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Actionable Insights: What The FANG?

Do you know what FANG stands for? If you don’t, you should – it makes an impact on your investments in ways you might not realize. FANG stocks mask the fact that the overall tech sector is under pressure compared to other indexes. 12/10/2015 You might have started hearing the word “FANG” thrown around in recent months and have questions on what it means. Like many terms before it, such as BRIC (Brazil, Russia, India, China), FANG is a recently-coined term associated with Facebook (NASDAQ: FB ), Amazon (NASDAQ: AMZN ), Netflix (NASDAQ: NFLX ), and Google (NASDAQ: GOOG ). The performance of these stocks has been nothing short of impressive this year (avg. +87% return year-to-date), but what’s more important is the FANG’s impact on other investments, such as the NASDAQ ETF (NASDAQ: QQQ ). Though investors think they might be diversifying by owning ETFs, the FANG stocks make up about 20% of the ETF’s composition. When we include Apple (NASDAQ: AAPL ) and Microsoft (NASDAQ: MSFT ), that number increases to 41%. So when you think about diversification, remember that over 40% of your investment is allocated to just six companies. This has been a pretty great issue to have this year, but it’s important to realize this before choosing your investments. More importantly, this heavy allocation into six companies skews what on face value looks like relatively great performance out of the NASDAQ this year: As you can see, the NASDAQ (less the top six stocks) has significantly underperformed the other major indexes. When you consider this index is weighted more towards growth/technology companies, and that mutual funds are beginning to write down private venture investments , its paints a much bleaker picture on tech’s ability to maintain its high multiples going forward. Additionally, as ETFs become an increasing larger portion of the market, the FANG stock may begin to move based on overall market buying/selling of indexes. Just something to keep an eye on….and now you know FANG. The Actionable Insight Take : With poor performance out of recent IPOs like Square (NYSE: SQ ), the write-downs of private investments in “unicorn” stocks, and general weak performance out of the NASDAQ this year, we are growing increasingly concerned about valuation in the tech sector. If the market were to start rotating into lower-risk stocks, many of the currently unprofitable “unicorns” would probably have a high likelihood of a sell-off. On the FANG front, we tend to prefer Google for its mix of growth and value, its profitability and strong balance sheet, and its opportunities to grow new, valuable businesses in the future (Google fiber, autonomous cars, expansion of YouTube, etc.). We commend Netflix for its transition into media production to offset the risk of rising content costs, but we fear the risk of miss-hits in production (something all producers eventually face). We think NFLX could take pricing here and there is ample room to grow internationally, but at its current price we think some of that is already priced in. Next week, I’ll be skiing in Utah, so stay on the lookout for my special skiing edition of Actionable Insights Last, as a shameless plug, it was announced this morning that my recent write-up on Ross Stores (NASDAQ: ROST ) came in 4th place in Seeking Alpha’s retail ideas contest . You can find the write-up here . Actionable Insights is a daily newsletter written by Shaun Currie, CFA, which aims to provide investors with quick, educational updates on market news with insights on possible investment opportunities. Periodically, Actionable Insights will also contribute longer investment ideas that the author produces for clients and the general public. Follow me to get notified when updates and articles are posted.

