Tag Archives: seeking

Enhancing Performance With Low Volatility ETPs

One theme that I will spend more time on in 2016 and beyond is the low volatility anomaly, which has been discussed in considerable detail in the academic world, leading to papers such as the following: In a nutshell, the research supports the claim that low volatility and low beta stocks in the United States and across the globe outperform high volatility and high beta stocks, with low volatility stocks generating substantially higher risk-adjusted returns. Not coincidentally, the groundswell of research pointing to outperformance by low volatility stocks has created a land rush for low volatility ETPs in the first generation of “smart beta” or factor-based investment products in ETP wrappers. Since I believe smart beta or factor-based ETPs is one of the key revolutionary ideas to appear in the investment world in recent memory, I will have a great deal to say about this subject and the many tangential ideas that arise from it going forward. After nine years focusing primarily on the VIX, volatility and related subjects, it is time to charge off in some new directions, starting with some that have a whiff of volatility and ETP innovation. For now, I am going to be content with updating a February 2013 post, with the title The Options and Volatility ETPs Landscape . At that time, I wanted to capture those ETPs that employed a buy-write/covered call approach, employed a put-write strategy, focused on the convertible bond space or targeted low volatility stocks. Well, a lot has changed in the past three years, notably in the low volatility space. This time around, I have some enhancements to the options and volatility ETPs graphic. As is the case with The Current VIX ETP Landscape , I have added yellow stars for those ETPs with an average daily volume of 1,000,000 or higher and pink stars for ETPs with an average daily volume between 100,000 and 1,000,000. Additionally, I have highlighted the new currency-hedged crop of low volatility ETPs by using a red font and have captured the demise of HFIN, a financials buy-write ETF that closed in March 2015 with an X-HFIN designation. (click to enlarge) (source(s): VIX and More) There are a number of other sub-categorizations I will delve into at a future date, but note that whereas FTHI is a buy-write only, FTLB adds an out-of-the-money put. Three other relatively new arrivals, CFO , CDC and CSF , are structured so that they will hold up to 75% of portfolio assets in cash in adverse market conditions. Another intriguing new entrant, SLOW , attempts to avoid sector bias by forcing greater sector diversification than most other low volatility ETPs. So if you found 2015 volatility to be daunting and are looking to dampen volatility in your portfolio in 2016 or tap into the performance benefits of the low volatility anomaly, keep the list above in mind. While comprehensive and including many ETPs with marginal liquidity, this list may not touch upon some of the many new and illiquid products that might be flying under the radar.

Ameren: A Solid Dividend Play With Attractive Long-Term Prospects

Summary Headquartered in Saint Louis, Missouri, Ameren Corporation provides utility services throughout the states of Illinois and Missouri. Ameren’s management expects the company to demonstrate a 7%-to-10% compounded annual EPS growth rate between 2013 and 2018 and a 6% compounded annual EPS growth rate between 2014 and 2019. As of Friday’s Close, shares of Ameren were yielding 3.89% ($1.70) and trading at P/E ratio of 17.9. When it comes to finding a solid dividend investment there’s a lot more that goes into it then just settling on an attractive yield and a reasonably attractive P/E ratio. With that said, I wanted to take a closer look at and highlight a number of reasons as to why I’ve chosen to stay long on shares of Ameren Corporation (NYSE: AEE ) which currently yield 3.89% ($1.70) and offer a P/E ratio of 17.9. Company Overview Headquartered in Saint Louis, Missouri, Ameren is a fully rate-regulated electric and gas utility company that is broken down into three operational segments. These segments are its Ameren Missouri segment (which serves 1.2 million electric customers and 127,000 gas customers throughout the state of Missouri), its Ameren Illinois segment (which serves 1.2 million electric and 813,000 gas customer throughout the state of Illinois) and its Electric Transmission segment (which invests in the various types of multi-value and local reliability projects throughout the state of Illinois). It should be noted that the company has a total of 3.3 million total customers (that total can be broken down into 2.4 million electric customers and 900,000 natural gas customers), 10,200 MW of regulated electric generation capability, and approximately 4,600 miles of FERC regulated electric transmission. ( Company Presentation – December 2015 ) A Pretty Solid Strategic Plan One of the most intriguing things to consider when it comes to investing in Ameren is clearly the company’s strategic plan. The plan, which is a multi-tiered approach, can be broken down into three primary strategies. According to the company’s December Investor Meeting Presentation these strategies include : Investing in and operating its utilities in a manner that is consistent with the existing regulatory frameworks that directly affect the company’s operations in both Illinois and Missouri. The enhancement of regulatory frameworks (such as its FERC-regulated electric transmission service, its Illinois Electricity service, its Illinois Natural Gas service, and its Missouri Electricity service) and advocating for responsible energy policies within both the Illinois and Missouri marketplaces. Creating and capitalizing on opportunities for investment for the benefit of both its customers and our shareholders. As long as Ameren can stay the course, I see no reason why this strategic plan will not be beneficial to shareholders moving forward. If historical stock performance is any indication of management’s success over the last five years (shares of AEE have posted a CAGR of 10.88% since December 2010), then there’s a very good chance we could see the same, if not, an even better performance over the next five years. A Strong Long-Term Earnings Outlook When a company notes that it expects to stay on course and deliver a 7%-to-10% compounded annual EPS growth rate between 2013 and 2018 and also deliver a (very conservative) 6% compounded annual EPS growth rate between 2014 and 2019 to its shareholders, I’m quite impressed. That being said, the 6% compounded annual EPS growth rate between 2014 and 2019 is very conservative considering the fact that it plans on achieving such growth without issuing any additional equity for at least the next 48 months. So what are some the drivers that are directly affecting the company’s long-term earnings growth, you ask? As a whole, Ameren will want to continue to reduce its operational and maintenance-related expenses, its parent company’s interest-related charges, and increase its investments in both electric transmission and delivery infrastructure over the next 12-24 months. It should be noted that analysts expect Ameren to earn $2.61/share for 2015 and $2.71/share for 2016. That being said, the latter of the two estimates which is the $2.71/share estimate for 2016 is a bit conservative especially if we were to apply either of the above mentioned compounded annual EPS growth rates to its estimated 2015 full-year earnings of $2.61/share. For example, if we were to apply the 7%-to-10% compounded annual EPS growth rate we’d see an estimated EPS range of $2.79/share-to-$2.87/share and if we were to apply the compounded annual EPS growth rate of 6% we’d see an estimate of $2.77/share. Recent Dividend Behavior On Monday, October 12, Ameren announced a quarterly dividend increase of $0.015/share, which brings its quarterly dividend payout to $0.425/share. It should be noted that the increase will be paid on December 31 for shareholders of record as of December 9. This boost represents a 3.65% increase from its prior dividend of $0.41/share. Based on the company’s dividend history over the last twelve months, I strongly believe we could begin to see a more consistent pattern of annualized dividend increases over the next 3-5 years as long as earnings growth stays consistent with the above mentioned estimates and the company holds true to its course in terms of maintaining the strategic plan that is currently in place. Conclusion For those of you who may be considering a position in Ameren, I strongly recommend keeping a close eye on the company’s compounded annual EPS growth rate as well as its long-term dividend growth rate over the next few years. Both of these particular growth rates will be directly affected by its ability to stay within the means of the strategic plan that is currently in place as well as the continued investment in its FERC-regulated electric transmission service and the utility services that it provides to customers who reside in the states of Illinois and Missouri.

