Tag Archives: holiday

Asset Class Weekly: From The High-Yield Bond Battlefront

Summary Capital markets are under fire. Just two weeks ago, Asset Class Weekly focused on the troubles that were brewing in the high-yield bond market. What a difference two weeks make. A growing number of creditors in the high-yield bond market are fighting for survival. Capital markets are under fire. Just two weeks ago, Asset Class Weekly focused on the troubles that were brewing in the high-yield bond market. What a difference two weeks make. For while many investors are getting ready to settle in for the holiday season, a growing number of creditors in the high-yield bond market are fighting for survival. Given the rapid pace of the descent in high-yield bonds over the past two weeks, it is worthwhile to check in with the latest from the high-yield bond market. It was almost exactly one year ago in December 2014 that I first began sounding the alarm about the stresses building in the high-yield bond market. At that time, the sharp decline in oil since the summer of 2014 and in particular since the OPEC meeting that came the day after Thanksgiving last year had the high-yield bond market starting to question the long-term viability of selected names in the universe. At the time, nearly all of the names under pressure in the high-yield bond space came from the oil patch. And the measure of stress at the time was the fact that 13 publicly-traded companies in the high-yield bond universe as measured by the iShares iBoxx $ High Yield Corporate Bond ETF (NYSEARCA: HYG ) had bonds were trading at a 25% to 50% discount to their par value while another 22 publicly-traded companies had bonds that were trading at a 10% to 25% discount to par. On December 12, 2014, when I published this first high-yield bond (NYSEARCA: JNK ) article, the stock market as measured by the S&P 500 Index closed at 2,002.33. As of the end of last week on December 18, 2015, the S&P 500 Index closed at 2,005.55. But while the headline stock market index might imply that not much has changed over the past year, oh so very much has changed underneath the market surface. And nowhere is this more true in a chronically bad way than in the high-yield bond market. Once again for emphasis, we had 13 creditors with bonds trading at a 25% to 50% discount to par and another 22 companies with bonds trading at a 10% to 25% discount to par almost exactly a year ago at this time. And this was a sign of building stress. So where exactly are we a year later? Today, we have 27 publicly-traded companies with bonds trading at a 25% to 50% discount to par. Sure, this is roughly double where we were at this time last year, but not so bad, right? Au contraire. W hile this 25% to 50% discount group was considered the front lines of high-yield bond market stress, this is the relatively better side of the story today. Triage Let’s begin. We have had a handful of companies in the high-yield bond space that have since either entered into bankruptcy or have creatively restructured in a grasp for survival. We also now have 11 publicly-traded companies that are trading at a more than 75% discount to par. In short, these are firms that have been badly wounded in operational battle and are now in financial market triage fighting for their lives. Arch Coal (NYSE: ACI ) BreitBurn Energy Partners (NASDAQ: BBEP ) Chesapeake Energy (NYSE: CHK ) Cliff Natural Resources (NYSE: CLF ) Energy XXI (NASDAQ: EXXI ) Linn Energy (NASDAQ: LINE ) Peabody Energy (NYSE: BTU ) Penn Virginia (NYSE: PVA ) Seventy Seven Energy (NYSE: SSE ) Ultra Petroleum (NYSE: UPL ) Verso ( OTCQB:VRSZ ) It should be noted that the list above is not at all from the fringes of capital markets as names like Chesapeake Energy and Ultra Petroleum are among the larger players in the energy space. The Front Line In the next group on the list, we have another 18 publicly-traded companies in the high-yield bond space whose bonds are also trading at a highly stressed 50% to 75% discount to their par value. These include the following: AK Steel (NYSE: AKS ) California Resources (NYSE: CRC ) CHC Group (NYSE: HELI ) Comstock Resources (NYSE: CRK ) Denbury Resources (NYSE: DNR ) EXCO Resources (NYSE: XCO ) Genworth Financial (NYSE: GNW ) Halcon Resources (NYSE: HK ) Intelsat (NYSE: I ) Memorial Production Partners (NASDAQ: MEMP ) Midstates Petroleum (NYSE: MPO ) Navios