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Forget Production Cut: Short Oil And Energy ETFs

The free fall in oil prices for over the past one-and-a-half years had taken a brief pause in recent sessions on hopes of an output freeze by the Organization of the Petroleum Exporting Countries (OPEC). The biggest oil-producing countries – Saudi Arabia and Russia – along with Qatar and Venezuela had agreed to freeze oil output at the January level if other countries joined them in the initiative. Had the move materialized, the oil patch – which has long been suffering from higher supplies and lower demand on weak global growth – would see prices shoring up and losses paring down. Many had started to view the move as the beginning of the long-wished production cut. However, all optimism went down the drain after Iran called the OPEC top-brass Saudi Arabia-led initiative a ” joke “. In any case, chances of Iran joining the treaty were slim as the country has been trying to boost production after the sanctions on it were lifted last month. This is because it was producing below its capacity and pre-sanction levels since 20 1 1 while the other countries had raised their output limit to record levels in the mean time. After Iran’s remark, Saudi Arabia also scrapped the option of output cuts by major producers in the near term. However, Saudi oil minister Al-Naimi also noted that he expects more countries to agree on the output freeze scheme by next month. So, while output cut has taken a backseat, investors should also keep in mind that there is no improvement in the demand scenario either. Earlier this month, the International Energy Agency (IEA) slashed its estimates for global oil demand for 20 15 and 20 16, by 100,000 barrels a day. This represents flat demand growth ( 1.2 million barrels a day) this year. Market Impact Following the dimming prospects of an output cut and limited benefits from a likely output freeze at record levels, oil prices started giving up prior gains. The United States Oil ETF (NYSEARCA: USO ) – which looks to track the daily changes of the spot price of the U.S. crude – lost over 4.8% on February 23 while it lost about 1.3% after hours. On the other hand, the United States Brent Oil ETF (NYSEARCA: BNO ) – which looks to track the daily changes in percentage terms of the spot price of Brent crude oil – was off 3.5% on February 23. Short Oil Given the situation, investors may want to consider shorting oil or the entire energy space. So, for investors seeking to make an inverse bet on oil as a commodity or on the energy equities, below are three ETFs pertaining to each case. Any of these will prove gainful amid declining oil prices. However, investors should keep in mind that a short play in the futures market requires a strong appetite for risks. ProShares UltraShort Bloomberg Crude Oil ETF (NYSEARCA: SCO ) SCO is the most popular option in the short oil ETF space. The fund tracks the Dow Jones-UBS Crude Oil Sub-Index to provide twice the inverse performance on a daily basis of WTI crude oil. The fund was up 8.5% on February 23 while it added 2.7% after hours. DB Crude Oil Double Short ETN (NYSEARCA: DTO ) The note follows a benchmark of crude oil futures contracts to provide -2x exposure. The fund added more than 7.4% on February 23, 20 16. VelocityShares 3x Inverse Crude Oil ETN (NYSEARCA: DWTI ) DWTI is one of the riskier ways to play the short oil market, utilizing -3x exposure with daily rebalancing. The fund tracks the S&P GSCI Crude Oil Index to provide exposure to crude oil. The product surged 14.4% on February 23, obviously for its triple-leverage strategy and advanced 4.8% after hours. Short Energy ProShares Short Oil & Gas ETF (NYSEARCA: DDG ) This fund provides unleveraged inverse (or opposite) exposure to the daily performance of the Dow Jones U.S. Oil & Gas Index. The ETF makes a profit when the energy stocks decline and is suitable for hedging purposes against the fall of these stocks. DDG was up 3.3% on February 23. ProShares UltraShort Oil & Gas ETF (NYSEARCA: DUG ) This fund seeks two times (2x) leveraged inverse exposure to the Dow Jones U.S. Oil & Gas Index. DUG returned more than 6.5% on February 23. Direxion Daily Energy Bear 3x Shares ETF (NYSEARCA: ERY ) This product provides three times (3x) inverse exposure to the Energy Select Sector Index. The fund surged over 10% on February 23 and added 1.9% in after-market trading. Original post

