Category Archives: etf

How Charter Broadband Conditions May Set Bar For Comcast

Charter Communications ( CHTR ) will not be allowed  to charge data usage-based prices or impose data caps on broadband customers for seven years as part of proposed conditions set by federal regulators  for its acquisition of Time Warner Cable ( TWC ). Whatever conditions Charter agrees to might set the bar for Comcast ( CMCSA ) down the road, analysts say. The Department of Justice on Monday cleared Charter’s purchase of TWC, while the Federal Communications Commission moved closer to approval.  FCC Chairman Tom Wheeler is circulating proposed conditions to the five-member agency. California regulators are expected to green light the purchase in mid-May. Charter snapped up TWC after regulators thwarted Comcast’s takeover of Time Warner Cable in early 2015. Conditions set on the Charter-TWC deal might have implications for Comcast if it seeks another major acquisition, such as acquiring T-Mobile US ( TMUS ) or Sprint ( S ). Comcast has filed to be a possible bidder in a government auction of radio spectrum owned by local TV stations. That auction began in late March. Comcast has been testing data caps in an increasing number of markets. “New Charter will not be permitted to charge usage-based prices or impose data caps,” Wheeler said in a statement. “Second, New Charter will be prohibited from charging interconnection fees, including to online video providers, which deliver large volumes of internet traffic to broadband customers.” Video streamer Netflix did not oppose Charter’s purchase of TWC, but it had lobbied against the Comcast-TWC deal. Charter can’t strike agreements with programmers that would make it more difficult for streaming services like Netflix ( NFLX ) to obtain content, according to a DOJ filing in federal court. Charter has also agreed to buy privately held Bright House Networks. The two deals would make Charter the No. 2 cable TV firm behind Comcast.

Generating Income From Unlikely Sources: Financial Advisors’ Daily Digest

SA Dividends, Income & Retirement Editor Robyn Conti here, subbing in for Gil, who’s observing Passover this week. I’ll do my best to fill his very talented and knowledgeable shoes, and continue to keep you up to date daily on the latest FA analysis and news here on Seeking Alpha. Generating income these days is more difficult than ever due to the low rate environment, but that hasn’t stopped masses of investors from jumping with both feet into income investments that are too costly relative to their yields. Joel Johnson from True-Bearing.com emphasizes the importance of helping income-oriented clients invest for specific outcomes, and talks about how those solutions are more likely to be found in more “off the beaten path” investments, which present profit-generating opportunities for advisors: Outcome-oriented investing, once dominated by institutions offering low cost defined benefit plans, is a challenging job… Investment advisors can now create risk-aware portfolios designed to meet the specific income needs of their clients. The portfolios contain funds that invest in non-traditional sources of income. The portfolios should feature investments that are not overly expensive. Investing in themes is integral to generating alpha and hedging your portfolio against macroeconomic changes…” Harry Long’s article on ETF dividend strategies dovetails nicely, proposing several ideas for seeking out alternative income instruments while avoiding volatility. In contrast, on the subject of outflows from income investments, if you or your clients have muni bond funds coming due in the next few months, now’s the time to take action. SA contributor Patrick Luby highlights an historical summer trend in muni bond redemptions , per Bloomberg: … this year is expected to follow the same pattern, with $38.2 billion rolling off in June, $33.5 billion in July, and $29.9 billion in August. (The monthly average this year is just under $26 billion.) Forecast redemptions include maturing bonds as well as bonds that have been advance refunded or current refunded and are expected to be called away. For those fond of quick math, that’s more than $100 billion in redemptions — quite a round, and a rather hefty, number. Luby points out that, while reinvesting principal is generally an attractive benefit of owning individual muni bonds, due to the current rate situation and economic uncertainty, advisors and their clients may be unsure how to, or even if they want to, reinvest. He suggests those who have bonds coming due (maturing or pre-refunded) in the next several months consider the following: Changing asset allocation by using redeemed municipal bond proceeds to invest in another asset class will cause a shift in the overall portfolio risk profile, and should not be done unless called for by the investment plan. Don’t wait for the principal to be returned to you to consider what to do. Due to the volume of principal that will be seeking reinvestment, muni bond investors may find themselves competing with each other for a limited supply of appropriate bonds. Investors in high-tax jurisdictions with a preference for in-state double-exempt bonds may find their options even more severely reduced. Consider making provisions for reinvestment in advance of your bond’s redemption date. Pay attention now to the new issue calendar for appropriate issues that will settle after the maturity date of your maturing/refunded bond. As an alternative to individual bonds, you may wish to consider using a municipal bond ETF to maintain asset class exposure while waiting for a suitable replacement security. (To learn more about doing this, read my recent article about using duration as a guide to selecting municipal bond ETFs, available here .) These are definitely items of importance for advisors and muni bond investors to keep an eye on should redemptions proceed as forecast. Finally, since there appears to be quite a hefty focus on oil, where it’s headed, and the frothy politics involved therein, here are several stories offering a variety of views and insights on the volatile commodity: Daniel Jones takes a particularly bullish view on oil . However, Simply Investing says don’t expect the rally to last for long . The Heisenberg breaks down the nefarious geopolitics of oil price movements . Resident SA commodity expert Andrew Hecht explains how to read the “tea leaves” for crude following the OPEC stalemate in Doha earlier this month.

