Tag Archives: author

The Global X Uranium ETF Is Useless For Uranium Investors Right Now

Summary URA share price doesn’t reflect uranium price development. URA is much more impacted by the overall energy sector sentiment over the last couple of months. Although uranium price increased by 9% since May, URA declined by 30% over the same time period. URA is useless for short term uranium investors and speculators right now, although it provides exposure to the uranium market for long term investors. The Global X Uranium ETF (NYSEARCA: URA ) reached a new historical low of $6.75 per share in late September. Although the share price recovered to $8.01, it is down almost 30% year-to-date. A bigger part of the decline was recorded during the June-September period when URA declined by more than 40%. The important thing is that URA experienced a significant decline while uranium prices were in a side-trend. Moreover, uranium prices have been in an uptrend since May. During this uptrend, uranium’s price increased by approximately 9%. URA’s share price declined by 30% over the same time period. Readers should note that URA doesn’t invest directly in uranium, it holds shares of uranium producers and explorers. Logic says that as uranium price grows, share prices of uranium producers and explorers should follow. But the recent developments show that this relation has been disturbed. Source: futures.tradingcharts.com The divergence between URA and uranium prices has been enormous over the last couple of months. The coefficient of correlation between the URA share price and uranium futures price for the last 5 months (May 11 – October 15) is -0.423, which is a surprisingly high level of negative correlation. The chart below shows the 10-day and 40-day moving correlations between URA and uranium prices. The chart shows that the correlation is highly unstable and that there are some long time periods of negative correlation. Moreover, the 10-day moving correlation approached extremely high levels of negative correlation close to the -1 level twice over the last 5 months. Source: Own processing, using data of Yahoo Finance and futures.tradingcharts.com The chart below shows 40-day moving correlations between URA and oil prices (represented by the United States Oil ETF (NYSEARCA: USO )), energy sector (represented by the Vanguard Energy ETF (NYSEARCA: VDE )) and S&P 500. 40 trading days equal approximately 2 calendar months. As the analysis shows, URA is strongly correlated with VDE. The moving correlation between URA and VDE is far more stable compared to URA-USO and URA-S&P 500 correlations. Especially over the last 5 months the URA-VDE correlation was very stable; it moved in the 0.8 – 1.0 range. There was much higher correlation between URA and VDE and between URA and USO than between URA and uranium prices over the last couple of months. Source: Own processing, using data of Yahoo Finance The data confirm that share prices of uranium producers are heavily impacted by the overall energy sector sentiment. The uranium prices don’t affect URA share price as much as they should. The chart below shows share price development of URA and VDE over the last three months. The similarity of the two price curves is striking. This situation will change and share prices of companies from the uranium industry and URA’s share price will start to reflect uranium price development again, but it is hard to predict when the normalization will happen. For now, the overall energy sector sentiment is the main factor affecting share prices of companies from the uranium industry. Conclusion Over the last couple of months, URA’s share price hasn’t reflected uranium market developments. There is actually a relatively high level of negative correlation between URA share price and uranium futures price. URA is much more impacted by the overall sentiment in the energy sector than by uranium prices. It means that it is useless for the uranium investors right now. If uranium prices increase, it will be reflected by share prices of uranium producers and explorers and by URA in the end, but it is questionable how long it will take for the relations to normalize once again. URA still provides exposure to the uranium market for long term investors, but it is useless for investors with short time horizon and for uranium market speculators right now.

