Tag Archives: investing

Thematic ETFs: Smarter Than Regular Smart Beta ETFs?

It’s been a true transformation for the ETF industry over the last few years. With a size of $3.137 trillion , the global ETF industry hit a record at the end of April 2016. The U.S. market alone boasts a size of over $2.2 trillion, derived from over 1,890 exchange traded products. While this joy-ride is something to delight in, crinkles of worries must be there on the foreheads of issuers. After all, with such gigantic and successful progress, ideas of new issuances are likely to fall short. There is always pressure for beating the benchmark, navigating tough trading times and last but not the least, peer pressure. Simply put, the days of plain vanilla ETFs or market-cap weighted ETFs are gone and products with several wining attributes, like low volatility or high dividend, are coming on-stream. Commonly, these next generation ETFs are called smart-beta ETFs. But it seems that the lure for smart beta investing is also diminishing these days. Beating the benchmark on a sustainable basis is tough in the present global backdrop that is fraught with issues. Plus, first-time craze also ebbs when a new investing theme turns older. Probably, this is why issuers are fine tuning the smart beta concepts to make them smarter. For example, Goldman Sachs introduced the ActiveBeta Index concept, Global X has a suite of scientific beta ETFs and so on. In fact, to make things more competitive and take them a few notches higher, Global X got itself busy in promoting the Thematic investing and launching more products based on it. Inside Thematic Investing As per Global X, its family of thematic ETFs looks to track companies that reap returns from ” structural changes in people and demographics , technology and innovation, and natural resources, along with companies that exhibit a particular set of desirable values.” As we can see that the above-mentioned criteria is long-term in nature and less susceptible to sudden changes in economic policies of various countries or a sudden jerk in the market emanating from some geo-political crisis. Instead, these factors look to cash in on some emerging trend in the global economy. As an investor, if you have faith in a particular segment over the long term, only then you should go ahead with that product. As of now, Global X has four categories in its thematic investment, namely technology, resources, values and people. Not that these ideas are fool-proof as products in technology and resources segments piled up losses previously; but new entrees in people and values segments seem striking at the current level. We’ll tell you why. People Products Global X Millennials Thematic ETF (NASDAQ: MILN ) This recently launched ETF looks to track companies targeted at the U.S. millennials generation (birth years ranging from 1980-2000). Since millennials seem to be the growth driver of the U.S. economy, outpacing baby boomers in 2015 as the largest generation and has the prospect of comprising 75% of the workforce by 2025, this surely emerges as a long-term bet. Per Global X , millennials now earn about $2 trillion, with income projected to grow to $8 trillion by 2025. Since millennials have a tendency of splurging on tech-savvy products and eating out, several tech or consumer discretionary ETFs can give MILN little competition. Global X Health & Wellness Thematic ETF ( OTC:BFIT ) There is a visible shift in consumers’ taste and preference for health and wellness products which give people a better quality of life. It is already a $3.4 trillion industry . As global life expectancy is projected to surge by 18% by 2100, contribution of health and wellness companies ought to be higher. This explains why investors can have a look at BFIT which revolves around stocks like Whitewave Foods Co, Adidas AG, Herbal Life Ltd, etc. Global X Longevity Thematic ETF (LNGR) This new fund tracks companies which depend on people across the globe living longer lives. Now, since older people invest more in health care related products and services, health care will rule this fund. Boston Scientific, AbbVie and Medtronic are the top three firms of this ETF. As a matter of fact, this fund may face tough competition from other health care and biotech ETFs like iShares Global Healthcare ETF (NYSEARCA: IXJ ) , iShares U.S. Healthcare ETF and Guggenheim S&P 500 Equal Weight Health Care ETF (NYSEARCA: RYH ) . Values Product There is only one fund as yet, namely Global X S&P 500 Catholic Values ETF (NASDAQ: CATH ) . The fund gives exposure to the companies within the S&P 500 whose business practices follow Catholic values and leave out those that do not. Companies involved in weapons, military products and child labor do not get an entry card into this ETF. The theme falls in the category of socially responsible ETFs, though CATH is quite unique in nature. Bottom Line Maybe defined in a different way, thematic ETFs seem quite similar to smart beta ETFs. It’s just that the ideas are innovative and thus the issuer can expect success ahead. Original post Editor’s Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.

Taking Profits On Our SPY Put Spread

A 40% net short in a single asset class is a rare event for me. So I vowed to cut it back on the next down day for risk control purposes only. The S&P 500 SPDR’s May 2016 $212-$217 in-the-money vertical bear put spread had the most profit to take, given that it was the furthest out-of-the-money with the shortest expiration date. If I blow up my performance betting the ranch on a single asset class, I am too old to get my job back at Morgan Stanley. Besides, they probably wouldn’t have me anyway. I never believed yesterday’s frantic 220-point rally in the Dow for two seconds. No volume, no news, and no cross-asset-class confirmation meant it was not to be believed. It was just another opportunity for the high-frequency traders to pick the pockets of hedge funds by squeezing them out of their shorts, which they have been doing on a weekly basis all year. That conviction allowed me to hang on to my aggressive 40% net short position. Better yet, we are poised to make as much as another 10% profit by the end of next week with out remaining positions. To remind you of why we are short the S&P 500 in a major way, let me refresh your memories: It’s all about the strong dollar. A robust buck diminishes the foreign earnings of the big American multinationals, major components of the S&P 500. I think it is much more likely that stocks grind down in coming weeks to first retest the unchanged on 2016 level at $2,043, and then the 200-day moving average at $2,012. Share prices are anything but inspirational here. Price/earnings multiples are at all time highs at 19X. The calendar is hugely negative. Soggy and heavily financially engineered Q1 earnings reports came and went. Huge hedge fund shorts have been covered with large losses, and no one is in a rush to jump back into the short side. Oh, and the bumping up against granite-like two-year resistance at $210 that will take months to break through in the best case. Did I mention that US equity mutual funds have been net sellers of stock since 2014? This position is also a hedge against what I call “The Dreaded Flat Line of Death” scenario. This is where the market doesn’t move at all over a prolonged period of time and no one makes any money at all — except us. To see how to enter this trade in your online platform, please look at the order ticket below, from OptionsHouse. The best execution can be had by placing your bid for the entire spread in the middle market and waiting for the market to come to you. The difference between the bid and the offer on these deep in-the-money spread trades can be enormous. Don’t execute the legs individually or you will end up losing much of your profit. Spread pricing can be very volatile on expiration months farther out. Here are the specific trades you need to execute this position: Sell 22 May 2016 $217 puts at $9.27 Buy to cover short 22 May 2016 $212 puts at $4.44 Net Cost: $4.83 Profit: $4.83 – $4.40 = $0.43 (22 X 100 X $0.43) = $946 or 8.90% profit in 23 trading days. The Downside Protection That Worked Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.