Maritime (NYSE: NM ) Pacific Drilling (NYSE: PACD ) Sanchez Energy (NYSE: SN ) SandRidge Energy (NYSE: SD ) Transocean (NYSE: RIG ) U.S. Steel (NYSE: X ) Vantage Drilling Company (NYSEMKT: VTG ) It is worth noting that seven companies descended into this group within the last two weeks. This includes California Resources, Denbury Resources, Intelsat, Memorial Production Partners, Midstates Petroleum, Sanchez Energy and Transocean. A number of the names on the above list are also meaningful players in the energy space. And the list is also not limited to just names in the energy space, as we also have communications, retail, industrial and consumer products companies now also showing up on this front line distressed list. Preparing For Battle: The Second Wave In the next group on the list, which was formerly the front line just one year ago, we have as mentioned above 25 publicly-traded companies in the high-yield bond space that are trading at a 25% to 50% discount to par. These companies currently under fire include the following: Advanced Micro Devices (NASDAQ: AMD ) Allegheny Technologies (NYSE: ATI ) Antero Resources (NYSE: AR ) ArcelorMittal (NYSE: MT ) Avon Products (NYSE: AVP ) Bombardier ( OTCQX:BDRBF ) Chemours (NYSE: CC ) CONSOL Energy (NYSE: CNX ) DCP Midstream Partners (NYSE: DPM ) Energy Transfer Equity (NYSE: ETE ) iHeartMedia ( OTCPK:IHRT ) Navistar International (NYSE: NAV ) Oasis Petroleum (NYSE: OAS ) ONEOK (NYSE: OKE ) Precision Drilling (NYSE: PDS ) Range Resources (NYSE: RRC ) QEP Resources (NYSE: QEP ) Scientific Games (NASDAQ: SGMS ) SM Energy (NYSE: SM ) Sprint (NYSE: S ) Talen Energy (NYSE: TLN ) Tronox (NYSE: TROX ) Whiting Petroleum (NYSE: WLL ) Windstream (NASDAQ: WIN ) WPX Energy (NYSE: WPX ) In addition to this list above that includes some eye-opening names, two notable retailers that are currently not publicly traded but are also now listed among this group. These are Neiman Marcus (Pending: NMG ) and Toys “R” Us. But perhaps more troubling than this list from the high-yield space is the suddenly expanding list from the investment-grade corporate bond universe as measured by the iShares iBoxx $ Investment Grade Corporate Bond ETF (NYSEARCA: LQD ). Just three weeks ago at the end of November, only one name (Freeport-McMoRan (NYSE: FCX )) made this 25% to 50% discount to par list. Today, once again just three weeks later, there are 13. These are listed below: Barrick Gold (NYSE: ABX ) Cenovus Energy (NYSE: CVE ) Continental Resources (NYSE: CLR ) Devon Energy (NYSE: DVN ) Ensco (NYSE: ESV ) Energy Transfer Partners (NYSE: ETP ) Enterprise Products Partners (NYSE: EPD ) Freeport-McMoRan Kinder Morgan (NYSE: KMI ) Newmont Mining (NYSE: NEM ) Southwestern Energy (NYSE: SWN ) Viacom (NASDAQ: VIA ) Williams Companies (NYSE: WMB ) It is one thing to see signs of credit stress in the high-yield bond space, but it is another thing altogether when these pressures begin to spread in the investment grade space. Overall, these lists combined bring us to 40 publicly traded or notable companies that are trading at a 25% to 50% discount to par. Bottom Line Perhaps this is all just a short-term phase in the bond market. It is possible that we are near or at a bottom and these increasingly stressed bond prices will soon start bouncing higher. Maybe, but probably not. The deterioration in the high-yield bond space has been brewing for some time. And it has picked up dramatically in the past couple of weeks with the magnitude of the price declines in many names across the high-yield bond spectrum well in excess of -20%. The fact that the problem has now started to spread to the investment-grade bond space is even more problematic, as it suggests that a broader cleansing process may now be at work. And the next time we regroup to explore this list, it seems highly probable that we will add a whole new cast of characters, as scores of names now reside in the 10% to 25% discount to par list that have not even bothered to explore here that are also experiencing accelerating price declines in their own right. Lastly, this decelerating pace of credit deterioration is taking place in an environment where the U.S. Federal Reserve just raised interest rates off of the zero bound for the first time since the outbreak of the financial crisis. While I applaud the Fed for finally showing the courage to act, it is unfortunately doing