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Technology Stock Roundup: AAPL-GOOGL Rivalry Hits New Highs

The Apple AAPL Google GOOGL rivalry reached new highs last week with the launch of iOS 9 and a dedicated app to woo Android users. But there was also much more going on, so let’s dive right into the

Don’t Ride The Roller Coaster, Bet On It

With global markets (esp. EM) stumbling, the upcoming FOMC meeting, political instability worldwide, and weak US domestic data, it may be time to bet on an increase in volatility. September through December are going to be some of the most volatile months in the year. Several options for investors: ETFs/ETNs that track volatility, such as TVIX, VXX, UVXY, derivative strategies, or going bearish/long-term on stocks. What a summer it’s been and September is only half-way over. Just overnight (as of Sept. 14th, 2015), Asian markets dipped again on poor economic data, with the mainland Shanghai Composite (SHCOMP) ending on -2.67% (at one point, nearly falling under 3k) and the Nikkei Index falling under 18k at -1.63%. Unfortunately, for international investors, this is not news . With the stock market crash that started in June and the subsequent desperate attempts by the Chinese authorities to prevent the crisis from getting any worse, everyone can at least agree on one thing: the ‘Asian century’ is faltering (for the brief three decades that it lasted) and the annual 8% GDP growth figures are a thing of the past. And considering China’s is a pseudo-market system run by an aging regime that grew up out of the throes of Mao’s Great Leap Forward and Cultural Revolution, recent events should come as a surprise to no one. From the real estate sector to the financials sector, China has been one giant bubble bound to burst. Below is the SHCOMP 1yr with Jean-Paul Rodrigue’s ‘phases of a bubble’ superimposed. (Source: Bloomberg Business) As to be expected, capital investment has been pouring out of China as illustrated below. And China’s isn’t the only market international investors need to be worried about. All of the emerging markets, especially the BRICS, are going to be very volatile. Between Brazil’s immense debt and failing presidency or Russia’s falling ruble and dependence on oil , emerging markets are going to be in quite a lot of pain in the coming months, especially since central banks are running out of options as most have already exhausted their QE (quantitative easing) measures. (Source: JPMorgan) (Source: Reuters & NASDAQ) Speaking of central banks, on September 16th-17th, the Feds will finally meet, in what was probably one of the anticipated and over-analyzed FOMC meetings in recent times, to discuss the results of their votes on a Fed rate hike. As grossly aggrandized as the possibility of a rate hike has been, it is an important element to consider, especially since EM countries gobbled up so much dollar-denominated debt back when it was cheap. Not only that, but the private-sector credit to GDP gaps in EM countries is growing fast; China’s alone is off 25.4% from its long-term trend, the highest of any major country, with Turkey and Brazil following close behind with 16.6% and 15.7%, respectively, far above the recommended ratio of less than 10%. A rate hike, which the CME Group predicts is a 75% probability for the upcoming meeting, is going to add to the enormous strain that the financial sectors of these countries will face. All of these factors piling up seem to spell doom-and-gloom for the rest of the world, but what of the U.S.? Well, to the excitement of the Fed, employment data, which was a serious concern during the 2008 financial crisis, is looking more and more positive month after month. As of August, the official unemployment rate fell to 5.1%, with some officials celebrating the return to ‘full unemployment’ levels . However, despite all the jubilation, productivity and actual GDP growth is still lagging way behind. Macroeconomic