Category Archives: apple

Follow Warren Buffett With These ETF Strategies

Everybody dreams of becoming rich and famous like Warren Buffett, Carl Icahn, Daniel Loeb and David Tepper. After all, these Wall Street gurus have successfully put their money in the right place and continue to reap huge returns. Buffett’s Berkshire Hathaway Inc. (NYSE: BRK.B ) has enjoyed an average growth rate of about 20% annually. Furthermore, Berkshire Hathaway has added more than 80% over the last five years (as of May 5, 2016) that is better than the gain of over 69% from the broader market ETF SPDR S&P 500 ETF (NYSEARCA: SPY ) during the same timeframe. Thanks to this feat, following billionaires’ investment strategies is a fad. While investing in Berkshire is always a good way of following Buffett, who is commonly known as The Oracle of Omaha, there are numerous other ways to reproduce this stock market veteran’s investment theme and add a spark to one’s portfolio. Normally, Buffett takes interest in companies trading below what he believes is their intrinsic value. He aims long-term outperformance and apparently ignores short-term travails. Since there is a huge craze of Buffett-style investing, we analyze below a few key investing strategies derived from Berkshire Hathaway’s annual general meeting. We also highlight the related ETFs for investors who want to follow this investment veteran. Excuse Yourself from IPOs The global IPO market has been on a tear lately and people churned out enough money from it. A rock-bottom interest rate environment and an even more impressive performance by the U.S. stock indices charged up the IPO market. IPO ETF First Trust US IPO Index Fund (NYSEARCA: FPX ) returned about 94% in the last five years (as of May 4, 2016), but the wining trend seem to be waning lately. The fund was off about 5.8% in the last one year and is down 1.9% so far this year (as of May 4, 2016) . But Buffet seems to be no fan of IPOs and finds them risky bets. As investors get to know very little about the company’s past or financial record , this technique does not go well with value investing. Berkshire on Acquisition Spree; Time for M&A ETF? Berkshire Hathaway Inc. acquired Precision Castparts , one of the leading manufacturers of aerospace components in a $37.2 billion deal, in the first quarter of 2016. Also, Buffett indicated that Berkshire Hathaway will continue to chase large acquisitions, going forward. This means that big acquisitions will likely be in the cards and investors can play IQ Merger Arbitrage ETF (NYSEARCA: MNA ) to cash in on the likely booming trend. Buffett’s Confusion with Negative Rates: Where to Find Yield? As several central banks are now practicing negative rates right from the ECB to BoJ, income from government bonds have declined considerably. Even in the U.S., interest rates have been at very low levels. But these hurt several corners of the business world like the financial sector. In fact, retirees also find it hard to earn interest income. Buffett is unsure about this policy as “anything that reduces the value of having money is going to affect Berkshire” . Keeping these issues in mind, investors can go for some safe but high-yielding products like PowerShares S&P 500 High Dividend Low Volatility ETF (NYSEARCA: SPHD ). The fund yields 3.33% annually (as of May 5, 2016). For European market, investors can play with First Trust STOXX European Select Dividend Index Fund (NYSEARCA: FDD ) . FDD yields 4.09% annually (as of May 5, 2016). Warren Buffett is long on Euro: Should you Really Follow this One? Don’t get shocked! Yes, Buffett, who is a benevolent promoter of the value investing, has said that Berkshire Hathaway owns Euros. In this case, think twice before copying him because Berkshire Hathaway has huge business exposure in Europe and uses the currency as payments for its operations there. But we warn investors not to be outright bullish on euro as the ECB is on a super easing mode. Though the currency lately gained strength on a weaker greenback and certain improvement in the Euro zone, the rally can lose momentum any time. So, better be watchful before betting on Euro ETF CurrencyShares Euro ETF (NYSEARCA: FXE ) . Have Faith in U.S. GDP: What to Play? Buffett admits that the U.S. GDP growth is certainly sluggish, but not awful . Though Q1 GDP was lackluster, the momentum can pick up in Q2. Plus, dollar has moderated lately on a dovish Fed, which in turn can boost exports. We suggest playing mid-cap value ETFs which offer the best of both the worlds – small and large. These have limited foreign exposure and are thus expected to gain from a falling U.S. dollar. Thus, a softer dollar and a slowly improving U.S. economy make a winning combination for mid-cap ETFs. Mid caps are less volatile than small-cap stocks. Vanguard Mid-Cap Value ETF (NYSEARCA: VOE ) is an example among many that can be tapped to play the trend. Original post

