rate era may be ending, it is hardly enough to hurt leveraged closed-end funds or most other leveraged vehicles. So a closed-end fund that is borrowing at 1% will now have to pay 1½% or 2% instead. If they are using the money to invest in loans, bonds or preferred stock, etc. paying 5%, 6%, 7% or more, it is still a good deal. Meanwhile, the rates on what they are buying will likely go up as well. · All bonds are not created equal. Rising interest rates tend to hurt long-term, fixed-rate, government and investment grade corporate bonds. That’s because these bonds have a relatively high duration and most of the interest coupon an investor receives is payment for taking interest rate risk, not credit risk. High yield bonds, leveraged loans and many other high-yielding instruments often have shorter durations and the coupon represents payment for taking credit risk, not interest rate risk. The irony is that many of these assets actually do better when interest rates increase because the rising rates are a sign of an improving economy, which tends to improve credit performance. Credit performance, rather than interest rate risk, is the main factor in portfolio performance of high-yield bonds and loans. (Loans, by the way, are floating rate, so they have virtually no interest rate risk at all). · Concerns about inflation. In general, I do not see inflation as a medium- to long-term threat the way it was 30 years ago. The main reason is the globalization of our economy, including labor markets. Merely living in a developed country no longer guarantees you a developing country level wage anymore, now that companies can move jobs – actually and virtually – all over the world. This will continue to keep wage inflation down in the United States for years to come. This in turn will have a moderating effect on interest rates. · Other negatives – China’s stock market meltdown, Greece’s economic and political problems, Puerto Rico’s insolvency – may make headlines but are unlikely to affect the ability of the companies in our various fund portfolios to meet their obligations and maintain those funds’ cash flows. So those are the various negatives that I’m NOT particularly worried about. On the positive side, I am happy that the economy continues to make steady forward progress. I don’t need it to race ahead, since I’m not looking to the stock market to appreciate for my strategy to work. I just want the hundreds or thousands of companies whose stock, bonds, loans and other securities are owned by the dozens of funds that I own to keep on paying and continuing to provide the cash flow that my funds distribute. I have not changed my basic portfolio much at all from three months ago, and you can see it in my April article here . A few tweaks included: · Selling off a portion of my Cohen & Steers CEF Opportunity Fund (NYSE: FOF ) when it reached a market high a few months ago. It’s a great fund, and I’ve been buying back in now that it’s at a lower price point and yielding 8.7%. · Started adding Babson Capital Participation Investors (NYSE: MPV ) as a solid “buy once, hold forever” sort of investment. It has been managed by Mass Mutual Insurance since 1988, with an average annual return over that time of over 10%. It holds “private placements” which are the fixed income “bread and butter” of the insurance industry, and Mass Mutual is a long-time professional at it. The shares sell at a 9.7% discount, well below its typical 4% discount, and it pays a distribution of 8.6%. · Added to Reaves Utility Income Fund (NYSEMKT: UTG ) as its price came down and yield went back up to 6.25%, which is high for this excellent fund that many of us here on Seeking Alpha have liked and held for many years. · Added to Duff & Phelps Global Utility Income Fund (NYSE: DPG ); good solid holding in the utility sector; great opportunity right now at almost 14% discount, 8.2% yield. · Added to Blackstone/GSO Long-Short Credit Income Fund (NYSE: BGX ); good solid floating rate loan fund at 14% discount with 7.6% yield; excellent managers. I continue to watch some of my higher volatility holdings like a hawk. Oxford Lane Capital (NASDAQ: OXLC ) and Eagle Point Credit Company (NYSE: ECC ) continue to bounce around price-wise, but still make their regular distributions, with yields of 16.7% and 11.8%, respectively. They both are challenging to analyze and understand, but the bottom line is that both seem to have plenty of cash flow (which in their world of CLO investing is different than GAAP income) to make their dividend payments, so I am happy to have them in my portfolio. All my high-yield bond funds are underwater, but for reasons mentioned earlier in the article, as an asset class they seem to be in no economic danger of not being able to meet their distributions, so I am inclined to hold them. In fact, the improving economy should help them. If I were not already an investor, I’d be buying into the asset class, just as I did in 2008 and 2009. (When there’s blood in the streets, you buy, right?) That’s about it. “Steady as you go,” is my mantra. Keep re-investing those dividends. Disclosure: I am/we are long BGX, MPV, UTG, ECC, OXLC, DPG, FOF. (More…) I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

China’s Bubble: How To Profit

Summary The Shanghai index fell more than 8% today, marking the greatest loss in almost a decade. Investing in China has always been notoriously difficult for foreigners. Fortunately, there are a small handful of inverse ETF’s that allow foreign investors to possibly profit off the Chinese downturn; this article will offer a brief overview of these companies. Introduction One of the few people to get rich in the 1929 crash was a man named Jesse Livermore, or ‘boy plunge’, who made over $100 million during a period when almost everyone else in the industry went broke. In 2006, hedge fund manager John Paulson made one of the most famous bets in Wall Street history when he bet millions against the sub-prime housing market using credit default swaps, which quickly turned him into a billionaire. Did the Chinese stock market just create the next big short-selling opportunity? There is a lot of media coverage with respect to the ‘China Bubble’, however, I could not find anything that offered an overview of the best way to capitalize off of the bubble for the Western investor. This article will offer a brief overview of the performance of the Chinese stock market, but will not go into as much detail as this has been covered before; instead, the focus of this article will be on how to possibly benefit from an overvalued stock market bubble. The China Bubble ^SS000001 data by YCharts Last month, China finally started a much anticipated turn around in their overheated stock market. Much of this fall was in the Shanghai index, which has a lot of the more expensive tech stocks, with very high P/E ratios. Most investors have little to no experience about investing in China as government policies have historically made this difficult, up until loosening of said policies within the last few months. Furthermore, the Chinese government plans to possibly place restrictions on