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Africa: Portfolio Worthy?

Originally published on Dec. 17, 2014 The association with Africa in past months is often linked to Ebola. But, don’t let that overshadow the prosperous investment opportunity offered by the continent. Africa is on the rise as witnessed in recent political stability, a growing middle class, and economic growth outpacing most of the world. Indeed, the GDP of Africa has had steady growth since 2000 averaging over 5% each year, and is projected to finish this year up 5.1% and 2015 up 5.8%. Here are three reasons to consider adding African stocks to your portfolio. Rapid Growth in Developed Countries While some countries are still in transition, Nigeria, Kenya, and Mozambique are growing exponentially, with projected GDP growth in 2015 climbing close to the 19% mark. The opportunity seems to be in the water. With China’s recent investment in the South African Ocean economy, other foreign investors are sure to follow suit with these countries’ large shore lines and port communities; there is a huge opportunity for expanded growth. The Major Players China surpassed the United States in import/export business in 2009 and has since been investing their excess liquidity into infrastructure. Heineken ( OTCPK:HINKF ) has been pouring capital expenditures to the tune of $690 million a year to improve facilities and training in Africa. Other well known internationally-based companies such as Nestle ( OTCPK:NSRGF ) and Unilever (NYSE: UL ) also hold profitable investments in Africa. The United States and Canada Although the United States has lagged behind in African investments, the U.S. recently pledged $14 b illion from U.S. businesses such as GE (NYSE: GE ), Marriott (NASDAQ: MAR ), Chevron (NYSE: CVX ), Coca-Cola (NYSE: KO ), IBM (NYSE: IBM ) and MasterCard (NYSE: MA ). Canada’s Actic, a private equity investor in emerging markets, and Cordiant, an emerging market asset manager, most recently launched a $126 million investment fund for Africa. With a growing middle class of 350 million strong in 2010 and home to six nations with the world’s fastest growing economies, Africa is poised to be an attraction for investors looking for positive growth. Sources: http://blog.trade.gov/2014/07/31/u-s-africa-business-success-stories-how-a-supplier-of-powerboats-to-the-u-s-military-started-doing-business-in-nigeria/ http://www.marketwatch.com/story/you-arent-investing-in-africaand-youre-missing-out-2014-12-02 http://www.investopedia.com/articles/investing/112614/etfs-and-mutual-funds-investing-africa.asp http://www.aljazeera.com/news/africa/2014/08/us-announces-14bn-investment-africa-201485155458455909.html http://www.usatoday.com/story/money/personalfinance/2014/08/03/investing-in-africa/13420007/ http://www.reuters.com/article/2014/05/09/us-heineken-nl-africa-idUSBREA480QG20140509 http://www.timeslive.co.za/politics/2014/12/05/chinese-have-invested-r120-billion-in-south-africa-zuma http://www.economist.com/news/finance-and-economics/21575769-strategies-putting-money-work-fast-growing-continent-hottest

