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Huntington Ecological Strategy ETF: Green Is Good

Summary The fund focuses on ‘corporate social responsibility’. The fund is smartly weighted with top market performers. Generally, it’s a very well-diversified, moderate risk, capital appreciation fund. There seems to be a majority consensus among scientists that the Earth’s climate is changing, however there does seem to be some disagreement whether that change is being caused by industrial emissions or simply part of a natural, ancient geological cycle. Some of this divisiveness is clearly along economic lines. For one example, many emerging market or emerged market nations rely on inexpensive coal resources to generate electric power. Further, there’s a huge global industry built up around coal: heavy equipment manufacturing, rail and marine transportation, power companies and even the miners whose livelihoods are threatened. On the other hand there’s a mindset that believes, ‘ better safe than sorry ‘. To be sure, most companies do have a corporate conscience and have implemented a responsible eco-policy. However, some companies take it a step further and practice a broader social responsibility policy . The Huntington Ecological Strategy ETF (NYSEARCA: HECO ) accomplishes exactly that. This fund offers a ‘single package’ opportunity for those wishing to invest with companies having strong sustainability and fair trade policies as well as eco-friendly policy. In Huntington’s own words (from their 2014 year-end commentary), ” … we look for companies that are practicing and promoting environmental stewardship while being able to generate sustainable level of profits that will represent logical investment over a long term…” (click to enlarge) There are similar funds to choose from. Two of the four funds filtered out by the Seeking Alpha ETF Hub , the First Trust NASDAQ Clean Edge Energy ETF (NASDAQ: QCLN ) and the PowerShares WilderHill Clean Energy Portfolio (NYSEARCA: PBW ) focus, as one might expect from their names, mainly on clean energy related companies. The PowerShares WilderHill Progressive Energy Portfolio (NYSEARCA: PUW ) has a somewhat broader objective being, “… focused on the following areas: alternative energy, better efficiency, emission reduction, new energy activity, greener utilities, innovative materials and energy storage …” There’s a difference in the Huntington Eco-Logical Strategy ETF in that it goes beyond energy concerns and, “… invests at least 80% of its net assets… …in the securities of ecologically-focused companies… …that have positioned their business to respond to increased environmental legislation, cultural shifts towards environmentally conscious consumption, and capital investments in environmentally oriented projects. These companies include all companies that are components of recognized environmentally-focused indices …” The strategy is smart. It isn’t restricting itself to a particular sector or manufacturing practice. Instead it seeks well performing, well established and well managed companies with an active and strong sense of corporate social responsibility in its operations, however that may be. (Data from Huntington) The fund is weighted towards cyclically sensitive sectors starting with IT, comprising 25%, Industrials at 10% and Consumer discretionary at 13% for a total of 48% of the fund. Defensive sectors are HealthCare at 17%, Utilities at 6% and Consumer Staples at 12% totaling 35% of the fund and lastly, sensitive sectors such as Financials at 12%, Energy at 2% and Materials at 2% accounting for 16% of the fund. (There is also a small cash position). Checking with three different sources, MarketWatch , Yahoo and the Wall Street Journal , the fund seems to have a surprisingly low beta of about 1; i.e., it moves with the market. (Data from Huntington) When putting aside the corporate social responsibility focus, it otherwise seems to be a reasonably well diversified fund with a moderate bias towards risk as demonstrated by its sector allocations. So the last question is just how socially responsible are the included companies? For instance, Google’s (NASDAQ: GOOGL ) participation is spelled out at Google Green: the Big Picture , where social-responsible investors will get a detailed accounting as only Google can present. Similarly, Nike (NYSE: NKE ) promotes ” A Better World ” and also details its efforts for manufacturing sustainability. The table below lists just a few corporate policy links. Some are really well presented, while others are rather straight forward, as if part of a shareholder’s report but are there nonetheless. In the left column are the larger holdings of the fund and on the right some of the smaller holdings. In general, the corporate responsibility presentations cover the complete range from “WOW!” to “legal-formal”. Only a few are sampled below, however, in general, it always seems to be a good idea to read a company’s corporate responsibility policy before investing. All investors should keep in mind the losses which have occurred, both in share price and earnings, in the past when absent policies led to ‘oversights’; bad labor practices, illegally purchased resources or damaging environmental accidents. A socially responsible company mitigates risks. The fund is relatively new to the market having been incepted in June of 2012 and is actively managed. Huntington notes total assets of $7,228,416.00 with 200,000 shares outstanding; it trades on NYSE-Arca. Currently it trades at a -0.33% discount to NAV. Huntington notes it largest premium to NAV as 0.01%, largest