Author Archives: Scalper1

5 ETFs To Watch In March

After a horrendous sell-off in the first two months of 2016, the third month started on a solid footing with Wall Street seeing the best day in a month . Losers turned leaders as the downtrodden financial and tech stocks ricocheted on cues of an improving U.S. economy. Impressive U.S. factory and construction data were behind this newfound optimism. While the S&P 500 gained about 2.4% and Dow Jones Industrial Average added over 2.1%, about a 4% spike in Apple (NASDAQ: AAPL ) shares led the Nasdaq Composite to return about 2.9%, making March 1 the best day on the bourses since August 2015. So far this year, both the S&P 500 and the Dow Jones indices are down 3.2% each while the Nasdaq Composite is off 6.4%. In any case, March is historically known for stellar returns. The average return of the S&P 500 was 1.06% in March, from 1950 to 2015. There were 42 years of a green March while returns were in the red only in 24 years. As per moneychimp.com , only December, April and November beat out March in terms of returns. Of course, deep-rooted concerns over global growth worries and oil price declines can’t be ignored. But with such a heavy sell-offs suffered year to date, chances are high that this March will finally see some relief and end in the green. Whatever be the case, investors might want to know about the ETF areas that are best suited for the month. For them, below we highlight a few ETFs – some that offer safety and others that have the potential to grow in this rocky environment. Market Vectors Preferred Securities ex Financials ETF (NYSEARCA: PFXF ) Since a flight to safety has put a lid on bond yields, investors’ thirst for yield can be satiated by investing in preferred stock ETFs. These are hybrid securities having the characteristics of both debt and equity. The preferred stocks pay stockholders a fixed, agreed-upon dividend at regular intervals, like bonds. Even if rates rise, an extremely strong yield will allow investors to beat out the benchmark Treasury yields. The preferred stock fund – PFXF – is heavy on REITs (33.5%) and Electric (22.5%) industries. The fund is up 2.2% year to date (as of March 1, 2016) while its 30-Day SEC yield is 6.26%. PowerShares Dynamic Building & Construction Portfolio ETF (NYSEARCA: PKB ) The industrial sector enjoys a seasonal benefit in March. Also, the space gained investors’ attention afresh after a reading of the U.S. manufacturing sector impressed investors to start the month. If this was not enough, U.S. construction spending expanded to the highest level since October 2007 . All these put this construction ETF in focus. The fund has considerable exposure in homebuilding, which is another surging sector. PKB is down 4.2% so far this year, but added over 6.8% in the last one month. PKB has a Zacks ETF Rank #2 (Buy). PowerShares KBW Property & Casualty Insurance ETF (NYSEARCA: KBWP ) Since upbeat U.S. data once again sparked off rate hike talks, 10-year Treasury bond yields jumped 9 bps in a single day to 1.83% on March 1. If the trend continues, financial and insurance ETFs would benefit. While the financial sector is presently facing issues with the potential default in the energy sector, we are banking on this insurance ETF. KBWP with a Zacks #2 ETF is down 2% year to date, but added 2.7% in the last one month. WisdomTree Emerging Markets Equity Income ETF (NYSEARCA: DEM ) Investors should note that the emerging markets are making a comeback. Though their fundamentals are not too sound, cheaper valuation is probably the key to their recent success. Via DEM, investors will get exposure to the emerging markets and simultaneously enjoy strong dividend income of about 5.36% annually. Even if the fund succumbs to a sell-off, this market-beating yield would make up for the capital losses to a large extent. The fund is heavy on Taiwan (24.7%) and China (14.1%). DEM is up 1.2% so far this year. The fund has a Zacks ETF Rank #3 (Hold) with a Medium risk. Victory CEMP US Small Cap High Dividend Volatility Weighted Index ETF (CSB) Risk-on sentiments, though still to be full-fledged, are back in the market. Hence, U.S. small-cap equities and ETFs are likely to gain ground. However, we would suggest investors to practice a defensive approach even in this segment. It’s better to go for an ETF like CSB, which consists of the highest 100 dividend yielding stocks of the CEMP US Small Cap 500 Volatility Weighted Index. After choosing the highest dividend yielding stocks, these are weighted on their standard deviation (volatility). Probably due to this quality exposure, this small-cap ETF has lost just 0.6% in the year-to-date frame (when small-caps are being thrashed). In the last one month, the fund added 5.4%. Original Post

