Tag Archives: russia

Actionable Insights: What The FANG?

Do you know what FANG stands for? If you don’t, you should – it makes an impact on your investments in ways you might not realize. FANG stocks mask the fact that the overall tech sector is under pressure compared to other indexes. 12/10/2015 You might have started hearing the word “FANG” thrown around in recent months and have questions on what it means. Like many terms before it, such as BRIC (Brazil, Russia, India, China), FANG is a recently-coined term associated with Facebook (NASDAQ: FB ), Amazon (NASDAQ: AMZN ), Netflix (NASDAQ: NFLX ), and Google (NASDAQ: GOOG ). The performance of these stocks has been nothing short of impressive this year (avg. +87% return year-to-date), but what’s more important is the FANG’s impact on other investments, such as the NASDAQ ETF (NASDAQ: QQQ ). Though investors think they might be diversifying by owning ETFs, the FANG stocks make up about 20% of the ETF’s composition. When we include Apple (NASDAQ: AAPL ) and Microsoft (NASDAQ: MSFT ), that number increases to 41%. So when you think about diversification, remember that over 40% of your investment is allocated to just six companies. This has been a pretty great issue to have this year, but it’s important to realize this before choosing your investments. More importantly, this heavy allocation into six companies skews what on face value looks like relatively great performance out of the NASDAQ this year: As you can see, the NASDAQ (less the top six stocks) has significantly underperformed the other major indexes. When you consider this index is weighted more towards growth/technology companies, and that mutual funds are beginning to write down private venture investments , its paints a much bleaker picture on tech’s ability to maintain its high multiples going forward. Additionally, as ETFs become an increasing larger portion of the market, the FANG stock may begin to move based on overall market buying/selling of indexes. Just something to keep an eye on….and now you know FANG. The Actionable Insight Take : With poor performance out of recent IPOs like Square (NYSE: SQ ), the write-downs of private investments in “unicorn” stocks, and general weak performance out of the NASDAQ this year, we are growing increasingly concerned about valuation in the tech sector. If the market were to start rotating into lower-risk stocks, many of the currently unprofitable “unicorns” would probably have a high likelihood of a sell-off. On the FANG front, we tend to prefer Google for its mix of growth and value, its profitability and strong balance sheet, and its opportunities to grow new, valuable businesses in the future (Google fiber, autonomous cars, expansion of YouTube, etc.). We commend Netflix for its transition into media production to offset the risk of rising content costs, but we fear the risk of miss-hits in production (something all producers eventually face). We think NFLX could take pricing here and there is ample room to grow internationally, but at its current price we think some of that is already priced in. Next week, I’ll be skiing in Utah, so stay on the lookout for my special skiing edition of Actionable Insights Last, as a shameless plug, it was announced this morning that my recent write-up on Ross Stores (NASDAQ: ROST ) came in 4th place in Seeking Alpha’s retail ideas contest . You can find the write-up here . Actionable Insights is a daily newsletter written by Shaun Currie, CFA, which aims to provide investors with quick, educational updates on market news with insights on possible investment opportunities. Periodically, Actionable Insights will also contribute longer investment ideas that the author produces for clients and the general public. Follow me to get notified when updates and articles are posted.

RSX: OPEC, Sanctions On Turkey And The Stubborn Ruble

Summary OPEC fails to provide support to oil prices, posing a significant risk for RSX. The story with Turkey is evolving as I predicted, and does not add much to the bear thesis. The ruble remains relatively overvalued. Market Vectors Russia ETF (NYSE: RSX ) had an interesting November. The ETF moved up and down, fueled by implications of Paris attacks, the shooting of the Russian jet by Turkey and the fluctuations of oil prices. In this article, I’ll focus on two major developments – the Russian sanctions on Turkey and OPEC’s decision to leave things as they are. Turkey In my article on RSX that was published right after the jet incident I stated that Russia’s response won’t be harmful for RSX components. This what exactly happened. In essence, Russia banned tourism and food from Turkey. The food ban comes into power on January 1, 2016, but multiple reports from Russian media show that it is already next to impossible to bring food from Turkey in reasonable time due to customs’ intense checks. Short-term, this will increase inflation, as Russia imports most fruits and vegetables that it consumes in winter because of obvious geographical reasons. As for RSX holdings , this might hurt the retailer Magnit, but I don’t think that it will have a big impact on Magnit’s bottom line. Russian president promised more sanctions on Turkey, but so far there was more harsh talk than real actions. Given the nature of the incident, tourism and food bans are a very light response. I anticipate more words (like the recent mutual accusations of involvement in the ISIS oil trade) from both sides as politicians want to score some points, but I expect little action. Among RSX holdings, the biggest risk is on Sberbank (OTCPK: OTCPK:SBRCY ), which is the fund’s biggest holding. Sberbank owns DenizBank, which is a notable player in the Turkish market. In the latest interview to the Russian media, Sberbank’s head German Gref stated that he saw no significant risks for Sberbank in Turkey, and I agree with his assessment. OPEC OPEC’s decision to live things as they were was predictable, but, nevertheless, was bad for Russia. I think that OPEC’s inability to function as an organization will put more pressure on the oil market. I recently argued that a perfect storm could push oil to $25 per barrel. Such a drop will push RSX way past the lows of December 2014. However, even current prices present an enormous threat to the Russian economy as the country eats through its emergency funds. The ruble The ruble (which is an important factor for the dollar-denominated RSX) stays relatively strong given the current oil price. The ruble-denominated oil price stubbornly stays around 2900 per barrel, while the Russian budget for 2016 needs at least 3150 per barrel. Sanctions on Turkey limit the Central Bank’s ability to decrease the rate, which is currently at 11% . However, if oil stays weak in the beginning of 2016, I expect that the Central Bank will have to cut the rate to provide some help to the Russian budget. Bottom line I remain bearish. RSX was clearly not the easiest short trade in the last few months. There was some optimism about Russia and buying activity was real. However, I question the Russian economy’s ability to successfully operate at current oil price levels. Also, as I think that the next leg down in oil is around the corner, I expect further weakness in RSX.

