Tag Archives: seeking-alpha

Is UVXY Shutting Down Due To New SEC Rules?

Summary A look at newly proposed SEC rules. How they could affect ProShares products. A look at the current volatility landscape. Before we get started I wanted to highlight my last article: Neuroeconomics and Volatility . I really enjoyed writing this piece and it is a very different take on your normal volatility reading. Feel free to share this unique piece. A reader of mine recently alerted me to an article that claimed many leveraged ETFs would need to close due to a newly proposed Securities and Exchange Commission (SEC) rule. This article will serve to properly inform readers on how this may affect the ProShares Ultra VIX Short-Term Futures (NYSEARCA: UVXY ). Article In reference to the original article that made this claim, I would like to focus for a minute on the strategy they are talking about. This strategy is close to the ones I have shared with you here on Seeking Alpha in regards to shorting volatility and taking advantage of contango and the effects of leverage. David Miller’s Catalyst Macro Strategy Fund uses a bread basket of many leveraged ETFs to short and take advantage of the decay of the underlying assets over time. He specifically mentions UVXY as one of the funds holdings and maintains a net short position in the volatility ETF. I encourage you to read the article as it presents other ETFs and strategies that we have not discussed in relation to volatility and leveraged ETF investing in general. SEC Comments On 12/11/2015 the SEC proposed new derivatives rules for registered funds and business development companies. You can read the full release here . The bottom line of the proposal, in relation to ETFs, is to prevent funds from liquidating due to extreme moves in their underlying indexes. It appears that this rule may put an end to my dream for a leveraged inverse volatility fund. ProShares Comments According to ProShares (view release here ), they are confident that this proposal will not impact their ability to offer the current 2x inverse and 2x ETF and mutual funds which include UVXY. However, it may impact their ability to operate 3x leverage funds. These funds mainly track broader market indexes and sectors. You can view a list of those funds here . My take I wouldn’t be concerned with the talk about UVXY shutting down and I also wouldn’t let it affected your trading objectives. The only affect this has on my current objectives would be to switch to the iPath S&P 500 VIX ST Futures ETN (NYSEARCA: VXX ) options if I am looking at more than a year until expiration, just in case. Any decision the SEC makes will be phased in over time and this proposed rule must still be approved by the Commission and will then be subject to a 90 day comment period. Seeking Alpha is a great place to get up to date information on these types of changes and any new information will surely be covered by myself or other fine contributors. Current Volatility Futures Backwardation has once again appeared. See below: (click to enlarge) Current Futures: (click to enlarge) Conclusion As we move into 2016 I am looking forward to the change in pace of volatility spikes. Hopefully we will move toward a trading environment where we see backwardation events on average every 2-3 months. I am not currently shopping for a large short volatility position unless market conditions deteriorate a little further. I may take small short positions here and there with very short-term trading objectives. Coming up you have the start of a Federal Reserve meeting that wraps up mid-week with a widely held notion that rates will be raised for the first time since 2006. The government shutdown is still on for the end of the week with a consensus that a deal will be struck before then. It doesn’t appear that UVXY is shutting down anytime soon due to the proposed SEC requirements. I wouldn’t panic and recommend you wait until more information becomes available. Have a great end to 2015 and thank you very much for reading.

Hedge Fund Conversations: Dane Capital On Investment Strategy, Finding New Ideas, And More (Video)

SA Author Dane Capital Management discusses investment strategy and finding new ideas with Hedge Fund Conversations. Among topics discussed are semiconductor consolidation, shorting strategies, and informational edges. The interview also goes deep on Dane Capital’s thesis for Lindblad Expeditions. ( Editors’ Note: This interview is republished with the permission of Hedge Fund Conversations . It features an interview with Seeking Alpha Contributor Dane Capital Management, LLC, a.k.a. Eric Gomberg.)

