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Where The Smart Money Is Investing

When it comes to investing, there are no bonus points for originality. Returns are returns, regardless of whether the trade was your idea or a hot tip from your brother-in-law. The good news is that the SEC makes available far better trading moves than those of your brother-in-law. Large institutional investors are required to disclose their portfolio holdings at least quarterly, giving the investing public a chance to look over their shoulders. You don’t want to mindlessly ape another investor’s moves because you have no way of knowing their rationale for buying or selling. But it never hurts to see how your own portfolio stacks up against some of the best in the business. So with that said, let’s take a look at the asset allocations of three managers that have left the competition in the dust over their long careers. I’ll start with Baupost Capital’s Seth Klarman, a man whose reputation in value investor circles makes him close to demigod status. Klarman runs a multi-billion-dollar portfolio with just 40 stocks in it. That’s how confident he is in his picks. So, what is Mr. Klarman betting on? Try energy. Lots of energy. 39% of his portfolio was invested in energy as of quarter end with nearly half of that amount in a single stock. It’s worth noting here that Klarman isn’t betting on the price of oil rising or on “Big Oil” stocks in general. His bet is a targeted one on liquefied natural gas exportation. But it goes to show that, even in a full-blown crisis, there can be pockets of opportunity. Next, let’s take a look at Dan Loeb, principal of hedge fund Third Point. Loeb is not a passive investor. He’s a notorious activist investor known for taking large stakes in companies and then agitating for major change. You and I don’t have that kind of power, but we can still take a peek over his shoulder and see where he sees the most value. Today, it’s in healthcare. About 40% of his portfolio is currently invested in health and biotech stocks. I don’t have the stomach to invest 40% of my portfolio in the volatile biotech sector. But my good friend Ben Benoy is something of an expert on the matter. And finally, we get to Mohnish Pabrai , a well-respected value investor and the author of one of my favorite books on investing, The Dhandho Investor . Pabrai runs the most concentrated portfolio I have ever seen among large managers. He has just seven stocks in his portfolio, and global auto stocks make up nearly 70% of the total. Longer term, autos are a bad bet. Demographic trends suggest that, at least in the US and Europe, auto sales are looking at a major reduction in demand. But any stock can be an interesting short-term opportunity if priced right, and Pabrai is currently showing a handsome profit on the trade. So, what’s the takeaway here? Buy energy, biotech and auto stocks? Not exactly. For all we know, these superinvestors might dump these stocks tomorrow… if they haven’t already (we typically get the ownership data on a 45-day lag). No, the takeaway is that it’s fine to bet big on a high-conviction trade if your system or research tells you to. You should have an exit strategy, of course, and you should be prepared to sell if your investing thesis fails to pan out. But don’t be afraid to bet big when the odds are in your favor. This article first appeared on Sizemore Insights as Where the Smart Money is Investing. Disclaimer: This article is for informational purposes only and should not be considered specific investment advice or as a solicitation to buy or sell any securities. Sizemore Capital personnel and clients will often have an interest in the securities mentioned. There is risk in any investment in traded securities, and all Sizemore Capital investment strategies have the possibility of loss. Past performance is no guarantee of future results. Original Post