ETF Update: A Look Back At November And 9 Funds To Kick Off December

Summary Every week, Seeking Alpha aggregates ETF updates in an effort to alert readers and contributors to changes in the market. There were 9 launches last week and a total of 21 in November. Have a view on something that’s coming up or a new fund? Submit an article. Welcome back to the SA ETF Update. My goal is to keep Seeking Alpha readers up to date on the ETF universe and to gain some visibility, both for the ETF community, and for me as its editor (so users know who to approach with issues, article ideas, to become a contributor, etc.) Every weekend, or every other weekend (depending on the reader response and submission volumes), we will highlight fund launches and closures for the week, as well as any news items that could impact ETF investors. There were 21 launches in November, with just 2 closures, so a net gain of 19 funds. Taking a look back, we see a continuing focus on Smart Beta ETFs. These are funds that hope to capitalize on the perceived systematic biases or inefficiencies in the market, rather than the traditional index construction around market capitalization or sectors. This has been a growing trend in the industry and I expect to see more before the end of the year. November Total Launches Fund Name Ticker iShares Currency Hedged MSCI ACWI Minimum Volatility ETF HACV iShares Currency Hedged MSCI EAFE Minimum Volatility ETF HEFV iShares Currency Hedged MSCI EM Minimum Volatility ETF HEMV iShares Currency Hedged MSCI Europe Small-Cap ETF HEUS iShares Currency Hedged MSCI Europe Minimum Volatility ETF HEUV BlueStar TA-BIGITech Israel Technology ETF ITEQ First Trust SSI Strategic Convertible Securities ETF FCVT PowerShares Russell 1000 Low Beta Equal Weight Portfolio USLB PowerShares FTSE International Low Beta Equal Weight Portfolio IDLB AlphaClone International ETF ALFI Goldman Sachs ActiveBeta International Equity ETF GSIE FlexShares Currency Hedged Morningstar DM ex-US Factor Tilt Index Fund TLDH FlexShares Currency Hedged Morningstar EM Factor Tilt Index Fund TLEH Global SmallCap Dividend Fund GSD iShares Core International Aggregate Bond ETF IAGG First Trust Heitman Global Prime Real Estate ETF PRME WisdomTree Global Hedged SmallCap Dividend ETF HGSD Etho Climate Leadership U.S. ETF ETHO Deutsche X-trackers FTSE Developed ex US Enhanced Beta ETF DEEF Deutsche X-trackers Russell 1000 Enhanced Beta ETF DEUS FlexShares Real Assets Allocation Index Fund ASET Fund launches for the week of November 30th, 2015 SPDR Fossil Fuel Free ETF opens for business (12/1): Among the top holdings of the SPDR S&P 500 Fossil Fuel Free ETF ( SPYX ) are Apple (NASDAQ: AAPL ), Microsoft (NASDAQ: MSFT ), GE (NYSE: GE ), J&J (NYSE: JNJ ), Wells Fargo (NYSE: WFC ), Amazon (NASDAQ: AMZN ), Berkshire Hathaway (NYSE: BRK.A ), JPMorgan (NYSE: JPM ), Facebook (NASDAQ: FB ), and Alphabet (NASDAQ: GOOG ). The gross expense ratio is 0.25%, the net 0.20%. Alpha Architect launches a new active ETF (12/2): The MomentumShares U.S. Quantitative Momentum ETF (BATS: QMOM ) picks its holdings with a quantitative model designed to find positive momentum firms. As detailed by the company’s whitepaper on QMOM, “We consider the term momentum to mean a continuation of past returns-past winners tend to be future winners, while past losers tend to be future losers.” State Street launches 3 new factor-focused SPDR funds (12/4): State Street’s (NYSE: STT ) new funds all select high-value, high-quality and low-size firms from within the Russell 1000. However, each tracks a different fourth factor as well, included in the name of the funds: The SPDR Russell 1000 Momentum Focus ETF (NYSEARCA: ONEO ), the SPDR Russell 1000 Low Volatility Focus ETF (NYSEARCA: ONEV ) and the SPDR Russell 1000 Yield Focus ETF (NYSEARCA: ONEY ). These 3 funds all fall into SPDR’s growing selection of Smart Beta ETFs. Direxion launches a new fund and brings 2 back from the dead (12/4): The Direxion Daily S&P Biotech Bear 1X Shares (NYSEARCA: LABS ) offers inverse exposure to the S&P Biotechnology Select Industry Index, which is the index of choice for the SPDR S&P Biotech ETF (NYSEARCA: XBI ). If the Direxion Daily Natural Gas Related Bear 3X Shares (NYSEARCA: GASX ) and the Direxion Daily Healthcare Bear 3X Shares (NYSEARCA: SICK ) sound familiar, it’s because we have seen them before. GASX and SICK were shut down in Q3 2014 and Q3 2014 respectively. SICK’s bull counterpart, the Direxion Daily Healthcare Bull 3x Shares ETF (NYSEARCA: CURE ), had been seeing strong growth until May, which may have been when Direxion decided to give SICK another chance. The first ETF focused on Latin American REITs (12/4): The Tierra XP Latin America Real Estate ETF (NYSEARCA: LARE ) offers investors access to real estate investment trusts (REITs) and real estate operating companies (REOCs) in Latin America. According to a press release at the launch, this ETF was a big team effort: “The ETF was introduced by a partnership between Tierra Funds, ETF Managers Group, ISE ETF Ventures, and XP Gestão de Recursos, an XP Group company.” This is the first ETF targeting Latin American REITs specifically. There were no fund closures for the week of November 30, 2015 Have any other questions on ETFs or ETNs? Please comment below and I will try to clear things up. As an author and editor I have found that constructive feedback is the best way to grow. What you would like to see discussed in the future? How can I improve this series to meet reader needs? Please share your thoughts on this first edition of the ETF Update series in the comments section below. Have a view on something that’s coming up or a new fund? Submit an article .

