Author Archives: Scalper1

The Story Of A Diversification Graph

How do you decide what stock or which sector to invest in? You rely on the media? You just invest in the latest hot stock? Or you setup a process to strategically help you out? When all is good, it seems easy to buy a stock but when the markets turn sour, it becomes more challenging and emotions start to make their way in. For example, did you ever sell a stock because you weren’t happy with the customer service you got? That would be an emotional transaction. Finding the Story… There are a number of ways to look at the graph… It’s important to put all the data points into context between your investments and the markets and economies impacting your investments. The graph below is a snapshot of my diversification by sector as of May 2016. First and foremost, the graph tells me that I should rebalance between my consumer defensive and technology sectors with the other deficient sectors. However, I do not like to sell that way, instead I just focus on those sectors when I add new money. The other story it tells when you take the markets into account is that the energy and basic materials sectors are out of favour. This is where the graph can start conflicting with emotions. You may not be happy about the performance of your current energy or basic material investments and the graph is telling you to pour more money in it. This is when you have a chance to buy low and sell high if you can pick a strong company that will bounce back. For me, that’s Suncor (NYSE: SU ), Enbridge (NYSE: ENB ), or TransCanada Corporation (NYSE: TRP ). As for the industrial and consumer cyclical sector, they have just fallen behind due to the movement of the others. When looking at my holdings, I only have 1 investment in each of those sectors and they have been doing fine over the past couple of years. McDondald’s (NYSE: MCD ) is doing remarkably well considering the lull it was in for a while. The sector deficiency isn’t based on performance but rather due to an increase in portfolio size. As it grows, so does the percentage of each sector. The same applies to Canadian National Railway ( TSX:CNR , NYSE:CNI ) Final Graph Reading As you can see, there has been 3 ways to read the graph each with its own story to tell. As I get ready to invest new money, I take into consideration the following: Any investment opportunity too good to pass on The stories of my diversification graph How much I have in a specific holding Readers: What’s your process?

U.S. Fund Flows Report: Investors Shy Away From Equity Funds

By Patrick Keon Click to enlarge Thomson Reuters Lipper’s fund macro-groups (including both mutual funds and exchange-traded funds [ETFs]) experienced net outflows of approximately $266 million for the fund-flows week ended Wednesday, May 11. This almost-static outcome was the result of negative net flows from equity funds (-$6.1 billion) and taxable bond funds (-$514 million), offset by similar positive net flows into money market funds (+$5.1 billion) and municipal bond funds (+$1.2 billion). Equities bounced back from two straight weeks of losses on the strength of one trading day. After losing roughly 2.5% combined in the previous two weeks the S&P 500 Index posted a gain of 0.3% this past week, all of which was captured on Tuesday, May 10, as the index appreciated 1.25% for the day. This one-day spike represented the best daily return for the index in two months and was driven by a surge in oil prices as well as a rally in some beaten-down sectors. Oil prices rose on the news that U.S. crude inventories would not increase as much as they have in recent weeks. Meanwhile, sentiment on the street was that the interest in healthcare and biotech stocks was not sustainable, since it was most likely driven by value hunters and was not an actual bullish view of the sectors. The outflows from equity funds were basically split down the middle between mutual funds (-$3.1 billion) and ETFs (-$3.0 billion). Among mutual funds domestic equity funds saw $3.2 billion leave their coffers, while nondomestic equity had net inflows of $100 million. For ETFs nondomestic products accounted for the majority of the net outflows, with the iShares MSCI Eurozone ETF (BATS: EZU ) ( -$950 million ) and the iShares MSCI Emerging Markets ETF (NYSEARCA: EEM ) ( -$933 million ) leading the way. Taxable bond ETFs (-$1.1 billion) were responsible for all of the net outflows for the group, while taxable bond mutual funds took in almost $700 million of net new money. The iShares iBoxx High Yield Corporate Bond ETF (NYSEARCA: HYG ) ( -$1.5 billion ) and the iShares 20+ Year Treasury Bond ETF (NYSEARCA: TLT ) ( -$697 million ) had the largest net outflows among the ETFs, while funds in Lipper’s Core Plus Bond Funds category had the largest net inflows (+$1.1 billion) among the mutual funds. Municipal bond mutual funds extended their string of net inflows to 32 weeks-taking in $1.1 billion of net new money this past week. Funds in the High Yield Muni Debt Funds (+$287 million) and General and Insured Muni Debt Funds (+$278 million) classifications were the largest contributors to the week’s inflow totals. This past week’s flows activity (+$5.1 billion net) marked the third consecutive week of positive flows for money market funds, during which time they took in $16.7 billion of net new money. Funds in Lipper’s Institutional Money Markets Funds classification were responsible for all of the net inflows for the group this past week (+$9.2 billion).