Beat U.S. Manufacturing Woes With These Industrial ETFs

The brisk momentum in the U.S. economy seemed to have taken a brief halt to start December as the economy’s manufacturing activity for November shrunk to below a six-year low. Contraction in manufacturing activity came after three years. Almost an eight-year high greenback and steep spending cuts in the energy sector to resist the stubbornly low oil prices were held responsible for this dropdown. However, other economic readings and solid auto sales confirmed that the economy is well on its growth path. The Institute for Supply Management (ISM) reported that the benchmark of domestic factory output declined to 48.6 from 50.1 in October. The data missed economists’ expectations of 50.5. Notably, a reading of below 50 indicates a contraction in activity. The measure for new orders slipped to 48.9, more than a three-year low level. The prices paid index dropped to 35.5 from 39 and fell shy of the expected 40. However, construction spending rose 1% to a seasonally adjusted $1.11 trillion rate, which is the highest level in almost eight years. Market Impact Since the offhand data sparked off concerns regarding the economic health of the U.S. to some extent, the dollar fell from its multi-year high level and PowerShares DB US Dollar Bullish ETF (NYSEARCA: UUP ) lost 0.5% on the day. The little confusion offered the gold ETF SPDR Gold Shares (NYSEARCA: GLD ) a short-lived respite as the fund added about 0.4% on the day. The benchmark U.S. 10-year Treasury note yield dropped to a one-month low of 2.15% as of December 1, 2015, giving iShares 10-20 Year Treasury Bond ETF (NYSEARCA: TLH ) a 0.7% nudge. The possibility of a slower rate hike trajectory (if the Fed shoots the lift-off this month) and a slimming manufacturing activity at the threshold of a rising rate environment left investors edgy. However, along with several other analysts, even we believe that this latest blow to ISM data is more the result of the soaring greenback, the one-and-a-half year long oil price rout that handicapped the entire energy sector and lower demand from abroad due to global growth issues. The underlying current in the U.S. economy seems pretty decent. ETFs to Watch Investors should also note that the stocks were fairly steady after the weak industrial data. Still, some investors may want to take a closer look at the industrial ETFs. Though industrial ETFs have underperformed so far this year, they’ve held their head high in the key trading session. Below, we highlight four ETFs which are still strong bets in an apparently-lagging sector. First Trust RBA American Industrial Renaissance ETF (NASDAQ: AIRR ) This fund provides exposure to the small and mid cap stocks in the industrial and community banking sectors by tracking the Richard Bernstein Advisors American Industrial Renaissance Index. The index first eliminates the stocks from the Russell 2500 Index that aren’t connected to manufacturing or related infrastructure and banking. Then it eliminates companies with non-U.S. sales greater than or equal to 25% and positive 12-month forward earnings estimates. For the banking component, only banks in traditional manufacturing hubs will be included in the holdings list. The approach results in a basket of 37 securities, which are widely spread out across components with none holding more than 4.35% of assets. The fund is often overlooked by investors as depicted by its AUM of $44.9 million and average daily volume of about 19,000 shares. The Zacks Rank #3 (Hold) fund charges 70 bps in fees per year and has lost 1.3% so far this year, but was up 0.7% yesterday. ARK Industrial Innovation ETF (NYSEARCA: ARKQ ) This is an actively-managed ETF seeking long-term capital appreciation by investing in companies that benefit from the development of new products or services, technological improvements and advancements in scientific research. Autonomous vehicle is the top industry in the fund with 33% exposure followed by robotics (31%) and 3D printing (23%). This approach results in a basket of about 40 stocks. The product has accumulated $13.8 million in its asset base and charges 95 bps in fees per year. The fund is down 0.5% in the year-to-date frame but added over 0.2% on December 1, 2015. iShares U.S. Industrials ETF (NYSEARCA: IYJ ) IYJ tracks the Dow Jones U.S. Industrials Index to provide exposure to 212 U.S. companies that produce goods used in construction and manufacturing. The fund is heavy on General Electric (NYSE: GE ) (10.7%). The ETF manages an asset base of $605 million and trades in an average volume of 82,000 shares. The fund is slightly expensive with 43 basis points as fees. It rose 0.4% on December 1, 2015 and is up over 0.5% so far this year. The fund has a Zacks ETF Rank #2 (Buy). Vanguard Industrials ETF (NYSEARCA: VIS ) This fund follows the MSCI US IMI Industrials 25/50 index and holds about 345 securities in its basket. The fund manages nearly $2 billion in its asset base and charges only 12 bps in annual fees. Volume is moderate as it exchanges roughly 105,000 shares a day on average. Aerospace has the top sector exposure with 23.3% weight followed by industrial conglomerates (19.6%). The Zacks Rank #3 product has lost 1.6% so far this year (as of December 1, 2015) but advanced 0.6% in the key trading session. Original Post

