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Greek Debt Concerns Put GREK In Focus

Investors have been worried over the debt negotiations between Greece and its creditors this year. This also had a negative impact on the major benchmarks. Recently, Greek Prime Minister Alexis Tsipras submitted fresh proposals before its creditors to settle the debt crisis. Meanwhile, Greece failed to repay a debt of around $338.7 million to the International Monetary Fund (IMF) and decided to bundle four June payments into one, to be paid on June 30. Separately, Tsipras is looking for support from his Syriza party on this matter. However, the situation is not in his favor at this moment. Several members wanted a re-election if Tsipras lets the creditors have their say. “Realistic” Proposals New proposals are reported to consist of concessions on stricter austerity targets. Reportedly, it includes a hike in the VAT (value added tax) rate, among other financing options that will buy Greece time to strike a deal next March. It was also reported that the finance minister Yanis Varoufakis came up with an idea to transfer the debt held by the European Central Bank (ECB) to the European Stability Mechanism, Eurozone’s crisis-fighting fund. After submitting these proposals, Tsipras said he believes that Greece will be able to strike an agreement regarding debt negotiations in the near future. Though it was reported that the creditors may consider extending the country’s bailout program till the end of March 2016, creditors sounded not so optimistic about the proposals. It was reported that the creditors, including IMF, may consider the extension if Athens implements measures including pension cuts, tax increases, and other policies. Will ‘Grexit’ Happen? It is speculated that nobody wants the nation to exit the common currency bloc and thus Greece is poised to play “the game for as long as they can.” Grexit may lead to instability in the currency union, which other members of the EU would like to avoid. In this scenario, the “Grexit” prospect seems unlikely. Meanwhile, German Chancellor Angela Merkel and French President François Hollande agreed to meet Greek Prime Minister Alexis Tsipras on the sidelines of a Brussels summit to defuse the standoff between Greece and its creditors over the country’s bailout program. Moreover, the European Central Bank increased the amount Greek banks can borrow from their central bank to $94.1 billion, the highest increase since Feb 18. Separately, the New York Times’ Paul Krugman pointed out that Greece has already done a large volume of adjustments, the cost of which is so huge that the country should have been in a better position if it had exited the euro in 2010. He noted: “You can make an even better case that Greece would have been much better off if it had never joined in the first place. But at this point these are sunk costs. If Greece can negotiate a halfway reasonable compromise, one that more or less pauses further austerity, it’s hard to see that the risks of exit would be worth it.” GREK in Focus Several investors are hoping that the country will reach a deal with its creditors soon. Wilbur Ross, who along with a group of investors, has $1.47 billion riding on Eurobank Ergasias, the third largest bank in Greece, remained optimistic about the situation. Regarding the investment environment in Greece, Ross said that the dismal situation might take a swift turn in the near future “if the brinkmanship on display between Athens and the creditors ends in a credible deal that restores the confidence of foreign investors.” In this scenario, the Greek ETF – Global X FTSE Greece 20 ETF (NYSEARCA: GREK ) – will remain on investors’ radar till a potential deal is struck between Greece and its creditors. The ETF tracks the FTSE/ATHEX Custom Capped Index that is designed to reflect the performance of the 20 largest securities listed on the Athens Stock Exchange. The product holds 22 stocks in the basket and is heavily concentrated in the top 5 holdings that make up for a combined 55.4% of assets. The ETF has around $308.8 million in its asset base and sees a moderate trading volume of more than 800,000. The fund charges 55 bps in annual fees from investors and has a dividend yield of 1.1%. GREK has a Zacks Rank #3 (Hold) with a High risk outlook. The fund lost? 10.3% in the year-to-date frame and declined nearly 1% in the trailing one month. Original Post

Is This The Right Time To Bet On Volatility ETFs?

