Author Archives: Scalper1

Facebook Stretches Video Power On Its Next Big Moneymaker

Taking a big step on its path of being a video behemoth that spurs ad revenue, Facebook ( FB ) on Tuesday boosted the power of Instagram. Users of Instagram will now be able to record videos of up to a minute, vs. its previous load of 15 seconds. The update is available just to a small group to start but that will expand to everyone in the coming months, Instagram said in a blog post. Facebook began offering advertisers on Instagram the freedom to post 60-second ads , up from 30 seconds previously, in February. Facebook derives more than 96% of its total revenue from advertising, with video ads drawing a premium price. More video is now viewed on Facebook than any other system except for the YouTube platform owned by Alphabet ( GOOGL ). Coming soon: Longer video on Instagram https://t.co/Xt3hIxnL1M — Instagram (@instagram) March 29, 2016 Facebook does not break out Instagram revenue, but analysts estimate that its sales could top $1 billion this year. Analysts have kept a close watch on Instagram as a key revenue-growth leg for the social media leader. Facebook and Instagram are the company’s two most important mobile ad platforms, company executives say. Facebook has always closely monitored user engagement and satisfaction before expanding ads. Allowing users to now post 60-second videos on Instagram should enable Facebook to closely monitor and analyze how active and engaged viewers are with longer-form video on the Instagram platform. The time that people spent watching video on Instagram has increased more than 40% in the last six months, Instagram said in a blog post announcing the video expansion. Facebook began testing ads on Instagram about three years ago. One month ago Facebook announced it now has more than 200,000 advertisers on Instagram. Facebook competes with Apple ( AAPL ), Alphabet, Microsoft ( MSFT ), Twitter ( TWTR ) and others to attract more advertisers. Instagram is one of multiple growth engines that Facebook can accelerate.They include Facebook Messenger and WhatsApp. While Instagram has more than 400 million users, WhatsApp has about 900 million users and Messenger more than 800 million. Facebook is in position to make its widely popular Messenger platform an all-in-one tool that could include a partnership or a battle with Apple and its Apple Pay system. Image provided by Shutterstock .

Floating Rate ETFs In Flux

This article originally appeared in the April issue of WealthManagement Magazine and online at Floating Rate ETFs in Flux . With fed rate hikes likely coming at a slower pace, investors flee some floating-rate notes. Nearly a year ago, as part of our survey of alternative income funds (” Alternative Alternative Income “), we picked through a number of floating-rate note (FRN) portfolios to find the potential best-of-class performance should interest rates rise. Well, since then rates have risen by 34 basis points in the three-month Libor and 26 basis points in the three-month T-bill yield. Curiosity compels us to revisit the floater funds to see how the asset class has fared. Not all these portfolios are alike, so one shouldn’t expect uniform results. The vast majority of the $9.8 billion held by exchange traded fund (ETF) versions are invested in corporate securities. And, among these, there’s further differentiation by credit ratings. Most investors are attracted to funds holding high-yield securities, though significant assets are committed to investment-grade paper. The junk/quality split is 54/40 with the remaining 6 percent in municipal and Treasury notes as well as a fund devoted to variable-rate preferred stock and hybrid securities. Money Flows Overall money has flowed out of the 12 ETFs plying the floater trade over the last 12 months. Net redemptions of $417 million reduced the category’s asset base by 4 percent. This wasn’t a wholesale dumping; it was more tactical. Some segments lost assets, some gained. And that’s a story in itself. Junk note funds lost nearly 16 percent, or $986 million, while ETFs invested in higher-grade corporate notes saw inflows of nearly 5 percent, or $183 million. At the same time, there was a $5 million, or 45 percent, boost in the newer (and smaller) Treasury segment. The single fund devoted to municipal notes bled assets, losing $27 million, or 28 percent, of its base while the other singleton, the variable preferred stock ETF, tripled in size with $408 million in net creations. Two trends are at work here. Some of the high-yield assets migrated to safer havens, namely bank-grade and Treasury paper. Mainly, that’s been an escape from duration risk. Money’s also being drawn to the equity side in response to more encouraging economic data. The second trend is a mercenary search for yield. Consider the inflow to the preferred stock ETF. Dividend yields for variable preferreds indexed in the Wells Fargo Hybrid and Preferred Securities Floating and Variable Rate Index exceed 5 percent, significantly higher than the rates earned by junk notes. Investors believe that stocks, common or preferred, are okay to buy again. Especially if they produce lip-smackin’ income. The insulation from duration risk is a boon. So, let’s take a closer look at the cash thrown off by these ETFs, along with their return characteristics. High-Yield Corporate Floaters The 600-lb. gorilla among high-yield floater ETFs is the $3.7 billion PowerShares Senior Loan Portfolio ETF (NYSEARCA: BKLN ) , which owns more than 70 percent of the segment. As BKLN goes, so goes the segment. Buoyed by a market-weighted 4.22 percent dividend yield, high-yield ETFs collectively earned a total return of -2.54 percent over the past 12 months. The segment’s discernible duration is 2.27 percent, making it the most rate-sensitive in the asset class. When benchmarked against the i Shares Core Total U.S. Bond Market ETF (NYSEARCA: AGG ) , a broad market bond index tracker with a duration of 5.53 percent, you can see the bargain made by FRN investors: Aiming for higher dividends and less rate sensitivity, they settled for lower overall returns. Despite its middling dividend yield, assets have flowed to the First Trust Senior Loan ETF (NASDAQ: FTSL ) in the past year. FTSL is actively managed with a mandate that allows the portfolio to be invested in non-U.S. paper and equities. Net creations have boosted the fund’s asset base by 87 percent. Investment-Grade Corporate Floaters Dividends are a lot lower in the bank-grade segment. With a collective “A” credit rating, the segment’s market-weighted yield is just 0.58 percent. Modified duration, at 0.12 percent, is very low as well. Like high-yield corporates, total returns have been negative, though at -0.40 percent, less so. The $3.5 billion iShares Floating Rate Bond ETF (NYSEARCA: FLOT ) sets the segment’s pace, though the fund to beat has been the SPDR Barclays Investment Grade Floating Rate ETF (NYSEARCA: FLRN ) . FLRN is the only corporate floater that produced a positive total return over the past year. Treasury Floaters Floating-rate Treasury paper, with its low yield and virtually nonexistent duration is really a cash substitute. Investors, wary of potential Fed rate hikes, have goosed up the segment’s small asset base in the last 12 months. It’s the only segment, too, that’s produced a positive, albeit small, total return. Nearly all the segment’s assets are held in the iShares Treasury Floating Rate Bond ETF ( TFLO) . Other Floaters There are a couple of ETFs at the corners of the floating-rate market. The PowerShares Variable Rate Preferred Portfolio ETF (NYSEARCA: VRP ) , claiming the highest dividend yield in the class, earns the variable moniker in more than one way. It’s been one of the category’s more volatile issues, and ended up losing money overall in the past 12 months. A stablemate, the PowerShares VRDO Tax-Free Weekly Portfolio ETF (NYSEARCA: PVI ) , owns municipal bonds, rated AA- on average, that can be redeemed weekly. Duration is negligible, which make the fund a cash substitute. With no dividend stream, however, the total return pretty much reflects its holding costs. No wonder the fund lost assets. An Overview The side-by-side comparison in Chart 1 shows how the category’s biggest funds behaved over the past 12 months. Three ETFs-FLOT, PVI and TFLO-varied little from their starting values, but BKLN and VRP wobbled significantly. Such volatility speaks to inherent risk. Floating-rate funds limit duration risk so they’re obliged to take on more credit risk to generate attractive returns. We seem to have reached a risk inflection point, though. By and large, investors are fleeing the risk in the high-yield corporate market. That exodus, in great part, reflects investor perceptions that Fed rate hikes may be coming at a slower pace than originally expected. The advantage of holding variable-rate securities, then, has diminished, making other assets more appealing.

