Author Archives: Scalper1

Cold Snap Sparks Sudden Rally In Oil Price: ETFs Surge

After crashing to below the 12-year low in Wednesday’s trading session, oil price spiked nearly 21% over the past two days, representing the biggest two-day rally since September 2008. It has also extended its gains in the early trading session today with both U.S. crude and Brent trading above $32 per barrel (read: Oil Hits 12-Year Low: Short Energy Stocks with ETFs ). The steep increase came on the back of short covering, bargain hunting as well as freezing conditions and snowstorms in parts of the U.S. and Europe that boosted the short-term demand for heating oil. Notably, speculators’ short position in WTI dropped 8.4% for the week ended January 19, as per the data from U.S. Commodity Futures Trading Commission. In addition, weekly data from oil services firm Baker Hughes (NYSE: BHI ) showed that the number of rigs fell for the fifth consecutive week by 5 last week to 510, the lowest level since April 2010. Further, hopes of additional stimulus in Europe and Japan, and China comments on no plans to devalue the yuan boosted the confidence in the overall economy, thereby bolstering the case for global oil demand. ETF Impact The tremendous trading in oil sent the oil ETFs space into deep green in Friday’s trading session. In particular, the United States Diesel-Heating Oil ETF (NYSEARCA: UHN ) surged 10% followed by gains of 9.5% for the United States Brent Oil ETF (NYSEARCA: BNO ) , 8.6% for the PowerShares DB Oil ETF (NYSEARCA: DBO ) and 8.3% for the United States Oil ETF (NYSEARCA: USO ) . While the returns of these funds are tied to the oil price, they are different in some way or the other. This is especially true as UHN tracks the movement of oil prices while BNO provides direct exposure to the spot price of Brent crude oil on a daily basis through future contracts. DBO provides exposure to crude oil through WTI futures contracts and follows the DBIQ Optimum Yield Crude Oil Index Excess Return while USO seeks to match the performance of the spot price of light sweet crude oil WTI. Out of the four, USO is the most popular and liquid ETF in the oil space with AUM of $2.3 billion and average daily volume of 34 million. UHN is unpopular and illiquid with AUM of $2.5 million and average daily volume of just 3,000 shares. Further, USO is the least expensive, charging just 45 bps in fees per year from investors. Meanwhile, leveraged oil ETFs also shot up with the VelocityShares 3x Long Crude Oil ETN (NYSEARCA: UWTI ) and the ProShares Ultra Bloomberg Crude Oil ETF (NYSEARCA: UCO ) surging 24.6% and 16.8%, respectively. The former seeks to deliver thrice the returns of the daily performance of WTI crude oil while the latter tracks the two times daily performance of futures contracts on WTI crude oil. What Lies Ahead? Despite the steep gains, oil price is down 13% so far this year and the long-term fundamentals remain bearish (read: If the Oil Crash Continues, Buy These 5 ETFs to Outperform ). This is because oil production has risen worldwide with the the Organization of the Petroleum Exporting Countries (OPEC) continuing to pump near-record levels, and higher output from the U.S., Iran and Libya. The lift in oil sanctions in Iran would add a fresh stock of oil to the already oversupplied global market as the country is expected to increase its crude oil exports by half a million barrels a day immediately and a million barrels a day within a year of lifting the ban. On the other hand, demand for oil across the globe looks tepid given slower growth in most developed and developing economies. In particular, persistent weakness in the world’s biggest consumer of energy – China – will continue to weigh on the demand outlook. The negative demand/supply imbalance would push oil prices and the related ETFs further down at least in the short term. Link to the original post on Zacks.com

Using Active Share To Evaluate High-Yield Bond Portfolios

There are two chief ways of measuring a portfolio’s deviation from its benchmark: tracking error and active share. The first, tracking error , is the older and more traditional. It gauges a portfolio’s performance deviation from a benchmark return over time – essentially telling an investor how different the returns are from the benchmark. The second, active share , is newer but steadily gaining steam. It specifically measures how unique a portfolio is, at the holdings level, relative to the benchmark. Tracking Error vs Active Share Of the two, which is best? That’s the question MFS Fixed Income Portfolio Manager David Cole, Chief Risk Officer Joseph Flaherty, and Quantitative Research Analyst Sean Cameron set out to answer in an October 2015 white paper Active Share: A valuable risk measure for high-yield portfolios . As evident from the title, the trio values active share – but not exclusively. While active share can be an alternative to tracking error, one can complement the other, particularly in measuring the relative risk of a high-yield bond portfolio, which is the subject of the paper. Their findings: Active managers are increasingly being asked to demonstrate just how active they really are. Active share is the best measure for making this determination, since it looks at portfolios on the holdings level, whereas tracking error merely shows deviation of performance. Both can be useful, but tracking error is more a proxy for “systematic factor exposure,” whereas active share provides “valuable information on the degree of conviction,” according to the paper’s authors. As stated earlier, active share and tracking error can be used together, and this is especially useful in classifying high-yield bond portfolio managers. Using both measures allows investors to gauge a manager’s “activeness” and determine the sources of that activeness. According to the authors, “relatively high active share in combination with relatively low tracking error would be consistent with an active, diversified, high-yield credit manager.” Portfolio Insights Active share has typically been used in evaluating equity portfolios, but Cole, Flaherty, and Cameron show its usefulness-sometimes in conjunction with tracking error-in assessing high-yield bond portfolios, too. Active share in particular can give investors insight into the drivers of risk and return in credit-oriented fixed-income portfolios, which may have low tracking error but are actually quite active. “This,” according to the authors, “is consistent with a high-yield manager’s investment process, which frequently entails minimizing systematic risk while seeking to maximize returns from the security selection process.”