foreign short-selling of Chinese securities, which has further confounded the picture for foreign investors. China’s stock market has been rising without anything slowing it down for several years now; most notably, within the last year the Shanghai index has absolutely exploded by more than doubling in value. It’s important to note that within the last six months, a large number of retail investors have entered the picture in China, seemingly under the premise that the Chinese markets could never go down; this has led to prices surging, especially on the Shanghai index, as many of these poorly educated investors spent money haphazardly. This has led to the stock price deviating significantly from the fundamentals, and created a bubble. A couple of weeks ago that bubble started to burst as the Shanghai index went from above 5000 to 3500; this stall seemed to have stabilized after the Chinese government announced loosening of margin requirements, halted the trading of certain corporations, and facilitated massive amounts of promised investments from large corporations until the Shanghai index hit 4500. This seemed to create some stabilization pressure as the Shanghai index fought to stay above 4000; today the Shanghai index fell more than 8% for it’s largest drop in almost a decade. The Fundamentals The strongest belief that I have with regards to investing is that your decisions should be based on 99% fundamentals, and 1% reading chart trends. Every day I am perplexed by the masses of people who spend hours looking at charts, technical indicators, and ‘doji’s’, without once pulling up the latest quarterly report, reading the news, and crunching the numbers. I don’t understand people that solely make their investment decisions based on how other people chose to buy or sell that stock, over a certain period of time in the past. The 1% of your effort that you should spend on reading charts, is specifically ideal for this type of situation. We know the market is overvalued, yet we don’t know when people will come down to reality. In short, I think that it makes sense to ignore the momentum of a stock and base decisions purely on the fundamentals; however, when it comes to make a riskier short bet it seems logical to look for the momentum indicator to confirm a decision based on the fundamentals. This is because one’s losses are finite in a long, but theoretically infinite in a short. Looking at the fundamentals for China can be quite terrifying. The most touted metric in the media seems to be the absurd price to earnings ratios that are emerging. Furthermore, the average P/E seems to be skewed as there are a large number of banks that are trading at 12 P/E, while technology stocks are trading in the mid 60’s. How to Invest Against China? Most investors tend to purchase stocks in their own currency, and on exchanges in their own country. This is because most people generally feel more comfortable investing in their own currency because they don’t want to deal with the unknown variables such as exchange rates. Also, we tend to get an over proportionate amount of news, and tend to learn more about our own economy, making us more confident to invest. People tend to invest in areas they know more about, which is why amateurs investors tend to invest in fields they work in, or may have an expertise in. This is of course generally a good idea, as you don’t ever want to invest in something before you fully understand a company. I will admit that I am far from an expert in Asian markets, and when I do pay attention to Asia I tend to focus on the macroscopic picture, rather than individual companies. I think hat the vast majority of Western investors think along the same lines, and find it confusing to invest in any one company in Asia. Fortunately, there are exchange traded funds (ETFs) that makes the job a whole lot easier. I’ll go over some of them below. Based on my research I was able to find 3 ETFs that short the Chinese markets, some of them using leverage; this article will offer a brief overview of all three. I think it is important to understand how an ETFs like these work, as it can be quite hard to understand. All of these ETFs are daily inverse ETFs, and therefore should closely match the corresponding index for one day. However, for the leveraged ETF’s, they tend to look much different than the actual index due to the compounding effect of leverage. For example, with a triple inverse ETF, the index could lose 90% of its value in one day, then double the next, resulting in you losing all of your money. It’s important to understand how quickly one can lose or make money with this environment. With the extraordinary manipulation of the Chinese markets, this can be an extremely dangerous trade. The ETFs CHAD data by YCharts ProShares Short FTSE China 50 ETF (NYSEARCA: YXI ) and ProShares UltraShort FTSE China 25 ETF (NYSEARCA: FXP ) The Proshares Short China 50 FTSE is an ETF which is designed to correspond to the inverse of the China 50 FTSE, while the Proshares Ultrashort China 50 FTSE corresponds to twice the inverse. The China 50 FTSE includes the 50 largest stocks on the Hong Kong Stock Exchange, which has almost half of their investments in the finance sector, with under 4% in technology. The table below made available by Proshares outlines their asset distribution. Keep in mind that this index has not been the focus of attention recently. Direxion Daily FTSE China Bear 3x Shares ETF (NYSEARCA: YANG ) The Direxion Daily China Bear 3X Shares ETF is essentially the Proshares ETF on steroids; for the investor with nerves of steel, one can return three times the inverse of the China 50 FTSE. This is the most leveraged Chinese ETF available, but again it corresponds to the top 50 most liquid companies in China, and would not necessarily be the most profitable in the event of a collapse. Direxion Daily CSI 300 China A Share Bear 1X Shares (NYSEARCA: CHAD ) The Direxion Daily CSI China A Bear 1x Shares most recently added Chinese bear ETF, and it directly corresponds to the most controversial index: The China A shares. Chinese A shares are ordinarily restricted to Chinese citizens, and are traded on the Shanghai and Shenzen Stock Exchange; foreign investors must go through the Qualified Foreign Institutional Investor system. Fortunately, we can still take advantage of the situation through CHAD! Although this is not a leveraged ETF, it corresponds to the most volatile part of the Chinese stock market, and may be the most likely to produce the most profit in the event of a downturn. Conclusion Although I still believe that the Chinese markets are inflated, the government intervention makes this far too speculative for me; I bought all three of these ETFs right before the crash last month, and settled them a couple of weeks ago to play it safe. However, for the more aggressive investor, there are still ways to profit off the potential collapse of the Chinese markets. Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More…) I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. Additional disclosure: Used to own all three but sold a couple of weeks ago.