The U.S. stocks finally managed to cross all hurdles that came in their way in the past few weeks with a sharp rise in yesterday’s trading session. Both the S&P 500 and Dow Jones industrials average posted their biggest one-day gains in more than a month. Though these gains were broad-based, the rally is unlikely to last long as a large number of concerns have already built up. Despite the impressive one-day gain, the S&P 500 index has been trading in a tight range of around 6.5% this year and the stocks in the index are moving at an average of 18%, the narrowest in two decades. In fact, the index has been moving under 1% over the past six weeks, representing the longest stretch of calm since May 1994. In addition, about 59% of the stocks closed above their 200-day moving averages at the end of last week, the lowest in eight months, according to Bloomberg . This suggests that the market breadth (higher number of stocks advancing versus declining) is deteriorating, signaling some pullbacks in the weeks ahead. Further, the current economic fundamentals are signaling huge volatility and uncertainty for the coming months. This is because a raft of upbeat economic data and an accelerating job market after the first-quarter slump are raising speculation of a sooner-than-expected (as early as September) rate hike for the first time since 2006. On the other hand, downward revision to first-quarter GDP growth, sluggish consumer spending, and falling consumer confidence for two consecutive months raises questions on the health of the economy. Yesterday, the World Bank cut its growth outlook for the U.S. from 3.2% to 2.7% for this year and from 3% to 2.8% for the next. Moreover, an aging bull market, lofty stock valuations, a strong dollar, and the Greek debt drama are weighing on investor sentiment. Apart from these, the yields on 10-year Treasuries have been rising, reaching the highest level since September 30, 2014 at 2.478%. All these factors might keep the fear levels up. Added to the concern is the sliding transportation sector, which is alarming the broader stock market. According to the century-old Dow Theory, any long-lasting rally in the Dow Jones Industrial Average should be accompanied by a rally in Dow Jones Transportation Average. It seems both indices are on the diverging path given that the former has added nearly 1% in the year-to-date time frame against the 8.5% decline in the transportation index. This signifies that the stock market might not stay healthy going forward and see a sharp fall anytime soon. In a woe-begotten backdrop, investors could look into volatility products that have proven themselves as short-time winners in turbulent times. They can use these products for hedging purpose to ensure safety when the stock market starts plunging. Volatility ETFs in Focus Volatility in the stock market is best represented by the CBOE Volatility Index (VIX), also known as fear gauge. It is constructed using the implied volatilities of a wide range of S&P 500 index options and tends to outperform when markets are falling or fear levels over the future are high. A popular ETN option providing exposure to volatility, iPath S&P 500 VIX Short-Term Futures ETN (NYSEARCA: VXX ), sees a truly impressive volume level of about 44 million shares a day. The note has amassed $1.2 billion in AUM and charges 89 bps in fees per year. The ETN focuses on the S&P 500 VIX Short-Term Futures Index, which reflects implied volatility in the S&P 500 Index at various points along the volatility forward curve. It provides investors with exposure to a daily rolling long position in the first and second month VIX futures contracts. The two products – ProShares VIX Short-Term Futures ETF (NYSEARCA: VIXY ) and VelocityShares Daily Long VIX Short-Term ETN (NASDAQ: VIIX ) – also track the same index. VIXY has $152.7 million in AUM and sees good average daily volume of 1.3 million shares, while VIIX is the unpopular of the two with just $11.1 million in its asset base and sees moderate volume of more than 81,000 shares per day. The former charges 85 bps in annual fee, while the latter is costlier charging 0.89% annually from investors. The three products lost less than 2% over the past one month. Another product – C-Tracks on Citi Volatility Index ETN (NYSEARCA: CVOL ) – linked to the Citi Volatility Index Total Return, provides investors with direct exposure to the implied volatility of large-cap U.S. stocks. The benchmark combines a daily rolling long exposure to the third and fourth month futures contracts on the VIX with short exposure to the S&P 500 Total Return Index. The product has amassed $3.8 million in its asset base while charging 1.15% in annual fees from investors. The note trades in a moderate volume of 111,000 shares per day and lost nearly 3.5% in the trailing one month. AccuShares Spot CBOE VIX Fund Up Class Shares (NASDAQ: VXUP ) debuted in the volatility space last month. It provides direct access to the spot price return of the CBOE Volatility Index, or VIX and charges 95 bps in fees per year from investors. The fund trades in a small volume of about 48,000 shares a day on average and is down 0.4% since inception. Bottom Line These products are suitable only for short-term traders and have been terrible performers over the medium or long term. This is because most of the time, the VIX futures market trades in ‘contango’, a condition in which near-term futures are cheaper than long-term futures contracts. Since volatility ETFs and ETNs like VXX must roll from month to month in order to avoid ‘delivery’, a contango situation can eat away returns over long periods. Original Post

