Tag Archives: alternative

Materials ETFs Surge On Dow Chemical, DuPont Chemistry

The latest merger talks between chemical giants Dow Chemical (NYSE: DOW ) and DuPont (NYSE: DD ) might provide a fresh lease of life to the long-ailing material sector. This is especially true as total earnings from the basic material sector were down 18.8% on 214.4% lower revenues as of December 4. The potential merger is rumored to be worth about $130 billion and split the business of the new entity into three new, per sources , namely material sciences, specialty products and agrochemicals. As of December 9, Dow had a market cap of $66.01 billion, while DuPont had a market cap of $65.28 billion. The news was brought to light by The Wall Street Journal . However, there is no assurance of the merger and talks could even disintegrate. If at all the deal is cracked, it would require regulatory clearances in several countries, per Reuters. No comment was made by either of the concerned entities. Both firms are striving to cut their underperforming assets and are gradually shifting to the high-growth areas. In the latest concluded third quarter, Dow Chemical maintained its streak of earnings beat for eight successive quarters. Strong performance by the Plastics segment backed by a lower cost of raw materials like oil and natural gas drove this outperformance. Dow Chemical also raised its quarterly dividend by 10% to 46 cents, which is the highest in the company’s history, reflecting its core strength. However, Dow’s farm chemicals and seeds unit is reeling under pressure for about a year. On the other hand, DuPont beat earnings estimate on cost containment, but its revenues and profits slipped on a strong dollar as the company is heavily exposed to international markets and a soft agriculture business due to soft demand for crop protection products, per Reuters. In such a situation, joining forces would be a win-win case as the duo can cash in on each other’s strength. CNBC estimated a cost synergy of $3 billion from the likely merger. As soon as the news became viral, Dow and DuPont shares climbed about 11.9% each on elevated trading volumes. Plus, Dow Shares advanced about 0.6% after hours of December 9, while DuPont shares returned about 0.1%. Dow shares rose on 4.3 times the regular volume, while DuPont rose on 3.8 times the daily volume. Dow Chemical has a Zacks Rank #2 (Buy) and has a Value score of ‘B’ and a Growth score of ‘A’ despite hailing from a sector which is in the bottom 25% in the Zacks universe. DuPont has a Zacks Rank #3 (Hold). Solid price performance by these two chemical bellwethers led to a rally in material ETFs that are heavily invested in these two stocks. Though these funds have an unfavorable Zacks ETF Rank of 4 or’ Sell’ rating, they gained in the range of 2.1% to 3.3% on December 9 and are on investors’ radar for the weeks ahead. Materials Select Sector SPDR (NYSEARCA: XLB ) The most popular material ETF follows the Materials Select Sector Index. This fund manages about $2.18 billion in its asset base and trades in heavy volume of around 7.5 million. The ETF charges 14 bps in fees per year from investors. In total, the fund holds about 30 securities in its basket with DOW and DD taking the top two spots, with over 11% allocation each. In terms of industrial exposure, chemicals dominates the portfolio with three-fourth share, while ‘metals and mining’ and ‘containers and packaging’ round off the top three positions. XLB is off about 6.4% so far this year (as of December 9, 2015) but rose over 3% post the news. iShares U.S. Basic Materials ETF (NYSEARCA: IYM ) This ETF tracks the Dow Jones U.S. Basic Materials Index and holds 53 stocks in its basket. The fund has AUM of $353 million and charges 43 bps in fees and expenses. Volume is good as it exchanges around 106,000 shares a day. DOW and DD occupy the top two positions in the basket, with over 11% of assets each. The product is heavily skewed toward the chemical segment, as it makes up for more than three-fourths of the portfolio while steel, ‘forestry and paper’, ‘metals and mining’ receive minor allocations to IYM. The fund is down 10.7% year to date (as of December 9, 2015), but jumped over 3.3% in the key trading session. Vanguard Materials ETF (NYSEARCA: VAW ) This fund has amassed about $1.1 billion in its asset base and offers exposure to 120 stocks by tracking the MSCI U.S. Investable Market Materials 25/50 Index. The ETF has 0.12% in expense ratio. Here, DOW and DD are the top two firms accounting for nearly 8% share each. Chemicals make up for nearly 70% of assets, while ‘container and packaging’ and steel also make a nice mix in the portfolio. The fund is down 8.9% in the year-to-date frame (as of December 9, 2015), but added over 2.1% following the merger news. Fidelity MSCI Materials Index ETF (NYSEARCA: FMAT ) This fund provides exposure to more than 120 materials stocks with AUM of $68.8 million. This is done by tracking the MSCI USA IMI Materials Index. Here too, DOW and DD are the top two firms with nearly 8% allocation. Chemicals accounts for 69.7% share, while ‘container and packaging’, and ‘metals and mining’ round off the top three spots with double-digit exposure each. The ETF has 0.12% in expense ratio. The fund was up about 2.3% on December 9 but has lost 8.8% so far this year. Original post .

