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TrimTabs Plans 2 Free-Cash-Flow ETFs

TrimTabs ETF Trust has recently filed a post-effective amendment for two ETFs – one focusing on the domestic market and the other on international markets. The funds – TrimTabs International Free-Cash-Flow ETF and TrimTabs U.S. Free-Cash-Flow ETF – are expected to trade under the tickers FCFI and FCFD following their launch. Below, we have highlighted some of the details about the ETFs for investors seeking to know more about these in-registration funds: FCFI in Focus As per the SEC filing , the proposed passively managed ETF looks to provide exposure to international companies poised for rapid growth by tracking the performance of the TrimTabs International Free-Cash-Flow Index before fees and expenses. For this purpose, the index focuses on companies with high free cash flow yield, including REITs. Free cash flow here refers to the total cash generated by the company after spending the money required to maintain or expand its operations, while free cash flow yield is the ratio of a company’s free cash flow to its market capitalization. The index follows an equal weighted strategy which ensures a well-diversified portfolio. Moreover, the index seeks to provide exposure to 10 countries, including Australia, Canada, China, France, Germany, Japan, Korea, the Netherlands, Switzerland and the U.K. The fund will charge 69 basis points as fees. FCFD in Focus The proposed fund looks to track the performance of the TrimTabs U.S. Free-Cash-Flow Index, before fees and expenses. The passively managed fund focuses solely on U.S. companies, including REITs, having a high free cash flow yield. FCFD in short follows the same strategy as FCFI and also charges the same fees, but with a domestic focus. How Might it Fit in a Portfolio? Free cash flow is one of the important tools to measure the performance of a company. Usually most investors focus on fundamental indicators such as the price-to-earnings ratio (P/E), book value, price-to-book (P/B) and the PEG ratio to select companies with strong fundamentals. They often ignore free cash flow measures. However, the free cash flow yield offers a better representation of the company’s performance and in most cases give a fairer picture of the company than other fundamental measures. FCFI and FCFD, which focus on companies with high cash flow yield, are expected to hold some of the best performing international and domestic companies, respectively. ETF Competition Presently, there aren’t many funds focusing on this space. However, we have two funds from Cambria – one focused on the domestic space and the other on the international front – providing exposure to companies that generate high free cash flow and in turn look to return these to shareholders in the form of cash dividends, share repurchases, or by reducing their leverage. Cambria Shareholder Yield ETF (NYSEARCA: SYLD ) with an asset base of $218 million is based on the research that free cash flow is a key predictor of a company’s strength. This product invests in companies that show strong characteristics in returning free cash flow to their shareholders by way of cash dividends, share repurchases, or by reducing their leverage. The actively managed fund has a diversified portfolio of 104 stocks and charges 59 basis points as fees. Cambria Foreign Shareholder Yield ETF (NYSEARCA: FYLD ) on the other hand also works on the same proposition as SYLD, but focuses on stocks from foreign developed countries. The fund manages an asset base of $62.4 million and includes companies with the best combination of dividend payments and net stock buybacks. The fund charges the same fee as SYLD. Thus, FCFI and FCFD, if launched, have a fair chance of building assets for themselves, given the lack of competition in the space.