discount to NAV at -2.24% as well as its average Premium/Discount of -0.67. The fund distributes annually, with a yield of 0.22%. The prospectus is a bit more detailed noting a weighted average market cap of $87.569 million, a weighted P/E of 26.8 and a price to book multiple of 5.7. Also, the prospectus identifies the underlying index as the MSCI KLD 400 Social Index . The investor should note that the First Trust Fund tracks the NASDAQ Clean Edge Green Energy Index ; the PowerShares funds, PBW and PUW track the WilderHill Clean Energy Index and the WilderHill Progressive Energy Index , respectively. The expense ratio is quite high at 0.95% with a gross expense ratio of 2.08%. However Huntington does note that, ” contractual fee waivers are in effect until August 31, 2015. ” Also, the average annual turnover is around 55%. To sum up, the fund is indeed, as advertised, Eco-Logical. All said and done, it seems to be a really good fund in general, and perfect for those concerned that their capital is being invested in social minded, sustainably conscience and earth-friendly companies. One word of caution: This fund is very lightly traded, but there’s absolutely no reason it should be that way! Aside from the ‘green motif’, this is a really well constructed, diversified fund with moderate risk. It merely needs to be discovered. 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. Additional disclosure: CFDs, spread betting and FX can result in losses exceeding your initial deposit. They are not suitable for everyone, so please ensure you understand the risks. Seek independent financial advice if necessary. Nothing in this article should be considered a personal recommendation. It does not account for your personal circumstances or appetite for risk.

Best 20+ Odds-On Oil And Gas E&P Stocks, As Seen By Fund Clients Of Market-Makers

Summary With Crude Oil Prices in mid $40s, up from high $30s, a turn may be coming for independent new extraction technology explorers and producers. Tough times of world price cuts by more than 60% leave only the strongly resourced, well-financed, advantaged survivors. Their rebound time may be near at hand, as seen in large-volume order flows from big-$ investment portfolio managers. Who are the best positioned energy stock survivors? The best candidates are indicated by the “order flow” from big-money “institutional” clients of market-making investment banks, suggesting high-probability additions to their billion-dollar portfolios. (If you have read this story before, please skip directly to Figures 1 and 2) The fund-management clients have extensive, experienced research staffs constantly looking for sound, long-term, rewarding investment candidates. The presence of their interest in these issues typically is a disruptive influence to markets because of their size of transaction orders. The “regular way” every-day “retail” investment transactions largely get handled (or mis-handled) by automated systems developed by advances in transaction technology. Those advances have cut the costs for individual investors to fractions of a cent per share, compared to pre-Y2K costs of sometimes a dollar or more a share. But big-volume “block” orders can’t be handled that way without crashing the system. They must be negotiated among other big players in this very serious game. That is where the market-maker firms play an important role. The MM firms know which players own what, and have a good idea of what their current appetites may be. Usually differences of opinion as to appropriate valuations for specific stocks are not evenly balanced enough among these fund-manager players to instantly “cross” trades of tens or hundreds of thousand shares. So the MM firms even out the balance between buyers and sellers by temporarily committing their own capital. But they don’t go naked. The at-risk commitments of MMs are always hedged in one way or another, and the cost of that protection is borne by the trade-originating client. It is built into the trade “spread” between the single per-share price of the block deal and the current “regular-way” market price. The cost of the hedge deal and the structure it takes is negotiated between the arbitrage artists of the MM firms block trade desks and “Prop” trade desks in open competitive combat. What it costs and the shape it takes reveals what these well-informed, profiting antagonists believe is possible to occur between now and the time it may take to unwind the contracts on derivatives used in the hedge. That often could be as much as a few months. So the range of possible prices implied is not an instantaneous, trivial spread. Often it is 10% to 20% or more, given the uncertainties involved in the underlying security. Where today’s market quote lies in that forecast range may be important in the stock’s future movement. The first thing to remember about this analysis is that it is a “snapshot” of current conditions, dominated by price relationships that are likely to change in coming days, weeks, and months. Those changes are typically the main point on most player scorecards. This article is not an evaluation of how “good” the companies involved are at managing, competing, profiting, or treating their employees or shareholders. It simply tells how well on this date the perceived prospects for each equity investment security candidate may be, compared with those of others, on a variety of matters and measures of concern. This is not a long-term hold evaluation. But it could identify overlooked, near-term value opportunities to be captured by active investing management. The place to start