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The Swiss Remind Us Why You Should Always Own Some Gold

Swiss Franc moves throw a wrech in the global currency picture on Thursday. Gold rallies on the news. We think that some capital should always be allocated to gold. By Thom Lachenmann The overnight news about Switzerland left the markets in a frenzy this morning and were no doubt beacons of both fantastic and horrifying news for FX traders who missed the trade and woke up to mayhem. Switzerland’s central bank stopped pegging the franc to the euro, a move that we really can’t blame them for. In trying to “defend” the Swiss franc, the Swiss national bank had ran up quite a bill. So, they let the dam burst, and burst it did. It was a rule put in place in order to keep the currency from getting too strong, a concept that we find ridiculous to begin with. Currencies, of course, get stronger and weaker based on the overall health of the nation’s macro economy. Limiting the strength of your currency is a dopey thing to do, unless you’re an equity market trader with a full scale bullish position. Switzerland’s tactic of lowering interest rates on the franc while doing this didn’t seem to help at all and the franc skyrocketed to all time highs today. Euro to Swiss Franc Exchange Rate data by YCharts Of course, with the whole world expecting Europe to implement some type of economic stimulus, the Swiss Central Bank could have had a real quagmire on its hands trying to defend its currency if there was a flee from the euro. When countries stimulate the way the ECB could potentially do, it generally causes the currency to devalue in a sharp fashion. We were reminded of the benefits of having some gold in your portfolio today, as well. The commodity was up nearly 2% on Thursday after the Swiss news hit the wires. We think there’s a couple reasons that gold got the boost. First, obviously, people that are having “flights to safety,” as Reuters called it, are simply getting into the precious metal as a portfolio hedge or as a safe haven for capital. Secondly, we believe that the notion of Switzerland unpinning their currency from a major national bank reminds people about the true value of gold, when looked at as a non-recurring resource. Gold is held in reserves by these types of central banks for these reasons, and today’s move by the Swiss shows that not ALL countries have drifted into the “Keynesian Dream” that the US, China, and ECB are in. Swiss equities were crushed, down 11% when U.S. markets opened on Thursday morning. When countries take the “unpopular” but safe moves of thinking Austrian, gold flourishes. This type of move is a nice subtle reminder to note when we’re always going to think of gold as a great safe haven for investors and something that a well balanced investor should always allocate some portion of their capital too, whether it’s through funds or the physical commodity.

A New Biotech ETF Targets Companies In Late Stage Clinical Trials

Summary ALPS Medical Breakthroughs ETF targets biotech and pharmaceutical companies with drugs in Stage II or Stage III clinical trials. This ETF looks for small cap and mid cap companies with greater liquidity and enough cash on hand to survive for at least two years. The management fee for this product is very reasonable compared to other similar products in the biotech area. The boom or bust nature of many of these companies makes it appropriate for only a smaller portion of your portfolio. ETF providers seem eager to take advantage of the popularity of biotechs recently. The biotech sector as measured by the iShares Nasdaq Biotechnology ETF (NASDAQ: IBB ) was up 34% in 2014 and has seen its assets more than double in the past 18 months. In addition, five new biotech ETFs have been launched since the end of 2014 and four of them are targeting unique niches within the biotech universe. I covered one of those ETFs – the BioShares Biotechnology Clinical Trials ETF (NASDAQ: BBC ) – recently and now another specialty biotech ETF has hit the market. The ALPS Medical Breakthroughs ETF (NYSEARCA: SBIO ) launched on December 31, 2014 and is targeting biotech and pharmaceutical companies that have one or more drugs currently in later stage clinical trials. According to the fund’s fact sheet , the company needs to meet the following criteria in order to be considered for inclusion in the ETF: U.S. listed biotech or pharmaceutical firm with 1 or more drugs in Phase II or Phase III FDA clinical trials Enough cash for 24 months at current burn rate Maximum weighting of 4.5% of assets at rebalance A market cap between $200 million and $5 billion Average daily volume > $1 million The fund mandate appears to be logical. Many of the big biotech firms have been having trouble getting new drugs in the pipeline so the focus here is to look instead at the smaller and midsize companies that have promising drugs that are potentially nearing approval. The benefit is two-fold. The approval of a drug that becomes successful in the market could become a huge cash cow for the company and for smaller companies like these could literally alter their landscape. The companies that have a newly approved drug could also end up being the target of a larger firm looking to add to their own channels. With an expense ratio of 0.50%, the management fee for this ETF is quite reasonable. Biotech is one of the sectors that most investors would benefit from putting the professionals in charge as researching and choosing investments individually among the drug companies can be quite cumbersome and costly if not done properly. It probably goes without saying though that the risk involved in these companies can be significant. Since we’re dealing with drugs that are in clinical trial but not yet approved, there’s a bit of a boom or bust proposition here as there’s no guarantee that any of these in-trial drugs will get approved. A drug that gets rejected represents months of work and millions in cost that will see no return on investment and therefore the volatility with these companies can be very high. Investors should only allocate a small portion of their portfolios to a product like this. Conclusion The idea of striking while the iron is hot is nothing new so it’s not surprising to see several new biotech ETFs popping up. This ETF’s focus is particularly intriguing as targeting biotech companies that are making significant investment in and progress towards developing new drugs can be quite lucrative to investors. The management style seems well thought out as well. The 24 months of cash requirement helps ensure that these companies will be around for a while and have the time and resources to develop their products. Looking for companies with a higher trading volume allows investors to buy and sell shares without that high bid-ask spreads that could make investment in these companies unnecessarily costly. Given the target niche of the biotech sector, the company selection philosophy and the reasonable cost, this ETF should be a consideration for investors looking for exposure to biotechs. Now that you’ve read this, are you Bullish or Bearish on ? Bullish Bearish Sentiment on ( ) Thanks for sharing your thoughts. Why are you ? Submit & View Results Skip to results » Share this article with a colleague