Weiss Funds Launches Alternative Balanced Risk Fund

By DailyAlts Staff Weiss Funds launched the Weiss Alternative Balanced Risk Fund (MUTF: WEISX ) on December 1. The fund’s objective is to pursue returns with moderate volatility and reduced correlation to traditional asset classes, such as stocks and bonds. The fund’s “balanced risk” allocation strategy consists of: A long-only portfolio of stocks (“the equity component”); A long-only portfolio of debt securities (“the bond component”); and A diversified, multi-strategy long/short portfolio of stocks, bonds, and/or derivatives (“the long/short component”). The Weiss Alternative Balanced Risk Fund’s equity component will generally invest in U.S. large- and mid-cap stocks and is designed to approximately track the stock market as a whole. The fund’s fixed-income holdings, including those in the bond and long/short components, will target weighted average maturity of 9 years, and will consist of only highly-rated securities. Portfolio managers Jordi Visser, Charles S. Crow IV, and Edward Olanow are responsible for the day-to-day management of the fund. Mr. Visser is President and CEO at Weiss and oversees the investment management process. Mr. Crow is responsible for the fund’s quantitative methodologies, and he and Mr. Olanow are in charge of trading. Together, the managers allocate across the fund’s three components according to the expected contributions to overall portfolio risk for each. In the words of the prospectus, these allocations can “fluctuate widely.” Currently, the Weiss Alternative Balanced Risk Fund is available in I ( WEISX ) and K (MUTF: WEIKX ) classes, with respective net-expense ratios of 3.33% and 3.23%. A and C class shares, with respective net-expense ratios of 3.58% and 4.23%, are listed in the fund’s prospectus but are not yet available for purchase. The minimum initial purchase levels for I and K shares are $250,000 and $2 million, respectively. A and C shares, when available, will have a minimum initial purchase of $5,000. For more information, visit the fund’s web page .

No Winter Cheer For Natural Gas ETFs?

Broad commodities have gone off the deep end on sluggish trends with the energy market rout deserving a special mention. Among the issues wrecking havoc on the energy market, rising supplies and falling demand on global growth worries are primary. In such a situation, the Saudi-led OPEC’s decision of not cutting production and even scrapping the regular production limit to save their market share sent oil and other energy-based commodities into a tailspin. In such a scenario, the only hope for the natural gas market was the Arctic Chills, which gives a fresh lease of life to this commodity every winter. The cold snap boosts electricity demand across the region putting natural gas in focus. In fact, in 2014, the Polar Vortex caused natural gas prices to jump over 50%. As almost 50% of Americans use natural gas for heating purposes, withdrawals in natural gas supplies push up the commodity’s prices. The latest weekly inventory release from the U.S. Energy Department also gives the same cues. Natural gas supplies have seen a bigger than expected decline following the season’s first withdrawal. Stockpiles fell by 53 billion cubic feet (Bcf) for the week ended Nov 27, 2015, higher than the guided range (of a 46-50 Bcf draw). The decrease was also higher than both last year’s drop of 42 Bcf and the 5-year (2010-2014) average decline of 48 Bcf. Still, broad-based energy market worries and the possibility of a warmer weather this winter (due to El Nino) did not let natural gas prices enjoy the drawdown in supplies. Oil lost about 10% since the OPEC meeting. Plus, predictions that warmer weather might go into late December – key heating period also dampened investor mood. Energy commodities have now slipped to a more than six-year low. In fact, January 2016 might not imitate the previous two comparable same months due to a protracted and stronger El Nino, which causes weather disruptions in many regions around the world. The effect of El Nino includes drought in some regions and flooding in others due to abnormal warming of the Pacific Ocean. As per Weather Services International, El Niño is expected to cause below-normal temperatures across the southern Plains and into the Southwest, while above-normal temperatures will likely prevail in the eastern and northern parts of the U.S. This weather pattern would result in lower heating demand in the northern hemisphere this winter. WSI also predicted gas-weighted heating degree days to tally about 3,600, suggesting 10% less demand than the year-ago winter. ETF Impact As a result, an ETF tracking the natural gas futures – T he United States Natural Gas ETF (NYSEARCA: UNG ) – has lost about 45% so far this year and was off 16.4% in the last one month (as of December 8, 2015). So investors can avoid these natural gas ETFs in the near term (see all Energy ETFs here). UNG in Focus Investors seeking direct exposure to natural gas, a key fuel source for power plants, may find UNG an attractive option. It is the most popular ETF, having amassed about $478 million in assets. The product looks to track the changes in percentage terms of the price of natural gas futures contracts that are traded on NYMEX. The fund takes positions in the near month futures contracts on expiry and rolls over to the next month futures contracts. As the prices of the next month futures contracts exceed that of the near month futures contracts (also called “contango”), the fund loses on rolling. Hence, UNG is vulnerable to the prolonged period of contango. At present, the fund holds two contracts namely NYMEX Natural Gas NG Jan16 and ICE Natural Gas LD1 H Jan16. The fund charges 60 bps in fees. iPath Dow Jones-UBS Natural Gas ETN (NYSEARCA: GAZ ) This is an ETN option for natural gas investors. It delivers returns through an unleveraged investment in the natural gas futures contract plus the rate of interest on specified T-Bills. The product follows the Dow Jones-UBS Natural Gas Total Return Sub-Index. The note is less popular with AUM of $4.4 million. It is a high cost choice, charging 75 bps in annual fees. GAZ is down 77% in the year-to-date frame and lost about 33% in the last one month (As of December 8, 2015). United States 12-Month Natural Gas ETF (NYSEARCA: UNL ) This product seeks to spread out exposure across the futures curve in order to mitigate contango, a huge problem in the natural gas ETF market. It is done by tracking the average of the prices of 12 contracts on natural gas traded on the NYMEX, including the near month to expire (except when the near month is within two weeks of expiration) and the contracts for the following 11 months, for a total of 12 consecutive contracts. It has amassed just $12.6 million in its asset base and charges 75 bps in fees per year from investors. UNL is down 32.4% so far this year and was off 8.7% in the last one month. Original Post