RV Industry Rumbles Down The Road To Higher Profits

Almost unnoticed, the recreational vehicle and manufactured home industry group has motored nearly to the top of the heap. The group was ranked No. 4 out of 197 groups based on six months of performance as of Tuesday’s IBD. That’s up from No. 53 just six weeks ago. There are only six companies in the group, but four of them have best-possible Composite Ratings of 99. Demographics, favorable market conditions and an economic recovery are tailwinds pushing the industry along the road to higher profits. In an investor presentation earlier this month, Thor Industries ( THO ), a major player in the RV market and one with a 99 Composite Rating, noted that although consumer sentiment has softened a tad this year, the outlook regarding personal finances is still at its best level in 10 years. Domestic vacations are viewed as safer than international travel, and lower fuel prices are making RV ownership more attractive. At the same time, baby boomers representing 24% of the population are retiring and having more time for hitting the open road. Camping in tents and cabins remains popular, and Thor noted the majority of RV owners started out as tent campers. Pricing remains competitive, the company said, but heavy discounting has been much reduced. The Recreational Vehicle Industry Association’s forecast earlier this month projected wholesale shipments increasing to 381,800 units this calendar year, a 2% improvement from 2015. On March 7, Thor reported fiscal Q2 earnings of 97 cents a share, well above estimates of 62 cents. That marked a 70% increase from a year earlier. The next day, the stock gapped up and closed 6% higher on big volume. The stock is completing the right side of a year-long consolidation. Acquisitions have helped it grow. And it recently added manufacturing capacity. It makes both towable and motorized RVs, which include Class A, B and C motorhomes. It operates from 148 facilities in Indiana, Michigan, Ohio and Oregon. Patrick Industries ( PATK ) is another company in the group with a 99 Composite Rating. It makes components for RVs and manufactured housing, as well as kitchen cabinets and furniture for homes and businesses. So it’s not only riding the uptick in the RV market, but it’s also benefiting from a boom in homebuilding and home remodeling, with Patrick also offering quartz and granite countertops. Earlier this month, the company completed the acquisition of Progressive Group, which is a distributor and manufacturer for major-brand electronics, with seven locations in 16 states, primarily in the Midwest and mountain states. Patrick said the acquisition will allow it to expand its presence in the electronics distribution market. Like Thor, it has carved out an undefined base, and it’s nearly to the top of it. Also like Thor shares, the stock popped after reporting earnings Feb. 18 that were well above estimates. Winnebago Industries ( WGO ) is probably the best-known name in the group. It has a 94 Composite Rating. Earnings growth has been ragged in recent quarters, but the stock perked up after reporting earnings March 24 that were 17% higher than a year earlier.