Tag Archives: nreum

Dual Momentum July Update

Scott’s Investments provides a free ” Dual ETF Momentum ” spreadsheet, which was originally created in February 2013. The strategy was inspired by a paper written by Gary Antonacci and available on Optimal Momentum . Antonacci’s book, ” Dual Momentum Investing: An Innovative Strategy for Higher Returns with Lower Risk “, also details Dual Momentum as a total portfolio strategy. My Dual ETF Momentum spreadsheet is available here , and the objective is to track four pairs of ETFs and provide an “Invested” signal for the ETF in each pair with the highest relative momentum. Invested signals also require positive absolute momentum, hence the term “Dual Momentum”. Relative momentum is gauged by the 12-month total returns of each ETF. The 12-month total returns of each ETF is also compared to a short-term Treasury ETF (a “cash” filter) in the form of the iShares Barclays 1-3 Treasury Bond ETF (NYSEARCA: SHY ). In order to have an “Invested” signal, the ETF with the highest relative strength must also have 12-month total returns greater than the 12-month total returns of SHY. This is the absolute momentum filter, which is detailed in depth by Antonacci, and has historically helped increase risk-adjusted returns. An “average” return signal for each ETF is also available on the spreadsheet. The concept is the same as the 12-month relative momentum. However, the “average” return signal uses the average of the past 3-, 6-, and 12- (“3/6/12”) month total returns for each ETF. The “invested” signal is based on the ETF with the highest relative momentum for the past 3, 6, and 12 months. The ETF with the highest average relative strength must also have an average 3/6/12 total returns greater than the 3/6/12 total returns of the cash ETF. Portfolio123 was used to test a similar strategy using the same portfolios and combined momentum score (“3/6/12”). The test results were posted in the 2013 Year in Review and the January 2015 Update. Below are the four portfolios along with current signals: (click to enlarge) As an added bonus, the spreadsheet also has four additional sheets using a dual momentum strategy with broker-specific commission-free ETFs for TD Ameritrade, Charles Schwab, Fidelity, and Vanguard. It is important to note that each broker may have additional trade restrictions, and the terms of their commission-free ETFs could change in the future. Disclosures: None Share this article with a colleague

Reaves Utility Income Fund: Monthly Payout Currently Offering A 6% Yield

Summary Reaves Utility Income Fund is a CEF that invests in a broad range of utilities. Reaves is selling at a discount to NAV and offers a relatively safe 6% monthly yield. Reaves is not likely to outperform of underperform the utility indexes. About a year ago someone offered Reaves Utility Income Fund (NYSEMKT: UTG ) as a better alternative to my list of utilities in the comments section of an article I had written. I have been following the fund since that time and have placed this fund in some of the accounts I manage. UTG recently released its semi-annual report as of 4/30/2015. Total assets of the fund were $76,000 short of $1 billion and the net asset value (NAV) of the fund was $32.71 per share. UTG is currently selling for around $29.75 per share with a NAV of $30.37 as of 7/10/15. The recent underperformance of interest rate sensitive stocks has hurt both the NAV and selling price of the fund. UTG currently yields 6.1% with a monthly payout at just over $0.15 monthly. The price fluctuation of utilities does not affect the payouts of the companies so it may be an opportune time to consider this fund and/or utility stocks if one believes that interest rates will not rise shortly. UTG is a CEF or closed-end fund that aims to provide a high level of after-tax total returns consisting of tax-advantaged dividend income and capital appreciation. It targets 80% of its investment in dividend-paying common and preferred stocks as well as debt instruments of utility companies. The other 20% can be invested in other types of securities and/or debt instruments. It also uses options of utility companies in the search for returns. The historical returns of the fund when compared to the historical returns of the S&P Utilities Index and the Dow Jones Utility Average are shown in the table below: (click to enlarge) Source: UTG Semi-annual Report UTG also offered a graph showing the allocation of funds in its quarterly report as well. It is shown below: (click to enlarge) Source: UTG Semi-annual Report This graph shows that the fund’s definition of utility is rather broad. The fund holds railroads, roads, and oil and gas MLPs as well as REITs and media companies. UTG has loans for $290,000,000 with an interest rate of around 2%, which it uses for leverage. The top 10 holdings of the fund as of 3/30/15 were: NextEra Energy 5.27% ITC Holdings Corp 4.74% Union Pacific Corp. 4.67% Verizon Communications 4.26% American Water Works Co., Inc 3.96% Duke Energy Corp. 3.66% Scana Corp. 3.65% Dominion Resources, Inc. 3.59% BCE, Inc. 3.46% Sempra Energy 2.98% Expenses of this fund are about average for a closed-end fund. Investment advisory and administration fees last year ran $9.6 million or a little over 1% of the asset value of the fund. Other fees and interest on the loans add on another .5%, making a total of 1.5% to run the fund. Leverage probably covers the costs of administration with the additional dividend income it produces. Conclusion: This CEF is a good option for someone who wants to add utilities to their portfolio without the concern of researching individual companies. It appears to be a good bet for the retiree since it offers a monthly payout where much of the dividend qualifies for the 15% tax rate. The fund’s returns have kept up with the major utility indexes over its lifetime and will probably continue to do so in the foreseeable future. One should not expect to outperform the utility indexes with this CEF, but one will not likely underperform them either. Disclosure: I am/we are long UTG. (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. Share this article with a colleague

