Tag Archives: georgia

Junk Bond ETF ANGL Soaring: Will Its Flight Last?

Heightened volatility is driving investors to safe havens, making 2016 the year of the bond market. While long-term bonds are the undisputed winners, the high yield corner has drawn attention over the past three-months on investors’ drive for higher yields and a rebound in oil price. In addition, high-yield spreads have tightened significantly from 8.64 on February 12 to 6.36 currently, as per the BofA Merrill Lynch US High Yield Option-Adjusted Spread , making junk bonds attractive. This suggests that investors are now demanding lower premium than comparable Treasury bonds to compensate for the risk. However, the risk of default is on the rise, dampening the appeal for junk bonds. This is because the resumption of the slide in commodity prices and renewed global growth concerns are weighing on companies’ profits and balance sheets yet again. As per Moody’s Investors Service, global junk bond defaults will accelerate to 5% by the end of November, up from the previous forecast of 4.6% one month ago, and 3.8% in March. Fitch Ratings expects high yield bond defaults to climb to 6% this year from 4.5% last year and touch the highest level since 2000 (read: Junk versus Investment Grade Corporate Bond ETFs ). Given the heightened credit risk and low rate environment, investors thronged the high yield quality fund – VanEck Vectors Fallen Angel High Yield Bond ETF (NYSEARCA: ANGL ) . The fund gained 12.3% in the year-to-date time frame, outperforming the broad bond fund (NYSEARCA: BND ) and junk bond fund (NYSEARCA: JNK ) by wide margins. ANGL in Focus This ETF seeks to track the performance of the BofA Merrill Lynch US Fallen Angel High Yield Index, which focuses on the ‘fallen angel’ bonds. Fallen angel bonds are high yield securities that were once investment grade but have fallen from grace and are now trading as junk bonds. This unique approach gives the portfolio 248 securities that are widely spread across them, with none holding more than 1.65% of assets. The fund has an effective duration of 5.67 years and year to maturity of 9.33. Additionally, the product mainly comprises BB and B rated corporates, which together make up for 85.3% of the asset base. Bonds from energy and material sectors occupy the top two positions with 25.2% and 22.1%, respectively, while financial and communications round off the top four with double-digit allocation (read: all the High Yield Bond ETFs here ). ANGL has amassed $158.7 million in its asset base while trades in moderate volume of 82,000 shares a day on average. It charges a relatively low fee of 40 bps per year from investors and yields 5.20% per annum. Behind The Success of ANGL The fallen angels strategy is immensely successful this year as the number of fallen angels has increased substantially on a series of debt downgrades among energy and material firms – the top two sectors of the ETF. In this regard, Moody’s snatched investment grade ratings from 51 companies and gave them the junk status at the end of the first quarter, up from eight in the fourth quarter and 45 for the whole of 2015. These downgrades have boosted the performance of the ETF as bond price generally rebounds after losing an investment grade rating. Additionally, the rebound in oil prices from the 12-year low reached in mid-February injects further strength into these bonds and the ETF. As a result, fallen angels bonds tend to have lower default rates than their more traditional junk bond counterparts, thus offering better risk-reward profiles. These have a history of outperformance in nine out of the last 12 calendar years, according to Market Vectors. Moreover, the outperformance of ANGL was spurred by its higher average credit quality as about three-fourths of the portfolio carry the upper end rating (BB) of the junk category, leaving just less than 4% to the risky CCC-rated and lower. Link to the original post on Zacks.com