Oil ETFs To Watch As Crude Slips To Below $40 Again

U.S. crude again trickled to below $40 per barrel on Wednesday following the bearish inventory storage report from EIA that has deepened global supply glut and amid fresh fears that the world’s largest oil producers will not cut production when they meet on Friday. The prospect of interest rates hike and the resultant surge in dollar added to the woes. As such, U.S. crude plunged 4.6% on the day while Brent slumped 4.2% to the nearly seven-year low. The inventory data showed that U.S. crude stockpiles unexpectedly rose by 1.2 million barrels in the week (ending November 27). This marks the tenth consecutive week of increase in crude supplies. Total inventory was 489.4 million barrels, which is near the highest level in at least 80 years. As the Organization of the Petroleum Exporting Countries (OPEC) is due to meet on Friday, the market is not expecting the members to arrest production. Instead they are expected to pump oil vigorously to protect their market share. If this happens, crude will continue to be in a free-fall territory like it was last year when OPEC had decided not to cut production. However, Saudi Arabia and its Persian Gulf allies are willing to cut back if other producers like Iran, Iraq, and Russia join them in the mission. In fact, at the meet, Saudi Arabia may propose a cut of 1 million barrels per day in the OPEC output to strike a balance in the oil markets. Outlook Remains Bleak The current fundamentals are not in favor of oil with rising output and waning demand. This is especially true as OPEC is pumping record oil since Saudi Arabia and other big producers are focusing on market share. Iran is looking to boost its production once the Tehran sanctions are lifted. Meanwhile, oil production in the U.S. has been on the rise and is hovering around its record level. On the other hand, demand for oil across the globe looks tepid given slower growth in most developed and developing economies. In particular, persistent weakness in the world’s biggest consumer of energy – China – will continue to weigh on the demand outlook. Notably, manufacturing activity in China shrunk for the fourth straight month in November to a 3-year low. The International Monetary Fund recently cut its global growth forecast for this year and the next by 0.2% each. This is the fourth cut in 12 months with big reductions in oil-dependent economies, such as Canada, Brazil, Venezuela, Russia and Saudi Arabia. That being said, the International Energy Agency (IEA) expects the global oil supply glut to persist through 2016 as worldwide demand will soften next year to 1.2 million barrels a day after climbing to five-year high of 1.8 million barrels this year. ETFs to Watch Given the bearish fundamentals and the OPEC meeting tomorrow, investors should keep a close eye on oil and the related ETFs. Below we have highlighted some of the popular ones, which could see large movements ahead of the OPEC decision: United States Oil Fund (NYSEARCA: USO ) This is the most popular and liquid ETF in the oil space with AUM of over $2.5 billion and average daily volume of over 25.7 million shares. The fund seeks to match the performance of the spot price of WTI. The ETF has 0.45% in expense ratio and lost 3.6% in the Wednesday trading session. iPath S&P GSCI Crude Oil Index ETN (NYSEARCA: OIL ) This is an ETN option for oil investors and delivers returns through an unleveraged investment in the WTI crude oil futures contract. The product follows the S&P GSCI Crude Oil Total Return Index, a subset of the S&P GSCI Commodity Index. The note has amassed $813.3 million in AUM and trades in solid volume of roughly 3.7 million shares a day. Expense ratio came in at 0.75% and the note was down 3.3% on the day. PowerShares DB Oil Fund (NYSEARCA: DBO ) This product also provides exposure to crude oil through WTI futures contracts and follows the DBIQ Optimum Yield Crude Oil Index Excess Return. The fund sees solid average daily volume of around 311,000 shares and AUM of $477.9 million. It charges an expense ratio of 78 bps and lost 2.9% in Wednesday’s trading session. United States Brent Oil Fund (NYSEARCA: BNO ) This fund provides direct exposure to the spot price of Brent crude oil on a daily basis through future contracts. It has amassed $82.7 million in its asset base and trades in a moderate volume of roughly 109,000 shares a day. The ETF charges 75 bps in annual fees and expenses. BNO lost 3.7% on the day. Original post .