Tag Archives: etf

ETF Deathwatch For December 2015: AccuShares Join The List

The quantity of ETFs and ETNs on Deathwatch jumped by 23 for December. There were 28 additions and only five removals. Of those coming off, three were the result of improved health, while the other two were closed, delisted, and liquidated. The net increase pushes the membership count to a 35-month high of 366, consisting of 266 ETFs and 100 ETNs. Heading up the new arrivals are the two AccuShares ETFs, which are now more than six months old, making them eligible for Deathwatch. These two ETFs attempt to track the spot price of the VIX Volatility Index and fail miserably at doing so. They are teeter-totter ETFs, constructed much like the ill-fated MacroShares. As such, they were doomed from the start. But AccuShares added new twists that made them even worse than MacroShares in my opinion. AccuShares introduced the concept of “Corrective Distributions” that try to keep the demand for “up” shares in balance with the “down” shares. However, these distributions were both numerous and large, quickly depleting their asset bases. To overcome this, the funds made distributions of offsetting shares two months in a row: The owners of AccuShares Spot CBOE VIX Up (NASDAQ: VXUP ) received a “Corrective Distribution” of one share of AccuShares Spot CBOE VIX Down (NASDAQ: VXDN ), and owners of VXDN received a share of VXUP. It is almost impossible to bet on the direction of the VIX when offsetting positions are forced into your account. So far, the VXUP has made per-share distributions of $44.67 plus two shares of VXDN . Owners of VXDN have received $15.12 and two shares of VXUP (it’s a vicious circle). Between all the distributions, reverse splits, and offsetting shares, performance is nearly impossible to determine, and they do not even attempt to do so on the website. These products need to close before anyone else gets hurt. Once again, the majority of the new names added to ETF Deathwatch this month carry the smart-beta label. This suggests the market is currently saturated with smart-beta products, and investors need time to understand and digest all that are currently available. Three of the new additions are China-oriented funds, indicating this is another group approaching saturation. From a quantity standpoint, Global X had the most products added this month with eight of its ETFs, including all four of its new “scientific beta” line, joining the list. The average asset level of products on ETF Deathwatch increased from $6.8 million to $6.9 million, and the quantity of products with less than $2 million held steady at 73. The average age increased from 48.0 to 48.2 months, and the number of products more than five years old surged from 114 to 130. Here is the Complete List of 366 Products on ETF Deathwatch for December 2015 compiled using the objective ETF Deathwatch Criteria . The 28 ETPs added to ETF Deathwatch for December: AccuShares Spot CBOE VIX Down Shares AccuShares Spot CBOE VIX Up Shares AdvisorShares Madrona Global Bond (NYSEARCA: FWDB ) Columbia Large Cap Growth (NYSEARCA: RPX ) DB Crude Oil Long ETN (NYSEARCA: OLO ) Deutsche X-trackers MSCI All China (NYSEARCA: CN ) EGShares India Small Cap (NYSEARCA: SCIN ) ELEMENTS Morningstar Wide Moat Focus ETN (NYSEARCA: WMW ) Elkhorn S&P 500 Capital Expenditures (NASDAQ: CAPX ) ETRACS S&P 500 Gold Hedged Index ETN (NYSEARCA: SPGH ) Global X JPMorgan Efficiente (NYSEARCA: EFFE ) Global X MSCI Pakistan ETF (NYSEARCA: PAK ) Global X NASDAQ China Technology (NASDAQ: QQQC ) Global X Scientific Beta Asia ex-Japan ETF (NYSEARCA: SCIX ) Global X Scientific Beta Europe ETF (NYSEARCA: SCID ) Global X Scientific Beta Japan ETF (NYSEARCA: SCIJ ) Global X Scientific Beta US ETF (NYSEARCA: SCIU ) Global X YieldCo Index ETF (NASDAQ: YLCO ) Guggenheim International Multi-Asset Income (NYSEARCA: HGI ) iPath Pure Beta Coffee ETN (NYSEARCA: CAFE ) iShares B – Ca Rated Corporate Bond (BATS: QLTC ) iShares FactorSelect MSCI USA (NYSEARCA: LRGF ) iShares Treasury Floating Rate Bond ETF (NYSEARCA: TFLO ) Market Vectors Gulf States (NYSEARCA: MES ) PowerShares China A-Share (NYSEARCA: CHNA ) PowerShares KBW Insurance (NYSEARCA: KBWI ) WisdomTree China ex-State-Owned Enterprises (NASDAQ: CXSE ) WisdomTree Japan Quality Dividend Growth (NYSEARCA: JDG ) The 3 ETPs removed from ETF Deathwatch due to improved health: Credit Suisse Long/Short Liquid Index (Net) ETN (NYSEARCA: CSLS ) First Trust Morningstar Managed Futures Strategy (NYSEARCA: FMF ) ProShares Managed Futures Strategy (NYSEARCA: FUTS ) The 2 ETPs removed from ETF Deathwatch due to delisting: EGShares Blue Chip ETF (NYSEARCA: BCHP ) EGShares Brazil Infrastructure (NYSEARCA: BRXX ) ETF Deathwatch Archives Disclosure: Author has no positions in any of the securities mentioned and no positions in any of the companies or ETF sponsors mentioned. No income, revenue, or other compensation (either directly or indirectly) is received from, or on behalf of, any of the companies or ETF sponsors mentioned.

