Author Archives: Scalper1

Industrial ETFs In Focus On GE Mixed Q4 Results

On Friday, General Electric (NYSE: GE ), the industrial conglomerate giant, reported better-than-expected fourth-quarter 2015 earnings but missed on the top line. Earnings per share came in 52 cents, a couple of cents ahead of the Zacks Consensus Estimate and up 27% from the year-ago quarter. Revenues rose 1.4% year over year to $33.89 billion but were well below our estimated $35.92 billion. The revenue miss were credited to a weak global economy and an oil price slide that hurt revenues in the renewable, and oil and gas segments (read: Oil Hits 12-Year Low: Short Energy Stocks with ETFs ). In order to withstand the fall oil prices and slow global growth, General Electric doubled its restructuring spending for this year to $3.4 billion and increased its cost-cutting target by two times for the struggling oil and gas business to as much as $800 million. Further, the company is transforming itself into a digital-industrial company and plans to shift its headquarters from Connecticut to Boston by 2018. Notably, digital business revenue climbed 22% to $5 billion last year and is on track to reach $20 billion by 2020. For fiscal 2016, the company reaffirmed its earnings per share guidance of $1.45-$1.55, the midpoint of which is a penny below the Zacks Consensus Estimate. Organic revenue is expected to grow 2-4% while cash generation is estimated at $30-$32 billion. General Electric also intends to return $26 billion to its shareholders this year, including $8 billion in dividends and $18 billion in share repurchases. Market Impact Following mixed Q4 results, shares of GE dropped as much as 3.1% in Friday’s trading session and the industrial ETFs having double-digit allocation to this industrial conglomerate giant are in focus for the days ahead. All the funds stated below have a Zacks ETF Rank of 3 or ‘Hold’ rating with a Medium risk outlook. Fidelity MSCI Industrials Index ETF (NYSEARCA: FIDU ) This fund tracks the MSCI USA IMI Industrials Index, holding 345 stocks in its basket. General Electric takes the top spot at 13.3% share with the aerospace and defense industry making up for one-fourth of the portfolio, followed by industrial conglomerates at 21.3%. The product has amassed $100.5 million in its asset base while trades in moderate volume of nearly 102,000 share a day on average. It is one of the low cost choices in the space charging 12 bps in annual fees from investors. The fund gained 0.8% following GE results. Industrial Select Sector SPDR ETF (NYSEARCA: XLI ) This is the largest and most popular ETF in the space with AUM of $5.3 billion and average daily volume of 13.7 million shares. It follows the Industrial Select Sector Index and charges 14 bps in fees per year. Holding a small basket of 68 securities, GE takes the top spot with 11.9% allocation. Form a sector look, aerospace and defense occupy the top position at 28.3% followed by industrial conglomerates (21.5%), and machinery (12.8%). The fund added 0.9% on the day. Vanguard Industrials ETF (NYSEARCA: VIS ) This fund follows the MSCI US IMI Industrials 25/50 index and holds about 346 securities in its basket. Of these firms, GE occupies the top position with 12.6% allocation. Here again, aerospace and defense takes the top spot at 23.8% followed by industrial conglomerates at 20.2%. The fund manages $1.8 billion in its asset base and charges 10 bps in annual fees. Volume is moderate as it exchanges 121,000 shares a day on average. The product gained 1.1% on the day (read: Beat U.S. Manufacturing Woes with These Industrial ETFs ). iShares U.S. Industrials ETF (NYSEARCA: IYJ ) This product provides exposure to 212 industrial stocks by tracking the Dow Jones U.S. Industrials Index. It is heavily concentrated on GE – the top firm – with 11.5% of assets while others make up for less than 4% share. Further, the ETF is tilted toward capital goods’ companies at 59.4% while transportation and software services round off the next two spots with double-digit exposure. The fund has an AUM of $507 million and average daily volume of 68,000 shares. Expense ratio came in at 0.44%. The product has gained nearly 1.2% following GE results. Bottom Line Investors should note that the decline in the GE share price has not affected these ETFs despite its largest allocation to the company. This is because the funds have a spread out exposure to a number of firms in various types of industries suggesting that the space can easily counter small declines from some of the industry’s biggest components. Further, the gains in these industrial ETFs are the result of a broad stock market rally buoyed by the sudden spike in oil price, and stimulus hopes in Europe and Japan. Link to the original post on Zacks.com