How To Play The Choppy Market With Cheap Smart Beta ETFs

The global stock market has been shaky, with a series of woes related to China and oil price. While the number of headwinds is raising questions on the health of the global economy, domestic growth seems to be on track with a spate of encouraging data lately. Amid heightened volatility and uncertainty, investors are seeking some smart stock selection strategies to alleviate the risks in the market. One such strategy is smart beta, which seeks to deliver better risk-adjusted returns, and has the potential to outperform the market even in turbulent times, while keeping the cost low. This strategy has been gaining immense popularity in recent years given its unique features and incredible stock selection methodology. As per PowerShares , smart beta is the fastest-growing segment of the ETF industry, with a staggering growth of 21% over the past three years. It currently accounts for 12% of the total ETF industry (see all the ETF categories here ). Why Smart Beta? The smart beta strategy helps to capture market inefficiencies in a transparent way by adding extra metrics, like dividends, volatility, revenue, earnings, momentum, equal weight and other fundamental factors, to the market cap or rules-based indices. It often closes the gap between passive and active investing. Also, it takes specific factors from the active management universe at a lower cost and instills it in a passive listed fund. As a result, the smart beta strategy offers the best of both active and passive strategies, providing investors an opportunity to increase portfolio diversification, reduce risk and enhance returns (alpha generation) over time. While the promise of smart beta is great, the strategy has certain drawbacks, including concentration issues, higher turnover and lower trading volumes. Though backtest results showed their outperformance over longer periods, the strategy could lag during a specific time period or in a particular economic cycle. Still, investors could earn above-average returns by selecting the right ETFs according to the market conditions or trends. Smart Beta ETFs in Focus The space is crowded with a variety of products, including the simplest equal-weighting, fundamental-weighting and volatility/momentum-based weighting methodologies. However, dividend ETFs are the primary drivers of smart beta growth this year, followed by low volatility and value factor. As such, we have highlighted four smart beta ETFs that are suitable for investors in the current choppy market and are low-cost choices in their specific fields. PowerShares S&P 500 High Dividend Portfolio ETF (NYSEARCA: SPHD ) The lure of dividend ETFs is back, as yields are at lower levels and volatility is at its peak. While there are several smart beta ETFs targeting dividend investing, SPHD could be an excellent choice. This fund follows the S&P 500 Low Volatility High Dividend Index and holds 50 securities, which have historically provided high dividend yields and low volatility. It is widely spread out across individual securities, as each holds less than 3.7% of assets. From a sector look, financials takes the top spot at 20.5%, while utilities, industrials and consumer discretionary round off the next three with a double-digit exposure each. The fund has so far managed assets worth $811.8 million, while volume is solid, trading at around 256,000 shares per day. The expense ratio came in at 0.30%. iShares MSCI USA Minimum Volatility ETF (NYSEARCA: USMV ) Given the high level of volatility, investors could be well protected with USMV. This is the largest and most popular ETF in the low volatility space, with AUM of $9.7 billion and average daily volume of 2.6 million shares. It offers exposure to 169 U.S. stocks having lower volatility characteristics than the broader U.S. equity market by tracking the MSCI USA Minimum Volatility Index. The expense ratio comes in at 0.15%. The fund is well spread across a number of components, with each holding less than 1.7% share. From a sector look, financials, healthcare, consumer staples and information technology occupy the top positions, with double-digit exposure each. The fund has a Zacks ETF Rank of 2 or “Buy” rating with a Medium risk outlook. iShares MSCI USA Quality Factor ETF (NYSEARCA: QUAL ) Though the chance of rate hikes this month faded out given the ongoing financial instability, a slew of encouraging data lately points to a rate hike sometime later this year, putting the spotlight on quality ETFs like QUAL. This fund tracks the MSCI USA Sector Neutral Quality Index and provides exposure to the stocks with positive fundamentals, like high return on equity, stable year-over-year earnings growth and low financial leverage. This results in a basket of 123 securities that are pretty spread across a number of sectors and securities, with none holding more than 5.11% of assets. Information technology, financials, healthcare and consumer discretionary each accounts for double-digit exposure. The product has amassed more than $2 billion in its asset base and charges just 15 bps in annual fees from investors. However, average trading volume is solid, at more than 295,000 shares per day. SPDR Russell 1000 Momentum Focus ETF (NYSEARCA: ONEO ) With the receding fears of a recession in the U.S., investors could tap the upcoming stock rally with this momentum ETF. This fund provides exposure to the large cap U.S. stocks having a combination of core factors (high value, high quality and low size characteristics) with high momentum characteristics. This is easily done by tracking the Russell 1000 Momentum Focused Factor Index, and the approach results in a broad basket of 908 securities that are widely diversified, with none holding more than 0.83% of assets. Consumer discretionary takes the top spot at 20.2%, while producer durables and financial services round off the next two spots with double-digit exposure each. ONEO is new to the space, having accumulated $319.5 million in its asset base within three months. It charges a lower fee of 20 bps per year and trades in solid volume of around 148,000 shares. Original Post

