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Coffee Prices Crumbling: What Is The ETF Impact?

We certainly enjoy sipping a warm cup of coffee to start the day but when it comes to green unroasted coffee, traders and farmers have no reason to rejoice. This is because their prices are down about 36% in the past one year (as of October 26, 2015) and is currently trading near its two-year low. Meanwhile, the December coffee contract, on the Inter Continental Exchange (ICE) Futures U.S. exchange, is down 41.7% in the last one year. There are three factors that added to the long rout in the coffee market. First is the depreciation of the Brazilian real against the dollar. The real was already under pressure due to rising inflation, an investment-grade rating downgrade by Standard and Poor’s and fears of economic recession. After a short respite at the beginning of this month, the real started depreciating again against the greenback amid growing concerns of a budget deficit (excluding interest payments) and other political woes. A weak real encourages exports of the greenback priced coffee from Brazil – the world’s largest producer – as farmers try to capture higher profits. This will lead to an oversupply in the global market and hurt prices. The second factor is the forecast of excessive rainfall in Brazil’s top coffee-growing state, Minas Gerais. Weather forecasts indicated monsoon rains in fall and the winter and normal rains during the crucial stage of pod development from mid-December to early February. This has erased fears of drought in the region – a primary factor that had caused a surge in coffee prices in early 2014 – and increased the possibility of a longer-than-expected crop season. Lastly, the move by the Columbian government to lower the benchmark on the quality of beans deemed fit for exports could add to the supply glut in the global market. The threat of a surplus production looms large despite the possibility of dry weather due to El Niño in the coffee-growing regions. The battering in coffee prices had an adverse impact on the funds tracking the coffee market. Below we highlight two ETNs that experienced more than a 4% fall in the past five days and more than a 40% slide in the past one year (as of October 26, 2015). iPath Dow Jones-UBS Coffee ETN (NYSEARCA: JO ) This ETN tracks the Dow Jones-UBS Coffee Subindex Total Return, providing the returns that are available through an investment in the futures contracts on the commodity of coffee. The note has garnered nearly $108 million in assets and trades in a solid volume of 167,000 shares on average. The product is expensive with 75 bps in annual fees. The note was down nearly 5% in the last five days and about 48% in the past one year. It has a Zacks ETF Rank #3 (Hold) with a High risk outlook. iPath Pure Beta Coffee ETN (NYSEARCA: CAFE ) This ETN follows the Barclays Capital Coffee Pure Beta TR Index, providing returns that are available through an investment in the futures contracts in the coffee markets. The index consists of a single futures contract but it has a unique roll structure which selects contracts using the Pure Beta Series 2 Methodology. CAFE is quite overlooked as it has gathered only $5 million in AUM and is thinly traded with an average volume of roughly 7,000 shares. This note also charges 75 bps in annual fees and lost 4% in the past five days and 44% in the last one year. It also carries a Zacks ETF Rank #3 with a High risk outlook. Original Post

