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Telecom ETFs To Watch After Lukewarm Earnings

This year has been rather mediocre for the telecom industry, with lukewarm results coming up amid turbulent economic conditions. The industry has emerged as an intensely contested space, where success depends largely on technical superiority, quality of services and scalability. Cut-throat pricing competition has put pressure on margins this earnings season. However, mixed results and global market concerns notwithstanding, the overall sentiment for the U.S. telecommunications industry in 2016 is positive. Telecommunications is one of the few industries to have managed to undergo rapid technological improvement even during depression. In this era of digitization and technology, the ever-growing demand for technologically superior products should see the sector through. Quite expectedly, investors will keep an eye on telecom earnings for the rest of this season to assess industry dynamics and future growth prospects, with several big names like T-Mobile US, Inc. (NASDAQ: TMUS ), Dish Network Corp. (NASDAQ: DISH ) and Cincinnati Bell Inc. (NYSE: CBB ) yet to report. Telecom Earnings in Details U.S. telecom behemoth Verizon Communications Inc. (NYSE: VZ ) reported impressive results, beating on both the top and the bottom line. Adjusted earnings per share of 89 cents beat the Zacks Consensus Estimate by a penny and year-ago earnings of 71 cents. Quarterly total revenue increased 3.2% year over year to $34,254 million, outpacing the Zacks Consensus Estimate of $34,132 million. Apart from earnings, the company was also in the news because of other developments. According to a recent Bloomberg report , Verizon has assigned its chief executive officer of its AOL unit, Tim Armstrong, a key role, exploring options to bid for the core assets of tech giant Yahoo Inc. (NASDAQ: YHOO ). However, neither company has confirmed the news as yet. Verizon has gained 11.2% since reporting earnings (as of February 11, 2016). In contrast U.S. telecom giant AT&T Inc. (NYSE: T ) reported weak financial results, wherein both the top and bottom line lagged the Zacks Consensus Estimate. AT&T’s adjusted earnings per share moved up 14.5% year over year to 63 cents, missing the Zacks Consensus Estimate by a penny. Quarterly revenue increased 22.3% year over year to $42,119 million, but missed the Zacks Consensus Estimate of $42,781 million. AT&T’s weaker-than-expected earnings were primarily attributable to disappointing postpaid wireless subscriber addition of 526,000, down a significant 38.4% year over year. The stock has gained 2.3% since reporting earnings (as of February 11, 2016). CenturyLink Inc. ‘s (NYSE: CTL ) solid quarterly performance was buoyed by increased revenues from the acceptance and recognition of Connect America Fund (CAF) phase II funds, along with strength in high-bandwidth data services and consumer strategic revenues. The telecom company’s fourth-quarter 2015 adjusted earnings per share of 80 cents surpassed the Zacks Consensus Estimate of 65 cents and were up 33.3% year over year. Quarterly total revenue of $4,476 million rose 0.9% from the prior-year quarter and surpassed the Zacks Consensus Estimate of $4,427 million. The stock climbed 11% since reporting earnings (as of February 11, 2016). ETFs in Focus Thanks to mixed results, telecom ETFs with considerable exposure to the three stocks above were all in the red in the last 10 trading sessions (as of February 11, 2016). Below, we discuss four of these that are in focus in the coming days (see all Telecommunication ETFs here ). iShares U.S. Telecommunications ETF (NYSEARCA: IYZ ) IYZ tracks investment results before fees and expenses corresponding to the price and yield performance of the Dow Jones US Select Telecommunications Index. The fund manages assets worth nearly $416.6 million and has an average trading volume of roughly 438,000 shares a day. It charges an expense ratio of 43 basis points a year. IYZ holds 25 stocks and has a concentrated approach in the top 10 holdings, with almost 63% of the asset base invested in them. Among individual holdings, top stocks in the ETF include AT&T, Verizon and CenturyLink, with asset allocation of 13.3%, 13.1% and 6.03%, respectively. The four major sectors of this ETF include Integrated Telecom, Wireless Telecom, Alternative Carriers and Communications Equipment, with asset holdings of 56.1%, 23.3%, 18.1% and 2.5%, respectively. The product lost 2.1% in the past 10 days and currently has a Zacks ETF Rank #3 (Hold) with a Medium risk outlook. Fidelity MSCI Telecommunications Services Index ETF (NYSEARCA: FCOM ) This ETF tracks investment results before fees and expenses corresponding to the performance of the MSCI USA IMI Telecommunication Services 25/50 Index. The fund manages assets worth nearly $89 million and has an average trading volume of roughly 56,000 shares a day. It charges an expense ratio of 12 basis points a year. FCOM holds 33 stocks and has a concentrated approach in the top 10 holdings, with 73.5% of the asset base invested in them. Among individual holdings, AT&T, Verizon and CenturyLink number among the top five, with asset allocation of 25.8%, 25.4% and 4.1%, respectively. Diversified Telecommunication Services and Wireless Telecommunication Services are the two major sectors of this ETF, with asset holdings of 88.2% and 11.8%, respectively. The product lost 0.5% in the past 10 days and currently has a Zacks ETF Rank #3 with a Medium risk outlook. iShares Global Telecom ETF (NYSEARCA: IXP ) This ETF tracks investment results before fees and expenses corresponding to the price and yield performance of the S&P Global 1200 Telecommunications Sector Index. The fund has nearly $356.7 million of assets under management and an average trading volume of roughly 41,000 shares a day. The fund charges an expense ratio of 47 basis points a year. IXP holds 31 stocks in its portfolio and has a concentrated approach in the top 10 holdings, with approximately 74% of the asset base invested in them. Among individual holdings, top stocks in the ETF include AT&T and Verizon, with asset allocation of 18.9% and 17.3%, respectively. Integrated Telecommunication Services, Wireless Telecommunication Services and Alternative Carriers are the three major sectors, with asset holdings of 77.5%, 21.2% and 1.2% respectively. It fell almost 0.6% in the last 10 days and currently has a Zacks ETF Rank #3 (Hold) with a Medium risk outlook. Vanguard Telecom Services ETF (NYSEARCA: VOX ) This ETF seeks to track the performance corresponding to the benchmark MSCI US Investable Market Telecommunication Services 25/50 Index. It has assets under management of nearly $1 billion and an average trading volume of roughly 96,000 shares a day. The fund charges an expense ratio of 10 basis points a year. VOX holds 31 stocks in its portfolio and has a concentrated approach in the top 10 holdings, with 71.1% of the asset base invested in them. Among individual holdings, top stocks in the ETF are AT&T and Verizon, with a combined share of almost 50%. Integrated Telecommunication Services, Alternative Carriers and Wireless Telecommunication Services are the three major sectors, with asset holdings of 63.1%, 20.8% and 16.1%, respectively. The fund lost 0.7% in the last 10 days and currently has a Zacks ETF Rank #3 (Hold) with a Medium risk outlook. Original Post

