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6 Reasons Why JETS ETF Could Fly Higher

Gone are the days when aviation companies were ill-famed for their bankruptcy protection status. During 2005 and 2008 , over half of the U.S. carriers functioned under Chapter 11 of bankruptcy protection. But things have changed in the last seven years. Since last year, the U.S. aviation industry has been soaring with oil price going into a tailspin. Moreover, a pickup in the domestic economy, rising cargo demand and a boost to tourism bode well for the sector and the pure play airline ETF U.S. Global Jets ETF (NYSEARCA: JETS ) . The fund was up 6.5% in the last one month though it lost slightly in the first quarter, resulting in a muted year-to-date return of 2.3% (as of August 19, 2015). Since the fund is new in the industry and debuted on April 30, 2015, let’s take a look at the drivers that can take the fund higher in the coming days. To analyze this, we have considered the details provided by U.S. Global Investors in its JETS presentation. Higher Margin & Lower Debt: The U.S. airline industry saw the 10-year best margin performance in 2014. Not only this, U.S. airlines are projected to see huge free cash flows (in the range of $15,000 to $20,000 million) in the coming three years including 2015. These figures represent a remarkable jump from less than $5,000 million of FCF earned in 2014. The debt-ridden airlines are also paying down borrowings over the years. Total debt in proportion of operating revenues came down to 41.4% at the end of 2014 from around 65% at the end of 2010. Surge in Ancillary Revenues: Apart from the key business, supplementary revenues including hotel accommodation, car rentals, onboard food, and travel insurance are all performing well. Restructuring: Modifications in operations and carrier structure are on in full swing. While slimmer seats and the addition of more rows resulted in about a 16 percentage point increase in passenger load factor in 10 years (till Q2 of 2014), fuel-efficient aircraft contributed to energy savings. Limited Capacity Growth: Most airlines recently acknowledged plans of adding lesser fleet in the coming days. While several factors are responsible for this decision, a shortage of pilots is the primary reason. As per U.S. Global Investors’ report, as much as 34% of present pilots will retire by 2021. Solid Earnings: The positive factors led to an immense improvement in the companies’ earnings. The airline stocks gained altitude post Q2. In any case, cheap fuel has been a windfall and will likely remain so in the quarters to come. The mounting middle-income population in emerging markets is benefitting worldwide customer growth. Strong Zacks Metrics: At the time of writing, the sector resides in the top 16% of the Zacks Industry Rank. Most of the industry players have a top Zacks Style Score of ‘A’ for their Growth and Value metrics, suggesting a bullish outlook for the space. By now, one must have realized that the underlying trend is solid in the airlines industry. So, investors might play it via the basket approach to tap the entire potential of the space. And to do so, what could be the best option other than the JETS ETF? The fund holds 33 stocks in its portfolio and is concentrated on a few individual securities, as it allocates about 70% to the top 10 holdings. Southwest (NYSE: LUV ) (12.75%), Delta Air Lines (NYSE: DAL ) (12.49%), United Continental (NYSE: UAL ) (11.9%) and American Airlines (NASDAQ: AAL ) (11.34%) are the top four elements in the basket, with a combined share of about 45%. Other firms mentioned above also get places in the top 10 chart, each with over 4% weight. The product charges 60 bps in fees. Original Post

