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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

Investors Still Betting On Oil ETFs

Summary Russian ETF inflows continued to add exposure to the country in 2014, but first signs of outflows in 2015. Oil ETFs have seen net inflows of $1.3bn so far this year. Investors have pulled $80bn from gold ETFs since 2012. Collapsing oil prices and the free falling Russian market have so far not tested the patience of ETF investors, who continued to double down on these loss-making trades in 2014; a stark contrast to 2013’s gold slump when ETF investors rushed to the door. ETF investors’ Russian affair Russian exposed ETFs saw consistent inflows of $1.5bn in the last five months of 2014 as the Russian market continued to decline with sanctions, declining oil prices and the devaluing rouble hitting the market. However, while these inflows were occurring, the largest Russian exposed ETF, the Market Vectors Russian ETF (NYSEARCA: RSX ), saw its price decrease by over a third from August to December 2014. This trend looks to be reversing somewhat in the New Year, as Russian exposed ETFs are on track for their first monthly outflows in six months, as investors’ resilience and staying power may have begun to wane. Chasing oil’s bottom Oil prices have slid by 50% since mid-June 2014 and the largest Oil ETF, the United States Oil Fund (NYSEARCA: USO ) with AUM of $1.7bn, is down by a parallel 54% over the same time period. ETF investors are continuing to ‘double down’ after catching knives over the past four months while oil prices continued to decline. Prices are currently hovering at $46 per barrel (Brent). Investors’ faith in an oil price recovery seems to have increased, as fund flows into oil exposed ETFs look set to beat December’s total inflows of $1.7bn, with inflows so far this month already standing at $1.3bn. Interestingly, oil was at similar price level back in 2009, when we also saw strong inflows into oil ETFs after a dramatic collapse in global oil prices. ETF investors could see more red in the short term though, as news out this week reveals record oil imports for China hitting highs of 7m barrels per day. These have been cited as being destined for strategic and commercial reserves. Turning against gold Gold has not been so precious in the eyes of ETF investors, as ETFs exposed to the metal’s price movements have continued to see sustained outflows over the last two years. The last two years has seen only four months of net inflows. This comes as the commodity declined from 2011 highs of ~$1800, stabilising at $1259 currently. The end of quantitative easing in the US and an expectation of a strengthening dollar and weaker global demand has seen the precious metal fall out of favour with investors. The largest gold ETF, the SPDR Gold shares ETF (NYSEARCA: GLD ) has $28bn AUM which represents 44% of total AUM exposed to the metal. This AUM figure has fallen by over 60% from the $72bn it managed at start of January 2013.

How My Value Investing Strategies Performed In 2014

Summary 2014 was a tough year in the markets but there was a strategy that outperformed the market with a gain of 24.5%. Quarterly breakdown of results for the 15 different value investing strategies I follow are provided. A detailed look at the stock portfolio that outperformed in 2014. In ancient Roman mythology, there is a god with two faces. His name is Janus, and with two faces, he looks in both directions representing the past and future. It’s also where the word January came from. Although January 2015 is fully under way, it’s appropriate because we are still at a stage of looking back at 2014, while also looking at what lies ahead in 2015. Now one of the very last tasks of the year (or first of the year) that I do is to go through all the performances of the value stock screeners and see what worked and what didn’t. I don’t bother with gathering results for all different asset classes and sectors because there are plenty of people who are better than me at this. It’s easier to leverage the work of others and to put my value strategies into context. Here’s the best chart I came across showing the performance of the major asset classes. (click to enlarge) Yearly Asset Performance Chart (Credit: awealthofcommonsense.com ) Because my focus has always been on value stocks, the stocks shown on the value screens all fall into the large, mid and small cap boxes above. But most of those stocks should be categorized into the small cap group which managed 3% on the year. So in the grand scheme of things, no matter how good the strategy or quality of the company was, small caps had a rough 2014. It goes to show how difficult it is to beat the market. The market isn’t going to award you easily just because the company has strong fundamentals. What works one year, may not the next and it’s a test of conviction and temperament to see it through. That’s why having a clear process to buy and sell stocks and to focus on creating long term wealth is important over short-term gains. Sure it feels good when you beat the market, but that’s something you can leave to fund managers who are judged based on their quarterly or yearly results. You and I have the luxury of looking 5 or 10 years down the road and comparing performance then. A few bad years after having achieved 200% vs. the market’s 100% over a 10-year period isn’t important. The end goal is to outperform the market over the long run because you aren’t trying to invest for a few months and then call it quits. With that in mind, here are the final 2014 results for each of the Value Screeners . 2014 Value Screener Results Before getting into the results, a very common question that I receive daily is whether the OSV Analyzer will screen for stocks and tell people what to buy and sell. I want to start by clearing up that these strategies are not created with the OSV Analyzer. The OSV Analyzer is a deep fundamental analysis and valuation tool. A tool to drill down deeply into a single company quickly instead of just scratching the surface and looking at basic stats. Screening will come in the future. With that out of the way, here are the results. (click to enlarge) Out of 15 value strategies, only 4 managed to outperform the market at the end of the year. The outperforming strategies ( Altman , Graham , Piotroski ) were the ones that contained a lot of mid and large caps. With the Altman Z value screen leading the pack this year, here’s a look at the 20 stocks that made up the list from the beginning of the year and how each performed. (click to enlarge) There are stocks that I definitely wouldn’t purchase, but that’s the beauty of mechanical investing. It’s simplified down to how well you create a strategy and stick with it. This reduces many of the variables that go into individual stock picking. However, I still find it difficult to give up total control of my portfolio. I prefer to further filter the list with my analyzer because screeners still make mistakes. Manual analysis is also required because there are things like off balance sheet items screens can’t recognize and qualitative events that can’t be simulated. But if this was something that I want to follow with real money, I’ll want to create a new account with at least $20k instead of using money from my existing portfolio. Not the Time to Invest in US Net Nets One sure thing about 2014 was that it wasn’t a good year for net nets. It’s especially clear looking at the Net Net performance. Since the results are all US listed stocks, the horrible performance isn’t surprising. When markets are hot, stay away from employing a pure USA net net investing strategy. You need to expand to international net nets if you want to stick with Graham’s net nets. But right now, there aren’t many US net nets that you should be investing in. The ones you see floating around the stock market have serious issues. The official screeners identified around 5-6 stocks at the start of the year and the minimum that I test with is always 20 stocks. For any mechanical strategy where you have to trust the theory and the system, holding 5-6 stocks is going to get you killed. The full 20 stocks are required for the portfolio to be diversified enough for each strategy to work over the long run. As I showed previously , when the number of net nets increase, it’s definitely a sign that the market is getting cheaper and that’s the time to be loading up on good net nets. Just not now. In the next post, I’ll be listing the official stocks for each screen that will be tracked for 2015. It features a list of 225 value stocks you can download and to get ideas.