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Should You Bet On Casino ETFs After Mixed Earnings?

The overall casino industry is caught in a spiralling slowdown for quite some time now. While Las Vegas was a drag earlier and Macau was an outperformer, the backdrop took a turn in the last few quarters, making Macau a culprit. Notably, Macau – a Chinese territory – is one of the largest casino gaming destinations in the world. Credit crunch issues in mainland China, check on illegal money transfers especially in VIP gaming, constraints on visa and last but not the least, a broad-based slowdown in China were responsible for this drop-off (read: Will Troubles in Macau Spoil Gaming ETF Investments? ). Though the situation has improved, as evident from mixed Q3 earnings from casino bellwethers, there is still room for improvement. Despite the ‘golden week’, gross gaming revenues in Macau plummeted 28.4% year over year to $2.51 billion in October. In China, the golden week is a seven-day long holiday period starting from October 1, when people party and splurge. However, the current decline, which marks the seventeenth successive monthly and fourteenth consecutive double-digit decline, was what analysts had expected. The outright negative mood has weighed on the casino gaming ETF Market Vectors Gaming ETF (NYSEARCA: BJK ), which is down 11.5% so far this year (as of November 4, 2015). However, mixed earnings gave a considerable push to the fund in the last one month, when it added about 5.7%. Given this, investors might be interested in the casino earnings details and the potential impact on the casino ETF ahead. Q3 Earnings in Detail MGM Resorts International (NYSE: MGM ) posted third-quarter 2015 earnings of 15 cents per share on October 27. Earnings surpassed the Zacks Consensus Estimate of 3 cents and reversed the year-ago loss of 2 cents. Revenues were down 8.2% to $2.28 billon and fell short of the Zacks Consensus Estimate by 0.6%. The downside reflects a significant decline in revenues from MGM China. VIP gambling continues to be a drag in China. However, net revenue at wholly owned domestic resorts was up 3.7%. Casino revenues from wholly owned domestic resorts went up 4%. Along with this, MGM Resorts announced a plan to create a controlled real estate investment trust (REIT) that will be named MGM Growth Properties LLC. The transaction is expected to be completed in the first quarter of 2016. Thanks to the earnings beat plus restructuring effort, MGM shares gained about 10.3% in the last five trading sessions (as of November 4, 2015). On October 21, Las Vegas Sands Corp. (NYSE: LVS ) fell shy of the Zacks Consensus Estimate on revenues but surpassed the same on earnings. Cost containment aided earnings. Also, the company declared a 10.8% increase in dividend for 2016. Earnings of 66 cents per share fell 21% year over year hurt by an 18% decline in revenues. Earnings beat our estimate by 4.8% while revenues of $2.89 billion fell short of the Zacks Consensus Estimate of $2.97 billion. Gross gaming revenues in Macau declined in double digits in all three months of the quarter. LVS stock was up about 6.1% since it reported earnings (as of November 4, 2015). On October 15, Wynn Resorts Ltd. (NASDAQ: WYNN ) posted mixed third-quarter 2015 results. Adjusted earnings of 86 cents dropped 56% and missed the Zacks Consensus Estimate by 14.7%. Revenues of $996.3 million missed the consensus mark of $1.03 billion by 3.4% and slipped 27% year over year, owing to a choppy performance both Macau and Las Vegas. WYNN resorts lost 1.2% since reporting earnings (as of November 4, 2015) (see all the Consumer Discretionary ETFs here ). Casino ETF: Buy on the Value? Investors should note that casino stocks are extremely cheap in valuation after undergoing a steep sell-off. The fund is presently trading at $34.04 per share which is 24.6% down from its 52-week high. Moreover, though Macau revenues are still lackluster, in-line data and signs of stability in companies’ earnings point to a revival, albeit slow. Notably, all three companies mentioned above have found a place in the top 10 holdings of this $27.6 million fund with a considerable share. Las Vegas Sands and Sands China together have about 14% exposure in BJK. MGM Resorts International has 4% weight in the fund while Wynn Resorts Ltd accounts for more than 6% of BJK. The product charges 65 bps in fees. The fund lost over 20% in the last one year (as of November 4, 2015). Link to the original post on Zacks.com