Bargain Energy Funds To Buy As Crude Shows Uptrend

There aren’t many individuals who don’t like a good bargain. Most, or perhaps everyone, loves a great deal and such a bargain is now available in the energy sector. After the rout in crude prices last year, prices have stabilized, and crude is now gaining ground, making the sector a safer investment option. The fundamentals driving the price of the commodity look good, and thus buying energy funds at the current discount would be a prudent move. The word “downturn” fits perfectly for the energy sector. Crude prices had slumped to below $50 a barrel. Thus, the profit margins of several players from the industry have seen massive declines. This has hit stock prices as well. Nevertheless, this has made their stocks inexpensive and a really good bargain. Funds with strong fundamentals owning potential gainers from the energy sector should do well going forward, somewhat illustrated by their year-to-date gains. Before we cherry pick the energy funds, let’s look at other details. Fundamentals Driving Crude Since last June – when oil was trading around $100 per barrel – we saw a prolonged plunge in crude. This was primarily owing to the plentiful North American shale supplies when nobody seemed interested in buying, sluggish growth in China, and a dull European economy. However, the fundamentals are improving now. U.S. Energy Department’s weekly inventory release showed that crude stockpiles fell for the fifth straight week despite domestic production notching up to another record. The federal government’s EIA report revealed that crude inventories fell by 1.95 million barrels for the week ending May 29, 2015, following a decrease of 2.80 million barrels in the previous week. But the real booster should be felt on the demand side. The peak summer driving season in the U.S. – started officially this past Memorial Day weekend – and should fuel up crude consumption. According to the American Automobile Association (AAA) and IHS Global Insight, about 37.2 million travelers were forecasted to have traveled by air and road during the Memorial Day weekend. If the prediction is to be believed, then this Memorial Day weekend might have been the busiest in a decade, with the highest travel volume since 2005. Moreover, we have seen Asian demand for crude increasing. As per Energy Aspects – an independent research consultancy firm in U.K. – notwithstanding a slowing economy in China, the country’s crude import touched a record 7.4 million barrels per day in April. Additionally, according to the Ministry of Finance, customs-cleared oil imports in Japan hiked 9.1% from last April to 3.62 million barrels per day in April 2015. The improving fundamentals – as reflected in growing demand and lower supply – are reflected in the recent West Texas Intermediate (WTI) crude price of $59.72 per barrel, up significantly from the six-year low mark of $43.88 per barrel in March 2015. 3 Energy Mutual Funds to Buy Here we will list 3 Energy mutual funds that either carry a Zacks Mutual Fund Rank #1 (Strong Buy) or Zacks Mutual Fund Rank #2 (Buy). 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 the likely future success of the fund. The following funds are rebounding from 1-year loss and have encouraging year-to-date gains. Fidelity Select Energy Portfolio (MUTF: FSENX ) seeks capital growth over the long run. FSENX invests a lion’s share of its assets in companies involved in the energy sector including oil, gas, electricity, and solar power. FSENX primarily focuses on acquiring common stocks of companies throughout the globe. Factors such as financial strength and economic condition are considered before investing in a company. FSENX currently carries a Zacks Mutual Fund Rank #1. Its year-to-date gain is 8.8% as against 12.3% decline over 1-year period. The 3- and 5-year annualized returns stand at 7.9% and 8.5%. The annual expense ratio is 0.79% as compared to category average of 1.44%. FSENX carries no sales load. Guinness Atkinson Alternative Energy (MUTF: GAAEX ) seeks capital growth over the long term. GAAEX invests heavily in domestic and foreign companies from the alternative energy sector. GAAEX invests in companies regardless of their market capitalization and may also invest in developing economies. GAAEX currently carries a Zacks Mutual Fund Rank #2. Its year-to-date gain is 11.7% as against 7.1% decline over 1-year period. The 3-year annualized return stands at 16.7%. The annual expense ratio of 1.98% is, however, higher than the category average of 1.44%. GAAEX carries no sales load. Fidelity Advisor Energy T (MUTF: FAGNX ) invests in common stocks and in certain precious metals. The fund normally invests at least 80% of assets in securities of companies principally engaged in owning or developing natural resources, or supply goods and services to such companies, or in physical commodities. FAGNX currently carries a Zacks Mutual Fund Rank #1. Its year-to-date gain is 8.7% as against 12.6% decline over 1-year period. The 3- and 5-year annualized returns stand at 6.1% and 6.4%. The annual expense ratio is 1.34% as compared to category average of 1.44%. Original Post