expert Chris Varvares estimates that “capital-equipment, software and buildings-per worker has grown just 0.3% a year so far this decade, by far the worst in at least 40 years.” Thus, real wages are also stagnant, as the yearly change rate is still hovering around 0-2% . With less cash to spend and winter months approaching, American consumers are not going to be rushing to get in line for Wal-Mart’s Black Friday sales, they’re going to be running to the banks to deposit and save. Great news for the banks, but bad news for consumption which drives the American economy. So, with the general consensus being that emerging markets will suffer greatly in the short-term at least, and that American consumer confidence and demand will slow as well, what does that mean for the average investor? Volatility. To determine volatility is to simply measure the size of changes in a security’s value over time, e.g. a higher volatility means larger fluctuations in a stock’s price in a short timespan. Volatility means different things to different people, that is, central bankers, for example, work to keep volatility at a minimum as part of their Dual Mandate to keep the prices of goods and services stable. However, speculators willing to take the risks involved can profit greatly from volatility…in the same way someone betting at the horse races can profit greatly betting on a lame horse, if you have the magic of foresight and/or are very lucky. But in all seriousness, certain investors can benefit in taking a smart position in indices which track volatility. (Source: Bank of International Settlements) (Source: Yahoo Finance) One such index tracker is the VelocityShares Daily 2x VIX Short-Term ETN (NASDAQ: TVIX ) which tracks two times the daily performance of the S&P’s 500 VIX Short-Term Futures Index. The iPath S&P 500 VIX Short-Term Futures ETN (NYSEARCA: VXX ) and the ProShares Ultra VIX Short-Term Futures ETF (NYSEARCA: UVXY ) are more bearish options with lesser expense ratios (0.89% and 0.95% v.s. TVIX’s 1.65%) and there are even more options, such as inverse VIX ETFs (which are essentially the opposite, i.e. betting on stability). Now , before you get your contrarian pitchforks out, there are some points that I will concede. I think Dan Moskowitz of Investopedia puts it best – “the only way to win playing TVIX is by having impeccable timing.” Going long TVIX is a sure-fire way to lose money as common sense dictates high volatility is not a permanent condition. Even further, on the contrarian side of things, TVIX has depreciated 99.97% since its 2010 debut, 77.92% over the past year! Clearly, it is a very risky game to play, yes (but so is the lottery and that’s a multi-billion dollar industry). However , the timing is perfect now. With all the recent domestic political turmoil across the world, emerging markets crashing, and the Fed signaling a tightening of monetary policy, I cannot see, save for a miracle from the Feds, the markets getting by unscathed without a few twists and turns. And speculators would seem to agree with this. According to the CTFC (Commodity Futures Trading Commission), as of Sept. 1st, speculators achieved an all-time record of net long VIX futures contracts, with 32,239 contracts added, double the previous record set in early February and the largest ever bet on a rise in the VIX. This is very significant; even the contrarians who would immediately disregard it and go bullish on stocks in spite have to admit that. (Source: J. Lyons Fund Management Inc.) For the average investor out there (such as myself) staying long on stocks and bonds, sticking to ETFs, or cashing out may be some of the best options available to avoid getting strung along for the ride as the markets reel and spiral. But for you aspiring speculators, hedge fund managers, or simple millionaires, this might be a very profitable time to be betting on increased volatility. 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.