ETF Deathwatch For January 2016: Count Grows To 386

Calendar year 2016 gets underway with 386 ETFs and ETNs on Deathwatch. The January list is 5.5% larger than December’s 366 and is the result of 30 additions and 10 escapees. The overall count consists of 284 ETFs and 102 ETNs. I am considering revising the criteria for ETF Deathwatch due to the quantity of closures in 2015 that had asset levels above the current $25 million cutoff level. However, I will wait until the quantity hits a new high before making changes to avoid artificially creating a new high due to altered criteria. In case you are wondering, the peak was 403 in September 2012 , the only time it registered more than 400. I have been pointing out the rapid proliferation of currency-hedged funds over the past year. Their appearance on ETF Deathwatch is another sign that the segment is approaching saturation. The Direxion Daily MSCI Europe Currency-Hedged Bull 2x (NYSEARCA: HEGE ), Direxion Daily MSCI Japan Currency-Hedged Bull 2x (NYSEARCA: HEGJ ), ProShares Hedged FTSE Europe ETF (NYSEARCA: HGEU ), and WisdomTree International Hedged SmallCap Dividend (NYSEARCA: HDLS ) are four additions this month that are currency hedged. Currency hedging isn’t the only form of hedging evident among the new arrivals to ETF Deathwatch. The ETRACS S&P 500 VEQTOR Switch Index ETN (NYSEARCA: VQTS ) tracks an index that employs a dynamic volatility hedge with VIX futures. “HFR” stands for hedge fund replication in the names of the three Highland ETFs joining the list this month. All three of them employ equity hedging via long/short portfolios. The average asset level of products on ETF Deathwatch held steady at $6.9 million, and the quantity of products with less than $2 million jumped from 73 to 83. The average age increased from 48.2 to 48.8 months, and the number of products more than five years old increased from 130 to 137. Here is the complete list of 386 ETFs and ETNs on ETF Deathwatch for January 2016 compiled using the objective ETF Deathwatch criteria . The 30 ETFs and ETNs added to ETF Deathwatch for January: Barclays OFI SteelPath MLP ETN (NYSEARCA: OSMS ) BLDRS Asia 50 ADR (NASDAQ: ADRA ) Direxion Daily MSCI Europe Currency-Hedged Bull 2x ( HEGE ) Direxion Daily MSCI Japan Currency-Hedged Bull 2x ( HEGJ ) ETRACS S&P 500 VEQTOR Switch Index ETN ( VQTS ) Global X JPMorgan US Sector Rotator (NYSEARCA: SCTO ) Global X Southeast Asia ETF (NYSEARCA: ASEA ) Guggenheim China Real Estate (NYSEARCA: TAO ) Guggenheim Wilshire Micro-Cap (NYSEARCA: WMCR ) Highland HFR Equity Hedge ETF ( OTC:HHDG ) Highland HFR Event-Driven ETF (NYSEARCA: DRVN ) Highland HFR Global ETF (NYSEARCA: HHFR ) IQ Global Agribusiness Small Cap (NYSEARCA: CROP ) iShares Convertible Bond ETF (BATS: ICVT ) iShares MSCI Intl Developed Size Factor (NYSEARCA: ISZE ) iShares MSCI Intl Developed Value Factor (NYSEARCA: IVLU ) Market Vectors Global Spin-Off ETF (NYSEARCA: SPUN ) PowerShares FTSE RAFI Asia Pacific ex-Japan (NYSEARCA: PAF ) ProShares Hedged FTSE Europe ETF ( HGEU ) ProShares Ultra Homebuilders & Supplies (NYSEARCA: HBU ) ProShares Ultra Oil & Gas Exploration & Production (NYSEARCA: UOP ) ProShares UltraShort Homebuilders & Supplies (NYSEARCA: HBZ ) ProShares UltraShort Oil & Gas Exploration & Production (NYSEARCA: SOP ) ProShares UltraShort Utilities (NYSEARCA: SDP ) SPDR S&P International Financial (NYSEARCA: IPF ) Tortoise North American Pipeline Fund (NYSEARCA: TPYP ) TrimTabs Intl Free-Cash Flow ETF (NYSEARCA: FCFI ) ValueShares International Quantitative Value (BATS: IVAL ) WisdomTree International Hedged SmallCap Dividend ( HDLS ) WisdomTree Western Asset Unconstrained Bond (NASDAQ: UBND ) The 10 ETPs removed from ETF Deathwatch due to improved health: AlphaMark Actively Managed Small Cap (NASDAQ: SMCP ) Compass EMP U.S. 500 Volatility Weighted (NASDAQ: CFA ) Guggenheim MSCI Emerging Markets Equal Country Weight (NYSEARCA: EWEM ) iShares FactorSelect MSCI International (NYSEARCA: INTF ) iShares FactorSelect MSCI USA (NYSEARCA: LRGF ) iShares iBonds Dec 2023 Corporate (NYSEARCA: IBDO ) iShares iBonds Dec 2025 Corporate (NYSEARCA: IBDQ ) PowerShares DB Optimum Yield Diversified Commodity Strategy (NASDAQ: PDBC ) ProShares Russell 2000 Dividend Growers (NYSEARCA: SMDV ) SPDR Barclays International High Yield Bond (NYSEARCA: IJNK ) The ETPs removed from ETF Deathwatch due to delisting: None ETF Deathwatch Archives Disclosure: Author has no positions in any of the securities mentioned and no positions in any of the companies or ETF sponsors mentioned. No income, revenue, or other compensation (either directly or indirectly) is received from, or on behalf of, any of the companies or ETF sponsors mentioned.