so far too late at this point. Thus, for those analysts and experts that are calling for another year of positive U.S. stock market gains in 2016 despite the fact that stock valuations are already hovering at historically high levels, unless we see the Federal Reserve do a complete about face and start pouring liquidity back into financial markets (do not rule this possibility out over the next 12 months), we may find ourselves with results that are decidedly different than positive for stocks this time next year. Special Notice : As many readers have likely seen by now, I also provide a premium service on Seeking Alpha called The Universal . The service targets winning investment portfolio strategies across the asset class universe in both bear and bull markets with a focus on attractive return opportunities, risk control and loss minimization. The Universal includes timely asset allocation models, weekly strategy updates, targeted stock watch lists, feature articles and specific buy/sell recommendations. It is also a forum for real-time updates and analysis during periods of heightened market stress. The Universal currently costs $29 per month or $239 per year to subscribe. But starting on January 1, 2016, the subscription cost for The Universal will increase to $39 per month or $299 per year. Existing subscribers as well as those who sign up by December 31, 2015, however, will continue to pay the lower $29 per month or $239 per year rate. As a result, if you are interested in trying my premium service and have not already joined, I encourage you to sign up before the end of the year to lock in the lower rate. And if you are concerned that the service may not be a good fit, you are protected by Seeking Alpha’s unconditional prorated money-back guarantee. Questions about The Universal? Send me an e-mail at anytime and I will respond with answers to your questions. Thanks, and I look forward to collaborating with you on The Universal. Disclosure : This article is for information purposes only. There are risks involved with investing including loss of principal. Gerring Capital Partners makes no explicit or implicit guarantee with respect to performance or the outcome of any investment or projections made. There is no guarantee that the goals of the strategies discussed by Gerring Capital Partners will be met. Editor’s Note: This article covers one or more stocks trading at less than $1 per share and/or with less than a $100 million market cap. Please be aware of the risks associated with these stocks.

4 Consumer ETFs To Ride On Holiday Optimism

Despite a weak start, the holiday season gained a firmer footing. This is especially true given the modest retail sales data for November and an improved consumer sentiment data for December. After months of sluggish spending, retail sales rose a modest 0.2% in November, representing the largest increase since July. Meanwhile, consumer confidence improved for the third consecutive month in December, with the preliminary University of Michigan sentiment index reading 91.8, up from 91.3 in November (read: 5 ETFs for Loads of Holiday Shopping Delight ). Solid job additions, slowly rising wages and cheap fuel are providing consumers extra money to spend on a wide range of products including electronics and appliances, clothing, sporting goods and books, and at restaurants and bars. In particular, spending increased 0.8% on clothing, 0.6% on electronics and appliances, and 0.8% at sporting goods and hobby stores. The strong trend is likely to continue for the rest of the holiday shopping season given an improving U.S. economy, a recovering housing market and stepped-up service activities. The National Retail Federation (NYSE: NRF ) expects total holiday sales in November and December (excluding autos, gas and restaurant) to grow at a solid pace of 3.7%. Though this marks a deceleration from last year’s growth rate of 4.1%, it is well above the 10-year average of 2.5%. Investors should note that online sales have superseded brick-and-mortar retail sales this year with mobile shopping playing a crucial role. Online sales are projected to grow 6-8% to $105 billion. ComScore expects online sales to jump 14% year over year to $70.06 billion for the full holiday season (November and December), outpacing the growth of brick-and-mortar retail sales. Given the holiday cheer, investors should cycle into the