Stay Out Of The Junkyard: Low-Priced Stocks Are Hazardous To Your (Financial) Health

My last post generated a fair amount of negative feedback on my Yahoo Finance page and on Twitter . There’s nothing quite like waking up in the morning and being called an idiot (and worse) by all sorts of strangers on the internet. I understand that people have strong feelings about Fannie Mae and Freddie Mac, but I have to say, the vitriol of the comments took me by surprise. Setting aside whether it was fair (or legal) for the government to change the bailout terms for Fannie and Freddie, my main point in writing about the two giant GSEs seemed rather straightforward: the low-priced stocks and preferred shares of Fannie Mae and Freddie Mac are extremely risky investments. If Washington formally nationalizes these companies (or does so informally, as it seems to be doing right now), there is a good chance that their stocks will go to zero. Sure, the big hedge funds and their armadas of lawyers might prevail in court and win the return of the companies’ dividends to shareholders. But even if that happens, it will probably take years. As I wrote in the last line of the post, “There are easier ways to make money.” The broader lesson of the GSEs for both retail and professional investors can be stated in four words: What do I mean by junk stocks? There are all sorts of ways to answer that question. Usually, junk stocks are defined as companies with shrinking revenues, outsized debt loads and negative cash flows. But there’s an easy way to spot junk stocks without digging through financial disclosures: if a stock is below five bucks, it is more than likely a troubled mess not worth investing in. As I write in my book Dead Companies Walking , the vast majority of low-single digit stocks in the market are over – not under- priced. Almost all of them have been relegated to the stock market pick-n-pull for one (or more) of three reasons: a bad business, a bad management team, or a bad balance sheet. It’s not uncommon for companies with sub-$5 stock prices to suffer from all three of these maladies. Yet, many investors cannot resist the temptation to buy these jalopies, hoping for a turnaround that almost never happens. Like vintage cars, a small percentage of cast-off stocks do defy the (very long) odds and regain their former glory. But here’s the thing pick-n-pull investors fail to understand: those stocks are even better buys at $8 or $10 than they were at $2 or $4. Why? Because improving fundamentals have taken hold by then, and the wider market has taken notice. Good news spreads quickly, and healthy, wealthy, and popular companies tend to get healthier, wealthier, and more popular as cash flows fatten and more investors pile in. Consider how brutally top-heavy the markets have been this year. At the end of July, I (lightly) cautioned investors to be wary of the high-flying FANG quartet – Facebook (NASDAQ: FB ), Amazon (NASDAQ: AMZN ), Netflix (NASDAQ: NFLX ), and Google ( GOOG , GOOGL ) – saying that any correction in the tech sector could also drag these stocks down to earth again. So much for market forecasting. Shortly after I wrote that post, the market did go through a correction. The FANGs fell along with everyone else, but they’ve all charged to new highs since then. If you add the other two largest tech companies (Microsoft (NASDAQ: MSFT ) and Apple (NASDAQ: AAPL )) to the FANGs, these six behemoths now comprise 12 percent of the S&P 500’s $18.5 trillion total market capitalization, and have accounted for just about all of the index’s gains this year. If these half dozen names were flat, not up, the S&P would be down 1.5 percent year to date instead of up 1 percent. More importantly from an investment standpoint, the likelihood that any of them will go broke is exactly nil. They all have rapid revenue growth, strong balance sheets, capable Boards and highly educated employees. Those attributes are much harder to find at troubled companies with sub-$5 stock prices. The top-heaviness of the current market might be extreme, but it isn’t new. Historically, a minority of stocks have always outperformed the overall market over any lengthy time period. All the major indexes (minus the Dow) are market capitalization weighted. That means a few mega-cap winners, like Google or Amazon, can (and often do) offset the stock price declines at dozens, or even hundreds, of smaller companies. Though I usually don’t buy the stocks of large, widely analyzed businesses, my own returns as a fund manager bear this out. My best performance has occurred when most of my shorts are below $10 (and hopefully heading toward zero) and my longs are pricier. In years where junk outperforms value (like 2003 and 2009), I tend to underperform. A few years back, Blackstar Funds analyzed the returns of the Russell 3000 between 1983 and 2007. Even for a cynic like me, the bearish results were shocking. Of the 8000+ stocks that were either in the Russell 3000 originally or that entered it at some point during the study period (usually via an IPO), 39 percent produced a negative lifetime total return – with 19 percent losing over 75 percent. Only 1 in 5 stocks produced a 300 percent or greater return. And yet, over that same time period, the Russell 3000 gained over 1000 percent – all because a small handful of large winners crushed the median stock’s advance. In life and in the stock market, the rich tend to get richer. For everyone else, it’s a different story. Original Post