Category Archives: stocks

3 High Yield ETFs That Must Be On Your Radar

The high yield landscape has been a difficult one to navigate over the last year. The pernicious selling in commodities combined with a rocky road for stocks has led to sliding prices in junk bonds, master limited partnerships, and mortgage REITs. These asset classes have been pilloried for luring in yield-seeking investors, only to have the rug pulled out from under them as credit conditions deteriorated. Hopefully an important lesson has been learned – the higher the yield, the higher the risk of capital invested. Those that were burned the worst may be taking the tact of avoiding these sectors altogether . However, monitoring exchange-traded funds that track high yield indexes can be a useful endeavor. They can often provide insight into underlying stock market or debt dynamics as well as serve up trading opportunities showing relative value characteristics. Let’s delve into some of the most important high yield ETFs that should be on your radar. iShares iBoxx High Yield Corporate Bond ETF (NYSEARCA: HYG ) HYG is the largest high yield bond ETF with $16.7 billion in total assets. This passively managed index fund owns nearly 1,000 corporate bonds of companies with below-investment grade credit ratings. These types of fixed-income instruments are often referred to as “junk bonds” because of their lower quality credit fundamentals. Investors who own a basket of junk bonds like HYG are nominally compensated for the higher risk by receiving a much higher yield than Treasuries or investment-grade corporate bonds. HYG currently has a 30-day SEC yield of 6.96% and income is paid monthly to shareholders. A peek at the chart below shows how HYG broke below its 200-day moving average nearly nine months ago and has been in a persistent down-trend ever since. This ETF was down over 20% from high to low, but managed to claw its way back from the abyss during the February and March rally in risk assets. The important question now is whether HYG is consolidating for another push higher or is it getting ready to rollover once again? The most bullish scenario would be a tight range of consolidation followed by a confirmed breakout to new recovery highs above the downward sloping 200-day moving average. This would likely need to coincide with further strength in broad stock market indices such as the SPDR S&P 500 ETF (NYSEARCA: SPY ). If we start to see SPY and other stock market bellwethers roll over again, then it could easily lead to a retest of the February lows for HYG. Many investors believe in the adage that “credit leads equities”. As a result, these two asset classes will likely experience a similar fate through the remainder of 2016. Alerian MLP ETF (NYSEARCA: AMLP ) Another well-known proxy of income and credit risk that is closely tied to the commodity markets are master limited partnerships (MLPs). AMLP tracks an index of the 25 largest and most liquid MLPs. These companies provide infrastructure, storage, and pipeline use for large oil and gas companies in the energy sector. The unique tax structure of MLPs allows them to pass on a large percentage of their profits to shareholders in the form of dividends. Thus, these stocks are often prized for their above-average yields. AMLP sports a yield of 11.28% based on its most recent quarterly dividend and current share price. This ETF has experienced a decline similar to junk-bond related indexes, which has been exacerbated by the downtrend in oil and natural gas prices. Similar to oil, this fund is off its lows for the year, but has been unable to regain positive territory for 2016. I believe that this index will continue to demonstrate a high correlation with the energy markets over the next several years. Another factor to the MLP story will be credit conditions , as many of these companies rely heavily on access to debt markets and other funding sources. Keep these factors in mind if you are considering investing in this ETF. It may be a long road ahead to regain sustainable momentum and volatility will likely be a key risk. iShares Mortgage Real Estate Capped ETF (NYSEARCA: REM ) If you are aggressive enough to seek out funds offering a double digit yield, then you have likely heard of REM. This ETF tracks an index of 38 mortgage REITs in the residential and commercial lending sectors. Mortgage REITs are characterized by their lofty dividends as a result of embedded leverage and low borrowing costs. REM is a very focused strategy that is arranged in a market-cap weighted methodology. As a result, the top holdings make up a significant portion of the underlying asset base. This includes significant exposure to Annaly Capital Management (NYSE: NLY ) and American Capital Agency REIT (NASDAQ: AGNC ). REM currently has a 30-day SEC yield of 12.30% and income is paid quarterly to shareholders. It’s easy to see how investors can be lured into mortgage REITs by the tremendous yields. However, the volatility and risk that is associated with maintaining that dividend is often overshadowed. This ETF has also traced a path similar to high yield bonds over the last 12 months and has just recently experienced a sharp rebound. Future price action in this ETF is likely going to be governed by a combination of factors including real estate fundamentals, credit trends, and overall appetite for risk in aggressive income assets. Keep in mind that ETFs with high sensitivity to credit risk are best purchased during periods of duress in order to capitalize on their relative value to high quality fixed-income. Furthermore, these tools will require heightened vigilance in order to take advantage of their volatile nature. 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: 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.