consumer discretionary space in order to obtain a nice momentum play. While looking at individual companies is certainly an option, a focus on the top-ranked consumer discretionary ETFs could be a less risky way to tap into the same broad trends (see: all the Consumer Discretionary ETFs here ). Top Ranked Consumer Discretionary ETF in Focus We have found a number of ETFs that have the top Zacks ETF Rank of 1 or ‘Strong Buy’ rating in this space and are thus expected to outperform in the months to come. While all the top-ranked ETFs are likely to outperform, the following four funds could be good choices. These funds have enjoyed a strong momentum and have potentially superior weighting methodologies that could allow them to continue leading the consumer space in the coming months. PowerShares DWA Consumer Cyclicals Momentum Portfolio ETF (NYSEARCA: PEZ ) This product tracks the DWA Consumer Cyclicals Technical Leaders Index. It holds 38 stocks having positive relative strength (momentum) characteristics, with none holding more than 5.4% of assets. This approach results in a large cap tilt at 43%, followed by 31% in mid caps and the rest in small. About 30% of the portfolio is dominated by specialty retail while hotel restaurants and leisure, textiles apparel and luxury goods, and airlines round off the next three positions with double-digit exposure each. The fund has managed $277.8 million in its asset base while trades in a lower average daily volume of 58,000 shares. It charges 60 bps in annual fees and added about 0.7% over the past one month. First Trust Consumer Discretionary AlphaDEX ETF (NYSEARCA: FXD ) This follows an AlphaDEX methodology and ranks stocks in the consumer space by various growth and value factors, eliminating the bottom ranked 25% of the stocks. This approach results in a basket of 129 stocks that are well spread out across each security, with none holding more than 1.7% of assets. About 49% of the portfolio is focused on mid cap securities with specialty retail being the top sector accounting for nearly one-fourth of the portfolio, closely followed by media (15.8%). FXD is one of the popular and liquid ETFs in the consumer discretionary space with AUM of $2.4 billion and average daily volume of 456,000 shares per day. It charges a higher 63 bps in annual fees and gained 0.9% over the past one month. Market Vectors Retail ETF (NYSEARCA: RTH ) This fund provides exposure to the retail segment of the broad consumer space by tracking the Market Vectors US Listed Retail 25 Index. It holds about 26 stocks in its basket with AUM of $147.6 million, while average daily volume is light at around 62,000 shares. Expense ratio came in at 0.35%. It is a large-cap centric fund that is heavily concentrated on the top firm Amazon.com (NASDAQ: AMZN ) with 15.3% share, closely followed by Home Depot (NYSE: HD ) at 8.9%. Sector wise, specialty retail occupies the top position with 29% share, followed by a double-digit allocation each to Internet & catalogue retail, hypermarkets, drug stores, and health care services. The product has added 5.3% over the past month. SPDR S&P Retail ETF (NYSEARCA: XRT ) This product tracks the S&P Retail Select Industry Index, holding 104 securities in its basket. It is widely spread across each component as none of these holds more than 1.47% of total assets. Small-cap stocks dominate about two-thirds of the portfolio while the rest have been split between the other two market cap levels. In terms of sector holdings, apparel retail takes the top spot with 22.3% share while specialty stores, automotive retail, and Internet retail also have a double-digit allocation each. XRT is the most popular and actively traded ETF in the retail space with AUM of about $948.4 million and average daily volume of more than 4.1 million shares. It charges 35 bps in annual fees and gained 2.5% in the past one month. Link to the original post on Zacks.com

Lipper U.S. Fund Flows: Investors Pad The Coffers Of Money Market Funds Ahead Of Jobs Report