Brazil Stocks, ETFs Ignore Slump: Rally On Rousseff Issues

Recession is not new to the Brazilian economy as for the last three quarters the economy has not shown any growth. The Brazilian economy contracted 1.7% in the third quarter of this year, preceded by 2.1% GDP decline in Q2 and 0.7% contraction in Q1. The persistent decline flared up the country’s worst recession in 25 years . Year over year, GDP is off 4.5%. In the first nine months of 2015, the Brazilian economy shortened 3.2%, the largest decline ever, per trading economics . Investment declined for the ninth successive quarter and household spending dropped for the third straight quarter, making the recession acute. A persistent slump in commodity prices has badly hit the commodity-rich Brazilian economy. If this was not enough, China – one of the key trading partners of Brazil – is suffering from a prolonged manufacturing slowdown leading to further woes in Brazilian exports. This once-growing emerging nation – a pillar of the BRIC bloc – has been buckling under dual pressure of slower growth and heightened inflation for long. Inflation in Brazil reached a 12-year high in October and hovered around the 10% level – way above the central bank’s target of 6.5%. The Brazilian currency is down over 30% against the greenback so far this year and is likely to head toward decline once the Fed shoots the lift-off this month. The budget deficit widened the most in at least two decade. Joblessness soared to 8.9% in Brazil during Q3, up from 6.8% a year ago. This left consumers cash-parched and the household spending was down 4.5% in the quarter. Political corruption is also rampant in Brazil. The key interest rate at Brazil is at a nine-year high of 14.25%. In addition, a stagflation-like situation (where measures adopted to tame inflation will halt growth and vice versa) is prohibiting the central bank to hike the rate further to contain inflation. All in all, things are so chaotic, both at home and outside, that any easy way out of this vicious cycle of recession appears impossible. Is There Any Hope for the Market? Quite expectedly, the outrageous economic backdrop called for impeachment proceedings against President Dilma Rousseff on December 2. Charges against her include the violation of Brazil’s fiscal laws and the mishandling of government finances to pursue her re-election campaign in 2014, as per the Capital Economics report. Since Dilma Rousseff’s public support rating is now at record-low, Brazilian stocks rose on December 2. Since last year, we have seen that any news against Rousseff turns out favorable for the stocks as her administration is known to implement excessive red tape in the private sector. The investing world is now betting on an expulsion of the president, though this will take months if it all materializes. Moreover, UBS analysts commented that the political surroundings could be better off in 2016 to promote growth-oriented reforms and hence took a neutral stance on Brazilian stocks and sovereign debt (despite Brazil’s credit rating was slashed to junk in September) and even the currency real. However, bearish views are there as well. Experts like JP Morgan believe that no matter what happens to Rousseff, this impeachment process will delay government work and ‘paralyze the government’s fiscal agenda during the next month’ as the spotlight will be entirely on the political movement now, which might translate into a deeper recession. Whatever the case, the markets cheered the expected end of the prolonged political deadlock and pushed up these Brazilian stocks and ETFs, though we are unsure about the sustainability of these gains. Stocks to Watch Itaú Unibanco Holding S.A. (NYSE: ITUB ) The company functions through commercial bank, retail, consumer credit retail and wholesale bank segments in Brazil and overseas. As financial stocks moved up, this Zacks Rank #3 (Hold) banking giant advanced over 6% in the last two days (as of December 3, 2015). The stock has a Momentum score of ‘A’. Petróleo Brasileiro S.A. – Petrobras (NYSE: PBR.A ) The largest publicly-traded Latin American oil company has long been fraught with corruption scandal. Its high-profile officials were allegedly involved in multi-billion dollar laundering and bribery. Also, the Brazilian government, the company’s majority shareholder, has a history of political interference in Petrobras’ affairs. Thus a probe into Rousseff’s government sprung sweet surprises for this company. PBR has a Zacks Rank #3 and added 8.6% in the last two days. PBR has a Zacks Value score of ‘A’. Centrais Elétricas Brasileiras S.A. – Eletrobras (NYSE: EBR ) The company funcations in the power utility sector and together with its subsidiaries, generates, and distributes electricity in Brazil. In the last two days, the stock advanced about 12.6%. ETFs to Watch The ultra-popular large-cap MSCI Brazil Index Fund (NYSEARCA: EWZ ) added about 5.9% in the last two days (as of December 3, 2015) on blows against Rousseff and also advanced about 0.1% after hours. However, the fund is down 34.6% so far this year. EWZ has a Zacks ETF Rank #4 (Sell) with a High risk outlook. However, due to slumping activities in Brazil, it is wiser to stay away from small-cap ETFs like Market Vectors Brazil Small-Cap ETF (NYSEARCA: BRF ) and iShares MSCI Brazil Small Cap Index (NYSEARCA: EWZS ) as small-cap stocks are tied more to domestic economic activities. Still BRF and EWZS were up over 3.6% and 5.9% respectively in the last two days on calls for Rousseff’s impeachment. Both BRF and EWZS carry a Zacks Rank #5 (Strong Sell) and are down respectively 43.3% and 45.5% so far this year. Original Post