Tag Archives: seeking

Weiss Funds Launches Alternative Balanced Risk Fund

By DailyAlts Staff Weiss Funds launched the Weiss Alternative Balanced Risk Fund (MUTF: WEISX ) on December 1. The fund’s objective is to pursue returns with moderate volatility and reduced correlation to traditional asset classes, such as stocks and bonds. The fund’s “balanced risk” allocation strategy consists of: A long-only portfolio of stocks (“the equity component”); A long-only portfolio of debt securities (“the bond component”); and A diversified, multi-strategy long/short portfolio of stocks, bonds, and/or derivatives (“the long/short component”). The Weiss Alternative Balanced Risk Fund’s equity component will generally invest in U.S. large- and mid-cap stocks and is designed to approximately track the stock market as a whole. The fund’s fixed-income holdings, including those in the bond and long/short components, will target weighted average maturity of 9 years, and will consist of only highly-rated securities. Portfolio managers Jordi Visser, Charles S. Crow IV, and Edward Olanow are responsible for the day-to-day management of the fund. Mr. Visser is President and CEO at Weiss and oversees the investment management process. Mr. Crow is responsible for the fund’s quantitative methodologies, and he and Mr. Olanow are in charge of trading. Together, the managers allocate across the fund’s three components according to the expected contributions to overall portfolio risk for each. In the words of the prospectus, these allocations can “fluctuate widely.” Currently, the Weiss Alternative Balanced Risk Fund is available in I ( WEISX ) and K (MUTF: WEIKX ) classes, with respective net-expense ratios of 3.33% and 3.23%. A and C class shares, with respective net-expense ratios of 3.58% and 4.23%, are listed in the fund’s prospectus but are not yet available for purchase. The minimum initial purchase levels for I and K shares are $250,000 and $2 million, respectively. A and C shares, when available, will have a minimum initial purchase of $5,000. For more information, visit the fund’s web page .

Understanding Covered Call CEFs

Barron’s recently had a favorable write up on closed end funds that one way or another use a covered call strategy as a means of providing income. The article proposes that volatile markets like now are a good environment for this niche and that the call premium can help mitigate the impact of large declines. I think both points are flat out wrong. The history here is that they do well in rising markets. By Roger Nusbaum, AdvisorShares ETF Strategist Barron’s recently had a favorable write up on closed end funds that one way or another use a covered call strategy as a means of providing income. Where the article focused on CEFs, the yields can be quite high because of the leverage that CEFs often use as well as returning capital, when necessary to maintain a payout. It is also worth noting that there are traditional funds that sell calls and ETFs that sell calls and puts too for that matter. I wrote about these quite a few times in the early days of Random Roger. The history of them shows long stretches where they do very well then long periods where they get pounded and then repeats. Based on chart below they got crushed in 2008 and the dividends were cut on many of them and neither the prices or payouts have recovered since. The article tries to make the case that volatile markets like now are a good environment for this niche and that the call premium can help mitigate the impact of large declines. I think both points are flat out wrong. The history here is that they do well in rising markets. The chart from Google Finance captures a whole bunch of them over a ten-year period. I removed the symbols for compliance reasons but finding funds in this space should be easy to do. If you play around with the time periods you will see they did very well in 2006 and far into 2007, 2009 well into 2010 and then a three year run from 2012-2014. As mentioned the got crushed during the bear market, did badly in 2011 and are having mixed results in 2015. (click to enlarge) I would have no expectation that these funds can buffer a stock market decline. These are income vehicles but they track the equity market higher to an extent (they correlate but don’t keep up) and I would bet they get hit hard in the next bear market but probably not as hard as 2008. Part of the equation in 2008 was a shutting down of bond markets which impacted CEFs in terms of accessing leverage. I don’t expect that to repeat but I would want sell in the face of a bear market as a 30% decline seems plausible for these funds in a down 40% world. Obviously there would be income vehicles to keep in a bear market but I don’t think these are one of them. Where they do well, then do poorly, they will do well again, maybe after the next bear market maybe sooner but anyone interested in this space probably needs to be willing to be tactical and be willing to sell after a period of their doing well. Interest rates have a very good chance of remaining inadequate for many years even if the Fed does hike rates this month. Attempting to be tactical is not right for everyone but I do think that the way investors get their yield will probably include market segments that require a more active and tactical approach.