Insurance ETFs Shining Despite Dull Q3 Earnings

The Q3 earnings season hasn’t been all that encouraging for the financial sector as total earnings for 89.1% of the sector’s total market capitalization are up only 1.7% on 2.3% revenue decline. This is worse than Q2 and the four-quarter average earnings growth of 8.1% and 6.2%, respectively, on 0.8% and 1.3% revenue growth (read: Guide to the 7 Most Popular Financial ETFs ). Earnings surprises were also unimpressive with 53.7% of the companies beating earnings estimates and 42.7% of them beating on top lines. In particular, earnings from the insurance industry have been weaker with most players failing to beat or meet either our earnings or revenue estimates. MetLife (NYSE: MET ), Prudential Financial (NYSE: PRU ) and American International (NYSE: AIG ) missed our estimate on the earnings front while Chubb Corp (NYSE: CB ) an Aflac Inc. (NYSE: AFL ) lagged revenues. However, Travelers (NYSE: TRV ) and Allstate (NYSE: ALL ) surpassed our estimates on both the top and bottom lines. Insurance Earnings in Focus Earnings at one of the leading property and casualty insurer – Chubb – strongly outpaced our estimate by 20.30% and improved 9% from the year-ago quarter. However, revenues of $3.47 billion missed the Zacks Consensus Estimate of $3.51 billion. Another property and casualty insurer and an industry bellwether, Allstate , topped the Zacks Consensus Estimate by 20 cents with earnings of $1.52, which improved 9.3% from the year-ago quarter. Revenues rose 1% year over year to $9.03 billion and edged past the Zacks Consensus Estimate of $7.98 billion (see: all the Financial ETFs here ). Aflac , the seller of supplement health insurance, posted earnings per share of $1.56, beating our estimate by eight cents and improving 3.3% year over year. However, revenues declined 12.1% year over year to $5.00 billion and fell shy of our estimate of $5.11 billion. Earnings of $2.93 at personal property and casualty insurer, Travelers trumped the Zacks Consensus Estimate by 72 cents and improved 12.3% from the year-ago earnings. Revenues slid 1.3% year over year to $6.67 billion but surpassed our estimate of $6.63 billion. However, MetLife , the U.S. life insurer behemoth, reported disappointing earnings of 62 cents per share, lagging the Zacks Consensus Estimate of $1.47 and declining 62% from the year-ago earnings. However, revenues rose 0.3% year over year to $17.97 billion and were well ahead of our estimate of $17.47 billion. On the other hand, PRU , the second-largest U.S. life insurer, also missed our earnings estimate by three cents improved 9.1% year over year. Revenues declined 5.6% year over year to $11.1 billion but were on par with our estimate. The largest commercial insurer in the U.S. and Canada, AIG dampened investor’s mood with a huge earnings miss of 49.5% and year-over year decline of 56%. However, revenues of $13.16 billion came above our estimate of $13.06 billion. ETFs in Focus Despite unsatisfactory earnings, insurance ETFs have moved up from a one-month look buoyed up by speculations of an interest rate hike. This is because the sector is a clear beneficiary of a rising interest rate environment. Investors looking to gain exposure to this corner of the market segment in a diversified way may consider the following ETFs. SPDR S&P Insurance ETF (NYSEARCA: KIE ) This fund follows the S&P Insurance Select Industry Index and offers an equal weight exposure to 51 stocks, suggesting no concentration risk. None of the securities holds more than 2.28% of total assets. More than one-third of the portfolio is allocated to the property and casualty insurance sector while life & health insurance accounts for another one-fourth share. The ETF has managed $625 million in its asset base and trades in a moderate average daily volume of over 107,000 shares. The product has an expense ratio of 0.35% and gained nearly 4.6 over the past one month. It has a Zacks ETF Rank of 3 or ‘Hold’ rating with a Medium risk outlook. iShares U.S. Insurance ETF (NYSEARCA: IAK ) With AUM of $130.9 million, this product tracks the Dow Jones U.S. Select Insurance Index and charges 43 bps in annual fees. Volume is light, trading in roughly 29,000 shares per day. In total, the fund holds 63 securities in its basket with the largest allocation going to American International at 13.6%, closely followed by Metlife at 9.5%. Other firms hold less than 6.5% of assets. For an industry look, property & casualty insurance accounts for 42.2% share while life & health insurance and multiline insurance round off the top three with double-digit exposure each. IAK is up 6.5% from a one-month look and has a Zacks ETF Rank of 2 or ‘Buy’ rating with a Medium risk outlook. PowerShares KBW Insurance Portfolio ETF (NYSEARCA: KBWI ) This fund tracks the KBW Nasdaq Insurance Index and holds 23 securities in its basket. Each firm holds less than 9% share each with TRV, PRU and MET occupying the top three spots. While insurance makes up for 95% of the portfolio, consumer finance and banks take the remainder. The product has amassed about $14.4 million in AUM while volume is paltry at about 1,400 shares. The ETF charges an annual fee of 35 bps and added 6.5% in the trailing one-month period. It has a Zacks ETF Rank of 3 with a High risk outlook. Link to the original post on Zacks.com