Franklin Templeton To Jump Into Smart Beta ETF Jungle

With just one ETF currently in the market, Franklin Templeton looks to make a bigger splash with a new range of equity ETFs. The company recently filed paperwork with the Securities and Exchange Commission (“SEC”) effectively announcing the firm’s plan to launch a quartet of smart-beta ETFs. Each of the funds in the LibertyQ series will track custom, rules-based indices calculated by MSCI. The four ETFs slated for release are: Franklin LibertyQ International Equity Hedged ETF Franklin LibertyQ Emerging Markets ETF Franklin LibertyQ Global Dividend ETF Franklin LibertyQ Global Equity ETF Multi-Factor Weighting All four ETFs are “multi-factor,” each with a different focus ranging from currency-hedging to dividend-themed. Instead of market cap, investments within the funds will be weighted according to a mix of quality, value, momentum, and low volatility. The Franklin LibertyQ International Equity Hedged ETF will invest in qualifying large- and mid-cap stocks from Europe, Australasia and the Far East, with no individual stock accounting for more than 2% of the fund’s total assets. The fund’s goal is to provide superior risk-adjusted returns compared to the MSCI EAFE (“Europe, Australasia, and the Far East”) Index, which is cap-weighted. The new Emerging Markets ETF is somewhat similar, but with holdings culled from the MSCI Emerging Markets Index. Unlike the International Equity Hedged ETF, though, the Emerging Markets version is not currency-hedged, and its holdings may be more highly concentrated in individual countries, sectors, and individual holdings. Franklin’s new LibertyQ Global Dividend and Global Equity ETFs also follow customized MSCI indices, with the former boasting a dividend theme while the latter seeks to outdo the risk-adjusted performance of the MSCI ACWI (“All Country World Index”). Industry-Wide Movement Barron’s reports that a Franklin Templeton spokesperson wouldn’t offer comment beyond what’s in the SEC filing, but CEO Gregory Johnson said “our intention is to enter the marketplace with smart beta ETFs and rule-based ETFs” back in June, in a post-earnings call with analysts . In doing so, Franklin Templeton joins Legg Mason, John Hancock, and Goldman Sachs as recent boarders to the smart-beta bandwagon. Management fees and ticker symbols for the new funds were not included in the filing.

Pessimistic Outlook? Maybe You Should Manage A Bond Fund

Ever notice how pessimistic bond fund managers are? They are some of the most “glass half empty” people you will ever come into contact with. Even the ones who have successfully built legacies that will endure for generations are consistently talking down on the economy, central banks, growth, and other unfavorable data points. Jeffrey Gundlach recently hypothesized that emerging markets could fall as much as 40%. He has also been an outspoken critic of the Federal Reserve’s rate hike agenda and the lack of inflation in the developed world. Gundlach is the head of DoubleLine Capital, which manages $85 billion in fixed-income assets. Similarly, renown bond investor Bill Gross railed about the problems with government debt and social service liabilities in his 2016 investment outlook . He seems very concerned about demographic trends and workforce shortages. Gross ran one of the biggest bond funds in the world at PIMCO prior to his separation from the firm he founded and transition to Janus Capital Group. These are just two of the most vocal and well-known bond managers in the world, but there are countless others that are quick to point out cracks in the global economic picture. Talking Your Book In the business we call this “talking your book” or simply slanting the facts and opinions towards a conclusion that favors your trade. Volatility, uncertainty, and fear are a bond managers dream come true. They have built empires on the back of investors fleeing the stock market in a rush to safety. Stocks usually drop in tandem with interest rates, which means that bond prices rise in kind. This favors their performance story and leads to a wave of new assets that quickly enter and are slow to leave. The returns are steady, the volatility is low, and the fees are reasonable – why would you ever want to depart that warm cocoon? These bond fund titans are simply saying ” take my hand and I’ll guide you around all the pitfalls and uncertainty “. Bless their hearts. Active managers in particular are able to shape the underlying holdings of their funds in accordance with their views. They have certain limits and mandates according to the prospectus guidelines. However, there is always some leeway to reduce exposure to areas they are concerned about, add to undervalued opportunities, or build in hedges as appropriate. This can lead to a measurable boost in performance over the benchmark if they are on the right side of the market. The best bond fund managers have risen to their status because they are right more often than they are wrong. My review of Gundlach’s predictions for 2015 were pretty spot on with the exception of his call on gold. I have been a long-time fan of his flagship strategy in the Doubleline Total Return Bond Fund (MUTF: DBLTX ) and continue to hold it in my own account as well as for my clients. The rigors of managing billions in bonds is a stress that I will likely never have to endure. As a result, I have a more even-keeled outlook for the future that balances the dangers of a bear market or recession against the opportunity for a resurgence in risk assets. This allows for a more flexible (if guarded) approach that has served me well in riding out the ups and downs of this fickle market. The Bottom Line Understanding the motivations of an investment manager can be useful in deciphering their market calls and help frame their message in the context of your personal outlook. In addition, it’s always advantageous to dig a little deeper to see how their actual portfolio is positioned versus what they are saying publicly. If there is a disconnect between these two points, it may be best to err on the side of their actions versus their words. Remember that everyone has a motivation or bias in the investment world (even me). By understanding this perspective, you can more acutely discern brains from bullshit and act accordingly.