HEDJ Vs. DBEU: Same Vista, Different Perspectives

Summary Two well-structured funds but with two different approaches. One is very comprehensive the other selective. One hedges the Euro, the other hedges non-Eurozone currencies as well. The EU is going through some tough times. However, investors should look for potential opportunities rather than avoiding the region altogether. There are two funds which cover all of Europe. The Deutsche X-trackers MSCI Europe Hedged Equity ETF (NYSEARCA: DBEU ) is quite comprehensive with approximately 448 holdings as well as having multiple currency hedges. The second fund is the WisdomTree Europe Hedged Equity ETF (NYSEARCA: HEDJ ) . It is far more selective, holding approximately 134 securities and hedges only the Euro. The WisdomTree fund has been established longer having been incepted 12/31/2009 during the most troubled financial crises years. Deutsche Bank X-Tracker fund is more recently establish, incepted on 10/1/2013. (click to enlarge) The funds allocate sectors differently. For example, WisdomTree allocates its top three sectors, Industrials, Consumer Staples and Consumer Discretionary nearly equally. The Deutsche X-Tracker fund’s most heavily weighted sectors are Financials, followed by nearly equal in Health Care and Consumer Staples. (click to enlarge) The Deutsche X-Tracker fund’s heaviest concentrations are Great Britain, France, Switzerland and Germany while WisdomTree’s distribution is most heavily concentrated in Germany, France, Spain and the Netherlands. (click to enlarge) Five of the X-Tracker top ten holdings are global Health Care giants. They account for just over 43% of the 10 heaviest weighted holdings. On the other hand, the WisdomTree fund is less defensive and more diversified. No single top 10 holding comprises more than 13% of those 10 heaviest weightings. (click to enlarge) Since the funds came to market several years apart, their side by side performance comparison must be broken up into parts. The WisdomTree Hedged Europe Equity fund began trading January 7 of 2010, closing at $47.48. The X-Tracker fund began trading 3 years and 9 months later, October 1 2013 closing at $25.22. HEDJ’s closing price on the first day of DBEU’s trading was $53.80. The first of the two tables below shows HEDJ’s performance from its inception to the day of DBEU’s inception and then HEDJ’s performance over the entire life of the fund. Annualized Returns for HEDJ 1/1/10 through 10/1/2013 From 12/31/2009 to 7/6/2015 Dividend 2.67% 3.35% Stock 3.31% 4.50% Total 5.76% 7.29% The second table compares the two since DBEU’s inception date of 10/1/2013. Annualized from 10/1/13 HEDJ DBEU Dividend 4.82% 6.12% Stock 7.26% 3.27% Total 11.87% 9.27% HEDJ tracks the parent company’s WisdomTree Europe Hedged Equity Index . On the other hand, DBEU tracks Morgan Stanley Capital International MSCI Europe Hedged Equity Index. It’s important to note that both funds are passively managed. Here is a brief comparison of each of the top five holdings by sector weighting as of July 7, 2015. Top 5 Comparison Table WisdomTree HEDJ Top Five Holdings by Weighting X-Trackers DBEU Top Five Holdings by Weightings Anheuser-Busch Inbev (NYSE: BUD ) Consumer Staple P/E 18.68 Price to Cash Flow 12.11 Dividend Yield 2.11% Pay Out Ratio 26.69 Growth 5.07% Fund Percent Holding 5.733% Native Currency Euro Nestle ( OTCPK:NSRGY ) Consumer Staple P/E 15.22 Price to Cash Flow 22.03 Dividend Yield 3.20% Pay Out Ratio 0.00 Growth -0.59 Fund Percent Holding 2.768% Native Currency Swiss Franc Telefonica (NYSE: TEF ) Telecom Services P/E 20.84 Price to Cash Flow 5.18 Dividend Yield 6.52% Pay Out Ratio 0.00 Growth -2.82% Fund Percent Holding 5.517% Native Currency Euro Novartis (NYSE: NVS ) Health Care P/E 22.79 Price to Cash Flow 21.41 Dividend Yield 2.70% Pay Out Ratio 0.00 Growth 1.74 Fund Percent Holding 2.687% Native Currency Swiss Franc Banco Bilbao Vizcaya Argentari (NYSE: BBVA ) Financial P/E 17.37 Price to Cash Flow 11.91 Dividend Yield 4.71% Pay Out Ratio 33.28 Growth -26.32 Fund Percent Holding 5.021% Native Currency Euro Roche Holdings ( OTCQX:RHHBY ) Health Care P/E 24.54 Price to Cash Flow 18.98 Dividend Yield 3.01% Pay Out Ratio 73.94 Growth 1.46 Fund Percent Holding 2.329 Native Currency Swiss Franc