Robo Rise Barred By High Client Acquisition Cost

Robo-advisors need clients to operate and the cost of acquiring clients in financial services is high. To us, this is the elephant in the robo-advisor room that is seldom discussed – which we believe is a strategic failure of the highest order. It is an overriding concern that hangs over all other discussions about robo-advisors. Acquisition costs include the costs of initially finding a prospect and then converting those prospects into clients, with the inevitable attrition rate that those conversions incur. When total costs are compared to clients gained, the results can be surprisingly high. Lucian Camp calculates the cost of acquiring a client in the UK to be around £200 (US$312). This cost is beyond the means of many advisory firms, which is why they grow rather slowly – largely through word of mouth referral. In the past, they might have relied on product manufacturers and distributors to provide them with marketing support. Under new regulations in the UK, such supports are now largely no longer possible, but they continue to thrive in the US marketplace. In a world where former specialties have become commoditized, being able to make a financial product or service no longer makes you special as it once did. Where, in the past, you may have been able to extract an economic rent because you occupied a position of advantage, market forces have now equalized you. Today, the ability (knowledge) and capacity (cash flow) to quickly market financial products to scale is what separates successful financial services businesses from the ‘also-rans’. It does not matter if you arrive at the marketplace with a better mousetrap if that trap is hidden where the mice cannot find it. Cheese – in the form of marketing, advertising and promotion – will help to attract them. But cheese isn’t cheap. We return, once again, to our initial caution – robo-advisors are very good at servicing customers, but do nothing to attract customers. Putting a robo-adviser to work effectively requires considerable investment in marketing and promotions, with no guarantee of success. Vitamins and supplements are equally generic. Yet, a family business in Australia figured out how to create a brand that made generic inputs ‘special’. In late 2015, a Chinese firm acquired the vitamin and supplement company, Swisse, for A$1.5 billion (US$1.05 billion). Swisse is a marketing machine – it is constantly in the news, through its sponsorship of high-profile ambassadors and it spends a lot of money on advertising. It is rumored that its annual marketing budget is A$50 million (US$35 million) when the cost of the raw materials for all of the products it makes is less than A$5 million (US$3.5 million). Vitamin C is not special – being part of the brand image and lifestyle Swisse promotes is special. More than US$1 billion worth of special! Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. Additional disclosure: For FA audience/ Gil Weinreich