Hello Barbie And Security Not The Perfect Couple, Claims Lawsuit

Hello Barbie says, “Privacy breach” to plaintiffs in a lawsuit that’s testing the boundaries of security in the Internet of Things age. Mattel ( MAT ), the maker of the interactive doll, is among those being sued on grounds that the doll picks up and records the voices of the children who play with the doll, voices that it uploads and stores without parental consent. The unusual case was filed in December in Los Angeles County Superior Court. Other defendants include San Francisco-based ToyTalk, which partnered with Mattel to produce the doll; and Los Angeles-based Samet Privacy, which does business as the kidSAFE Seal Program that lists, reviews and certifies interactive and online products as compliant with the federal Children’s Online Privacy Protection Act, or COPPA. “The problem is parents and children don’t really know that ToyTalk is going to use their child’s conversation for data mining and other purposes not fully disclosed,” said Steve Teppler of the Abbott Law Group in Jacksonville, Fla. “They say they’ll protect the child of the purchasing parent’s identity, but what about friends’ children?” Abbott Law Group represents the plaintiffs in the case: Ashley Archer-Hayes of Vista, Calif., who bought the doll, and her minor child; and Charity Johnson of Chula Vista, Calif., and her minor child “on behalf of all others similarly situated,” states the suit. The children of Johnson and Archer-Hayes are friends, and they played with Hello Barbie at a Barbie-themed birthday party late last year, the suit says. The suit is one of many dealing with the untapped online frontier that is the Internet of Things, referring to products used in everyday life that are increasingly connected with the Internet and that store information online. These products range from cars to home security systems. On its website, kidSAFE describes Hello Barbie as “the first fashion doll that can have a two-way conversation with girls. The doll features speech recognition and progressive learning features that enable girls to engage with Barbie like never before. Hello Barbie features more than 8,000 lines of dialogue, inspires imagination and storytelling, plays more than 20 interactive games, and tells jokes.” Although Hello Barbie must be registered to activate, and the registration process includes information relating to privacy, plaintiffs argue that Hello Barbie will pick up voices of a child’s friends, and those voices will be uploaded and stored without parental knowledge, let alone consent. Could Hello Barbie Owners Erase The Data? Interactive toys like Hello Barbie are expected to proliferate. How can parents stay informed about the privacy policies of each toy? “That’s the problem,” Teppler said. “What are your choices? You could make the doll only perform with the registered user, but that’s not the way the toy is designed. To comply with COPPA, you’d have to have a waiver for the user of the child’s voice. We don’t know what ToyTalk’s affiliates do with this information.” Teppler raised the possibility that information stored on ToyTalk computers could become discoverable in litigation, for example, if kids start talking about their parents’ activities. “It’s an interesting evidentiary issue,” said Teppler. “The terms of service say the purchasing parents can access the recordings for two years, but can they get them erased? You could deactivate your account, but they would still have the recordings.” Mattel would not make someone available for an interview, but spokesman Alex Clark said in an email, “While we do not comment on pending litigation, I can tell you Mattel is committed to ensuring every product we make meets or exceeds all applicable laws and regulations. In addition, we are confident in the robust data security technology used in our Hello Barbie product.” For its part, kidSAFE has rated Hello Barbie as “COPPA certified.” Ben Warlick, an attorney with Morris, Manning and Martin in Atlanta, says that plaintiffs have an uphill battle to recovery because Mattel and other defendants don’t control how a child uses the toy. “Plaintiffs pointed out suggestions for what Mattel could have done, including notifying parents that the toy should not be used outside the presence of other nonregistered children,” Warlick said. “But I do not think it’s a realistic argument to tell a child not to play with a toy around other kids; that’s hard to do.” Warlick, who co-chairs his firm’s Internet of Things practice group, says that the Hello Barbie case is likely just one of the first of many that will test the bounds of privacy protection in the Internet of Things age. “We started the new practice group because we’re finding that universal notions of privacy and security don’t necessarily translate to the Internet of Things,” he said. Warlick says that an argument can be made that interactive devices should have higher security and encryption features, “but many little battery-powered devices like weather or pet monitors may not have the processing power to run encryption or robust security measures.” Similar suits have been filed against ADP home security systems and Vizio smart TV sets. “It’s a real issue for product developers in this area,” Warlick said, “about what is the right level of security and encryption for these devices.”

