Tag Archives: sectors

‘Insurance’ For A Declining Market?

It isn’t only US insurers that are in a sweet spot right now. These three European insurers / financial services providers are worth a look, too! They are big and liquid, making your due diligence easier. If world markets take it on the chin in the coming weeks I would consider it an intermediate-term buying opportunity – for some sectors. If Europe, in particular, is hit hard enough to provide great opportunities, we’ll be at least selective buyers. If we can buy cheaply enough, I’m OK holding even if we didn’t get the lows. We buy in a range of value ; we aren’t trying to get the exact low! One possibility many are considering is the Global X FTSE Greece ETF (NYSEARCA: GREK ). Let them. Me? I won’t touch it. Yes, it closed cheap on Thursday and is likely to open even cheaper on Monday. And it sells at a 3% discount to its NAV. But it’s the composition of the fund that makes it uninteresting to me. Rather than being comprised of Greek consumer staples, infrastructure, shipping, food companies etc., firms that are needed by the Greek people whether they are in the EZ or not, 22% of the ETF is in one stock: Coca-Cola HBC ( OTCPK:CCHGY ) – which is a Swiss company now, no longer Greek. I can buy 22% of GREK just by buying one Swiss stock. Another 25% is in Greek banks, which may or may not remain solvent, and nearly 10% more is in a lottery and sports betting firm in Greece. Maybe if it goes to a deeper discount and the banks look like they’ll make it… Otherwise, no way. Ironically, the Greek fiasco will most likely weaken the euro yet again. A weaker Euro means European companies like Daimler ( OTCPK:DDAIF ), VW ( OTCQX:VLKAY ), Unilever (NYSE: UL ), Roche ( OTCQX:RHHBY ), Coca Cola HBC, and others that exports to other nations, will be selling at a favorable exchange rate and are likely to, at least temporarily, be able to under-cut their competition in the US, Asia and elsewhere. Which means opportunity. We already own 1000 shares of Allianz SE ( OTCQX:AZSEY ), the giant Germany-based insurance and financial services giant that is, among other things, the parent of PIMCO, which all by itself has $1.6 trillion in assets under management. Two of Allianz’s competitors look good to me today, as well. France’s AXA SA ( OTCQX:AXAHY ) was founded in 1852 and Switzerland’s Zurich Insurance ( OTCQX:ZURVY ) in 1872. They’ve both seen far bigger calamities than the current one and survived, including bank panics, the Great Depression and two world wars. This? Poof! This is nothing! Both are global insurance companies that offer just about every kind of insurance imaginable. They also offer investment advice, mutual funds and other products to extend their reach in the financial services arena. They are depressed right now because they have had exposure to Greek headlines, eurozone turmoil, Italian bonds, etc. But both have credibly marked their portfolios to market and both are writing huge amounts of business well beyond Europe. AXA is the parent, for instance, of both Equitably Life and MONY here in the US. It trades at a PE of 11, a Price/Sales ratio of 0.50, a Price/Book of 0.80, and pays a yield of 4.26%. Zurich has a typically bulletproof Swiss balance sheet, has hedged a large part of its equity exposure, and is actively delivering products and services in more than 170 countries. The stock has a 12 P/E, a Price/Sales of 0.6, a Price/Book of 1.3, and yields just over 6%. Please note that, in the European tradition, both firms pay their dividend just once per year! Editor’s Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks. Disclosure: I am/we are long AZSEY, ZURVY. (More…) I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