A Pioneering Approach To Earnings Season

Summary US Q2 earnings season was one of the most volatile ever. We present Pioneering Quantitative Approach focusing on prices and not on fundamental data. Our analysis provides a guide per sector and per capitalization. ABSTRACT “Qui sait le passé peut conjecturer l’avenir”, Jacques-Bénigne Bossuet As we are just about to enter in the Q3 Earnings Season in the US, Uncia AM decided to provide you some keys to understand the Q2 Earnings Season. Bloomb erg already gave some keys: US stocks got biggest earnings bang since 2012 . This empirical study emphasizes many things: 1/ It is not worthwhile to keep equity position over the earnings: earnings releases are a lottery. As difficult as it may be for our equity analyst friends to admit (note: the author is an asset manager) , all available empirical data shows that it is impossible to predict market reaction following an earnings release. We thus need to distinguish the fundamental component of the reaction which is less unpredictable (related to turnover, EBITDA and other hard data) from the “price signal” component. The latter has always been impossible to predict, even if we take into account the released fundamental data. From a statistical perspective, the specific movement linked an the earnings release is on average null, as can be seen from the highly leptokurtic distribution of the movement. For an asset manager seeking to optimize their Sharpe Ratio, it is therefore not worth maintaining a position in the equity over the release period (assuming transaction & liquidity fees to be marginal) (click to enlarge) Source: Bloomberg, Uncia AM, Alphametry. Read the entire article in order to make your own opinion : 2/ Information Technology sector behaved properly during this session, on almost all indices. 3/ The specific Russell 2000 – related stocks moved a lot on earnings: maybe more interest of investors for UScentric names, as a consequence of fear over the USD strength and the world/Chinese macro slowdown. As the article may be a bit technical, here is a brief takeaway: On average, stocks from Nasdaq Composite Index (NASDAQ: CCMP ) exhibit a null return over earnings, but with large volatility. Therefore, it justifies the strategy to cut positions over earnings. In addition to that, we can notice that signals were slightly better on large caps vs small caps, and quite good in a sector such as Information Technology. “Weekly speaking”, we experienced a sharp positive signal on CCMP, but on a “PEAD” perspective only few comonotony between Earnings Moves and Drift Returns. On average, stocks from Russell 2000 Index (RTY) exhibit a null return over earnings, but with large volatility. Therefore, it justifies the strategy to cut positions over earnings. In addition to that, we can notice that signals were slightly better on large caps vs small caps, and quite good on a sector such as Information Technology, same things as we notice on CCMP. There are a lot more “PEAD” signals on RTY than on CCMP, meaning that as there are many companies belonging to both indices, many companies belonging only to RTY exhibit large signals. This means that investor attention was largely focused on UScentric companies. “Weekly speaking”, since the beginning of the year, we had very positive signals on RTY, but the summer was very complicated as we can see a downside candle at the beginning of August. Stocks from S&P 500 (SPX) are less volatile over earnings than those of CCMP, RTY or Nasdaq 100 (NDX). It may be explained by the average size of capitalization, but this is not sufficient as NDX average capitalization is higher (58.0 vs 50.2) is higher than SPX. We make the same notification about earnings release volatility that is not rewarded, unless capitalization criteria is not worthwhile anymore, nor sector criteria (even if we can see a positive skew for Information Technology sector). In terms of “Weekly signals”, we can notice numerous negative signals, emphasizing an overreaction of investors about bad news versus good news. We have only few data, but first of all, we can notice that stocks from Nasdaq 100 (NDX) exhibits the largest average capitalization, and the largest absolute earnings moves. For more technical readers, should you be interested in the underlying philosophy, please go ahead: METHODOLOGY Our sample takes into account earnings that occurred between 2015, June 30th and 2015, August 31st. We only focus on companies whose market capitalization exceeds $1 billion, the day before the earnings release (ER)/call (NYSE: EC ). We focus on 4 main US indices: Nasdaq Composite , Nasdaq 100 (NDX), S&P 500 (SPX) and Russell 2000 (RTY). Our method to estimate the move due to earnings release/call is the following: We assume that the Management Call lasts one hour, and that ER had occurred just before, which is the standard case (hugely often- we consider it happens all the time). Therefore, thinking as of Paris time, with 6-hours delay with New-York, we can set the following table: Table of earnings category Source: Uncia AM. We use the earnings return by getting rid off the total return index to the idiosyncratic move, assuming a beta for each stock = 1. For more information, you can refer to the original paper by the author, Post Earnings Announcement Drift, a Price Signal? [1] Important: in the following development, return always refers to relative return of the stock versus its index (total-return). NASDAQ COMPOSITE – CCMP: average capitalization (