Alternative ETFs To Gain On First Solar’s Q4 Beat

Leading U.S. solar-panel manufacturer First Solar (NASDAQ: FSLR ) reported its fourth-quarter 20 15 results after the closing bell yesterday. The company beat our estimates on earnings and revenues, but lowered its sales guidance for 20 16 that remains much above our estimate. Earnings per share came in at $ 1.60, which comfortably surpassed the Zacks Consensus Estimate of 80 cents, but declined 15.3% from the year-ago quarter. Revenues decreased 6.5% year over year to $942 million, but edged past our estimate of $93 1 million. For 20 16, the company maintained its earnings per share guidance of $4.00-4.50, but slashed its revenue outlook to $3.8-4.0 billion from $3.9-4. 1 billion. The midpoints of both the guided earnings and revenues are much higher than the current Zacks Consensus Estimate of $4. 10 and $3.78 billion, respectively. Shares of this thin-film solar PV maker rose 2.9% in the after-market hours. The stock currently has a Zacks #3 (Hold) with a solid Value Style Score of B and a robust industry rank in the top 6%, suggesting a bright near term. ETFs in Focus Following the earnings beat, the ETFs having larger allocations to this solar giant have been in focus and could make great plays over the coming days. Below we have highlighted them: Market Vectors Solar Energy ETF (NYSEARCA: KWT ) This fund manages $ 14.4 million in its asset base and provides global exposure to 29 solar stocks by tracking the Market Vectors Global Solar Energy Index. Here, FSLR takes the top spot with a 10% allocation. In terms of country exposure, U.S. and China account for the top two countries with 34.9% and 24.9% share, respectively, closely followed by Taiwan ( 18.3%). The product has an expense ratio of 0.65% and sees a paltry volume of about 2,000 shares a day. The ETF has lost 23% in the year-to-date time frame. First Trust NASDAQ Clean Edge Green Energy Index ETF (NASDAQ: QCLN ) This fund provides exposure to the U.S. clean energy companies across a wide range of industries, including solar power, biofuels, advanced batteries, as well as the installation of new technological systems. It tracks the NASDAQ Clean Edge Green Energy Index and manages assets worth $65.5 million. It charges 60 bps in fees per year while the volume is light at nearly 24,000 shares. In total, the product holds 45 securities with FSLR being the top firm, accounting for 9.6% of its basket. From a sector look, technology firms dominate this ETF, accounting for nearly 30% of assets while oil & gas companies take another one-fourth share. QCLN has shed 16% so far this year and has a Zacks ETF Rank of 3 with a High risk outlook. Market Vectors Global Alternative Energy ETF (NYSEARCA: GEX ) This ETF provides global exposure to stocks that are primarily engaged in the business of alternative energy by tracking the Ardour Global Index. The fund holds about 3 1 stocks in its basket with an AUM of $84. 1 million while charging 62 bps in fees per year. Average daily volume is paltry for this fund at around 8,000 shares. First Solar occupies the fourth position in the basket with an 8.6% share. From a sector perspective, industrials takes the largest share at 47. 1% while information technology (29.7%) and utilities ( 13.4%) round off the next two spots. In terms of country exposure, the fund is skewed toward the U.S. with a 50.8% share followed by Denmark and China. The ETF has lost 12.4% in the same period. iShares S&P Global Clean Energy Index ETF (NASDAQ: ICLN ) This fund provides global exposure to 3 1 clean energy stocks, including solar, wind and other renewable sources, by tracking the S&P Global Clean Energy Index. Out of these, FSLR occupies the top spot at 7.62% of assets and charges 48 bps in annual fees and expenses. It has amassed just $75.3 million in its asset base while volume is also light at about 38,000 shares. U.S. and China take the top two spots in terms of country exposure with 24.7% and 23.5% share, respectively. The ETF is down about 16.4% in the year-to-date time frame. Guggenheim Solar ETF (NYSEARCA: TAN ) This ETF follows the MAC Global Solar Energy Index, holding 29 stocks in the basket. First Solar occupies the top position with 7.7% share. American firms dominate the fund’s portfolio with nearly 55.9% share, followed by China ( 17.9%) and Hong Kong ( 15%). The product has amassed $22 1.6 million in its asset base and trades in solid volume of more than 196,000 shares a day. It charges investors 70 bps in fees per year. The fund has lost 28.3% in the year-to-date time frame and has a Zacks ETF Rank of 3 or “Hold” rating with a High risk outlook. Original post