S&P 500 Valuation Dashboard – December Update

Summary 5 key fundamental factors are calculated across sectors. They are compared to historical averages. It results in a value score and a quality score for each sector. This article is part of a monthly series giving a valuation by sector of companies in the S&P 500 index (NYSEARCA: SPY ). I follow some fundamental factors for every sector and compare them to historical averages, so as to create a synthetic dashboard with a Value Score (V-score) and a Quality Score (Q-score). The choice of the valuation ratios has been justified here . The Q-score uses the Return on Equity (see why here ). In this series you can find numbers that may be useful in a top-down approach. There is no individual stock analysis or recommendations. You can refine your research reading articles by industry experts here . Methodology The median value of 4 valuation ratios is calculated for S&P 500 companies in each sector: Price/Earnings (P/E), Forward Price Earning for the current year (Fwd P/E), Price to sales (P/S), Price to free cash flow (P/FCF). It is compared to its own historical average Avg. The difference is measured in percentage (%Hist). For example, %Hist= 10 means that the current median ratio is 10% overpriced relative to its historical average in the sector. The V-score of a sector is the average of %Hist for the 4 factors, multiplied by -1, so that the higher is the better. The Q-score is the difference between the current median ROE (return on equity) and its historical average. Why and how using median values Median values are simpler than capital-weighted averages or aggregate ratios on each sector considered a mega company. They are also better reference data than averages for stock-picking. Each number in the table below is the middle point of a sector data set, which can be used to separate the good elements and the bad ones for the sector and the factor. Median values are also less sensitive to outliers than averages. A note of caution: for ETF investors, the most relevant valuation ratio would be the result of an aggregate calculation, neither a median value nor a capital-weighted average of individual stock factors. Example The next chart shows an example: the median P/E for all S&P 500 companies (updated on the week of publication). (click to enlarge) The latest value is compared to the average of the reference period to calculate %Hist. Sector valuation table on 12/14/2015 The next table reports the median valuation ratios. For example, the P/E column gives the current median value of P/E in each sector. The next “Avg” column gives its average between January 1999 and August 2015, which is my arbitrary reference of fair valuation. The next “%Hist” column is the difference between the historical average and the current value, in percentage. So there are 3 columns relative to P/E, and also 3 for each ratio. The first column “V-score” shows the value score as defined above. V-score P/E Avg %Hist Fwd P/E Avg %Hist P/S Avg %Hist P/FCF Avg %Hist All -18.48 21.15 19.18 10.27 16.6 14.83 11.94 2.16 1.58 36.71 28.41 24.7 15.02 Cons.Disc. -19.48 20.07 18.7 7.33 15.99 14.56 9.82 1.61 1.12 43.75 27.52 23.52 17.01 Cons.Stap. -31.01 25.6 20.48 25.00 19.57 16.27 20.28 2.33 1.54 51.30 50.06 39.28 27.44 Energy -7.36 20.31 17.8 14.10 25.89 14.38 80.04 1.48 1.94 -23.71 18.05 30.59 -40.99 Financials -36.60 18.19 16.16 12.56 14.77 12.38 19.31 2.81 2.03 38.42 21.59 12.26 76.10 Healthcare -6.04 27.92 23.76 17.51 16.3 16.85 -3.26 3.38 2.93 15.36 28.41 30.04 -5.43 Industrials -10.82 18.66 18.75 -0.48 16.15 14.52 11.23 1.47 1.24 18.55 29.25 25.66 13.99 I.T. & Tel. 2.22 24.79 27.16 -8.73 16.47 19.29 -14.62 3.17 2.72 16.54 25.48 26.02 -2.08 Materials -19.35 22.41 19.74 13.53 16.92 14.36 17.83 1.37 1.15 19.13 34.94 27.53 26.92 Utilities -27.66 17.63 15.21 15.91 15.81 13.15 20.23 1.63 1.11 46.85 Energy: P/FCF Avg starts in 2000 – Utilities: P/FCF not taken into account because of frequent outliers in this sector. V-score chart Sector quality table The next table gives a score for each sector relative to its own historical average. Here, only one factor is accounted. Q-score (Diff) Median ROE Avg All -0.50 14.43 14.93 Cons.Disc. 3.99 21.33 17.34 Cons.Stap. -2.86 21.2 24.06 Energy -14.14 0.75 14.89 Financials -2.38 9.93 12.31 Healthcare -4.71 12.89 17.6 Industrials 2.90 19.85 16.95 I.T. & Tel. 1.88 14.99 13.11 Materials 4.85 18.74 13.89 Utilities -2.25 9.1 11.35 Q-score chart Interpretation The S&P 500 looks overpriced by about 18.5% relative to the historical reference period. Since last issue’s statistics (11/10): SPY is down by more than 2.5%. Overpricing has increased by about 1%. Quality is stable globally and for every sector. 4 sectors have improved in valuation: Energy, Consumer Discretionary, Consumer Staples and Industrials. The only attractive sector regarding these metrics is Technology (including Telecom). It looks underpriced and has a median ROE above the historical average. The least overpriced sector among the rest is Healthcare. The most overpriced sector is Financials. For Materials, Industrials and Consumer Discretionary, a quality factor better than the historical average can justify at least a part of the overpricing. If you want to stay informed of my updates on this topic and other articles, click the “Follow” tab at the top of this article. Data: portfolio123