Best And Worst Q4’15: Consumer Discretionary ETFs, Mutual Funds And Key Holdings

Summary The Consumer Discretionary sector ranks fourth in Q4’15. Based on an aggregation of ratings of 17 ETFs and 20 mutual funds. RTH is our top-rated Consumer Discretionary ETF and FSRPX is our top-rated Consumer Discretionary mutual fund. The Consumer Discretionary sector ranks fourth out of the 10 sectors as detailed in our Q4’15 Sector Ratings for ETFs and Mutual Funds report. It gets our Neutral rating, which is based on aggregation of ratings of 17 ETFs and 20 mutual funds in the Consumer Discretionary sector. See a recap of our Q3’15 Sector Ratings here . Figures 1 and 2 show the five best and worst-rated ETFs and mutual funds in the sector. Not all Consumer Discretionary sector ETFs and mutual funds are created the same. The number of holdings varies widely (from 25 to 391). This variation creates drastically different investment implications and, therefore, ratings. Investors seeking exposure to the Consumer Discretionary sector should buy the one Attractive rated ETF in Figure 1. Figure 1: ETFs with the Best & Worst Ratings – Top 5 (click to enlarge) * Best ETFs exclude ETFs with TNAs less than $100 million for inadequate liquidity. Sources: New Constructs, LLC and company filings The PowerShares Dynamic Retail Portfolio ETF (NYSEARCA: PMR ) and the U.S. Global Jets ETF (NYSEARCA: JETS ) are excluded from Figure 1 because their total net assets are below $100 million and do not meet our liquidity minimums. Figure 2: Mutual Funds with the Best & Worst Ratings – Top 5 (click to enlarge) * Best mutual funds exclude funds with TNAs less than $100 million for inadequate liquidity. Sources: New Constructs, LLC and company filings The Rydex Retailing Fund ( RYRIX , RYRAX ) and the Rydex Leisure Fund ( RYLIX , RYLAX ) are excluded from Figure 2 because their total net assets are below $100 million and do not meet our liquidity minimums. The Market Vectors Retail ETF (NYSEARCA: RTH ) is the top-rated Consumer Discretionary ETF and the Fidelity Select Retailing Portfolio (MUTF: FSRPX ) is the top-rated Consumer Discretionary mutual fund. RTH earns our Attractive rating and FSRPX earns our Neutral rating. The SPDR Homebuilders ETF (NYSEARCA: XHB ) is the worst-rated Consumer Discretionary ETF and the Rydex Series Leisure Fund (MUTF: RYLSX ) is the worst-rated Consumer Discretionary mutual fund. XHB earns our Neutral rating and RYLSX earns our Dangerous rating. 450 stocks of the 3000+ we cover are classified as Consumer Discretionary stocks. Twenty-First Century Fox, Inc. (NASDAQ: FOXA ) is one of our favorite stocks held by Consumer Discretionary ETFs and mutual funds and earns our Very Attractive rating. Over the past five years, Twenty-First Century Fox has grown its after-tax operating profit ( NOPAT ) by 5% compounded annually. Twenty-First Century Fox’s return on invested capital ( ROIC ) has risen to 10% from 8% over this same timeframe. Though content creators will always be in demand in the television/movie industry, fears about the future of television viewership have left FOXA undervalued. At its current price of $29/share, FOXA has a price to economic book value ( PEBV ) ratio of 0.9. This ratio implies that Twenty-First Century Fox’s NOPAT will permanently decline by 10%. However, if Twenty-First Century Fox can grow NOPAT by just 5% compounded annually for the next 5 years , the stock today is worth $41/share, a 41% upside. KB Home (NYSE: KBH ) is one of our least favorite stocks held by Consumer Discretionary ETFs and mutual funds and was recently featured as a Danger Zone stock . It earns our Very Dangerous rating. KB Home’s problems are twofold; declining market share/profits and overpriced shares. Despite the housing market improving since 2011, KB Home’s economic earnings have only gotten worse over this time. However, because GAAP net income does not account for off-balance sheet liabilities and equity capital, KB Home has been able to report growing GAAP EPS. The disconnect between GAAP EPS and economic earnings has left KBH overvalued. To justify its current price of $14/share KB Home’s must grow NOPAT by 18% compounded annually for 13 years . This expectation is rather optimistic given KB Home’s inability to participate in the housing recovery over the past few years, which, as we detail in our Danger Zone report, will not likely continue for much longer. Figures 3 and 4 show the rating landscape of all Consumer Discretionary ETFs and mutual funds. Figure 3: Separating the Best ETFs From the Worst ETFs (click to enlarge) Sources: New Constructs, LLC and company filings Figure 4: Separating the Best Mutual Funds From the Worst Mutual Funds (click to enlarge) Sources: New Constructs, LLC and company filings Disclosure: David Trainer and Blaine Skaggs receive no compensation to write about any specific stock, sector or theme.