EXG: The Distribution Is Your Return

Eaton Vance Tax-Managed Global Diversified Equity Income Fund is a mouth full of a name. It isn’t a bad fund, but your return is largely coming from distributions. That may not be a problem for you, but it is something you’ll want to keep in mind. A reader recently mentioned the Eaton Vance Tax-Managed Global Diversified Equity Income Fund (NYSE: EXG ), a fund I haven’t written much about yet. Since I have examined some of this fund’s brethren at Eaton Vance, I figured it was time for a deep dive on EXG, too. At the end of the day, it’s a mixed bag. What’s it do? EXG is a globally diversified option income fund. However, global primarily means developed markets. So the United States and Europe make up roughly 90% of the fund. And the fund’s Asian exposure is primarily in Japan. This is probably the best course of action for a fund that intends to sell options on its holdings with the goal of producing enough current income to support a managed distribution policy. You just need to keep in mind that emerging markets don’t play much of a role here. In addition to investing globally and writing options, the fund also strives to reduce taxes by using such techniques as tax loss harvesting and extending holding periods to at least a year. On one level it’s nice to know that these are a key focus for the fund, on another it seems like such strategies should be the norm for every fund, closed-end or open-end. But I don’t consider this a deal breaker or maker for EXG, it’s just another fact to know. What your return looks like Looking at total return, EXG isn’t a bad fund at all. The fund’s annualized return was 10% over the trailing three- and five-year periods through June. That trails the S&P 500 index and the Vanguard Global Equity Fund Investor Shares (MUTF: VHGEX ) over those spans. However, investing in the S&P or VHGEX would have left investors with yields in the low single digits. EXG’s distribution yield is in the high single digits. So there’s a trade off. And that’s an important thing with EXG. The distribution, especially over the last few years, has been the main source of your return. For example, the fund’s net asset value was $12.30 at the start of the company’s 2010 fiscal year (years end in October). It fell to $10.22 by the end of fiscal 2011 before rebounding to $10.82 at the start of fiscal 2014. It has since been in a downtrend again, recently hitting $10.50 or so. The recent NAV compared to $12.30 isn’t a flattering comparison. However, since 2011, the NAV has been fairly consistent. That, not surprisingly, coincides with a trimming of EXG’s distribution. Effectively the distribution was eating away at NAV, basically destructive return of capital, and Eaton Vance took steps to change that dynamic. For the fund that was a good decision and has clearly been an important part of stabilizing the fund’s NAV. But the second take away here is that the distribution has basically provided nearly all of the return the fund has offered in recent years. If you are looking for income that may not be a bad thing. However, EXG’s 9%+ distribution yield pretty much means you shouldn’t expect much capital appreciation from this fund. And if you are looking for a mix of income and capital appreciation you’re probably best looking elsewhere. Some more things to consider EXG’s expense ratio is roughly 1.07%. While that’s expensive compared to Vanguard’s products (VHGEX, for example, has an expense ratio of around 0.6%) and exchange traded funds, it’s not outlandish for an actively managed fund that invests globally. So it isn’t cheap to own, but nor is it expensive. Interestingly, EXG’s standard deviation is below that of VHGEX by nearly 10% over the trailing five-year period. However, that makes sense based on the fund’s use of option. Essentially, they will help protect a fund from losses because option premiums will offset stock declines. To whit, EXG was down roughly 27% in 2008. VHGEX declined nearly 47%. But options will also hamper returns on the upside, too, since positions with options written on them can be called away. Which is why in 2009 EXG advanced 23% and VHGEX was up a more impressive 33%. EXG’s trend of smaller losses and smaller gains is the norm between this pair. That said, if you are worried about the level of the world’s stock markets, EXG is a way to stay in the game while at least potentially protecting yourself from a severe downdraft. Good for some, not for others At the end of the day, I think EXG is an OK fund. I’m not so excited about it that I think everyone should own it, but for the right investor it could make a lot of sense. The big thing to remember, however, is that the yield is your return. That could turn into an issue if there’s another big market decline. With the NAV stuck in neutral for several years, a market-driven decline in NAV would make it harder to sustain the current payout. So, if you do step aboard here for global exposure, make sure to watch the NAV closely. Eaton Vance has proven willing in the past to trim distributions to protect NAV and I would expect them to do so again. As for premiums and discounts, EXG’s recent discount is narrower than its three- and five-year averages. Thus it isn’t a good candidate for investors looking to play closed-end fund premiums and discounts. So, for income investors looking for global exposure, EXG is worth a look. That’s especially true if you are concerned about the potential for a global market sell off. But EXG probably shouldn’t be the only fund you consider. 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.

A Staples ETF Soars Above Its Rivals

Summary Consumer staples stocks have been performing this year. Focus on the outperforming PowerShares DWA Consumer Staples Momentum Portfolio. How the PowerShares Consumer Staples ETF stacks up against the competition. By Todd Shriber & Tom Lydon Although Treasury yields have been surging in anticipation of the Federal Reserve raising interest rates later this year, 2015 has thus far been a decent year for consumer staples exchange traded funds. The Vanguard Consumer Staples ETF (NYSEARCA: VDC ) is up 4.1% year-to-date, which is well ahead of the 2.9% returned by the S&P 500. However, VDC’s gain is less than half that of the PowerShares DWA Consumer Staples Momentum Portfolio ETF (NYSEARCA: PSL ) . So strong has PSL been this year; it was one of just 12 ETFs hitting all-time highs in Tuesday’s lousy tape. PSL’s strong 2015 showing is proof positive of several things. First, momentum and growth have been trumping value this year. Second, the smart or strategic beta phenomenon, one that is often derided on the basis of nomenclature works at the sector level, not just with diversified broad market ETFs. PSL was one of the 10 PowerShares ETFs that were transitioned to momentum indices from Dorsey Wright & Associates in February 2014. PSL now tracks the Dorsey Wright Consumer Staples Technical Leaders Index, an index “designed to identify companies that are showing relative strength (momentum),” according to PowerShares . PSL has other advantages. Consumer staples have been derided as vulnerable to a strong dollar , but that thesis is most applicable to the sector’s large- and mega-cap names. Think Coca-Cola (NYSE: KO ), Procter & Gamble (NYSE: PG ) and related fare. PSL allocates just 23% of its weight to large caps, roughly the same amount it devotes to small caps, which can endure bouts of dollar strength. Following the Heinz-Kraft merger announcement in March, we noted PSL is home to several credible takeover targets, Hain Celestial (NASDAQ: HAIN ), Monster Beverage (NASDAQ: MNST ), and WhiteWave Foods (NYSE: WWAV ). Those stocks combine for nearly 11% of the ETF’s weight. For its part, PSL is not a stranger to food and beverage M&A. The ETF earned some time in the limelight last year when Tyson Foods (NYSE: TSN ) and Pilgrim’s Pride (NASDAQ: PPC ) fought for Hillshire Brands. Other PSL holdings that have been previously mentioned as potential targets include Constellation Brands (NYSE: STZ ) and Dr Pepper Snapple (NYSE: DPS ), a combined 7.4% of the ETF’s weight. Advisors and investors have been embracing PSL this year. Now home to over $132 million in assets under management, $60.6 million of that has come into the ETF just this year, according to PowerShares data . PowerShares DWA Consumer Staples Momentum Portfolio ETF (click to enlarge) 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. I have no business relationship with any company whose stock is mentioned in this article.