During the fund-flows week ended December 2, 2015, investors remained on the fence ahead of the U.S. nonfarm payrolls report, the European Central Bank’s details of its stimulus plans, and after learning that Chinese regulators were investigating two Chinese brokerage firms for securities violations. And, of course, investors were anxiously awaiting results of Black Friday and Cyber Monday sales to get a gauge of consumer demand for the upcoming holiday season. With the U.S. market closed for Thursday’s Thanksgiving Day holiday, returns were muted on Friday; investors preferred the comfort of defensive issues after energy shares once again took it on the chin following another decline in oil prices that were pressured by a strong dollar and concerns of a glut in global supply. While energy shares saw a slight boost on Monday after an uptick in oil prices, retail stocks struggled as first reads on the beginning of the holiday shopping season appeared soft. A weaker-than-expected Chicago PMI report indicated the region fell back into contraction territory, but that was partially offset by a 0.2% increase in pending home sales for October. Investors even appeared to shrug off a subpar reading of the November ISM manufacturing index, which fell to 48.9 (the lowest reading since 2009 and signaling contraction), ahead of comments from Federal Reserve Chair Janet Yellen and the nonfarm payrolls report due on Friday. Better-than-expected reports on construction spending and auto sales helped keep investors engaged. On Wednesday, however, stocks turned down as Yellen and Atlanta Fed President Dennis Lockhart both indicated a case for an imminent rate increase and as oil futures sank under $40 a barrel. Nonetheless, investors were net purchases of fund assets (including those of conventional funds and exchange-traded funds [ETFs]), injecting a net $15.2 billion for the fund-flows week ended December 2. Cautious investors turned their back on equity and fixed income funds, redeeming $0.9 billion and $2.1 billion net, respectively, for the week, but they padded the coffers of money market funds (+$17.8 billion) and municipal bond funds (+$0.4 billion) on the uncertain news. For the eighth week in a row equity ETFs witnessed net inflows, taking in $3.8 billion for the week. Despite initial concerns over the holiday season, authorized participants (APs) were net purchasers of domestic equity ETFs (+$3.4 billion), injecting money into the group for a third consecutive week. They also padded—for the second week running—the coffers of nondomestic equity ETFs (but only to the tune of +$0.4 billion). As a result of the relative risk aversion during the week, APs turned their attention to higher-quality, well-known equity offerings, with the SPDR S&P 500 ETF (NYSEARCA: SPY ) (+$2.7 billion), the iShares MSCI Eurozone ETF (NYSEARCA: EZU ) (+$0.3 billion), and the SPDR Dow Jones Industrial Average ETF (NYSEARCA: DIA ) (+$0.2 billion) attracting the largest amounts of net new money of all individual equity ETFs. At the other end of the spectrum the SPDR Gold ETF (NYSEARCA: GLD ) (-$566 million) experienced the largest net redemptions, while the iShares Nasdaq Biotech ETF (NASDAQ: IBB ) (-$267 million) suffered the second largest redemptions for the week. Once again, in contrast to equity ETF investors, for the fourth week in a row conventional fund (ex-ETF) investors were net redeemers of equity funds, redeeming $4.7 billion from the group. Domestic equity funds, handing back $3.4 billion, witnessed their fourth consecutive week of net outflows. Meanwhile, their nondomestic equity fund counterparts witnessed $1.3 billion of net outflows—suffering net redemptions for the third consecutive week. On the domestic side investors lightened up on large-cap funds and equity income funds, redeeming a net $1.7 billion and $0.7 billion, respectively, for the week. On the nondomestic side international equity funds witnessed $1.3 billion of net outflows, while emerging-market equity funds handed back some $0.7 billion. For the fourth consecutive week taxable bond funds (ex-ETFs) witnessed net outflows, handing back a little more than $1.8 billion for the week. Corporate investment-grade debt funds suffered the largest redemptions for the week, witnessing net outflows of $737 million (for their second consecutive week of net redemptions), while flexible portfolio funds witnessed the second largest net redemptions (-$654 million). Despite the increasing chance of a December interest rate increase, bank rate funds—handing back some $367 million for the week—experienced their nineteenth consecutive week of net outflows. For the ninth week in a row municipal bond funds (ex-ETFs) witnessed net inflows, taking in $331 million this past week.