Category Archives: oud

Digging Into 2 New DoubleLine ETFs

It’s difficult to dispute the success of the first ETF offering from DoubleLine, which has managed to acquire more than $2.3 billion in assets during its short 14-month tenure. The SPDR DoubleLine Total Return Tactical ETF (NYSEARCA: TOTL ) is a hybrid strategy that is sourced from two prominent fixed-income mutual funds that are run by Jeffrey Gundlach. I have long been a fan of Gundlach’s approach and have owned his flagship DoubleLine Total Return Bond Fund (MUTF: DBLTX ) for myself and clients for some time now. I have also recommended the TOTL strategy for those who are seeking a core fixed-income fund with a lower average duration than the Barclays U.S. Aggregate Bond Index. Looking at a chart of TOTL versus its benchmark over the last year, the active fund has aggressively lagged the passive index. This has primarily been a result of the strength in treasuries and investment grade corporates in addition to differences in duration exposure. TOTL isn’t designed to kill the benchmark in a falling interest rate environment that favors longer duration. It’s designed to offer a more competitive yield with moderated interest rate risk. That’s its true value for those who are seeking a differentiated approach to their fixed-income allocation. Note that TOTL currently sports a 30-day SEC yield of 2.90% versus 1.90% for the iShares Core U.S. Aggregate Bond ETF (NYSEARCA: AGG ). Recently, Gundlach and State Street released two new actively managed ETFs that are also aimed at setting themselves apart from the pack. These include the SPDR DoubleLine Short Duration Total Return Tactical ETF (BATS: STOT ) and the SPDR DoubleLine Emerging Markets Fixed Income ETF (BATS: EMTL ). STOT is aimed at an even more conservative mix of bonds with a similar multi-sector approach as TOTL. The fund sports a modified adjusted duration of 2.40 years compared to TOTL’s 3.73 years. Think less price volatility and also a concomitant step down in yield. The new fund hasn’t paid a dividend yet, so we don’t know exactly what the difference in yield will be. However, suffice it to say that this type of fund will be deemed more of a place holder for those who want to focus on capital preservation with a small income stream. Bear in mind, you will have to pay a 0.45% expense ratio to access the STOT conservative strategy. That sounds on the high side for a short duration bond fund, but may still be acceptable for those who are stepping out of an even more expensive mutual fund alternative . There are also several other active low duration competitors in the ETF space by the likes of PIMCO, Guggenheim, Fidelity, and others. The more interesting fund from my perspective is EMTL. Prior to the launch of this ETF, there were only four other actively managed bond funds in the emerging market category. That makes for a very enticing opportunity to exercise their expertise in country screening, security selection, risk management, and duration positioning. The EMTL portfolio will be managed by Luz Padilla, who runs the emerging market strategies for the open ended DoubleLine mutual funds as well. One of the advantages of the looser active management restrictions in EMTL is that the fund manager can select both corporate and sovereign debt in the portfolio. Most passively managed indexes and even some of their active counterparts are relegated to one or the other. The comingling of these two emerging market bond classes can potentially unlock greater value and allow for superior differentiation from its peers. At the outset, EMTL has heavy exposure to bonds in Latin America via Mexico, Peru, Colombia, and Chile. It currently sports a modified adjusted duration of 5.34 years and will likely offer a competitive yield to other funds in this category. This type of fund may offer investors a way to add a tactical emerging market bond allocation in tandem with core fixed-income or other strategic yield enhancing plays. Furthermore, this fund only sports a modestly higher expense ratio than traditional options as well. EMTL carries a net expense ratio of 0.65% versus 0.50% in the PowerShares Emerging Market Sovereign Debt Portfolio (NYSEARCA: PCY ) and 0.40% in the iShares JPMorgan Emerging Market Bond Fund (NYSEARCA: EMB ). The Bottom Line It will be interesting to watch how both these new offerings evolve over time and whether the active management underpinnings add value for shareholders over a passive benchmark. DoubleLine has been known to make some bold calls with their global bond exposure and these funds will likely stand out from the pack in their overall positioning. Disclosure: I am/we are long TOTL, PCY, DBLTX, EMB. 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: David Fabian, FMD Capital Management, and/or clients may hold positions in the ETFs and mutual funds mentioned above. The commentary does not constitute individualized investment advice. The opinions offered herein are not personalized recommendations to buy, sell, or hold securities.