Today’s Strong Competitive Wealth-Builder ETF Investment

Summary From a population of some 350 actively-traded, substantial, and growing ETFs this is a currently attractive addition to a portfolio whose principal objective is wealth accumulation by active investing. We daily evaluate future near-term price gain prospects for quality, market-seasoned ETFs, based on the expectations of market-makers [MMs], drawing on their insights from client order-flows. The analysis of our subject ETF’s price prospects is reinforced by parallel MM forecasts for each of the ETF’s ten largest holdings. Qualitative appraisals of the forecasts are derived from how well the MMs have foreseen subsequent price behaviors following prior forecasts similar to today’s. Size of prospective gains, odds of winning transactions, worst-case price drawdowns, and marketability measures are all taken into account. Today’s most attractive ETF Is the iShares U.S. Healthcare ETF (NYSEARCA: IYH ) . The investment seeks to track the investment results of an index composed of U.S. equities in the healthcare sector. The fund generally invests at least 90% of its assets in securities of the underlying index and in depositary receipts representing securities of the underlying index. It seeks to track the investment results of the Dow Jones U.S. Health Care Index (the “underlying index”), which measures the performance of the healthcare sector of the U.S. equity market. The fund is non-diversified. (Description from Yahoo Finance.) The fund currently holds assets of $2.68 billion and has had a YTD price return of +13.73%. Its average daily trading volume of 261,855 produces a complete asset turnover calculation in 64 days at its current price of $161.94. Behavioral analysis of market-maker hedging actions while providing market liquidity for volume block trades in the ETF by interested major investment funds has produced the recent past (6 month) daily history of implied price range forecasts pictured in Figure 1. Figure 1 (used with permission) The vertical lines of Figure 1 are a visual history of forward-looking expectations of coming prices for the subject ETF. They are NOT a backward-in-time look at actual daily price ranges, but the heavy dot in each range is the ending market quote of the day the forecast was made. What is important in the picture is the balance of upside prospects in comparison to downside concerns. That ratio is expressed in the Forecast Range Index [RI], whose number tells what percentage of the whole range lies below the then current price. Today’s Range Index is used to evaluate how well prior forecasts of similar RIs for this ETF have previously worked out. The size of that historic sample is given near the right-hand end of the data line below the picture. The current RI’s size in relation to all available RIs of the past 5 years is indicated in the small blue thumbnail distribution at the bottom of Figure 1. The first items in the data line are current information: The current high and low of the forecast range, and the percent change from the market quote to the top of the range, as a sell target. The Range Index is of the current forecast. Other items of data are all derived from the history of prior forecasts. They stem from applying a T ime- E fficient R isk M anagement D iscipline to hypothetical holdings initiated by the MM forecasts. That discipline requires a next-day closing price cost position be held no longer than 63 market days (3 months) unless first encountered by a market close equal to or above the sell target. The net payoffs are the cumulative average simple percent gains of all such forecast positions, including losses. Days held are average market rather than calendar days held in the sample positions. Drawdown exposure indicates the typical worst-case price experience during those holding periods. Win odds tells what percentage proportion of the sample recovered from the drawdowns to produce a gain. The cred(ibility) ratio compares the sell target prospect with the historic net payoff experiences. Figure 2 provides a longer-time perspective by drawing a once-a week look from the Figure 1 source forecasts, back over two years. Figure 2 (used with permission) What does this ETF hold, causing such price expectations? Figure 3 is a table of securities held by the subject ETF, indicating its concentration in the top ten largest holdings, and their percentage of the ETF’s total value. Figure 3 source: Yahoo Finance IYH has over half its investments in ten major, mainstream corporations serving the broad healthcare industry, from pharmaceuticals producers to healthcare insurers, medical equipment makers, and service providers. Investments in developmental research in biotechnology are restricted to the in-house activities of the big-pharma companies held. There the emphasis is more likely to be on capitalizing on known technology and existing markets rather than on breakthrough developmental activities. The expectations for these companies, derived from Market-Maker hedging to protect its own capital while facilitating volume transactions for big-$ fund clients, is shown below. Figure 4 is a table of data lines similar to that contained in Figure 1, for each of the top ten holdings of IYH. Figure 4 (click to enlarge) In an industry as unpredictably dynamic as this, wide variations in market experience can be the rule. The averages of IYH’s 10 largest holdings compete quite favorably with the 20 best equity wealth-building candidates from our population of 2475 issues. Column (5) contains the upside price change forecasts between current market prices and the upper limit of prices regarded by MMs as being worth paying for price change protection. The average of +9.0% of the top ten IYH holdings is close to the +10.2% of the population’s best. Its investments in Gilead Sciences, Inc. ( GILD) and AbbVie Inc. ( ABBV) exploit the hep-c extensive market, which has produced impressive stock price gains (11). BMY at its present price and coming price expectations offers further support for IYH gains. The other side of the coin is column (6), which shows what actual worst-case price drawdowns have been typical in the 3 months following each time there has been a forecast like those of the present day. Those risk exposures have been only -4.0% in the holdings top ten, less than half the -8.6% by equities at large. The IYH 10’s reward-to-risk ratio (14) of 2.3 outranks all of the other aggregate set measures. Conclusion IYH provides only modestly attractive forecast price gains, supported by equally appealing largest holdings. Both the ETF and many of its major holdings offer very attractive prospects in near-term price behaviors, demonstrated by previous experiences following prior similar forecasts by market makers. The principal attraction of IYF at this point in time is its strength of resistance to price drawdowns and excellent recovery from temporary bad times by the strong underlying trend of its economic sector. In any period of concern over market weakness this is a prime defensive commitment here. 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.

Monday Morning Memo: ESG Criteria As A Tool For Stock Selection

By Detlef Glow Stock selection is one of the most critical aspects for equity fund managers, since that is the point where they are supposed to deliver so-called alpha as value added from active management and therefore the justification for their management fee. I have had a number of meetings with portfolio managers over the past 20 years, and most of them told me they try to find high-quality stocks. That said, one can imagine the quality of a stock is defined differently by each manager. Asked how they evaluate quality, most managers told me they have implied quantitative screens for financial data, and they meet with the management of companies to verify future expectations of the companies’ operation. But few of the fund managers told me they use environmental, social, or governance (ESG) criteria for stock selection. Nevertheless, nowadays a number of portfolio managers employ at least one ESG criterion in their screening process. This shows that the integration of ESG criteria has gained ground in the conventional asset management industry. From my point of view it is not surprising that even conventional fund managers have started to use ESG criteria, since these data deliver a unique view of a company that is not dependent on financial data. Fund managers who employ ESG data and criteria in their selection process have an opportunity to gain a competitive edge through the use of information that is not used by their competitors. But, what information can be gathered from ESG criteria? Using ESG criteria the research process should lead to companies that have good policies on environmental and social aspects and a strong management that follows best-practice guidelines and has no conflicts of interest. In more detail ESG data can be used to identify so-called corporate-specific risks, i.e., the risk of fatalities, outages, fraud, or strikes as well as macro risks such as labor intensity or a shortage of skills, weather impacts, data protection, security issues, or possible water shortages. From my perspective the lack of education is a key factor of why ESG criteria will not be used widely in the asset management industry in the short term. But, with the turnover in staff and the educational efforts by industry associations and promoters of advanced education courses, the use of ESG criteria will become more popular over time. There is evidence that investors from Generations X and Y are more demanding with regard to information about how their money is invested. In addition, surveys have shown that investors from these generations are also more tuned to a lifestyle of health and sustainability and want to invest their money in funds that have similar goals in place. This means the demand from investors for products using a sustainable investment approach should increase, since Generations X and Y have just started to become investors. From my point of view this demand will be the main driver for a change in thinking and acting within the wider asset-management industry. Early adaptors might be the winners in this trend, since they can build up a reputation as thought leaders, along with a performance track record, prior to their competitors. The views expressed are the views of the author, not necessarily those of Thomson Reuters.