Scalper1 News
Oil prices continues their sharp decline Monday as mild weather forecasts added to the commodity’s woes after Organization of the Petroleum Exporting Countries (OPEC) failed to arrive at any agreement to cut production, on Friday. The commodity slumped to its lowest levels in almost seven years, dragging down shares of oil & gas companies and also weighing on the broader market. In the absence of any agreement on production cuts, OPEC as well as non-OPEC members such as Russia, will continue to produce oil in record volume despite weak global demand. In fact, production is going to rise now with Iran set to start exporting oil next year when international sanctions are lifted. Iran was OPEC’s second-largest producer before sanctions and will battle now to regain that position. Further, despite price plunge, US production has not fallen as much as analysts expected earlier. With no end in sight for this supply overhang, the outlook for oil remains negative. Further, even if OPEC somehow agrees to cut production in its next meeting in June, the resulting rally in oil prices would likely bring many smaller producers back into the market and add to supply woes. Now, as the Fed looks all set to raise rates next week and the ECB expected to step up stimulus measures in the coming months, the US dollar may continue to strengthen and pose more headwinds for oil. I believe that oil prices are going to stay “lower for longer”. Looking at the longer-term picture, the rise in climate change awareness would also deter investments in this space. Investors looking for ways to profit from the very challenging outlook for oil should consider investing in the following ETFs. US Global JETS ETF (NYSEARCA: JETS ) Airlines are big beneficiaries of cheap oil and a brightening economy. Fuel accounts for a large portion of airlines’ operating expenses and “lower for longer” oil will further boost airlines’ profitability. This product provides investors access to the global airline industry, including airline operators and manufacturers. It uses a smart beta approach in selecting and weighting its holdings and thus charges a slightly higher fee of 60 bps. JETS is up more than 9% since inception, despite recent headwinds related to worries regarding impact on terrorist attacks on tourism and earlier investigation by the Justice department regarding collusion in pricing practices. First Trust NASDAQ Global Auto ETF (NASDAQ: CARZ ) Ultra-low interest rates and plunging gas prices have been fueling demand for new vehicles in the US. With strong sales for the month of November, auto sales this year appear to be on track to beat the earlier record set in 2000. While higher rates would definitely be negative for the industry, the Fed is likely to move very slowly on rate hikes, and thus the auto industry is expected to continue to do well in the months to come. This product provides investors exposure to automobile manufacturers across the globe. About 80% of assets are invested in stocks of automakers based in the US, Germany and Japan. In view of higher expenses and trading costs, this product is more suitable as shorter-term tactical holding. PowerShares Dynamic Leisure and Entertainment Portfolio (NYSEARCA: PEJ ) While low prices have helped US consumers a lot, they have so far been rather cautious in spending. But now with the labor market firming up, consumers are expected to step up their spending finally, particularly during the holidays. Per Fitch Ratings “U.S. leisure companies will continue to benefit from consumer spending growth in 2016, aided by the trend towards more experiential, rather than material, purchases.” PEJ is a smart beta ETF that uses a variety of investment merit criteria to select the best stocks from airlines, restaurants, movies & entertainment, casino & gambling and other leisure related industries. WisdomTree India Earnings Fund (NYSEARCA: EPI ) India is a huge importer of oil and tumbling energy prices bode well for the country. In addition to narrowing trade, current account and fiscal deficits, lower oil prices have resulted in a drop in inflation. Lower inflation helps the country’s central bank to cut rates, boosting growth. Further, the government has successfully used this opportunity to abolish diesel subsidies and raise taxes on petroleum, which will go a long way in improving the country’s fiscal health. India’s growth is fueled mainly by domestic consumption, largely insulating the economy from global headwinds EPI tracks profitable companies in India using an earnings-weighted methodology. Investors should consider adding this ETF to their portfolio. It is one of the largest, broadest and most liquid India equity ETFs. Market Vectors Oil Refiners ETF (NYSEARCA: CRAK ) Refiners seem to be the only bright spot in the energy space as they are a differentiated segment of the energy sector. Crack spread – the difference between the price of crude oil and its refined products – is an indicator of the profitability of the refining industry and lower oil prices could result in higher margins for refiners. This is the first and the only US-listed ETF to provide pure-play exposure to global oil refiners. However, with more than half of its assets invested in non-US companies, the product has foreign exchange risk and also a higher fee of 59 basis points. Original Post Scalper1 News
Scalper1 News