Lipper Closed-End Fund Summary: October 2015

By Tom Roseen For the first month in seven equity and fixed income CEFs posted plus-side performance on average on both a NAV basis (+5.97% and +1.07%, respectively for October) and market basis (+7.50% and +3.41%). Year to date equity CEFs remained in the red for the fourth straight month, down 4.41%, while fixed income CEFs moved more solidly into the black, returning 1.54% on average on a NAV basis for the same period. For the month many of the major broad-based indices chalked up their best one-month return since October 2011, with the Dow Jones Industrial Average Price Only Index and the S&P 500 Composite Price Only Index returning 8.47% and 8.30%, respectively. Beleaguered Shanghai Price Only Composite and Xetra DAX posted a couple of the strongest returns in the global markets, returning 11.50% and 11.15%, respectively, for October as investors cheered easy-money news from both the Peoples Bank of China (PBOC) and the European Central Bank (ECB). Despite a weaker-than-expected jobs report at the beginning of the month, mixed economic data throughout the month, and a roller-coaster ride of corporate earnings reports, volatility-as measured by the CBOE Volatility Index (VIX)-fell 38% over the month to 15, remaining below the long-term average of 20. Investors appeared to shrug off a disappointing nonfarm payrolls report that showed the U.S. had added a lower-than-expected 142,000 jobs for September-below the consensus-expected 200,000-as investors perhaps realized the Federal Open Market Committee was probably not going to raise interest rates this year. As commodity prices rallied mid-month, the S&P 500 posted is strongest weekly gain for 2015. And while the Fed minutes’ discussing global risks kept the hawks in check, many felt the downside risk was on the mend. Ignoring a slight decline in industrial production for September, consumer sentiment rose in October for the first month in four. A surprise cut in interest rates by the PBOC, better-than expected earnings reports from a few heavyweight tech firms (Amazon (NASDAQ: AMZN ), Microsoft (NASDAQ: MSFT ), and Alphabet (NASDAQ: GOOG )), and hints from the ECB that further easing might be in the cards pushed stocks to a fourth consecutive week of plus-side performance and sent investors into risker assets for the month and out of some recently popular safe-haven plays. Battered energy stocks got a shot in the arm with the rise in commodity prices and on news the central bank in the second largest economy in the world had cut interest rates, sending Lipper’s domestic equity CEFs macro-group (+6.48%) to the top of the equity CEFs universe for the first month since August 2014. World equity CEFs (+5.46%) and mixed-asset CEFs (+5.03%) also fared well during the month. Treasury yields rose at all maturity levels along the curve after the Fed left the door open for possible rate increases later this year, with the largest increase witnessed in the six-month yield and the five-year yield, 15 bps each to 0.23% and 1.52%, respectively. For the first month in four all three fixed income CEF macro-groups posted plus-side returns, with world bond CEFs (+3.29%) leading the way, followed by domestic taxable bond CEFs (+1.19%) and municipal bond CEFs (+0.68%) as investors put some risk back in their portfolios. For October the median discount of all CEFs narrowed 157 bps to 9.58%-slightly worse than the 12-month moving average discount (9.50%). Equity CEFs’ median discount narrowed 91 bps to 11.29%, while fixed income CEFs’ median discount narrowed 160 bps to 8.41%. For the month 82% of all funds’ discounts or premiums improved, while 16% worsened.