Low-Beta Funds For Safety Amid Fears Of Downturn

In spite of registering this year’s best gains last week, the benchmarks remained deep in the red due to volatility in oil prices along with weakness in global and domestic growth. The Dow, the S&P 500 and the Nasdaq are down 5.7%, 6% and 10.1% in the year-to-date frame. In this erratic market, low-beta funds, which provide a better understanding on volatility or the systematic risk of a portfolio in comparison to the broader market, may turn out as safer investments. Meanwhile, low-beta funds from broader categories like utility, precious metals and municipal bonds that are performing well this year despite an overall negative tone, may offer healthy returns with low associated risk. Surging Volatility The CBOE Volatility Index (VIX) – considered the most popular fear gauge – has surged 15.2% in the year-to-date frame and is hovering around 20, indicating fears of a downtrend among investors. Investopedia defines VIX as “a key measure of market expectations of near-term volatility conveyed by S&P 500 stock index option prices.” VIX also increased 11.2% and 13.1% over the past five days and in the trailing one-month period, respectively. The deep plunge in oil prices with short-lived spikes has been troubling investors since the start of 2016. Despite several indications, the major oil producers failed to take a bold step in reducing output and thus left a negative impact on oil prices and the broader markets. Moreover, the growth condition in major economic zones including the U.S., China and Eurozone appears bleak. And if these weren’t enough, the recent slump in global financial stocks added to investors’ worries. Why Low-Beta? Generally, there are five indicators of investment risks, namely alpha, beta, r-squared, standard deviation and the Sharpe ratio. Among these, beta is a popular tool to measure the level of volatility in a mutual fund in contrast to the broader markets. “Essentially, beta expresses the fundamental tradeoff between minimizing risk and maximizing return,” according to Investopedia. Therefore, when the major benchmarks are facing a high level of volatility, investors may seek low-beta funds to minimize the risk level in their investments. Now, the question is: what is the range of low beta? Beta ranging from 0 to 1 is generally considered low beta as funds falling in this range will show less volatility than the broader markets. While negative beta indicates an inverse relationship with the broader markets, beta equal to 0 signals no relationship at all. Beta with a minimum value of 1 indicates that the fund will experience the same or a higher level of volatility than the broader markets. 3 Low-Beta Funds from Winning Sectors Low-beta funds from sectors with a safe-haven appeal are favorable in an unstable market. This is why precious metals – especially gold- utilities and municipal bonds are enjoying a dream run since the start of this year. We present three mutual funds from the above-mentioned sectors that carry either a Zacks Mutual Fund Rank #1 (Strong Buy) or #2 (Buy) and have beta within 0 to 1. We expect these funds to outperform their peers in the future. Remember, the goal of the Zacks Mutual Fund Rank is to guide investors to identify potential winners and losers. Unlike most of the fund-rating systems, the Zacks Mutual Fund Rank is not just focused on past performance, but also on the likely future success of the fund. These funds have steady three-month and year-to-date returns. The minimum initial investment is within $5000. Also, these funds have a low expense ratio and no sales load. Precious Metal Fund After experiencing a rough patch for three years, mutual funds having significant exposure to securities related to gold made a strong rebound this year by virtue of their safe-haven appeal. The American Century Quantitative Equity Funds Global Gold Fund Inv (MUTF: BGEIX ) seeks total return. BGEIX invests in securities of global companies whose operations are related to gold or other precious metals. The fund invests the lion’s share of its assets in companies involved in processing, mining, fabricating and distributing gold or other precious metals. BGEIX currently carries a Zacks Mutual Fund Rank #2 and a 3-year beta of 0.33 against the standard index. The fund has three-month and year-to-date returns of 30% and 30.3%, respectively. The annual expense ratio of 0.67% is lower than the category average of 1.44%. Utility Fund Utility is prospering this year thanks to the safety it offers. The broader utility sector, which has added 8.1% in the year-to-date frame, is the biggest gainer among the S&P 500 sectors. Also, dimming prospects of an immediate rate hike gave a boost to this sector, which requires a high level of debt. American Century Utilities Fund Investor (MUTF: BULIX ) invests a large portion of its assets in equities related to the utility industry. BULIX’s portfolio is constructed on qualitative and quantitative management techniques. In the quantitative process, stocks are ranked on their growth and valuation features. The fund currently carries a Zacks Mutual Fund Rank #1 and a 3-year beta of 0.36 against the standard index. The three-month and year-to-date returns of BULIX are 8.5% each. The annual expense ratio of 0.67% is lower than the category average of 1.25%. Municipal Bonds Fund Municipal bond funds are attracting healthy investments since the start of this year. According to Lipper, these funds witnessed a net inflow of $669 million in the week ended Feb 17, preceded by an inflow of $940.7 million in the prior week. Russell Tax Exempt Bond Fund (MUTF: RTBEX ) seeks tax-exempted current income. RTBEX invests the major portion of its assets in securities that are expected to provide income free from federal income tax. The fund primarily focuses on acquiring municipal debt obligations that are rated as investment grade. RTBEX currently carries a Zacks Mutual Fund Rank #2 and a 3-year beta of 0.69 against the standard index. The three-month and year-to-date returns of RTBEX are 2.4% and 1.6%, respectively. The annual expense ratio of 0.78% is lower than the category average of 0.81%. Original Post