Tag Archives: apple
How I’ll Use What I Learned From My Premature Buy Of SVXY
Summary August 25 — a special day. On Seeking Alpha I urged being long SVXY and CBOE first publicly exposed its 9-day time horizon Volatility Index, accompanying the 30-day index. Market-makers and prop traders use VIX-based securities in their hedging. The longer the time to expiration of the contracts involved, the larger the uncertainty, the higher the cost. CBOE insiders had watched VXST, the new index, behavior privately for months before its release. Its shorter time horizon can advantage arbitrages and reduce capital haircuts. It’s embrace by other investment professionals and by the public was anticipated, but not certain. It turned out to have a dramatic effect on the established, longer-time index. On October 8th trading will begin in options on the VXST, further elaborating the shorter-term VIX-index securities inter-relationships web. Then we will have better expectations information. Meanwhile, tail wagging the dog? The CBOE has had since August 25 to see how options on the VXST should behave. No doubt they are conducting internal training sessions to encourage rational member trading activities. I have to believe they also learned from market reactions since August 25. Figure 1 shows how hedger expectations for the longer-term VIX index changed at that point. Figure 1 (used with permission) The VIX index is, excuse the expression, volatile. The forecast ranges for the index in Figure 1 are derived in the same way as our market-maker forecast reports on stocks and ETFs. The only difference is that the hedging in index derivatives is done in markets not easily accessible by individual investors, at a scale not inviting to personal portfolios. It should be evident that prior to late August this year the 30-day volatility index had a fairly reliable bottom around 12, with upper expectations reaching into the area of 20. Oscillations in that range provided upside excursions of as much as 75% {(20-12) / 12} and might occur in a week or two. Playing that game adroitly (flawlessly) for a year or two could earn a comfortable retirement for generations of the family. But since August 25, there’s a new sheriff in Dodge. Whether he has brought more or less law to town is not yet evident. Madam CBOE’s establishment appears to have taken on a new vibrancy in the company of VXST. What it has meant for the ProShares Short VIX Short-Term Futures ETF (NYSEARCA: SVXY ) is alluded to in Figure 2. Figure 2 (click to enlarge) My guess is that there’ll be lots of moderately-restrained fun and adventure in town until the court comes to session, starting on October 8th. Then we’ll see what his honor Mr. Market has to say in judgment. Conclusion Stay tuned for intra-day thrills and spills while those with short-time horizons have their fun, adventures, greed and fear. Meanwhile, those with longer visions (out to the next calendar quarter at least) think there’s already lots more upside than downside among portfolio investment candidates. Check out yesterday’s market profile in Figure 3. Figure 3 (provided with permission) Pictured here are over 2500 stocks and ETFs’ price range forecast balances between upside and downside prospects. Normally the distribution would be centered around a Range Index of 40 instead of 21 (40% of the range to the downside, 60% up) with no or few screaming bargains on the left. Market outlook implication: fear has taken over, but may be fatiguing for lack of downside opportunity. If so, SVXY could again be attractive – but we’ll wait for October to decide. Share this article with a colleague
Worried About Looming Rate Hike? Try This Ex-US REIT ETF
The Federal Reserve Chair, Janet Yellen’s recent indication of a possible rate hike has possibly made investors putting their capital on real estate sector or real estate investment trust (REIT) in the U.S. jittery. This is because a rise in interest rates leads to a high borrowing cost for the REITs on which they are highly dependent. Moreover, high-dividend yielding stocks like REITs usually become less attractive when treasury yields rise amid rising interest rate. It is for this reason investors should definitely take a look at the SPDR MSCI International Real Estate Currency Hedged ETF (NYSEARCA: HREX ) , which focuses on the ex-U.S. REIT stocks. The fund is launched by State Street Global Advisors. HREX in Details HREX tracks the performance of the MSCI World ex USA IMI Core Real Estate Capped 100% Hedged to USD Index, which is a free float-adjusted market capitalization-weighted index, aimed to measure the performance of stocks in the MSCI World ex USA IMI Index. In order to be a part of the index, a company needs to generate at least 75% of its revenues from real estate activities related to core property types, including industrial, office, retail, residential, health care, hotel and resort, data centers, and storage. Since the fund’s investment is denominated in foreign currencies, it is susceptible to fluctuations in exchange rates between such currencies and the U.S. dollar. However, the Index applies a hedging methodology against such fluctuations by employing a one-month forward rate against the total value of the non-U.S. denominated securities in the Index. The fund replicates this hedging technique by entering into foreign currency forward contracts. The ETF comprises 261 stocks with top holdings including Unibail-Rodamco SE ( OTCPK:UNRDY ) (4.77%), Sun Hung Kai Properties Limited ( OTCPK:SUHJY ) (4.64%) and Mitsubishi Estate Company Limited ( OTCPK:MITEY ) (3.01%). The top 10 holdings constitute around 31% of the fund. Considering country-wise allocation, Japan, U.K. and Hong Kong occupy the top three positions with shares of 19.50%, 14.85% and 14.79%, respectively. The fund charges 48 bps in fees from investors per year (see all Real Estate ETFs here). How Does it Fit in a Portfolio? REITs are required to distribute at least 90% of its annual taxable income to shareholders annually in the form of dividends. Since the fund invests in ex-U.S. real estate sector, it definitely shields the investors enjoying the high dividend yield from the dangers of an impending rate hike in the U.S. Further, strengthening of dollar against most of the major currencies is attracting investments in the non-U.S. real estate sector, particularly hotels, office buildings and retail complexes. In addition, along with ongoing urbanization and fast-growing middle class in the emerging economies, easing of restrictions on foreign direct investments is leading to increased flow of international capital into REITs in these economies. In the first half of 2015, foreign investment turnover in Asia-Pacific escalated 9% year-on-year to $13 billion . All this bode well for the fund as investors can tap the booming real estate sector in the non-U.S. countries by investing in it (read: A Comprehensive Guide to REIT ETFs ). ETF Competition HREX definitely earns a point over most of the ex-U.S. real estate ETFs because it is currency hedged. Still, there are a number of such ETFs that worth to mention. A couple of top global real estate ETF includes the SPDR Dow Jones International Real Estate ETF (NYSEARCA: RWX ) and the Vanguard Global ex-U.S. Real Estate ETF (NASDAQ: VNQI ) . RWX tracks the Dow Jones Global ex-U.S. Real Estate Securities Index and focuses on publicly traded real estate securities in developed and emerging countries excluding the U.S. It has an asset base of $4.7 billion and focuses heavily on Japan, U.K. and Australia. On the other hand, VNQI tracks the S&P Global ex-U.S. Property Index and focuses on REITs in emerging markets and developed markets outside the U.S. It has amassed nearly $3 billion in assets and gives high preference to Asia Pacific countries. However, VNQI looks attractive than RWX on both the cost and yield fronts. RWX charges 59 bps in fees and has a dividend yield of 3.24% while VNQI charges 24 bps in fees and has a robust dividend yield of 4.45%. Link to the original article on Zacks.com