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Authorized Participants Bail On Equity ETFs During The Week

By Tom Roseen As one might expect, given the meltdown in the global markets, fund investors were net redeemers of fund assets (including those of conventional funds and exchange-traded funds [ETFs]); however, they redeemed only a net $5.5 billion for the fund-flows week ended August 26, 2015. Investors redeemed some $17.8 billion from equity funds, $2.6 billion from taxable bond funds, and $345 million from municipal bond funds, but they were net purchasers of money market funds, injecting $15.2 billion for the week. During the fund-flows week world markets were whipsawed by concerns of slowing global growth, the devaluation of the Chinese yuan, fears about China’s slowing economy, and the continuing plunge of commodity prices. Oil prices slid below $40/barrel for the first time since February 2009 as a result of a decline in global demand and a glut in oil supply. An early measure of China’s factory activity declined to a six-and-half-year low in August, putting additional pressure on the market. The U.S. broad-based indices were down at least 10% from their recent market highs, entering what many define as a market correction. At one point on Monday the Dow Jones Industrial Average declined more than 1,000 points before bouncing back slightly, but it still closed down 588.47 points (3.6%) for the day (its largest one-day percentage decline since August 2011). Despite the People’s Bank of China’s cutting its benchmark interest rate 0.5 percentage point on Tuesday and injecting 150 billion yuan into the financial system to prop up China’s market, the Shanghai composite lost 22.85% during the flows week. Nonetheless, on Wednesday U.S. stocks broke a six-day losing streak and witnessed their largest one-day gain in nearly four years as investors pushed stocks higher on news of the PBOC’s new easing efforts, better-than-expected economic news, and comments by New York Fed President William Dudley that the case for a rate hike in September is less compelling, given the volatility in global markets. (click to enlarge) For the first week in three equity ETFs witnessed net outflows, handing back $15.2 billion (their largest amount since the week ended August 6, 2014). With concerns about a slowing global economy, authorized participants (APs) were net redeemers of domestic equity funds (-$10.4 billion), withdrawing money from the group for a sixth consecutive week. They also redeemed money from nondomestic equity funds (-$4.9 billion) for the first week in four. Interestingly, for the second consecutive week APs were net purchasers of taxable fixed income ETFs, injecting $2.1 billion for the week. The lion’s share of the money went into government-Treasury ETFs (+$2.0 billion) and flexible portfolio ETFs (+$1.0 billion), while corporate high yield ETFs (-$0.7 billion) and international & global debt ETFs (-$0.4 billion) witnessed the largest net outflows in the taxable fixed income ETF universe.

Stocks Higher 10 Years From Now

Before the onset of the market weakness in the early part of last week and the end of the prior week, S&P Dow Jones Indices released a report highlighting rolling 10-year annualized returns for the S&P 500 index. The report seems prompted by a response Warren Buffett made to a question on timing the market. Buffett noted he was not a market timer, and simply responded, “Stocks are going to be higher, and perhaps a lot higher, 10 years from now. I am not smart enough to pick times to get in and get out.” In the report, S&P notes: “Since 1947, the S&P 500’s price return was up in 72% of calendar years. Add in dividends reinvested and that batting average jumped to 80%.” “And if one is worried that the S&P 500 has gone too far since the conclusion of the 2007-09 mega-meltdown bear market, consider that the rolling 10-year CAGR through Q2 2015 was +7.9%, nearly 400 basis points below the long-term average.” “… there have been times when things didn’t work out too well for investors, but these times were few and isolated. Of the 278 quarters of rolling 10-year CAGRs from Q1 1946 through Q2 2015, only eight were negative, and they all occurred between Q4 2008 and Q3 2010.” (Source: S&P Dow Jones Indices ) The S&P report contains additional detail on sector returns going back to 1990 and investors should find the entire report a worthwhile read. One sector highlight noted in the report is the fact that, “… each sector recorded very high monthly 10-year CAGR batting averages, or frequencies of positive observations, from 100% for consumer staples, energy, materials and utilities, to 79% for telecom services and 67% for financials. The S&P 500’s average was 87%.” In short, timing the market can be a difficult endeavor for many investors. Last week’s heightened market volatility is an example of this, especially for those who sold out of stocks on Tuesday. Share this article with a colleague

Active Power: An Analyst Catalyst Candidate?