The Best And Worst Performing Assets Of 2014

By Matt Rego With 2015 officially rung in and the first trading day of the New Year in progress, 2014 is fading off into the distance. But, before it goes, let’s take a look at some of the best and worst performing assets of 2014, which can help formulate an investment plan for the current year. Reviewing prior year is a good habit to get used to, as it can show what assets could outperform this year or which could underperform this year. Ultimately, it is good to close out a year with a review and a takeaway that will allow us to improve our analysis scope and where some investments made during the year went wrong or right. Best And Worst Performing Assets: Stocks US equities continued to march higher in 2014, as the bull market continued to show strength during the year. Dow Jones Industrial Average rose 8.4% in 2014, S&P 500 rose 12.39%, and the Nasdaq led the group of US indices with 14.31% gain for the year. Turning to European equities, the FTSE 100 (INDEXFTSE:UKX) lost -2.26% for the year, the CAC 40 rose 1.08%, and Euro Stoxx 50 saw a rise of 2.48% in 2014. The Shanghai Composite, Chinese equities, rose 53.94% in 2014 and Japan’s Nikkei 225 (INDEXNIKKEI:NI225) saw 2014 outcome of -1.93% ( Google Finance data) Best And Worst Performing Assets: Commodities Commodities had a good start in 2014, but as the US dollar continued to build strength in the latter half of the year, commodities began to suffer. The biggest and most memorable story of 2014 for commodities will be the collapse in oil prices, which fell -44.5% during the year. Natural gas lost -29% and heating oil was the second worst performing commodity at -39.6%. Gold ended the year down, but relatively flat overall with -2.9% 2014 performance. Silver fared much worse, which fell -20.7%. On the bright side, coffee was the overwhelming best performing commodity, which shot up 44.8%. Cattle prices had a huge run up in 2014, led by feeder cattle’s gains of 33.7%. Live cattle saw gains of 22.1% and lean hogs was worst performer of the livestock sector, down -6.6% for the year. The US dollar rose 12.9% during the year. Best And Worst Performing Assets: Bond Yields Bond yields across the board saw declines in 2014. Yields and bond prices work inversely, meaning bond prices rallied in 2014 as yields sank. The US 10 Year saw yields fall -0.857 basis points, Germany’s 10 year fell -1.387 bps, UK saw a drop of -1.266 bps, Japan’s 10 year saw the lowest fall in yield at -0.412 bps. Spain’s 10 year yields fell the most by -2.54 bps, followed by Italy’s 10 year yield declines of -2.235 bps. Overall, 2014 was a good year for US equities, the US dollar, cattle, coffee, and bond prices. Looking forward to 2015, analysts and economists are forecasting continued strength in the US dollar, which will mean lagging commodity prices. US equities have the general consensus of starting the year off strong and getting weaker as the year rolls on. Bonds are predicted to have a very rough year with the US Federal Reserve expected to raise rates at some point. Ultimately, we will have to wait and see what the New Year brings. Disclosure: None

Preliminary Fed Report Says Don’t Fear Leveraged ETFs

By Mark Melin Leveraged and inverse ETFs, which have come under heavy criticism as potentially exacerbating volatility in financial markets, are not the danger that critics have made them out to be, concludes a preliminary study from U.S. Federal Reserve researchers. In their white paper, ” Are Concerns About Leveraged ETFs Overblown ,” Fed researchers Ivan T. Ivanov and Stephen L. Lenkey make the case that concerns in this regard are exaggerated. To the contrary, the authors assert that “capital flows considerably reduce ETF rebalancing demand and, therefore, mitigate the potential for ETFs to amplify volatility.” (click to enlarge) Opposition to the leveraged ETFs Initial opposition to the leveraged ETFs was strong. In fact, as The Wall Street Journal’s Pedro Nicolaci Da Costa notes, both the Securities and Exchange Commission and the Fed had issued warnings regarding leveraged ETFs. In fact, at one point the SEC had issued a moratorium on approving exemption requests for new leveraged and inverse ETFs, typically a serious sign of trouble from regulators. The primary point of concern focused on what the report said was a common “perception” that the process of re-balancing leveraged and inverse ETF portfolios exacerbated performance. If the ETF was experiencing positive returns, the conventional thinking was leveraged ETFs distorted prices higher. More concerning to market observers was the notion that if the ETF experienced negative price movement, leverage would then amplify market moves lower in price. It is at this point that researchers Lenkey and Ivanov disagree. “Such reasoning is incomplete because it overlooks the effects of capital flows,” they note in their white paper, characterizing concerns regarding these products are “likely exaggerated.” (click to enlarge) Leveraged ETFs capital diminishes the potential to exacerbate volatility The paper asserts that capital coming in and out of a leveraged ETF diminishes the potential to exacerbate volatility. This is because capital flows occur frequently and tend to offset the need for ETFs to rebalance their portfolios. A key conclusion is that ETF rebalancing demand is strongest when returns are large in magnitude, which is important because ETFs would presumably be most prone to amplify market movements in these cases. The report, however, relies on the stock market recovery to offset negative asset from a market crash. “The large decline in the value of the S&P 500 during 2008-09 leads to a large capital inflow. This results in more assets under management for the ETF relative to the benchmark case with no capital flows. Then, as the index recovers, the ETF undergoes a greater amount of rebalancing on a day-to-day basis because it has more assets under management.” Several market watchers, including hedge fund manager Carl Icahn, have raised concerns that the next market crash could involve derivatives more destructive than the 2008 crash, leading to a more difficult recovery, a recovery model that the authors did not model. Read the full report here . Disclosure: None