ETF Strategy: Bullish On UDN, GDX, GLD After Weak Jobs Numbers; Bearish On SPY, IBB

The much anticipated labor market data was released at the time of writing this article. The report indicates that the U.S. economy is not out of the woods yet. The economy added just 160,000 jobs in the month of April, well below the consensus forecast of 202,000 job additions. While markets have slipped on the disappointing job numbers, it is possibly due to the fact that it creates uncertainty over the pace of rate hikes. Conflicting Signals From the Fed The Federal Reserve hiked benchmark interest rates for the first time in almost a decade in December last year. At the time the Fed had anticipated four more rate hikes in 2016. But extreme volatility in global markets seen at the start of this year has forced the Fed to change its stance. The Fed now expects two further rate hikes. Markets anticipate just one. With today’s disappointing job numbers, even a solitary rate hike now looks unlikely. I Am Bullish on UDN, GDX and GLD The Fed has reiterated time and again that it will be cautious with future rate hikes. Today’s weak job numbers give the central bank a strong reason to remain on the sidelines. This is good news for gold bulls. This week, gold prices crossed $1,300 an ounce. After being written off at the end of last year, the precious metal has made a strong comeback since the start of this year. The rally at the start of the year was sparked due to volatility in risk assets, which boosted gold’s safe haven appeal. But with the Fed factor back, expect further strengthening in gold prices. I am bullish on the SPDR Gold Trust (ETF) (NYSEARCA: GLD ), which is now up more than 21% for the year. The chart below shows GLD has broken through some key resistance levels. Click to enlarge Stockcharts.com. Importantly, GLD is seeing significant inflows. On Monday, GLD had net inflows $860 million, highlighting the bullish sentiment on gold. The table below from ETF.com shows GLD is at the top when it comes to fund inflows into ETF. This trend is likely to continue following today’s weak jobs report. Recently I covered Market Vectors Gold Miners (ETF) (NYSEARCA: GDX ), which is now up more than 84% for the year. I had noted in the article that the excellent run in GDX will continue based on the outlook for gold. That thesis has been strengthened further following the weak April jobs report. As I had highlighted in my GDX article, the ETF substantially underperforms gold when gold prices drop and vice versa. GDX’s gains have been four times those of GLD this year. Therefore, if prices continue to strengthen expect significant further upside in GDX. I am also bullish on Powershares DB US Dollar Index Bearish Fund (NYSEARCA: UDN ). The greenback strengthened significantly from mid-2014 onwards as it became clear that the Fed would start to tighten its monetary policy. The story has been different this year. Click to enlarge Google Finance. UDN has gained almost 5% this year but with a rate hike unlikely this year, I expect further gains. Bearish on SPY and IBB Finally, what does today’s weak jobs report mean for the SPDR S&P 500 ETF (NYSEARCA: SPY ). The S&P 500 has edged lower today but a weak jobs report, which leads to a delay in rate hike, is a positive for risk assets such as equities. But the weak earnings season suggests that the S&P 500 will remain under pressure, which is why I am bearish on the index. SPY, as the table below from ETF.com shows, has seen the highest redemption among ETFs. This trend could continue following the weak earnings. According to data from FactSet, the blended earnings decline for the S&P 500 in the ongoing earnings season (as on April 29, 2016) was 7.6%. While the Energy sector is to a great extent responsible for this steep drop, even after excluding the sector, the FactSet data shows 2.4% decline. I must add though that a weaker dollar will help Corporate America. However, the impact will not be felt in the near-term. The iShares NASDAQ Biotechnology Index (ETF) (NASDAQ: IBB ) has had another rough week. The fund dropped more than 5% for the week. IBB is in fact heading into bear market territory. Since April 25, it has fallen 13%. I discussed some of the factors in my article late last month that will keep pressure on IBB. One of the factors that I had mentioned was difficulty obtaining funding. In April, multiple biotech IPOs were withdrawn. This week we saw one more instance which highlights the fact that biotech companies are struggling to gain access to capital markets. Relypsa (NASDAQ: RLYP ), which has an approved product, obtained $150 million in debt financing. RLYP will be paying 11.50% in interest. Debt funding at such a high interest rate for a biotech company in early stages of commercialization is not good news. I expect difficult times ahead for the sector. 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.