Cisco Targets Cybersecurity For Productivity, Not Just Defense

Cisco Systems ( CSCO ) wants organizational leaders to understand that improving their competitive advantage, not just responding to fear, should inspire their cybersecurity strategy. Fearful tales, however, are hard to ignore. One recent example: Virtually all IT systems of the largest civilian hospital chain in the nation’s capital, including the MedConnect electronic health records system installed by Cerner ( CERN ), were shut down to prevent the spread of a computer virus in late March. Baltimore-based MedStar Health on March 30 called it a “despicable attack.” The disruption affected thousands of employees and many more patients, and restoration of the systems took days. “Within 48 hours of the malware penetration,” the three main clinical systems were “moving to full restoration,” said MedStar. A Cerner spokeswoman told IBD: “We continue to work closely with our client (MedStar) as the broader IT framework is brought back online.” But a week later, MedStar was still working on it: “Our partner Symantec ( SYMC ) … has been on the ground from the start of the situation and has been conducting a thorough forensic analysis,” MedStar said in an update last week, acknowledging it “has worked closely with the FBI throughout this situation.” The company again assured “that we have no evidence of any compromise of patient or associate data.” The Baltimore Sun reported the hospital’s hackers demanded ransom be paid in Bitcoin to unlock the hospital’s maliciously encrypted data. What a pain. What a danger. What a motivation for every organization to get its cybersecurity in order, as if another example were needed. “We’re very familiar with it,” James Mobley, a Cisco security services vice president, told IBD in an interview last week, acknowledging MedStar is a Cisco client. Cisco: Security-Led Firms More Prepared For Cloud, IoT Cisco, the No. 1 maker of computer networking gear and with a growing business in security, plans early next month to release a security survey of business executives. The company says productivity, growth and competitive advantage ought to be motivating cybersecurity decisions, not just fear. Its report, originally set for release early Tuesday, is titled “Nearly One-Third of Businesses View Cybersecurity Primarily as a Growth Enabler.” Silicon Valley-based Cisco, which briefed IBD and other media on the report, found that only a bit more than 30% of 1,014 corporate directors, vice presidents and C-level executives surveyed online “view cybersecurity primarily as an enabler of growth tied to digitization. “Security-led digitizers feel more prepared than others to address cybersecurity challenges in three key digital technology areas: analytics, Internet of Things and cloud computing,” Cisco said. “As a result, these organizations are far more confident about incorporating digital technologies into their business processes and offerings. “In fact, 44% of executives surveyed consider cybersecurity to be a competitive advantage for their organizations.” Cisco said cybersecurity will drive about $7.6 trillion of digital value over the next decade, with $5.8 trillion resulting from “cybersecurity’s enablement of digital use cases that instigate innovation and growth.” Is this marketing pablum or a legitimate call to action? Cisco has been under pressure to grow as fast as some of the smaller networking and software security firms with which it competes or partners. In its fiscal 2015 ended July 25, Cisco’s overall revenue rose only 4% to $49.16 billion, but its security services sales alone grew 12% to $1.75 billion. Medical IT leader Cerner grew 2015 revenue 30% to $4.42 billion, in part by selling P2Sentinnel and P2Sentinel Security as a Service (P2SaaS) products as a “security, auditing and compliance solution for tracking end-user access to confidential patient data in Mellennium, as well as other non-Cerner clinical solutions and infrastructure systems.” Palo Alto Networks ( PANW ), which specializes in security software, grew sales 55% last year. Rival Check Point Software ( CHKP ) saw revenue rise 9%. Symantec, MedStar’s prime cybersecurity contractor, reported pro forma revenue fell 6.3% year over year for its fiscal Q3 ended Jan. 1, adjusting for the sale of its Veritas business. Cisco’s survey data could serve as grist for its hungry marketing-sales machine, but it also provides a heads-up to companies that there’s more to cybersecurity than preventing hacker disruption. When a company is confident it can prevent disruption, this enables minds to focus on everything else. “It’s critically important that we stop thinking about security as a defense-centric approach that is sold by fear, uncertainty and doubt,” Mike Dahn, head of data security for payments firm Square ( SQ ), said in Cisco’s survey results press release. “We need to start thinking about security as an enablement of innovation that actually helps the business go forward.” Cisco stock touched a nearly one-year low of 22.46 in early February, but it has been on an upswing recently. Cisco closed Monday at 27.62, down a fraction. In the meantime, cybersecurity continues to be top of mind. By executive order, the U.S. Commerce Department will host its first Commission on Enhancing National Cybersecurity meeting on Thursday in Washington, D.C.