in the analysis is with the market character presented by each of the best dozens of stocks out of the hundred or more once on the scene. Figure 1 tells those stories: Figure 1 (click to enlarge) Source: Yahoo Finance, Peter Way Associates Items of concern here have to do with how easy it may be to get out of a position if in a hurry, and what the cost of doing so might entail. The first four columns do so by calculating how many market days’ average volume of trading at the current price it would take to completely replace existing shareholders. That is not expected to happen, it just gives a realistic comparative measure of how easy or difficult it might be to extricate oneself from an unwanted position. Extreme examples here are Enbridge (NYSE: ENB ), with a million-share-a-day trading volume to take over 3 years to clear its huge $34 billion of outstanding shares. At the other extreme is the market-tracking SPDR S&P 500 Index ETF (NYSEARCA: SPY ) with a five times as large ownership value, but 139 million share daily volume doing the task every 6 days. Yes, Sasol, Ltd.(NYSE: SSL ) shows a capital turn in over a thousand days, but it is a South African company and its principal share trading takes place in markets outside of the US. Another dimension of the distress of departure is what the typical trade cost may be, which can be indicated by the stock’s bid-offer spread. These days that tends to be a tiny fraction of the value per share during normal market hours. But every investor needs to protect themselves against errant or intentional malicious spread quotes by always using price limit orders when changing positions, instead of unrestrained “at market” orders. The other useful matter of perspective in Figure 1 is a sense of each stock’s current price in relation to its past year’s trading range, and a sense of how the size of that range compares to alternative investments. The Range Index [RI] tells what proportion of the whole range lies below the stock’s current price. A low past RI indicates a price depressed in comparison with earlier trading, and a high past RI tells of a stock that has been on the move up near new highs. The range size is a dimension only discussed in the media as an example of either triumph or disaster, but rarely in company of comparable alternatives. The average sizes here in this group are over 100%, meaning that a double in price (or a 50% drop) is commonplace. The latter phase just mentioned of that change scares most investors, as it should. But it is an all-too-common condition, often setting the stage for the former-mentioned next joy. So what does come next? That is what everyone wants to know, and not knowing for sure, everyone guesses at. MMs have a leg up in the game, since they know what their clients, with the money muscle to move markets, are trying to do. The well-informed protection sellers provide deals very likely to assure themselves of nice profits, with little likelihood of having to deliver on the immunization. A done deal tells where the extreme possibilities lie. Those outer limits have been shown in a high proportion of instances to be quite reachable. The agile, fleet-of-foot protection sellers usually manage to profitably transfer the accepted risks to others and get on to the next deal before having to make good on their bet this time (again). So the price range forecasts implied by the capital-risk hedging can be useful information to others interested in the stocks or ETFs involved. To determine how useful the current forecasts may be, we look back to how similar prior forecasts (made without knowledge of what next happened) were actually treated by a merciless marketplace. Figure 2 tells the particulars, and provides a means of ranking the attractiveness for wealth-building active investors. Figure 2 (click to enlarge) source: Peter Way Associates, blockdesk.com At the outset, something about Figure 2 should be understood. Columns (2) and (3) are current-day forecasts, implied by the self-protective actions of market-making professionals in the course of serving transaction orders from big-$ clients at or near column (4). All the remaining columns are matters of record of how prior forecasts for the subjects in column (1), made live in real-time over the past 5 years, have actually performed. Those prior forecasts were only those of the total available in (12) that had upside-to-downside proportions like the current forecast, described in (7). The Range Index [RI] tells what percentage of the whole forecast range lies below (4). The size of this sample set of forecasts has potential statistical implications if it is small. Few of the subjects of Figure 2 have that problem, and none of the top ten. This is the importance of column (12), a dimension pertinent to all references to prior performance. The number of forecasts available in any subject’s current situation is a function of the current Range Index. More will be available when the RI is in the 30-50 area and fewer when the subject is at extremes, nearing zero or 100. Market price behavior varies from subject to subject for a variety of reasons, so attractiveness based solely on RI can be misleading. That makes this kind of analysis in detail important. Additional evaluations may be useful when RIs are at or near extremes. The historical data of Figure 2 differs significantly from “back-test” data because it is based on the live forecasts made at the time, when subsequent price action confirmations were not available. The usual back-test data only is presented when full knowledge of the outcomes is at hand. That makes