Google Report For ‘Unplugged’ YouTube Service Follows Hulu Splash

YouTube, the video website of Alphabet ( GOOGL )-Google, aims to roll out a new paid subscription service called “Unplugged” that would offer customers a bundle of cable TV channels streamed over the Internet, says a report. The Bloomberg report comes after Hulu on Monday disclosed plans to stream live content from two of its parents, 21 st Century Fox ( FOXA ) and Walt Disney ( DIS ). Comcast ( CMCSA ), the third co-owner of Hulu and owner of NBC Universal, was not included in the initial plans.  CBS ( CBS ) has its own stand-alone Web service to consumers. The Bloomberg “Unplugged” report notes that Google’s YouTube has not secured programming rights for the online video service. Speculation over YouTube “Unplugged” also comes amid a firefight over federal regulators’ proposal to open up the pay TV set-top box market to more competition. Comcast, AT&T ( T ) and others object to the Federal Communications Commission’s set-top box proposal . They’ve charged that it might favor Google. The FCC says that only pay TV subscribers will gain access to programming, and that copyright protections will be preserved. Google, critics say, aims to swap its own advertising for the local ads sold by cable TV companies. Fox, Disney, CBS and Time Warner ( TWX ) have objected to the FCC proposal. According to the Bloomberg “Unplugged” report, YouTube has overhauled its technical architecture for the live product, slated to arrive as soon as 2017. Google last month introduced YouTube Red, which costs $10 monthly. It features movies, original content and other fare. Fox, Comcast-NBCU and CBS agreed to provide YouTube Red with content, while Disney did not. Hulu competes with  Netflix ( NFLX ) and  Amazon.com ( AMZN ) in the subscription video-on-demand sector. Dish Network ( DISH ) offers Sling TV, and has been gaining more content partners, including Fox.

What’s In A Multiple?

What’s a company worth? Seasoned investors know that finding the answer to that question is more art than science. One way to do so is from the bottom up, to calculate a firm’s intrinsic value using a discounted cash flow methodology. The other is to come at the question from the top down, by using a relative valuation approach via market multiples. While there are many types of multiples, each reflects the market’s evaluation of a company’s expected operational performance, and can be used to cut across times, sectors, and markets. Investor expectations about future revenue growth and profitability both play a key role in driving multiples. Investors obviously prefer high levels of both. But if there’s only one to be had, which combination do investors value more highly? Superior growth and low profitability? Or lower growth and high profitability? Credit Suisse recently analyzed the performance and multiples of companies with market capitalizations of more than $1 billion (excluding financial firms and utilities) between 2004 and 2015, to find out. Not surprisingly, the bank found that companies with above-median projected growth in revenue and above-median projected profitability traded at an 11.5x EV/EBITDA multiple, compared to just 7.5x for firms with below-median estimates for future revenue growth and profitability. (For reference, the median projected revenue growth was 5.4 percent and the median profitability was 6.5 percent cash flow return on investment.) But back to the question of revenue growth versus profitability. It turns out that firms with below-median forecasted growth but above-median projected profitability earned higher EV/EBITDA multiples (10.2x) than faster-growing but less profitable companies (8.7x). Furthermore, increases in expected profitability had more of an effect on valuations than did an increase in expected sales. Regardless of whether a company is expected to grow above or below the market median, if it manages to improve profitability above median levels, the effect is dramatic – an additional 2.7 times enterprise value relative to the company’s forward cash flows. That was more than twice the effect that improving revenue growth – an additional 1.2 times EV/EBITDA – awarded to those companies that managed to climb into above-median revenue growth territory. Those that were able to vault over the median in both categories saw multiples rise by 4x EV/EBITDA. In short, growth matters more when you combined it with superior return on capital. Source: Credit Suisse HOLT Corporate Advisory It’s interesting to note that the current preference for profitability over growth is a relatively recent phenomenon. Between 2004 and 2007, companies with above-average revenue growth expectations traded at higher valuations than those with high profit expectations. During the financial crisis, there was no clear pattern to investor preferences, but high-profitability companies began to deliver higher premiums in 2012. One possible rationale for the shift: Over the past decade, it’s been easier to keep returns on capital up than to produce drastic increases in sales. Fewer than one-third (29 percent) of companies that produced above-average revenue growth between 2004 and 2009 did the same between 2010 and 2015, while nearly two-thirds (64 percent) of companies that were highly profitable in the first five-year period remained so in the second. Investors, in other words, can be fickle. So how should that affect executive decision-making? For executives making resource allocation decisions, it’s clear that both profitability and growth matter. But understanding exactly what drives investor sentiment about a company is important not only in choosing between competing strategies – those promising faster growth or superior profitability (or, in an ideal world, both) – but also what to buy and how to buy it. Knowing how expectations of future growth and profitability drive valuations can help companies decide on the right price to pay for potential targets as well as secondary decisions, such as whether equity or cash purchases make more sense. In other words, multiples matter for more than just bragging rights. Original Post