ETFs For Exposure To MODIfied India

Summary India is one of the most popular emerging market destinations. Indian stock markets offer great opportunity for investors looking to diversify geographically. Investors need to embrace the ‘reactive’ nature of these markets. Exchange traded funds (ETFs) are one of the best ways to access stocks listed on Indian stock exchanges. The Modi government has ushered in an era of ‘investor confidence’ in India by ending the period of policy paralysis. The one-year old government has taken initiatives on various issues, which include foreign direct investment, direct transfer subsidies and streamlined tax regimes, among other things. These steps have been complemented by the disciplined monetary policy management by the Reserve Bank of India. Tamed inflation has given room to the central bank to lower interest rates. In addition, internationally low oil prices are coming in handy for India which is hugely dependent on oil imports. A lower import bill and better fiscal management will help reduce India’s deficit problems. Notably, the International Monetary Fund estimates a 7.5% growth rate for India’s economy this fiscal. The country’s economic environment augurs well for investing in Indian stock markets. Exchange traded funds are one of the best ways for investors to access Indian land and diversify their portfolio geographically. While Indian stock markets offer great opportunity, they tend to be over-reactive. The graph below shows the annual performance of MSCI India Index, MSCI Emerging Market Index and MSCI ACWII Investable Market Index. The MSCI Index India has performed better than the other than during upward trend, but has dipped more during market fall. Nevertheless, India is still one of the best options among the emerging markets. In 2015, till September 10, the MSCI India Index was down by 9.22% while the MSCI Emerging Markets Index was down by 15.91%. The MSCI Index for countries like Brazil (-37.38%), China (-11.46%), Indonesia (-29.77%), Taiwan (-13.20%) and Thailand (-16.20%) were in red. Out of the BRIC countries, Russia was up by 6.98% (MSCI data source ). The weakness in the markets can be seen as a buying opportunity and follow Warren Buffet’s words of wisdom. Warren Buffett in his piece in The New York Times in October 2008 wrote: A simple rule dictates my buying: Be fearful when others are greedy, and be greedy when others are fearful. And most certainly, fear is now widespread, gripping even seasoned investors. To be sure, investors are right to be wary of highly leveraged entities or businesses in weak competitive positions. But fears regarding the long-term prosperity of the nation’s many sound companies make no sense. These businesses will indeed suffer earnings hiccups, as they always have. But most major companies will be setting new profit records 5, 10 and 20 years from now. Here are some of the ETFs investors can consider to access the Indian stocks. WisdomTree India Earnings Fund The WisdomTree India Earnings Fund (NYSEARCA: EPI ), launched in 2008, is among the biggest and well-known funds allocated purely towards India. A portfolio of 235 stocks makes the fund adequately diversified across different sectors within the Indian markets. Majority of the holdings in the basket are large cap with some element of mid-cap stocks. The fund’s top ten holdings are some of the best-known Indian companies like Infosys Ltd (NYSE: INFY ), Reliance Industries Ltd, Hosing Development Finance Co, ICICI Bank Ltd (NYSE: IBN ), Tata Consultancy Ltd, Oil & Natural Gas Corporation, Tata Motors Ltd (NYSE: TTM ) and State Bank of India ( OTC:SBKJY ), among others. The allocation towards the top ten holdings usually hovers in the range of 40-45%. The sector breakdown reflects the fund’s emphasis on financials (26%), information technology (20%) and energy (16%) sectors. The fund tracks the WisdomTree India Earnings Index, which is a fundamentally weighted index and hence includes companies based on their earnings performance. This ETF with its fund size of $1.66 billion and expense ratio of 0.83% emerges as one of the good funds for investors looking to bet on India’s growth story and yet stay more conservative in approach. (Source for fund facts and figures here .) iShares MSCI India ETF The iShares MSCI India Index ETF (BATS: INDA ) offers a more concentrated, passively managed bet in Indian stocks with its compact portfolio of around 70 stocks belonging to the large-cap and mid-cap space. The ETF is heavily invested in sectors such as information technology (20%), financials (16%), consumer staples (12%), healthcare (11%), energy (11%) and consumer discretionary (9%). The top ten holdings reflect the presence of these sectors in the fund with companies such as Housing Development Finance Co (NYSE: HDB ), Infosys Ltd, Reliance Industries Ltd, Tata Consultancy Services Ltd, Sun Pharmaceutical Industries Ltd ( OTC:SMPQY ), ITC Ltd (NYSE: ITC ), Hindustan