The Current VIX Landscape Deserves Risk Assessments

Futures are only trading slightly above their historical mean. UVXY and SVXY have both proved they are not buy and hold vehicles. Monitoring backwardation levels provides a better read on trading risks. Hello everyone, I hope your new year is off to the right start. A recent run-up in the VIX futures is cause for an update. I have been closely monitoring the VIXs trend over the last several months. Octobers spike was higher than anything we have seen since late 2011 and mid-2012. This is when investors’ fear of a double-dip recession were beginning to fade. The October spike was a combination of a perfect storm of events including the worldwide Ebola scare. The December spike only speaks to reinforce my theory that investors are on edge and leery of global economic weakness spreading over to the United States. The Eurozone has not been healthy for quite some time. Russia’s economy was put into free-fall with falling oil prices and ongoing sanctions. China has been showing slower than normal growth for some time. The million dollar question is whether or not global weakness will affect the United States. For that I do not currently have an answer. I could sit here and make up data to fit any hypothesis but you know that’s not the kind of writer I am. My personal belief is the United States will lead the world to growth over the next several years. This takes into account many factors such as continued low interest rates, a firming housing market, and managing government and personal debt levels. If the above factors change then things could easily go the other way. I like to be optimistic. Back to the VIX. Let’s take a look at my two favorite VIX ETFs: ProShares Ultra VIX Short-Term Futures (NYSEARCA: UVXY ) and ProShares Short VIX Short-Term Futures (NYSEARCA: SVXY ) I would like to point out that I have consistently written about how neither of these vehicles are buy and hold investments. I have, at times, faced push back from SVXY buy and hold investors. However, the above chart speaks for itself that even over longer periods of time, both vehicles carry significant risk. At the end of this article there is a link to how both instruments would have performed in 2008 and 2011. Contango and Backwardation I have moved away from the traditional strategy of simply watching for futures to enter backwardation and reenter contango. I am now more focused on the level of backwardation. The higher the level of backwardation, the more oversold the market is (in my opinion). Here is a look at the longer-term chart: (click to enlarge) During the double dip recession fears of 2011 the VIX futures (front and second month) hit a backwardation percentage of just over 20%. In contrast, the October event produced a 13% level of backwardation. Any event that pushes backwardation levels beyond 5% is significant. My short-term change in strategy: I currently see too much risk in shorting the VIX, even at current elevated levels. Therefore, I will be more closely tracking the percentage of backwardation in the VIX futures. In the higher risk environment, waiting for futures to reenter contango can take much of the reward away. By monitoring the level of backwardation, this gives you a clearer indication of when the pendulum has begun to swing back towards contango. Unless futures are over a 5% level of backwardation, I will be waiting on the sidelines for a better opportunity. I believe much of the current market weakness is related to commodities and not economic weakness in the United States. Lower oil prices, for a prolonged period of time, do have negative consequences for the economy. A predicted recession in Texas, loss of jobs tied to the shale boom, and many smaller oil and gas companies struggling is not the bright shining star that helped pull us out of the recession. Oil will eventually settle into a range higher than where it is currently trading. Saudi Arabia is playing chicken and the U.S. and Canada are already dropping rigs in response. The world cannot afford oil this cheap (oxymoron?). If you are a regular reader you know I focus a lot on wage growth (economic articles). This week provides more data to either disprove or cement indications that we finally have positive wage growth momentum. The market will be closely monitoring these reports. My advice to you: Be aware of the risks involved with volatility. It is historically trading slightly above its mean. This is not a huge spike by any account. Focus on backwardation levels and if futures are in contango wait on the sideline for a better opportunity. Even in 2008 UVXY would have not returned a profit if held for more than one year. For more data please review my article How UVXY and SVXY would have performed in 2008 and 2011. Purchasing SVXY in a period like this also poses significant risk should things turn south. I worry the last several years have created many complacent investors in inverse volatility products. Patience in volatility will pay off. Trust me, I have been in the position of missed opportunities many times. This only leads to irrational decisions and usually a loss of capital. Don’t feel like you’ve missed any opportunity if the VIX dips to 15 by weeks end. Just sit it out and wait for the next wave, just like a surfer. You can always catch the next one, you just have to be ready.

Comparing 5 Tactical/Momentum ETFs

Summary Momentum is regarded as the premier anomaly due to its persistent outperformance over long periods of time. With grim clouds presently hanging over today’s stock markets, tactical/momentum ETFs may allow an investor to conduct “passive market timing.” This article is a brief overview of several recently launched tactical/momentum ETFs. Introduction Momentum is often regarded as the premier anomaly due to its persistent outperformance over long periods of time. Stocks that have done well recently tend to continue to do well, while stocks that have done poorly recently tend to continue to do poorly. The momentum concept is embodied in aphorisms such as “Cut your losers and let your winners run.” Interestingly, momentum often runs counter to the tenets of value investing, which champions buying low and selling high. In a one-to-one contest however, the momentum premium beats the value premium hands down. In data presented in an article by GestaltU, the difference between high momentum (Sharpe = 0.58) and low momentum (0.05) stocks was much greater than the difference between value (0.49) and growth (0.23) stocks in the U.S. The p -value of the Sharpe ratio difference for momentum was