Material ETFs Up On Dow Chemical, DuPont Earnings Beat

We are in the middle of the earnings season, and the materials sector is seemingly tempering the overall Q3 growth picture after energy. This is especially true as total earnings from 60.9% of the sector’s total market capitalization reported so far are down 26.8% on 21% revenue decline. Despite the earnings weakness, the sector is showing impressive performance, having gained an average 1.76% (average price difference between a day before and after the earnings announcement of a stock), per the Zacks Earnings Trend . In particular, Dow Chemical (NYSE: DOW ) and DuPont (NYSE: DD ) led the rally in the sector as both companies beat on their earnings. However, revenues remained weak and missed our estimates. DOW Earnings in Focus The largest U.S. chemical maker continued its streak of earnings beat for the eight consecutive quarter. Earnings per share came in at 82 cents, easily trumping the Zacks Consensus Estimate of 68 cents and improving from 72 cents earned a year ago. Healthy earnings were credited to the incredible performance by the Performance Plastics segment due to lower cost of raw materials like oil and natural gas. Revenues dropped 16% year over year to $12.04 billion and missed our estimate of $12.25 billion. EBITDA margin expanded 370 bps to 20%, representing the best third-quarter margin since 2005 even as a strong dollar took a toll on revenues. The company remained committed to cost reduction and efficiency programs that are likely to boost margins and shareholders returns in the coming quarters. It is selectively spinning off or selling its underperforming assets and gradually shifting to high-growth markets such as construction, packaging and automotive. Dow Chemical raised its quarterly dividend by 10% to 46 cents, taking the annualized dividend to $1.84 per share, which is the highest in the company’s history. This new dividend is payable on January 29 to shareholders of record on December 31. Driven by a solid earnings beat, shares of Dow Chemical has risen 8.2% to date post its earnings announcement on October 22. DD Earnings in Focus While DuPont crushed our earnings estimate due to cost-reduction initiatives, revenues and profits tumbled on a strong dollar, a soft agriculture business and weakness in emerging markets. The world’s second-largest seed maker reported earnings per share of 13 cents, which beat the Zacks Consensus Estimate by 3 cents but deteriorated from 39 cents from the year-ago quarter. Total revenue slipped 17% year over year to $4.9 billion and fell short of our $5.2 billion estimate. Cost reductions from operational redesign contributed 10 cents to third-quarter earnings and are expected to add 40 cents per share to the full-year bottom line. The action will further save $1.3 billion in annual costs by 2016, a year ahead of the earlier expectation, and an additional $1.6 billion by 2017 end. With its cost-cutting initiatives, the chemicals and seed producer maintained its 2015 earnings per share guidance of roughly $2.75, which was below the Zacks Consensus Estimate of $2.93 at the time of earnings release. It expects currency headwinds to dilute full-year earnings by 72 cents per share. Following the earnings announcement on October 27, DD shares climbed nearly 5% over the past two days. ETFs in Focus Solid price performance of these two chemical titans has 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 have gained over 3.5% in the past five days 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 $2.1 billion in its asset base and trades in heavy volume of around 6.1 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 nearly 11% allocation each. In terms of industrial exposure, chemicals dominates the portfolio with three-fourth share while metals & mining and containers & packaging round off the top three positions. iShares U.S. Basic Materials ETF (NYSEARCA: IYM ) This ETF tracks the Dow Jones U.S. Basic Materials Index and holds 54 stocks in its basket. The fund has AUM of $361 million and charges 43 bps in fees and expenses. Volume is good as it exchanges around 106,000 shares in hand a day. DOW and DD occupy the top two positions in the basket, with over 10% 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 & paper, metals & mining receive minor allocations. Vanguard Materials ETF (NYSEARCA: VAW ) This fund has amassed about $1 billion in its asset base and offers exposure to 121 stocks by tracking the MSCI US Investable Market Materials 25/50 Index. The ETF has 0.12% in expense ratio while volume is moderate at 75,000 shares. Here, DOW and DD are the top two firms accounting for nearly 6% share each. Chemicals make up for nearly 70% of assets while container & packaging and steel also make a nice mix in the portfolio. Fidelity MSCI Materials Index ETF (NYSEARCA: FMAT ) This fund provides exposure to 122 materials stocks with AUM of $51.1 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 & packaging, and metals & mining round off the top three spots with double-digit exposure each. The ETF has 0.12% in expense ratio while volume is moderate at 80,000 shares a day. Original Post