Unilever Ltd ( OTC:HNSQY ), Larsen & Toubro Ltd, HCL Technologies Ltd ( OTC:HCTHY ) and Bharti Airtel Ltd ( OTC:BHRQY ). This ETF has an expense ratio of 0.68% and a beta of 0.64 which classifies it as a defensive fund. Although this ETF was launched only in 2012, it has $3.58 billion in assets under management, which speaks of the popularity of the ETF. (Source for fund facts and figures here .) PowerShares India Portfolio The PowerShares India Portfolio ETF (NYSEARCA: PIN ) is a large-cap fund (97%) that tracks the Indus India Index, which is a composition of 50 stocks. These are the stocks of some of the biggest companies listed on the Bombay Stock Exchange as well as National Stock Exchange. The fund has been around since 2008. It is diversified across different sectors with high allocation towards information technology (23%) and energy (22%) sectors followed by healthcare (13%) and financials (11%). The top ten holdings of the fund add up to 56% of its net assets. Its stop picks are Infosys Ltd, Reliance Industries Ltd, Sun Pharmaceuticals Industries Ltd, Housing Development Finance Co, Hindustan Unilever Ltd , Oil & Natural Gas Corporation Ltd, Tata Consultancy Services Ltd, Coal India Ltd ( OTC:CLNDY ), Bharti Airtel Ltd and Indian Oil Corporation Ltd ( OTC:INOIY ). (Source for fund facts and figures here .) Market Vectors India Small-Cap Fund The Market Vectors India Small-Cap Index ETF (NYSEARCA: SCIF ) is for investors with a high risk appetite. The Fund seeks to track the performance of the Market Vectors India Small-Cap Index. The fund has a 97.6% exposure to India with 1.9% and 0.8% of its net assets invested in the US and Japan. The fund’s holdings are largely small-cap, which by basic trait are much more volatile (and hence risky) in movement; such stocks tend to rally more during a boom phase and are often abandoned during weak markets which accentuates their fall in such times. The fund commenced in 2010 and currently has a $172.44 million in net assets. The fund has about 130 small-cap stocks in its kitty with the maximum exposure to the top holdings restricted to around 5%. This decreases the concentration risk; the top ten holdings currently added up to 25%. The fund has a good management backing it in addition to growing liquidity, but is only suitable to high risk-reward players. (Source for fund facts and figures here .) Two more exchanged traded funds focusing on small-caps are the iShares MSCI India Small Cap Index ETF (BATS: SMIN ) and the EGShares India Small Cap ETF (NYSEARCA: SCIN ). SMIN launched in 2012 provides exposure to small publicly listed companies in India. The fund with its small asset base of $62.88 million is diversified across 200 holdings. The top holdings make up just 17% of the portfolio; a small allocation towards each stock reduces the dependence of the fund on the performance of few stocks (Source for fund facts here ). Launched in 2010, SCIN is another fund focusing on the small-cap companies in India. This fund has a smaller portfolio of 75 stocks. The industry breakdown shows dominance of financials, industrials, consumer goods and utilities, making up 72% of the portfolio (Source for fund facts here ). Sector Specific ETFs There are two ETFs, which are positioned to gain from specific industries -infrastructure and consumer industry. One is the EGShares India Consumer ETF (NYSEARCA: INCO ), which tracks the Indxx India Consumer Index designed to measure the market performance of companies in the consumer industry in India. The fund was launched in 2011 and currently has $80.81 million assets under management. The fund has a small portfolio of 29 stocks picked from consumer goods (75%), industrials (14%) and consumer services sectors (11%) (Source for fund facts here ). Then there is the EGShares India Infrastructure ETF (NYSEARCA: INXX ) which is looking to benefit from India’s infrastructure industry. The fund has a portfolio of 30 holdings picked mostly from the industrials (40%), telecommunications (19%) and utilities (17%) space. The fund has a small corpus of $42 million and an expense ratio of 0.85% (source for fund facts here ). Funds focusing on select themes or sectors tend to be more risky. There is something for super adventurous investors. It is the Direxion Daily India 3x Bull ETF (NYSEARCA: INDL ), which is a leveraged exchange traded fund that seeks a 3x return of its benchmark index on a daily basis. Conclusion While Indian stock markets offer great opportunity given the fundamentals of its economy, it is not immune to other markets and economies. Market correction are bound to happen and the corrections triggered by weakness in other markets shouldn’t affect long-term investors unless India’s own economic parameters look weak. The recent market fall offers a good time for investors to enter and start building a long-term portfolio. In a nutshell, India’s growth story is intact. 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.