Siemens ( OTCPK:SIEGY ) Industrial P/E 12.89 Price to Cash Flow 9.46 Dividend Yield 3.70% Pay Out Ratio 46.28 Growth 2.23% Fund Percent Holding 4.937% Native Currency Euro HSBC (NYSE: HSBC ) Financial P/E 13.23 Price to Cash Flow N/A Dividend Yield 5.65% Pay Out Ratio 58.31 Growth -14.86% Fund Percent Holding 2.035% Native Currency Great British Pound Daimler ( OTCPK:DDAIY ) Consumer Discretionary P/E 11.09 Price to Cash Flow 6.53 Dividend Yield 3.11% Pay Out Ratio 33.19 Growth 10.97% Fund Percent Holding 4.642% Native Currency Euro BP PLC (NYSE: BP ) Energy P/E 44.12 Price to Cash Flow 5.92 Dividend Yield 5.95% Pay Out Ratio 163.64 Growth -16.11% Fund Percent Holding 1.462% Native Currency Great British Pound Data from Reuters; Data TTM unless otherwise indicated It’s interesting to note that all 10 of WisdomTree’s top holdings are headquartered in the Eurozone. On the other hand, only four of X-Tracker’s top ten holdings are headquartered in the Eurozone. Royal-Dutch Shell is headquartered in both London and the Netherlands. The rest are headquartered in non-Eurozone Great Britain or non-EU member Switzerland. According to X-Trackers and WisdomTree, both hedge with forward contracts, although WisdomTree hedges only the Euro. What this implies is that U.S. Dollars invested in the WisdomTree fund may be more exposed to currency fluctuations since 9 of the 28 EU members are not Euro zone countries, although one of the nine, Denmark maintains a very close Euro peg and the Czech Republic maintains a conversion cap. The last comparisons are made of a few average metrics. The top ten holdings of the WisdomTree Fund outperform the X-Tracker fund in every category. However it is important to observe that HEDJ has a higher beta whereas the X-Tracker fund performs virtually with the market. Top Ten Averages P/E Price/Cash Flow Dividend Yield Payout Ratio Growth Beta HEDJ 18.191 10.816 4.085 37.50 2.004 1.295 DBEU 25.219 14.367 3.987 71.732 -3.19 1.044 There are a few ‘outliers’ in each fund, dual-listed companies, for example DBEU holds Investec, headquartered in South Africa and Carnival Cruise headquartered in U.S. Lastly, 81 of the 134 holdings in the WisdomTree fund also are held in the X-Tracker fund; in other words just about 61% of the WisdomTree fund intersects the X-Tracker fund. To sum up each fund covers Europe, though one is far more broad based than the other, although there is some overlap of each fund. The WisdomTree Fund is a more selective fund, whereas the X-Tracker fund is a broad representation of the entire European market. Also, the investor needs to weigh-out the need for currency hedging. Hedging mitigates the risk but does not eliminate it and the hedge might work against the portfolio under some circumstances. The WisdomTree fund hedges only the Euro; the X-Tracker Funds hedges the Euro, Swedish Krona, Great British Pound, Danish Krone, Swiss Franc and Norwegian Krone. The Europeans will not be too quick to give up on their long awaited and hard won economic union. Modern Europe in spite of all its shortcomings has a state-of-the-art infrastructure, an overall advanced economy and culture. More than likely Europe will resolve its current issues as well as those in the future. The question for the investor is how to be properly positioned: through the selective WisdomTree European Hedged Equity Fund or the broader based Deutsche X-Tracker MSCI Europe Hedged Equity ETF? The WisdomTree fund has the potential to outperform the market quicker. However, the higher volatility incurs higher risks. On the other hand, the X-Tracker fund’s volatility matches the market hence minimizes the risk. Either one of the funds will eventually reflect better times. The investor would be wise to at least consider investing in a European fund, but to completely ignore Europe would be foolish. 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. Additional disclosure: CFDs, spread betting and FX can result in losses exceeding your initial deposit. They are not suitable for everyone, so please ensure you understand the risks. Seek independent financial advice if necessary. Nothing in this article should be considered a personal recommendation. It does not account for your personal circumstances or appetite for risk.