it impossible to know what kind of decisions might have been made at the time. This historical data applies our standard TERMD portfolio management discipline to buy positions of all column (12) sample forecasts. TERMD has been in existence for over a decade. It is more fully described below . For example, column (6) is an average of the worst-case price drawdowns from the closing price of the subject on the next market day after the forecast, over the holding period up to the position’s closing. This is the relevant measure of risk, since it identifies the greatest loss likely to be taken at the point of maximum emotional stress. Column (8) on the other hand, tells what proportion of the sample forecasts were able to recover from the (6) experience and be closed out profitably by reaching (5) sell targets or by TERMD’s holding period time limit of 3 months. Column (5) relates (2) to (4). Column (9) tells what the closeouts of all subject sample forecast positions averaged, profits, net of losses (by geometric mean). The CAGR of these experiences in (11) uses the average holding period of (10) in conjunction with (9). The promise of (5) is tested by (9) in (13). The proportion of (5) to (6) is shown in (14). Overall, a figure-of-merit is calculated in (15) by odds-weighting (5) by (8) and (6) by (8)’s complement, further conditioned by the frequency of (12). The table’s contents are ranked by (15). That ranking is what ordered Figure 1. What it all suggests Without getting into a detailed discussion of the attributes of interest, comparisons of the best-odds (most attractive by column 15) ten E&P stocks with a market-average tracking alternative ETF, SPY, show upside price changes (5) almost twice as large, and risk exposures (6) about one and a half times as large. Their forecast history translates into CAGR performances (11) four times as good as market results, with odds for profit outcomes (8) about the same, 8 out of every 10. But comparisons with the best 20 propositions from the measurable overall equity population of 2711 alternatives, puts the Oil&Gas E&P stocks at a disadvantage. The difference lies not in the size of the payoff promise, but in its follow-through. The average price gains of the population’s best stocks surpassed their forecasts +11.4% to +10.4% , with 9 out of every 10 experiences profitable, and average holding periods to reach payoffs shorter by 36 market days to 41, or roughly 7 weeks compared to 8. That leads to a CAGR past result (11) of 114%, double the comparable measure of +55% for the E&Ps. Conclusion I appears that there is sufficient early action in volume trade transactions in Oil & Gas independent Explorers and Producers to elevate expectations for their coming stock prices to a level more than competitive with passive market-index ETF investing. Best candidates may be PDC Energy (NASDAQ: PDCE ) and Matador Resources (NYSE: MTDR ). Perhaps in coming weeks this activity will strengthen and raise the prospects higher. But at present there are a number of alternative equity investments that substantially surpass the typical prospects of the best of this group. Commitments among those alternatives should be better rewarded. Patience, my energy friends. 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.

SGVIX: A Bond Mutual Fund For People With Few Options

Summary SGVIX has underperformed alternative options with lower expense ratios. Some employees that have their employer-sponsored accounts through fidelity may find SGVIX is the only government bond option available under tier 1 or tier 2. SGVIX has not done as poorly as I would expect based on the difference in expense ratios, but it still falls short compared to either intermediate treasuries or MBS. Fidelity does have good treasury mutual funds, like FLBAX, but employees are at the mercy of their retirement plans. The Wells Fargo Advantage Government Securities Fund (MUTF: SGVIX ) is one of the new tier two options for some employees that have their employer-based retirement accounts going through Fidelity. This is an area of interest for me because my wife recently received some literature on the new tiered options for her account. Since I handle my wife’s retirement accounts, she dropped the documents on my desk. That puts me in the unfortunate position of having to choose from a severely limited lineup of funds. The best mutual funds by fidelity have been removed from the options and investors that fail to either deal with more headache by creating a brokerage-link account or select new options will find themselves automatically defaulted to a target date plan based on their projected retirement age. There is nothing fundamentally wrong with target date plans. However, investors are stuck with being clumped together by age regardless of risk tolerance. If you are experiencing this kind of change to your retirement plan, you may notice some major problems with the literature sent out. For instance, in 19 pages there were precisely 0 actual expense ratios mentioned. If you happen to be given the same options that were available for my wife, this is the only government bond fund included in the tier 2 options. If investors want to assign an allocation specifically to government bonds, this is the only choice. Why You May Want Government Bonds Mid to long duration government bonds show a strong negative correlation with the stock market which makes them a great tool for diversifying portfolio risk. When an investor takes a small position in the long term government bonds they can immediately and materially reduce the total volatility of their