Tag Archives: etf

Should You Bet On Airlines ETF Despite Mixed Earnings?

The airline stocks have been highfliers since the second half of 2015 on dirt cheap oil prices and encouraging fundamentals. Earnings picture was also pretty decent for the space. Higher margin, lower debt, surging ancillary revenues and a host of modifications in operations helped the sector gain altitude (read: Highflier Airlines Earnings : Time for JETS ETF ). As a result, the pure-play aviation ETF U.S. Global Jets ETF (NYSEARCA: JETS ) lost just 5.5% (as of January 21, 2016) after accounting for all the global market issues. This was quite respectable when compared with the 11.7% losses put up by the broader market ETF SPDR S&P 500 ETF (NYSEARCA: SPY ) in the same timeframe ( read: The 13 Best and Most Interesting ETFs to Launch in the First Half of 2015 ). In such a backdrop, all eyes were fixed on airlines earnings this season. But sadly, major carriers fell shy of investors’ expectations. Greenback strength appears to be main reason behind this underperformance. Q4 Results in Detail The season unveiled with Delta Air Lines (NYSE: DAL ) missing on both lines in Q4 of 2015. Results were hurt by the strength in the U.S. dollar, with foreign currency movements having an adverse impact of $160 million. However, Delta’s shares added 3.3% despite the earnings miss in the key trading session of January 19. This is because the company, the bottom line of which grew 51% year over year on low oil costs, expects to generate over $3 billion in savings in 2016 on steeply plunging oil prices. This Zacks ETF Rank #1 (Strong Buy) stock has a Zacks Momentum & Value style score of ‘A’ and a Growth score of ‘B’, at the time of writing. United Continental (NYSE: UAL ) also came up with soft Q4 results this month as both earnings and revenues miss. Adjusted earnings were up substantially year over year on lower fuel costs. Revenues declined 3% on lower passenger revenues. Cargo revenues were also downhill while the other revenues improved 10.9%. However, its indicators are promising with a Zacks ETF Rank #2 (Buy), and Value score of ‘A’ and Momentum score of ‘B’. Shares also added modest gains of about 0.5% to close January 21, the day it reported earnings. Yet another leading U.S. carrier Southwest Airlines Co. ‘s (NYSE: LUV ) fourth-quarter 2015 bottom line matched the Zacks Consensus Estimate while the top line missed the same. But investors should notice that revenues grew 7.5% year over year helped by 3.3% and 119% expansion in Passenger and Other revenues, respectively. This Zacks ETF Rank #1 stock also boasts hopeful indicators of Momentum score of ‘A’ each and a Value score of ‘B’. LUV was up 0.5% post reporting earnings. Though these heavy-weight companies underperformed on earnings, the sector has seen sturdy performances by others. Alaska Air Group Inc. (NYSE: ALK ) reported earnings (on an adjusted basis) of $1.46 per share in the fourth quarter, beating the Zacks Consensus Estimate of $1.43. Earnings increased 55% year over year. Revenues of $1.38 billion were in line with the Zacks Consensus Estimate. The top line grew 5% on a year-over-year basis. The company also hiked its quarterly dividend by 38% to $0.275 per share. This star performance within the struggling pack offered the stock over 8.1% gains post earnings. ALK has a Zacks ETF Rank #1, a Value and Growth scores of ‘B’ and a Momentum score of ‘A’. Should You Buy JETS? By now, one must have realized from the indicators that the mood in the airlines industry is upbeat. The sector is in the top 4% category of the Zacks Industry Rank at the time of writing, giving strong cues of the upcoming flight in the entire industry. However, as company-specific risks seem higher, investors might play the trend via basket approach to tap the entire potential of the space. And to do so, what could be a better option other than the JETS ETF? The $46.8 million-fund holds over 30 stocks in its portfolio and is concentrated on a few individual securities, as it allocates about 70% to the top 10 holdings. American Airlines (12.46%), Southwest Airlines (12.37%), Delta Airlines (12.13%) and United Continental (10.54%) are the top four elements in the basket. Alaska Air holds the ninth position in the fund with 3.74% weight. The product charges 60 bps in fees. Link to the original post on Zacks.com

Evaluating Enterprise Risk For Alternative Investments

Enterprise risk includes all of the factors that can affect an enterprise: market factors, reputation, regulation, compliance, operations, and legal risk are among the most prominent. Enterprise risk analysis , which uses stress tests and scenario assessments to estimate investment risks across asset classes, has become increasing popular with institutional investors, who understand the impact enterprise risk can have on their portfolios. But while enterprise risk analysis works well with traditional asset classes, using enterprise risk analysis on alternatives – such as hedge funds, private equity, and real estate – presents challenges. This, at least, is the view of BNY Mellon (NYSE: BK ) and affiliate HedgeMark, as articulated in their January 2016 white paper Considering the Alternatives: A Practical Look at Enterprise Risk Analysis and Alternative Investments . The paper explores the impact of incorporating alternative investments into enterprise risk analysis and looks at how different approaches to data management can impact the resulting conclusions. Evaluating Risk Across the Portfolio “With a sharper focus on risk by regulators and other stakeholders, many institutional investors seek a fuller picture of how risk operates across investments within an entire portfolio,” said Frances Barney, head of Consulting-Americas for Global Risk Solutions at BNY Mellon, in a recent announcement. “Data is getting more and more critical and investors need to be informed and comfortable with the assumptions of their risk assessment, otherwise, they can come out of it with a false sense of security about their portfolio.” The paper’s key findings and insights into best practices include: A “granular approach” to risk evaluation is preferable, with position-level information for all asset classes “the gold standard.” This kind of position-level transparency, liquidity, and control may be available in dedicated managed accounts and liquid alts, as well as traditional hedge funds. Information accuracy is obviously important, and that’s why the paper argues for single-vendor sourcing of investment data. Using a single vendor promises uniform data, whereas drawing data from multiple sources increases the likelihood of errors. Different approaches to data management can lead to different conclusions about risk. Having a different approach for each asset class can be problematic, which is why many firms are establishing a Chief Risk Officer position to evaluate risks across all asset classes. Consistency is especially important in light of the regulatory environment. Some regulators already require reports on stress testing and scenario analysis, through Form PF for U.S. investment advisers to hedge funds; and pursuant to Solvency II for insurance companies, and UCITS for European investment funds. “We’ve learned the most crucial component is the veracity of the underlying data, which becomes even more important and difficult to manage as more opaque assets are held in the portfolio,” said Ms. Barney. Jason Seagraves contributed to this article.