The #1 Secret Behind George Soros’s Investment Success

Although now long retired, the octogenarian George Soros is widely considered the greatest speculator of all time. Other investors such as Ray Dalio may have made more money for their investors than Soros. Activists such as Carl Icahn may have briefly exceeded Soros’s net worth. But Soros will always remain the man who “broke the Bank of England” in 1992, thereby exemplifying a gunslinging style of trading that has been largely confined to the history books. Back in 1987, he wrote a book about his investment philosophy called The Alchemy of Finance , outlining his “Theory of Reflexivity.” Soros admitted he gave his theory such a grand-sounding name so that it would sound like Einstein’s “General Theory of Relativity.” He thought it was that important. Wall Street strategist Barton Biggs called it: “a seminal investment book… it should be read, thought about, underlined page by page, concept-by-idea… (Soros) is the best pure investor ever… probably the finest analyst of our world in our time.” Because of Soros’s stature, The Alchemy of Finance turned out to be one of those books that every Wall Street investor said they had read. But I doubt any of them got through it, let alone understood it. George Soros’s #1 Investment Secret: Tackling ‘The Alchemy Of Finance’ When I was managing my first investment fund over 20 years ago, I decided that I really wanted to get inside Soros’s head. So I took Barton Biggs’s advice and read The Alchemy of Finance . I read it once… I didn’t get it… I read it again… I still didn’t get it… Now, keep in mind that I had been through law school… … So I was used to stirring concrete with my eyelashes… … And getting through more poorly written, turgid prose than most humans should have to endure… But Soros’s writing style made judicial opinions seem like Ernest Hemingway’s lucid prose. Then one day, I ran across a quote from Soros’s own son. It made everything crystal clear, but not in the way that I expected. “My father will sit down and give you theories to explain why he does this or that. But I remember seeing it as a kid and thinking, Jesus Christ, at least half of this is bulls**t, I mean, you know the reason he changes his position in the market or whatever is because his back starts killing him. It has nothing to do with reason. He literally goes into a spasm, and it’s his early warning sign.” – George Soros’s son, Robert, on his father’s Theory of Reflexivity. Soros himself went on to criticize his own theory in the next edition of the book, admitting that it was essentially incomprehensible. And he was right. George Soros’s #1 Investment Secret: Correcting False Predictions So, if no one has a grand theory to explain the market – not even George Soros – what chance do you have to be a successful trader? It turns out there is a secret to George Soros’s success. But it’s not one that you will find in The Alchemy of Finance . But once you understand and apply this secret, it will make your trading life much easier – and certainly less stressful. The “secret” to Soros’s success is not the ability of his “Theory of Reflexivity” to explain or predict the market. In fact, the secret to his success is quite the opposite. I found it buried in a Soros interview in John Train’s The New Money Masters , in what was almost a throwaway comment: “My approach works not by making valid predictions but by allowing me to correct false ones.” Now, I could get into how this all has to do with Soros’s admiration for the philosopher Karl Popper and the limits of human understanding. But comments from traders who have worked with Soros are more relevant. From James Marquez, a former Soros chief investment officer (CIO): “Soros would be the first one to tell you that sometimes his actions… look like the most rookie, odd-lot, wrong-way kind of thing, selling at the lows, and buying at the highs. But it’s much easier to understand in light of his avowed mission: to be able to come and fight another day. He says: “I don’t want to wake up broke.” And then, Alan Raphael, yet another Soros CIO: “When George is wrong, he gets the hell out. He doesn’t say, ‘I’m right, they’re wrong.’ He says, ‘I’m wrong,’ and he gets out, because if you have a bad position on, it eats you away. All you do is think about it – at night, at your home. It consumes you. Your eye is off the ball completely. This is a tough business. If it were easy, meter maids would be doing it.” Now, contrast that philosophy with how most other people think of trading or investing: We develop an opinion on a stock. We take a position. We convince ourselves that we made the right decision. This is when a bad investment turns into a “long-term investment.” And the “smarter” we are, the worse it is. We “know” we’re right. We “know” our investments will eventually “come back.” Now, let’s examine how Soros would look at the same situation. Here’s my take on what Soros believes: “The secret to my success is that I know that I will be wrong. I consider it a strength to admit my mistakes. That allows me to stay in the game and fight another day.” George Soros’s #1 Investment Secret: How To Apply It In Your Own Trading So, how can you apply this approach in your own trading? Understand that successful trading in the markets has much more to do with having proper exits and position sizing (bet size) than it does the “Theory of Reflexivity” or any other explanation of the market. So the next time you come across a “can’t fail” investment idea, here’s what you should do: Listen carefully and see if it makes sense to you. If you agree with it, then consider taking a position in it. But no matter how terrific-sounding the idea, make sure that you have your exits and position sizing strategies in place. If the position goes against you – which some inevitably will – reframe in your mind the idea that taking a loss is a strength. Make sure you cut your losses. This, I believe, is the key that will keep you from “waking up broke.”