ACPW reported an impressive Q2 which put the finishing touches on a further impressive 1H. The analyst community has taken notice. With changing estimate trend lines is ACPW an Analyst Catalyst candidate? Seeking Alpha readers who follow my writings understand just how lucrative identifying this can be. It looks like analysts are beginning to see a good story and a story in which they are collectively getting more and more confident in when it comes to Active Power (NASDAQ: ACPW ). After the company’s Q2/15 reporting confirmed what is shaping up to be an inflection point for operations analysts have come to modeling Active Power more bullish than prior and, importantly, more bullish in trend than prior. This matters in a big, big way for getting some volume into the name and for getting some valuation multiple expansion. I detailed the Active Power quarter reported in an initiation note in which I concluded the same as apparently what is now becoming a very consensus analyst opinion -Active Power is finally on its way to healthier income statement performances. Still, to see analysts turn estimate trends positive is encouraging and could, with a quarter or two of further execution, turn into the phenomenon I’ve called the Analyst Catalyst. I’ve detailed this before for Seeking Alpha readers in other names near inflection points of several varieties (growth rates, cash flow positive, EBITDA positive, etc.). It’s been a long, long time since Active Power was the recipient of such faith from the markets and that is reflected in its share price. A change would be welcomed by shareholders and is something that shareholders should pay close attention to. Active Power is currently modeled for steady increases to revenue, EBITDA, and fully diluted EPS to end full year 2015. Through 1H/15 the company remains well on pace to hit these marks. These would be higher highs put in for the noted metrics after the company bottomed in each category in full year 2014. Full year 2014 marked Active Power’s third consecutive year of posting lower lows for the line items – something that drove its stock price lower, investor sentiment to all-time lows, and analyst faith to a point of non-existence. Obviously the modeling change to growth in these categories for full year 2015 and for full year 2016 speaks to the turnaround at the company in progress: You can see in the table above that Active Power is expected to achieve the all-important EBITDA breakeven at full year 2015 reporting with the company going on to report its first EBITDA positive year in four years at full year 2016 reporting. That will be a huge milestone for the company and one that I think will open the name up to significant investment from institutions and other asset managers that can’t or choose not to invest in non-EBITDA positive names. This is more common than most understand. Also, it’s excellent to see that Active Power is modeled to reach near breakeven for EPS in full year 2016 reporting. Again though, maybe the best part of all this is that Active Power has now established positive estimate trends across these categories. In beating estimates, Active Power has essentially validated the reporting analysts’ models – which makes them look smart, which they like. As a natural consequence of both, analysts have had to positively revise estimates at each quarter reported based on the previous beat. I believe these positive revisions, which take place early to mid-quarter, help propel volume and upward share price movement between quarterly reporting. This cumulative effect of analysts powering shares higher at early or mid-quarter AND company quarterly reporting powering shares higher works to create a constant cycle of volume and higher pricing. In general I refer to this as the Analyst Catalyst. You can see in the charts below Active Power might be on the brink of such a bullish cycle: (click to enlarge) (click to enlarge) (click to enlarge) (click to enlarge) I believe that we should see a continued Analyst Catalyst take shape at Active Power as the company continues to impress at quarterly reporting. Active Power is showing excellent trend lines for income statement line items and for key metrics reported as a result of its maturing sales team (which the cumulative effect of this is hard to model) and its growing more well-known value prop. Both should make sure that Active Power continues in its turnaround success and in reshaping its total income statement. I’ll provide updates as I see estimates positively or negatively revise. Good luck everybody. 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. Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More…) I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.