Will Falling Silver Production Start To Impact SLV?

Summary The price of SLV lost 9% of its value during 2015. Silver production may drop in 2015 — for the first time in over a decade. As the deficit in silver keeps rising, this could eventually start affecting the price of SLV. The silver market didn’t have a good year as the price of the iShares Silver Trust ETF (NYSEARCA: SLV ) shed over 9% off its value. The direction of silver will continue to be dictated by the direction of long term interest rates and U.S. dollar (among other things that silver investors look for when investing in the precious metal). But what about the changes in the physical demand and supply for silver? After all, the ongoing low silver prices contributed to the decline in silver production this year – perhaps 2015 will be the first year since in well over a decade, in which production won’t rise. Will this be enough to drive up the price of SLV? I have already addressed the recent rate hike by the Fed and its impact on SLV. Currently, the market isn’t convinced the Fed will raise rates by another 1 percentage point as its members estimated in the last FOMC meeting. The implied probabilities , as collected by Fed-watch, suggest the market projects only two hikes of 0.25 basis points in 2016. If the Fed wind up raising by only 0.25bp or not raise at all, this could bring back down long term interest rates and perhaps even depreciate the U.S. dollar – two shifts that could behoove the price of SLV. What about the changes in production? According to the Silver Institute the balance between supply and demand was in deficit (i.e. the demand was higher than the supply). And this has been the case for the past 12 consecutive years . This year’s deficit is expected to settle at 21.3 million oz – the lowest deficit in a decade. This decline in deficit is mostly due to net outflows from ETFs holdings and derivatives exchange inventories. Basically, as the demand for silver as investment diminishes, it helps ease the physical deficit. But there is also the matter of falling production that could increase this deficit. Up to 2014, production has been rising. This year, however, it seems production hasn’t picked up and perhaps even slightly declined. Among the top leading countries the produce silver: Mexico, Peru, China, Australia and Chile, according to one outlet , total production in these countries is slightly down for the year (up to August) – by less than 1%. So it’s still unclear how the year will end for the silver balance. But even if this year the deficit expands again, it doesn’t mean this trend will be enough to push up the price of silver. The high deficit in recent years including 2013 and 2014 hasn’t helped rally the price of silver. But perhaps this could also be a matter of timing. Eventually the deficit in supply-demand balance will matter enough to pull up the price of silver, especially as silver loses its shine as investment. When will this happen? That’s unclear. Therefore, for the near term it still seems that the direction of SLV will be govern firstly by the changes in the demand for silver as an investment tool and only secondly by the changes in supply and demand for physical silver. This means the direction of the U.S. dollar, other precious metals – most notably gold – and long term interest rates will set the pace for SLV. In the coming months, I won’t be surprised if the Fed takes a more dovish tone than it took in its recent statement, which could actually slightly pull up SLV. Finally, in the medium term, the growing deficit in silver – mostly driven by falling production and rising physical demand – may take a bigger role in moving the price of silver. For more please see: What’s Up Ahead for Silver in 2016?