Tag Archives: alternative

Up 20% In 3 Months Since My Recommendation, Sell EUO Stakes Now

The ProShares UltraShort Euro (EUO) ETF is up 20% over the three months since I recommended it, but I’m suggesting investors close their stakes here. The factors that came against the euro are about to reverse, and I see the euro gaining strength against the dollar near-term. A favorable Greece resolution is imminent in my opinion, and the European economy is steadying. The dollar is overextended versus the euro and against other currencies and should give way now, and thus the EUO ETF’s success should end here. In mid-November, I suggested investors buy the ProShares UltraShort Euro (NYSE: EUO ). Today I’m suggesting investors close the position and take the 20% profit earned over the 3 month period. I see the factors that have worked against the euro about to reverse, so sell the EUO ETF and take your gain. Holding Period Chart of EUO +20% at Seeking Alpha If you agreed with my investment thesis on the EUO ETF shared on November 19, 2014 when I suggested investors buy the ProShares UltraShort Euro , well then you have generated a 20% paper profit in the three month holding period through the February 13 close. It’s now time to close the stake, as I am anticipating the euro will strengthen against the dollar from here. My main thesis in the aforementioned report was keyed on a potential Russian rebuttal to Europe’s hand in sanctions against it. However, the curiously timed and perhaps not coincidental drop in oil prices that occurred this winter handcuffed Russia, in my opinion. It seems to have effectively kept the cash-strapped, energy based Russian Federation from acting in the manner I anticipated it might. I speculated Russia could cut off the flow of energy into Europe in the middle of winter and harm the euro’s value against the dollar. While this is still possible, the also curiously timed recently stepped up effort by European leaders to drive a peace initiative between Ukraine and the Russian backed rebels in the East of the country is serving the same purpose, again keeping Russia from acting against Europe. Importantly, in my November report, I also said that a weakening European economy and the potential for European Central Bank (ECB) extraordinary action had been serving the dollar versus the euro and should continue to add support to the dollar. This proved to be a continuing driver against the euro, assisted by the critical political developments in Greece that later followed. In essence, the Greek issue took the place of my Russian factor and drove the euro down versus the dollar, and led the ProShares UltraShort Euro up 20% over the three month period. Intensifying fear of a Greek exit from the euro-zone has been the booster of the dollar against the euro year-to-date, and affected a great deal more than just the currencies in my opinion. In the uncertainty, demand for U.S. treasuries drove U.S. interest rates down, and thus major U.S. financial sector issues in Bank of America (NYSE: BAC ), J.P. Morgan Chase (NYSE: JPM ) and others. The stronger dollar has played an important role in the fall of oil prices along with supply issues in my view. And the uncertainty around Europe and how it might affect the United States economy worked against U.S. equities this year in my view. But all this is about to change. I anticipate a favorable resolution between Greece and its European partners is imminent. The removal of the palpable fear that has gathered around this issue should serve a U.S. market rally in my opinion. Improving expectations have already begun to drive U.S. interest rates higher, and the dollar recently gave way a bit to the euro. European economic expectations are also improving in my opinion and Japan just exited recession . As the euro gains its strength back against the overextended dollar, the EUO ETF, which is a bet against the euro, should give way. Thus, while still ahead of the announcement of a Greek deal, you have time momentarily to close the investment I suggested in November. If you need a place to invest your gains from the EUO play, on the same thesis, I have recently suggested investors look to: the UDN ETF contra-dollar investment; or a short of the UUP ETF ; and a short of the iPath S&P VIX (NYSE: VXX ); or long investments in financial sector beneficiary Bank of America , which should rise on higher U.S. interest rates. Also, I’ve suggested Greek issues including the National Bank of Greece (NYSE: NBG ) and the Global X FTSE Greece 20 ETF (NYSE: GREK ). Readers may review my column for more. Disclosure: The author is long GREK, NBG, BAC. (More…) The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article. Additional disclosure: I’m short VXX and UUP.

Loan Fund Primer

Sweden is now the latest country to make headlines about extreme central bank policy to stimulate growth which creates a dilemma for Swedish people trying to save money. This highlights the need to learn about different sectors of the fixed income market and taking a multi-sector approach in your fixed income portfolio. One sector that has attracted attention and assets has been the loan market. By Roger Nusbaum, AdvisorShares Strategist Last week the Riksbank (the Swedish central bank) dropped its benchmark interest rate to -0.10 and as of earlier this week Sweden’s ten year sovereign debt was yielding 0.50%. So Sweden is now the latest country to make headlines about extreme central bank policy to stimulate growth. We will see whether this turns out to be effective policy but it creates a dilemma for Swedish people trying to save money. This is the same or similar dilemma for people in many other countries including the US and while our rates are not as low as many other countries they are low enough to be problematic; two basis points for a money market and 2% for ten year treasuries. We’ve been looking at this issue for years, making the point about the need to learn about different sectors of the fixed income market and taking a multi-sector approach in your fixed income portfolio. We’ve talked about combining sectors with higher yields and so potentially more risk with sectors with lower yields and likely less risk to get an overall yield that hopefully approaches a useful level even if not a normal level; normal based on historical interest rates. One sector that has attracted attention and assets has been the loan market. There have been traditional mutual funds offering access for a fair bit of time and in the last couple of years ETFs have been rolled out that target the sector and the asset flows have been huge, more than $5 billion for the largest fund in the group. The attraction is simple enough; yields can be in the four percent range and because of their reset feature they don’t take interest rate risk. ‘Reset feature’ means that the interest rate paid on the loans adjusts based on prevailing rates on a regular interval, usually every three months. If you look on the info page for a loan fund you’ll see a maturity of several years but you’ll also see something like average days until reset which is when the rate on a given loan will update. From quarter to quarter there may not be much change but occasionally there will. This entire mechanism reduces interest rate risk to being essentially a non-issue. The credit quality of course tends to be lower which accounts for the yields being relatively attractive. Credit risk is generally mitigated, but not completely mitigated, by accessing the space via a fund similar to high yield. I would note that accessing an individual loan is not really a possibility for individuals. The other risk to mention is liquidity risk. Loans don’t trade on a secondary market so during some sort of event that strains liquidity the funds and their holders could have a problem with short term volatility. Most of the funds have the flexibility to hold some bonds that do trade on a secondary market to help in the face of a liquidity event. Anyone interested in the space, and with the yields available it is worth learning about, should take the time to understand what their given fund will do to address this potential issue. Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More…) The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it. The author has no business relationship with any company whose stock is mentioned in this article. Additional disclosure: To the extent that this content includes references to securities, those references do not constitute an offer or solicitation to buy, sell or hold such security. AdvisorShares is a sponsor of actively managed exchange-traded funds (ETFs) and holds positions in all of its ETFs. This document should not be considered investment advice and the information contain within should not be relied upon in assessing whether or not to invest in any products mentioned. Investment in securities carries a high degree of risk which may result in investors losing all of their invested capital. Please keep in mind that a company’s past financial performance, including the performance of its share price, does not guarantee future results. To learn more about the risks with actively managed ETFs visit our website AdvisorShares.com .AdvisorShares is an SEC registered RIA, which advises to actively managed exchange traded funds (Active ETFs). The article has been written by Roger Nusbaum, AdvisorShares ETF Strategist. We are not receiving compensation for this article, and have no business relationship with any company whose stock is mentioned in this article.

