Tag Archives: earnings-center

3 Unique ETFs Beating The Market

With the domestic economy recovering slowly but steadily and interest rates expected to remain low in near future, the overall backdrop for U.S. stocks remains positive. But as the bull market approaches its seven year anniversary, the easy money in stocks has already been made. Global growth worries, lackluster earnings, valuation concerns, China stock market turmoil and uncertainty relating to the Fed will also continue to weigh on the market. It is thus no surprise that the broad market continues to trade sideways with lackluster returns year-to-date. But some stocks have delivered outsized returns this year. Similarly some innovative ETFs following specialized strategies or tracking high growth areas have been rewarding their investors with stellar returns in 2015. Considering their outperformance potential, these could be held as satellite holdings in the portfolio, in order to spice up overall returns. A Shining Biotech Star: The ALPS Medical Breakthroughs ETF (NYSEARCA: SBIO ) Biotechs have been leading the bull market for the last 6-7 years. After this massive surge, valuations look lofty now by many measures, but there are still many reasons to be positive on the sector. Surging M&A activity, positive drug trial results and steady growth in the number of drugs being approved by the FDA have further boosted investor optimism and will continue to support these stocks. This fund tracks the Poliwogg Medical Breakthroughs Index. It invests mainly in mid and small cap stocks with market cap between $200 million and $5 billion. The index screens the U.S. listed biotech and pharma companies with one or more drugs in Phase II or Phase III FDA clinical trials. The index also screens for liquidity (average daily trading volume more than $1 million) and sustainability (cash for at least 2 years at their normal burn rate). Per ALPS, due to “patent cliff”, many blockbuster drugs from the 1990s and 2000s have been losing patent protection and large drug companies are struggling to replenish their pipelines. Further, due to time-consuming procedure and an alarming rate of failure for drug development, the bigger firms usually rely on new therapies processed by smaller firms that spend a lot more on R&D compared to their larger peers. This fund holds 75 stocks with Anacor Pharma (NASDAQ: ANAC ), Receptions and Horizon Pharma being the top 3 holdings. The product charges 50 bps in fees. Company specific risk is limited due to modified market cap weighting with maximum 4.5% of assets. The product launched in December last year and has gathered about $200 million in assets so far. SBIO has soared almost 52% this year. Foil Hackers with the PureFunds ISE Cyber Security ETF (NYSEARCA: HACK ) Our world is becoming increasingly digital-bringing us many exciting opportunities and possibilities–but also creating enormous challenges. Abundance of digital information and sophisticated tools available to process and share this information make it very hard to ensure data security in this interconnected world. That is why cybersecurity threats and cyberattacks are on the rise. Consequences of hacking can be huge. Further, the threat landscape has been evolving; hackers could steal not only financial data but also critical and sensitive information that could be used for criminal or extremist activities. Per Deloitte’s Q2 CFO survey, “CFOs in North America view cyberattacks as a serious threat, but many have doubts about their organization’s level of preparedness.” Surging demand for protection against these cyber threats will continue to drive demand for spending on cybersecurity. This ETF provides exposure to a diverse group of hardware and software companies in the cybersecurity industry. The product charges an expense ratio of 75 basis points. It made its debut in November last year and has already managed to gain almost $1.4 billion in assets, thanks mainly to some high profile cyberattacks of late. The ETF holds 32 securities in its portfolio and is well spread out across holdings, due to modified equal weighting methodology. Investors should however note that some of these cybersecurity stocks have been quite hot lately, leading to valuation concerns but given surging demand for these services, the ETF could be an excellent longer-term holding for investors who can ride out shorter-term volatility. The ETF is up more than 17% year-to-date. 2015 has turned out to be a pretty good year so far for hedge funds after many years of underperformance. Gains this year have been driven partly by the booming M&A activity, particularly in the healthcare sector and savvy stock selection. Most investors would like to invest like George Soros, Carl Icahn and John Paulson but the $2.9 trillion hedge fund industry is accessible only to very wealthy investors. Further, hedge fund investing is expensive as they usually charge an annual asset management fee of 2% and a performance fee of 20% of fund’s profits (2 and 2 fees). Fortunately for ordinary investors, there are some ETFs that provide access to investing secrets of such gurus, without charging the hefty fees that their funds charge. This ETF is based on the AlphaClone Hedge Fund Long/Short Index. The index uses AlphaClone’s proprietary “Clone Score” methodology to aggregate the hedge funds ideas on a quarterly basis. Clone scores, which are calculated bi-annually, are based on hedge funds managers’ performance. Index constituents are equally weighted but can have overlap bias. The index also has a hedge mechanism built in, which is triggered on or off when the S&P 500 index crosses its 200 day moving average at any month end. If the market goes down, the index goes from long-only to market hedged (50% short exposure to S&P 500). Launched in May 2012, this product has been able to attract about $195 million in assets so far. It has 86 holdings currently with Apple (NASDAQ: AAPL ), Valeant Pharmaceuticals (NYSE: VRX ) and Celgene Corp (NASDAQ: CELG ) being the top holdings. ALFA is slightly pricey, charging 95 basis points in expenses. It is up more than 8% year-to-date. Over the past three years, ALFA has climbed by 75% compared with 61% for the SPDR S&P 500 Trust ETF ( SPY). Link to the original post on Zacks.com