portfolio because the bonds will often move up when the market moves down and move down when the market moves up. This is great for investors that would like to see a lower level of total risk and it makes government bonds a desirable asset class even though their interest rates are currently very low. For comparison sake, I ran a comparison including a couple of ETFs. I’m using the Schwab Intermediate-Term U.S. Treasury ETF (NYSEARCA: SCHR ) and the Vanguard Mortgage-Backed Securities Index ETF (NASDAQ: VMBS ). Hypothetical Portfolio I ran a quick hypothetical portfolio over the last 5 years and one month of data. Theoretically, the only reason you would own SGVIX is because it is the only option available, but for comparison sake I’m putting it in a very simple portfolio. (click to enlarge) You’ll see immediately that SCHR is offering a beta that is further into the negative territory which indicates that it will do better at offsetting the risk from a portfolio that is heavy on domestic equity. On the other hand you’ll see a lower beta for VMBS as investors may be less prone to buy into MBS when they are fearful of negative moves in the market. As a result, the negative beta is fairly low. The interesting thing about this sample period is that the total return on SCHR and the total return on VMBS are both superior to the total return on SGVIX. Correlation The chart below shows the correlation of each ETF or mutual fund with each other. Blue boxes indicate positive correlations and tan box indicate negative correlations. Generally speaking lower levels of correlation are highly desirable and high levels of correlation substantially reduce the benefits from diversification. You can see immediately that SGVIX has a higher correlation with SCHR than with VMBS and that makes sense since the portfolio in SGVIX better resembles SCHR than VMBS. The Holdings The chart below shows the holdings: (click to enlarge) As you can see, there is a mix of treasury securities and mortgage related securities. Due to that mix, I felt it was most appropriate to compare SGVIX with both a treasury ETF and a MBS ETF. Maturity The following chart shows the distribution of maturities in the portfolio. One major weakness here is that the portfolio is so heavily focused on the short term that it is incapable of providing a higher negative beta. The other issue is that such a strong short term focus results in weaker levels of income because the yield curve is currently providing materially higher interest by the time we look 3 to 7 years out than when we are looking at maturities under 2 years. Expense Ratio The biggest problem here, a reason that I expect SGVIX to consistently underperform similar investments is that the mutual fund carries a hefty net expense ratio of .49%. It is also showing a remarkable portfolio turnover rate of 349%. Despite heavy trading, it just can’t keep up with funds like SCHR which has an expense ratio of .09% or VMBS which has an expense ratio of .12%. Since the expense ratio is about .4% higher and the time period is about five years, I would estimate that it should underperform by about 2% during that time span. In that sense, the fund has done very well since it only underperformed VMBS by .4% and SCHR by .8%. The managers are creating value through intelligent security selections, but it is has not been enough value to pay for the higher costs. Conclusion Despite solid management, the expense ratio on SGVIX puts it in a constant uphill battle to try to stay even with lower expense options. Unfortunately, some investors may find their investing options severely restricted. The portfolio is designed reasonably well, but investors aiming to reduce portfolio risk as rapidly as possible would benefit more from using longer duration treasury ETFs to gain their diversification benefits with a smaller allocation. The only rationale I see for restricting investor’s choices is to push them into funds with substantially higher expense ratios. As I have been going over several of the funds, I’ve found the best options that were previously available have been entirely removed. It isn’t like Fidelity has no low cost long duration treasury funds. The Spartan® Long-Term Treasury Bond Index Fund – Fidelity Advantage Class (MUTF: FLBAX ) would have been a solid option and has an expense ratio of only .1%. For investors that have that fund as an option in their retirement account, I would take it in a heartbeat over SGVIX. FLBAX is far more volatile than SGVIX, but a beta of negative .47 means a fairly small allocation in the portfolio would be enough to counteract the positive betas from a portfolio that is heavily invested in the S&P 500 or a broad market index. 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. Additional disclosure: Information in this article represents the opinion of the analyst. All statements are represented as opinions, rather than facts, and should not be construed as advice to buy or sell a security. Ratings of “outperform” and “underperform” reflect the analyst’s estimation of a divergence between the market value for a security and the price that would be appropriate given the potential for risks and returns relative to other securities. The analyst does not know your particular objectives for returns or constraints upon investing. All investors are encouraged to do their own research before making any investment decision. Information is regularly obtained from Yahoo Finance, Google Finance, and SEC Database. If Yahoo, Google, or the SEC database contained faulty or old information it could be incorporated into my analysis.