Firsthand Technology Value Fund: Wide Discount, Too Much Risk

SVVC has just completed a tender offer and other changes pushed by an activist investor group. SVVC’s portfolio is now concentrated in a small number of high-risk investments. SVVC’s past successes are notable, but its venture funding approach is too risky for most. Firsthand Technology Value Fund (NASDAQ: SVVC ) can lay claim to some pretty good calls, including investing in such winners as Facebook (NASDAQ: FB ) and Twitter (NYSE: TWTR ). But with those wins behind it, the portfolio’s top holdings are no longer household names. If you like the idea of investing in emerging technology companies, perhaps you’ll like SVVC, but otherwise this is a risky investment option even with its massive discount and large trailing yield. What a difference a year makes In February 2014, SVVC’s top two holdings made up roughly 35% of the closed-end fund’s assets. Those two stocks were Facebook and Twitter. Interestingly Firsthand had started investing in Facebook in late 2011, roughly nine months before it went public. The closed-end fund, or CEF, started investing in Twitter in mid 2012, roughly a year before it went public. Those were big wins for the fund and, clearly, represented a huge chunk of assets. That’s part of the reason why Bulldog Investors, an activist hedge fund, got involved with SVVC. Bulldog essentially came in with a list of demands to reduce the fund’s wide discount. When it didn’t receive the reply it wanted, Bulldog went public with its fight. That fight came to an end in May of last year. Firsthand agreed to buy back shares, conduct a tender offer at 95% of net asset value, or NAV, and sell its stakes in Twitter and Facebook with the sale proceeds distributed to shareholders. That’s pretty much all a done deal at this point, and leaves investors with one big question: “What exactly is left behind?” For starters, the top five holdings , which account for roughly 45% of the fund, is a list of companies you’ve probably never heard of. None of them are publicly traded and Firsthand has a controlling stake in the top holding, IntraOp Medical (over 12% of SVVC’s assets). What does this mean for you? So Firsthand is a very different fund today than it was a year ago. But what does that mean for investors? First off, the 18% trailing yield, according to the Closed-End Fund Association , was related to the distribution of gains from selling Twitter and Facebook shares. That’s done. Don’t expect a repeat. Second, the 37% discount is based on estimated values for a large number of non-traded holdings. You have to ask if that discount is real, particularly since Firsthand has to value a company in which it has a controlling stake. Third, the 95% of NAV tender offer has been closed. Not surprisingly it was oversubscribed. So with that offer off the table, there’s no reason to expect Firsthand to trade higher based on a chance to get out quickly, and at a profit, via a tender offer. And there’s really no reason to think that Firsthand would switch to open-end status, which is something that often happens with funds that trade at deep discounts. For starters, Bulldog has agreed to step back from its aggressive stance – it was the logical option to push for SVVC to become an open-end fund. And then there’s the not-so-minor fact that Firsthand actually started life as an open-end fund, oddly switching to the closed-end structure in 2011. The timing of that switch actually wasn’t so odd, since it took place after the technology bust brought down both the values and unbridled enthusiasm for tech funds like this one. The “odd” thing is that an open-end fund would become closed-end, since things normally happen the other way around. Another impediment to becoming open-ended, and one of the biggest risks of the CEF, is that the fund owns a collection of securities that aren’t publicly traded. Such investments don’t play nicely with open-end funds and are, indeed, more appropriate for closed-end funds. So SVVC’s current structure as a closed-end fund is probably the right structure. That said, it doesn’t mean you should want to own a fund that invests in such holdings. Don’t buy this for the discount At the end of the day, Firsthand Technology Value Fund is an interesting story. But it isn’t a good investment option for most people. Essentially, it’s a way to invest in startups. And that business is like a power hitter that strikes out a lot, but also hits a few home runs along the way. That’s not the type of trade off most conservative investors are willing to make. So ignore the discount and the trailing yield here, and pay far more attention to what this CEF does. If you can’t stomach venture capital risk, stay away. Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More…) The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.