Time To Embrace Old Tech ETFs…Again

Summary Investors should look at old technology names for sturdy growth. A tech ETF with heavy weights in established, mature tech companies. Why invest in tech, particularly in the old guard. By Todd Shriber & Tom Lydon It was a prominent theme in 2014, though not one widely embraced by many exchange traded fund investors, but old school technology companies worked and did so in significant fashion. Amid various bouts of volatility and routs for Internet and social media funds, ETFs with an emphasis on the tech sector’s old guard shined bright. That includes the iShares U.S. Technology ETF (NYSEArca: IYW ) , which jumped 19.5% in 2014, topping the S&P 500 by 600 basis points in the process. Tech analysts point to sturdy tech names like Apple (NASDAQ: AAPL ) and Microsoft (NASDAQ: MSFT ), well-established companies that generated steady growth. Apple and Microsoft combine for 29.6% of IYW’s weight and the ETF’s 18.5% Apple allocation is one of the largest among ETFs that hold shares of the iPhone maker. Old tech and IYW could repeat last year’s heroics in 2015. Said BlackRock Global Investment Strategist Heidi Richardson in a recent note: I like mature technology companies-think large established brands like Intel (NASDAQ: INTC ), IBM (NYSE: IBM ) and Oracle (NYSE: ORCL ). These companies can use healthy cash balances to unlock shareholder value, are more likely to fare well if the Fed starts raising rates as expected this year and stand to benefit from continued improvement in the U.S. economy. Intel, IBM and Oracle combine for 13.7% of IYW’s weight. Tech’s durability in rising rates environments is an important consideration, particularly at this point in an aging bull market and amid expectations that the Federal Reserve will boost rates later this year. Said J.P. Morgan Asset Management in a research piece out earlier this year: Dispersion between sector valuations should continue to grow. For example, technology stocks appear attractive based on both forward and trailing P/E ratios when compared with their long-run histories. In contrast, the utilities sector, which many have used as a bond substitute, looks expensive on both measures. Tech’s increased credibility as a legitimate dividend destination also boosts the allure of ETFs like IYW. In 2014, the average dividend increase from Apple, IBM, Cisco (NASDAQ: CSCO ) and Qualcomm (NASDAQ: QCOM ) was 14%. Importantly, the tech sector has ample room for dividend growth. Adds Richardson: Some industry-leading companies have been hoarding cash. Consider that four information-age bellwethers―Apple, Microsoft, Google and Cisco―possess a combined $345 billion in cash. And the overall tech sector holds more than half of total corporate cash reserves in the U.S. With strong balance sheets, these companies are well-positioned to deliver returns through share repurchases, dividend increases and mergers and acquisitions. The $4.5 billion IYW has a trailing 12-month yield of 1.13%. iShares U.S. Technology ETF (click to enlarge) Tom Lydon’s clients own shares of Apple.