No Winter Cheer For Natural Gas ETFs?

Broad commodities have gone off the deep end on sluggish trends with the energy market rout deserving a special mention. Among the issues wrecking havoc on the energy market, rising supplies and falling demand on global growth worries are primary. In such a situation, the Saudi-led OPEC’s decision of not cutting production and even scrapping the regular production limit to save their market share sent oil and other energy-based commodities into a tailspin. In such a scenario, the only hope for the natural gas market was the Arctic Chills, which gives a fresh lease of life to this commodity every winter. The cold snap boosts electricity demand across the region putting natural gas in focus. In fact, in 2014, the Polar Vortex caused natural gas prices to jump over 50%. As almost 50% of Americans use natural gas for heating purposes, withdrawals in natural gas supplies push up the commodity’s prices. The latest weekly inventory release from the U.S. Energy Department also gives the same cues. Natural gas supplies have seen a bigger than expected decline following the season’s first withdrawal. Stockpiles fell by 53 billion cubic feet (Bcf) for the week ended Nov 27, 2015, higher than the guided range (of a 46-50 Bcf draw). The decrease was also higher than both last year’s drop of 42 Bcf and the 5-year (2010-2014) average decline of 48 Bcf. Still, broad-based energy market worries and the possibility of a warmer weather this winter (due to El Nino) did not let natural gas prices enjoy the drawdown in supplies. Oil lost about 10% since the OPEC meeting. Plus, predictions that warmer weather might go into late December – key heating period also dampened investor mood. Energy commodities have now slipped to a more than six-year low. In fact, January 2016 might not imitate the previous two comparable same months due to a protracted and stronger El Nino, which causes weather disruptions in many regions around the world. The effect of El Nino includes drought in some regions and flooding in others due to abnormal warming of the Pacific Ocean. As per Weather Services International, El Niño is expected to cause below-normal temperatures across the southern Plains and into the Southwest, while above-normal temperatures will likely prevail in the eastern and northern parts of the U.S. This weather pattern would result in lower heating demand in the northern hemisphere this winter. WSI also predicted gas-weighted heating degree days to tally about 3,600, suggesting 10% less demand than the year-ago winter. ETF Impact As a result, an ETF tracking the natural gas futures – T he United States Natural Gas ETF (NYSEARCA: UNG ) – has lost about 45% so far this year and was off 16.4% in the last one month (as of December 8, 2015). So investors can avoid these natural gas ETFs in the near term (see all Energy ETFs here). UNG in Focus Investors seeking direct exposure to natural gas, a key fuel source for power plants, may find UNG an attractive option. It is the most popular ETF, having amassed about $478 million in assets. The product looks to track the changes in percentage terms of the price of natural gas futures contracts that are traded on NYMEX. The fund takes positions in the near month futures contracts on expiry and rolls over to the next month futures contracts. As the prices of the next month futures contracts exceed that of the near month futures contracts (also called “contango”), the fund loses on rolling. Hence, UNG is vulnerable to the prolonged period of contango. At present, the fund holds two contracts namely NYMEX Natural Gas NG Jan16 and ICE Natural Gas LD1 H Jan16. The fund charges 60 bps in fees. iPath Dow Jones-UBS Natural Gas ETN (NYSEARCA: GAZ ) This is an ETN option for natural gas investors. It delivers returns through an unleveraged investment in the natural gas futures contract plus the rate of interest on specified T-Bills. The product follows the Dow Jones-UBS Natural Gas Total Return Sub-Index. The note is less popular with AUM of $4.4 million. It is a high cost choice, charging 75 bps in annual fees. GAZ is down 77% in the year-to-date frame and lost about 33% in the last one month (As of December 8, 2015). United States 12-Month Natural Gas ETF (NYSEARCA: UNL ) This product seeks to spread out exposure across the futures curve in order to mitigate contango, a huge problem in the natural gas ETF market. It is done by tracking the average of the prices of 12 contracts on natural gas traded on the NYMEX, including the near month to expire (except when the near month is within two weeks of expiration) and the contracts for the following 11 months, for a total of 12 consecutive contracts. It has amassed just $12.6 million in its asset base and charges 75 bps in fees per year from investors. UNL is down 32.4% so far this year and was off 8.7% in the last one month. Original Post