Inside Guggenheim’s U.S. Large Cap Optimized Volatility ETF

Low volatility exchange-traded products are in vogue this year due to global growth worries. Be it in China or in several developed economies, fears of a slowdown are widespread. The U.S. earnings picture is also in shambles with a moderation in GDP growth. Oil price, though recoiled from the pit of crisis, is nowhere near full-fledged recovery (read: Low Volatility ETFs Still in Play ). With no definite clues of sustained recovery in the market, edgy investors may want to invest in safe or low volatile products. The current low volatility ETF suite is performing well and probably this is why Guggenheim recently added a new one to the low volatility investing list. The name of the product is the U.S. Large Cap Optimized Volatility ETF (NYSEARCA: OVLC ) . Let’s dig a little deeper. OVLC in Focus The fund looks to track the Guggenheim U.S. Large Cap Optimized Volatility Index, which gives exposure to the advantages of low-volatility investing while “attempting to outperform these strategies during market rallies .” In short, the fund has been launched to act as a defense for most of the time but be more ‘aggressive when the market is rewarding risk characteristics’, per the issuer. This strategy results in the fund holding a basket of 93 stocks with Apple (NASDAQ: AAPL ), AT&T (NYSE: T ) and Procter & Gamble (NYSE: PG ) as the top three holdings with a total allocation of 7.28%. Sector-wise, the fund has double digit weight in Consumer Staples (19.97%), Health Care (18.02%), Financials (13.23%), Utilities (12.76%), Information Technology (12.20%) and Consumer Discretionary (11.69%). The fund charges 30 bps in fees. The underlying index is rebalanced on a quarterly basis. How Does It Fit in the Portfolio? The fund is a good choice for investors looking to play a volatile market. As per the issuer, it uses the S&P 500 index as its selection universe and then applies a proprietary formula to compute the risk-to-reward returns for the trailing 12-month period and figure out each stock’s volatility and correlation to the other stocks in the basket. The strategy is mainly ‘risk- controlled ‘ in nature but reacts to varying market conditions. Unlike low volatility products that normally underperform in bull markets, OVLC may play an aggressive role when risk-on sentiments are prevailing. Needless to say, if the proposed model works out, this ETF can be a great choice for risk-averse investors. ETF Competition Given that the fund seeks to lower portfolio volatility, it might face competition from other low volatility products in the space. The PowerShares S&P 500 Low Volatility Portfolio ETF (NYSEARCA: SPLV ) has an asset base of $7.17 billion. The fund charges 25 basis points as fees. The iShares MSCI USA Minimum Volatility ETF (NYSEARCA: USMV ) is another fund in the space with an AUM of $12.9 billion and a fee of 15 basis points. But the real competition is likely to come from the SPDR SSgA Risk Aware ETF (NYSEARCA: RORO ) that looks to offer capital gains and competitive returns with respect to the broad U.S. equity market (read: Beyond Miners, 5 ETFs Crushing the Market to Start Q2 ). Link to the original post on Zacks.com