Concentration Consternation

By Chris Bennett “There are 3 kinds of lies: lies, damned lies, and statistics.”- Mark Twain Earlier this week, The Wall Street Journal pointed out that a mere six stocks (Amazon (AMNZ), Google (NASDAQ: GOOG ), Apple (NASDAQ: AAPL ), Facebook (NASDAQ: FB ), Gilead, and Disney) had accounted for more than 100% of the S&P 500’s year-to-date gains. This degree of concentration (reminding some of the peak of the 1990s’ technology bubble) is said to raise “concerns about the health of the market’s advance.” While the article’s arithmetic was correct, its concerns may be misplaced . We don’t have to look back to the tech bubble to see a similar concentration of index returns: During 2011, 4 stocks (Exxon, Apple, IBM, and Pfizer) accounted for more than 100% of the total return of the S&P 500. This did not “presage a pullback,” however, as the S&P 500 followed with 3 straight years of double-digit gains . What was similar about 2011 and 2015 through July 27 (the date of the Journal ‘s analysis)? Aggregate returns were de minimis . In 2011, the S&P 500 gained 2% on a total return basis (and was flat on a price return basis). The total return of the S&P 500 in 2015 was less than 2% through July 27. In both periods, the return of the index was relatively low, making it easy for a small group of strong stocks to account for more than 100% of total performance. Following a few positive trading days, incidentally, “The Only Six Stocks That Matter” now account for only half of the S&P 500’s year to date total return. As of July 29, it would take 22 stocks to account for 100% of the market’s return. Just as the concentration of performance doesn’t lead to reliable conclusions about the market’s future absolute return, it also tells us little about the relative performance of active managers vs. their passive benchmarks. Active managers tend to underperform both when index returns are heavily concentrated among a few stocks and when returns are more widely distributed. In 2011, when four stocks accounted for 100% of the market’s return, 81% of large cap U.S. funds lagged the S&P 500 . 2014 was quite a different year in terms of returns and individual stock contributions to index returns: the S&P 500 ended the year up 14% and it required 176 stocks to account for the market’s total return. Yet active managers did not prosper in these conditions either, as 86% of large cap funds failed to outperform the S&P 500. While it makes for an exciting headline, concentration is no cause for consternation . Disclosure: © S&P Dow Jones Indices LLC 2015. Indexology® is a trademark of S&P Dow Jones Indices LLC (SPDJI). S&P® is a trademark of Standard & Poor’s Financial Services LLC and Dow Jones® is a trademark of Dow Jones Trademark Holdings LLC, and those marks have been licensed to S&P DJI. This material is reproduced with the prior written consent of S&P DJI. For more information on S&P DJI and to see our full disclaimer, visit www.spdji.com/terms-of-use .

Surge In Peabody Adds Gains To Coal ETF: Will It Last?

Yesterday, the black days of coal suddenly brightened up despite downbeat quarterly results from Consol Energy (NYSE: CNX ) and Peabody (NYSE: BTU ). Coal producer Peabody missed on both lines and reduced the guidance. Consol Energy too fell shy of the Zacks Consensus Estimate on both counts. Both companies reported on July 28 before the market opened . Generally, such a situation results in a decline in share price, but these two coal stocks, especially Peabody took the investing world by surprise and showered gains on investors and benefitted the entire coal space and the coal ETF. BTU was up 14.15% in the key trading session of July 28 though it shed 3.3% after hours. CNX added 2.3% yesterday. The duo helped the pure-play coal ETF, Market Vectors Coal ETF (NYSEARCA: KOL ), to fetch a return of 3.3% on July 28. Peabody’s loss of 58 cents per share in second-quarter 2015 was marginally narrower than the Zacks Consensus Estimate of a loss of 59 cents. Peabody had posted a loss of 28 cents in second-quarter 2014. Peabody’s quarterly revenues of $1.34 billion decreased 23.8% year over year and missed the Zacks Consensus Estimate of $1.49 billion by 10.1%. For 2015, the company lowered the total sales target in the range of 225-245 million tons from the earlier-projected range of 235-255 million. On the other hand, diversified fuel producer, CONSOL Energy, reported an adjusted loss of 37 cents per share for the second quarter of 2015. The Zacks Consensus Estimate was earnings of a penny. The company had reported earnings of 7 cents per share in the second quarter of 2014. CONSOL Energy’s quarterly revenues declined 30.8% from the year-ago quarter to $648.9 million. The top line also lagged the Zacks Consensus Estimate of $795 million by 18.4%. What Caused Optimism? Apparently, stock market participants are hunting for the reasons that jazzed up the two stocks. Citigroup analysts argued that even after dividend removal and lackluster results, Peabody is structurally different from its peers due to its approximately $670 million potential of annual cash flow improvement in 2017 from 2015. Such a declaration from a sought-after brokerage house might be the reason for the stock’s outperformance. On the other positive front, Peabody is aggressively implementing cost-saving initiatives, has cut back on production and restructured its organization via lay-offs. The job cut is likely to save $40─$45 million per year. Cost containment efforts are also paying off for the company. Coming to Consol, the rise in shares looks more sensible as the company has been shifting its focus to natural gas from the more struggling coal space. This diversified energy producer is well-placed to cash in on any pickup in commodity prices. ETF Impact While we are not hopeful of the sustainability of this upbeat momentum, as of now the $64 million-coal ETF was the clear beneficiary of this sudden euphoria. Both Consol and Peabody have decent exposures in the coal ETF. Consol takes the fourth spot with 6.05% exposure while Peabody accounts for just 1.2% weight. The 31-stock fund holds a Zacks ETF Rank of #5 (Strong Sell) with a ‘High’ risk outlook. The fund is down over 33% so far this year. Original post . Share this article with a colleague