Should You Hedge Your Foreign Currency Exposure?

Click to enlarge By Remy Briand, Head of Research, MSCI The volatility of currency has increased in recent years as a combination of quantitative easing and currency wars fuel swings in the foreign-exchange market. CURRENCY RISK TO EQUITY PORTFOLIOS HAS TICKED UP SINCE THE 2008 FINANCIAL CRISIS The chart above shows that the risk to a U.S. dollar-based investor from currencies in international equity exposure has increased significantly since the global financial crisis, according to the latest Barra global equity model . By contrast, the exposure to foreign currencies reduced total risk for a portfolio of developed market equities at times prior to 2004. Many money managers disregard the volatility and leave their exposure to foreign currency unhedged. Or they apply full hedge strategies that can prove costly over time. A more dynamic hedging approach demands a framework to decide which currency to hedge, a mechanism to monitor the indicators and an ability to vary automatically the portion of each currency weight to hedge in a given period (a proportion referred to as a hedge ratio). Which indicators to consider when selecting a hedge ratio There is a long history of research by academics and practitioners who have studied currency hedging strategies. As part of MSCI’s research into risk factors, we have reviewed and modeled those indicators that have proved to be effective in the literature and over time. Our indicators come from four categories: value, momentum, carry, and volatility. The value indicator measures the relative purchasing power of each currency in a pair. Momentum examines currency returns for the previous six months. Carry measures the difference between two-year sovereign yields for both the foreign and home currency. Volatility compares average monthly volatility with the six-month historical average. The ability to hedge foreign exchange risk systematically for any pair of currencies by reference to the four indicators form the foundation of the approach to adaptive hedging that MSCI introduced recently. Though you can view each indicator individually, together they indicate whether or not to hedge and by how much. If the signal points to a possible depreciation of the foreign currency against the home currency, then a hedge may make sense. The chart below illustrates the calculation of the hedge ratio for the Japanese yen from the perspective of a U.S.-dollar based investor. The solid bands of color show periods when an investor should have hedged yen exposure for the respective indicators. INDICATOR SWITCHES AND THE ADAPTIVE HEDGE RATION SINCE MARCH 2012 FOR THE JAPANESE YEN (U.S. DOLLAR-BASED INVESTOR) Click to enlarge Taking the pain out of hedging decisions If you consider each currency represented in the MSCI ACWI Index, calculate the hedge ratios and average them in proportion to the weight of the currency in the index, you get the global average hedge ratio for home-based investors. According to the formula, a U.S.-based institutional investor would need to hedge its global equity allocation by 65% on average, as of March 31. Based on the adaptive hedging methodology, a U.S.-based institutional investor would hedge 75% of their Swiss franc exposure, 50% of their yen exposure, 75% of their euro exposure and 75% of their sterling exposure. Similarly, an investor based in the eurozone would hedge 75% of their Swiss franc exposure, 50% of their yen exposure, 75% of their sterling exposure, and 50% of their U.S.-dollar exposure. HEDGING RATIO FOR KEY CURRENCIES (AS OF MARCH 31) Because the targeted hedging ratios change through time, currency hedges require active monitoring and regular adjustment in portfolios. While long-term investors may decide to leave their allocations to global equities unhedged, investors more sensitive to short-term volatility may prefer a more rules-based form of currency hedging. The adaptive hedging methodology illustrates one approach based on four factors affecting currency behavior. Further reading: The MSCI Adaptive Hedge Indexes: Flexible hedging using a combination of currency indicators 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.