The Jury’s Still Split On The Value Of Activist Investing

Activist investing continues to be a topic of great debate in the financial world. One of the main issues that drives the controversy is whether activist investors help or hinder the market. Are they a force for good that keeps management and boards honest? Or are they simply quick buck artists intent on creating short-term value at the expense of building long-term sustainable companies? With these questions in mind, we asked CFA Institute Financial NewsBrief readers the following: “Is activist investing helpful, harmful, or a short-term nuisance?” As you might expect, opinions were split almost right down the middle. Is activist investing helpful, harmful, or a short-term nuisance? Click to enlarge Nearly half (48%) of the 538 respondents felt that activist investors are good for the system and improve the quality of the firms they invest in. Just over half of those surveyed, however, offered a less sanguine view of activist investing, split between those who feel activist investors are harmful to the system and are often motivated by short-term profit at the expense of long-term investors (34%), and those who say activist investors are a short-term nuisance and have little long-term effect on a company’s performance (18%). So what is the answer? Is activist investing a problem or not? As typical humans with short attention spans, we demand an easy answer! Unfortunately, as with most questions of this sort, the answer is typically yes and no, depending on your perspective. By its very nature, shareowner activism does often seek to return cash to shareowners in some form in a relatively short time frame. But activists rarely pursue corporate prey that has been executing consistently on a proven strategy for years. Activists tend to target companies that have lost their way in one way or another. There is also a definitional problem with short-termism. The markets work because someone is willing to buy or sell in the short term, often with an unknown time frame. If an investor feels that the full value of their investment is reached in three years, three months, or even three minutes, we do not begrudge them the right to sell. Activism has increased in recent years because it is believed to be a profitable strategy. It will likely decline as a strategy when and if there is less low hanging fruit — when there are fewer poorly run companies or firms with poor strategies. If management and boards up their games, their companies will not look so attractive to activists. Corporate boards also have reasonable allies in the battle against those activists motivated by short-term considerations: long-term investors. Long-term investors are typically institutional investors and generally do not have the option of selling the companies they own, so they can be receptive to a strong argument from an activist looking to drive value. It is therefore incumbent upon management and boards to: Have a sound long-term strategy. Tie variable compensation to the execution of that long-term strategy. Foster a dialogue and ongoing relationships with long-term investors. By engaging with these investors consistently and effectively, companies earn their trust. Then, if an activist comes to their door, they have a more receptive investor ear in the contest of ideas that plays out in the media and corporate boardrooms.

Homebuilder ETFs To Buy On Upbeat Data

After being stalled in the first quarter, the housing market started to show signs of a spring rebound. This is especially true given that new home construction and building permits rebounded in April, indicating that the U.S. economy is again gaining steam (read: Are Housing ETFs Ready to Ride on Spring Selling Season? ). U.S. housing starts climbed 6.6% to a seasonally adjusted annual rate of 1.17 million homes and much higher than the Reuters expectation of 1.13 million. The uptick in construction activity was broad-based with increases of 3.3% in single-family houses, and 10.7% in multi-family houses, including apartments and condominiums. Meanwhile, new applications for building permits, a construction bellwether for the coming months, rose 3.6% to an annual rate of 1.12 million after declining for three months. The data released early this week showed that homebuilder confidence remained unchanged for the fourth consecutive month in May as indicated by the National Association of Home Builders/Wells Fargo sentiment index. Builders’ outlook for sales over the next six months jumped to the highest level since December. This reflects that the housing market is still strengthening, though the pace of growth has slowed down (read: 5 Sector ETFs to Play Now ). This is because historically low interest rates and ongoing job creation will continue to fuel growth in a recovering homebuilding sector, creating a buying opportunity in homebuilders and housing-related stocks. In addition, slower and gradual rate hikes will not impede the growth prospect of the sector, at least in the near term. Given this, investors might want to look at the three homebuilder ETFs – the iShares U.S. Home Construction ETF (NYSEARCA: ITB ) , the SPDR S&P Homebuilders ETF (NYSEARCA: XHB ) and the PowerShares Dynamic Building & Construction Portfolio ETF (NYSEARCA: PKB ) – for their exposure to the sector. These funds have a solid Zacks ETF Rank of 2 or ‘Buy’ rating, suggesting some outperformance in the months to come. Further, the residential and commercial building industry has a solid Zacks Rank in the top 34%. While the upbeat data failed to garner interest in the sector this week, investors could start piling up these products in their portfolio, especially if the upcoming home sales report due to release on May 24 also shows strength. In particular, PKB is outperforming with gains of 5.8% so far in the year while ITB and XHB have shed 2.5% and 3.5%, respectively. Investors seeking large profits in a short span could also take a look at the leveraged plays – the ProShares Ultra Homebuilders & Supplies ETF (NYSEARCA: HBU ) and the Direxion Daily Homebuilders & Supplies Bull 3x Shares ETF (NYSEARCA: NAIL ) . HBU provides double exposure while NAIL offers triple exposure to the index of ITB. However, the fund is relatively new in the space and has low trading activity, making it a riskier and a high-cost choice. Link to the original post on Zacks.com