Rate Hike Coming In December? Financial ETFs And Stocks To Buy

As expected, the Fed kept the short-term interest rates steady at its two-day FOMC meeting concluded on October 28 but hinted at a December lift-off. The Fed stated that it will “assess progress toward its goals of maximum employment and 2% annual inflation” in determining whether to increase the interest rates for the first time in almost a decade at its next meeting on December 15-16. The central bank downplayed its previous expectations of global market turbulence as potential restraints to economic activity and inflation. Instead, it cited that recent headwinds are fading with substantial positive developments seen in the global economy and financial market lately. In particular, the Chinese economy is showing signs of stabilization on the back of better-than-expected GDP growth data and another rate cut while the Japanese and European central banks are taking additional stimulus measures to revive their economies. Apart from improving global fundamentals, the U.S. economy is expanding at a moderate pace and the unemployment rate remained steady at 5.1% despite the slowing pace of job growth. Household spending and business investments have increased at solid rates in recent months while the housing sector is on track for a recovery. Adding to the strength is the diminishing underutilization of labor resources. Immediately following the Fed comments, the odds of a December rate hike increased substantially to 47% from 34%. Given this, the financial sector seems to be a good bet, as it will be a major beneficiary of a rising interest rates environment. This is because the steepening yield curve would bolster profits for banks, insurance companies, discount brokerage firms and asset managers. Accordingly, we have highlighted three ETFs and stocks that are expected to see smooth trading in the next couple of months and lead the market higher since the December Fed rate hike possibility is back on the table. Top Financial ETFs While there are a number of ETFs in this corner of the market having a solid Zacks ETF Rank of 2 or ‘Buy’ rating, we have highlighted those that provide broad exposure across various industries within the segment. Financial Select Sector SPDR Fund (NYSEARCA: XLF ) This is by far the most popular financial ETF in the space with AUM of $17.8 billion and an average daily volume of over 35.8 million shares. The fund follows the Financial Select Sector Index, holding 90 stocks in its basket. It is heavily concentrated on the top three firms – Berkshire Hathaway (NYSE: BRK.A ) (NYSE: BRK.B ), Wells Fargo (NYSE: WFC ) and JPMorgan Chase (NYSE: JPM ) – which collectively make up for one-fourth of the portfolio while other firms hold less than 6% share. In terms of industrial exposure, banks take the top spot at 36.1% while insurance, REITs, capital markets and diversified financial services make up for double-digit exposure each. The fund charges 14 bps in annual fees and has added 0.2% in the year-to-date time frame. Vanguard Financials ETF (NYSEARCA: VFH ) This fund manages nearly $3.2 billion in asset base and provides exposure to a basket of 562 stocks by tracking the MSCI US Investable Market Financials 25/50 Index. The product sees solid volume of around 459,000 shares and charges 12 bps in annual fees. It is pretty well spread across each component as none of these holds more than 6.8% of assets. Bank accounts for more than one-third of the portfolio, followed by REITs (21%) and insurance (18%). The fund gained 1.6% since the start of the year. iShares U.S. Financials ETF (NYSEARCA: IYF ) This product follows the Dow Jones U.S. Financials Index and holds 289 stocks in its basket, which is pretty spread out across components with none holding more than 6.44% of assets. Banks take the top spot at 31% from an industrial look while diversified financial and real estate round off the top three spots with 24.6% and 21.3% share, respectively. IYF has amassed $1.5 billion in its asset base and trades in a good daily volume of about 471,000 shares per day on average. It charges an annual fee of 43 bps from investors and is up nearly 2% so far this year. Top Financial Stocks For stocks, we have chosen three top picks using our Zacks Stock Screener that fits our three criteria: stock Zacks Rank #1 (Strong Buy) or #2 (Buy), Growth Style Score of ‘A’ or ‘B’, and Industry Rank in the top 45%. Here are the three recommended stocks. SunTrust Banks Inc. (NYSE: STI ) Based in Atlanta, Georgia, SunTrust Banks is one of the nation’s largest and strongest financial holding companies providing a wide range of services to meet the financial needs of its growing customer base. Zacks Rank: #2 Growth Style Score: B Industry Rank: Top 42% eHealth Inc. (NASDAQ: EHTH ) Based in Mountain View, California, eHealth offers online health insurance services in the United States and China. The company’s ecommerce platform organizes and presents health insurance information that enables individuals, families and small businesses to research, analyze, compare and purchase a range of health insurance plans. Zacks Rank: #2 Growth Style Score: A Industry Rank: Top 14% Universal Insurance Holdings Inc. (NYSE: UVE ) Based in Fort Lauderdale, Florida, Universal Insurance offers an array of property and casualty insurance products via its subsidiary companies. Zacks Rank: #1 Growth Style Score: A Industry Rank: Top 24% Original Post