Be A Proactive Investor

During volatile times in the market, like what we have been experiencing since May, it’s difficult to see through the disparaging news headlines (Oil is Collapsing! Bear Market in Stocks! US Is In A Recession!) and to not lose the forest for the trees. Investing is a long-term game with seemingly unlimited number of opportunities and it’s imperative as an investor to not get caught up in the day-to-day swings (and explanations) of the stock market. It’s times like this where a word like “casino” gets tossed around as a synonym for the stock market. And you know what, in the short run, the market is a lot like a casino. One day the market is up, the next day the market is down. Don’t believe me since it feels like the market has been down a whole lot more than it has been up lately? Well, would you be surprised to know that over the past 200-days developed world equities have been up 47% of the days and down 53% of the days. Pretty close to a 50-50 coin flip, right? Percentage Of Positive Performance Days For Stocks Proactive Investor But long-term investors know that the stock market isn’t really like a casino at all. The “payoff odds” in the stock market are not static like they are in a casino. Hitting the right number in roulette will always pay 35:1 but investing in the right stock could return 10% or it could return 10,000%. Therefore, it’s key to think of investing in terms of probabilities instead of binary outcomes. Investing is not about calling the top or bottom in the market exactly right. It’s about understanding if there are more positive investment opportunities in the market than there are negative opportunities (or vice versa). Put another way, it’s about properly identifying where the market currently falls on the risk/reward spectrum. This way, you as an investor can be proactive rather reactive to changes in the market. We have known for quite some time that this is the longest running cyclical bull market in a secular bear market , so a selloff like the one we are in now was bound to happen sometime. And in the long term, that is actually great news for investors because future returns have undoubtedly improved thanks to the opportunity to buy stocks on “sale.” But this is where investor psychology really comes into play. If your risk antennae was not tuned up to the fact that the probability of a selloff had increased (i.e. the opportunity set had shifted from more buying opportunities to more selling opportunities), then it’s really difficult to realize after a 15-20% decline that the opportunity set is ALREADY shifting again back into your favor. You are reacting to the declining market and when you are reacting, it’s hard to make the correct rational decision. To sell stocks into a declining market is always hard because in the back of your mind you know you missed out on the optimal time to get out and it’s so easy to tell yourself “I’ll sell out of stock XYZ just as soon as it rises 5-10%.” Of course, in a slide like we are in now, it’s very rare for the market to ever give you that 5-10% gain, and so you sit on the underperforming stock far longer than you would have liked. However, if an investor is proactive in identifying where we currently sit on the risk/reward spectrum, there is a very good chance that that investor had begun to shift his or her portfolio into more defensive sectors and perhaps into cash as well. While they would have been undoubtedly early and missed out on some of the gain back in May, they are already mentally prepared to begin to take advantage of some of the positive opportunities that are presenting themselves in this correction. This is why at Gavekal Capital, we focus so much on risk management. Yes, risk management is about protecting the downside. But more so, it’s about being proactive in your investment process so that when the risk/reward spectrum flips in your favor you are ready to take advantage of it and capture the gains in your portfolio. Disclosure: None.