Exited Gencor For 57.33% Return

On December 2, 2015, we exited our position in Gencor ( GENC ) for a total return of 57.33%. This position was first established on October 5, 2011. We held this stock for 4 years to wait for the catalyst of increased funding for Federal highway projects (transportation bill), which finally seems to be taking shape. Our average cost was $7.1/share and selling price was $11.25/share. Today, the company sports a $116 million market capitalization, carries no debt and has $96 million in cash. If you buy the stock today, you are looking at $20 million to buy the whole business (net of cash), with a great prospect of increased revenues and profits, as the Federal dollars start flowing in the infrastructure projects (which are sorely needed in the U.S.). Whether this is worthwhile investment now or not is your decision; for us, we felt that the capital can be reused elsewhere in this environment. A value trap is a value trap, until it isn’t. It took us close to 4 years to get a 57% return. Was it worth it? Maybe not. I remember when we first invested in Gencor, the large amount of cash on the balance sheet was very attractive to me, and so it was for many other value investors. Over time though, many of these investors have quit the investment. It has been a frustrating experience, for sure, to watch the management do almost nothing with the cash – neither invest in new projects, nor return it back to the shareholders. I suspect a calculation of significant increase in working capital requirements, when the highway funding finally comes through, played a big role in the management’s decision to hold on to cash. Looking at the opportunity cost of this wait, it was probably not worth it. However, one cannot fault the management of being more optimistic of the U.S. Congress’ ability to pass genuinely needed infrastructure funding. If I were running the company, I would have done the same, and then roundly vilified in the investment community. This is where the interests of the investors and the managers diverge a little, which is unfortunate, as we investors need to consider the long-term strategy for the business as the primary driver of the management actions. Why would the management not return the cash to the shareholders and then when needed raise the funds in the debt markets, is a question I cannot answer. Coming back to the Value Trap question – For the first 3 years of the holding, it indeed looked like one. This year the stock has risen 35%, so for a value investor who decided to get in towards the end of last year would definitely not consider this stock as a value trap. It is all in your perspective.

Oneok: Some Perspective After The Massive Fall

Oneok provided solid guidance for 2016 that boosted the stock over the last two trading days. The energy infrastructure play is positioned to meet distribution goals next year without an equity offering. The high yield at Oneok highlights the risk, but the company is positioned to survive in the current environment. Anybody reviewing the chart of Oneok (NYSE: OKE ) will see a stock that recently completed a round trip over the last four years. The stock went from roughly $20 to start 2011 to over $65 by 2014 and all the way back to below $20 recently. (click to enlarge) The company is the general partner of Oneok Partners, L.P. (NYSE: OKS ) , one of the largest publicly traded MLPs. With the sector under pressure after several years of strong performance, an opportunity likely exists in the sector now. The stock got a big bump on Monday and early Tuesday from positive 2016 guidance that claims the distribution is safe. With a dividend yield sitting at 13% prior to the announcement, a big rally isn’t a huge surprise. The question now is whether investors should chase the new 10.5% yield? On the surface, the guidance for 2016 suggests stability and the ability to cover distributions. The key tenants of the guidance were these points: FCF after dividends for Oneok. Cash on hand of $250 million at Oneok to support Oneok Partners. No public equity offering for Oneok Partners until well into 2017. Oneok Partners’ distribution coverage at 1.0x or better in 2016. The key to the whole distribution forecast is that NYMEX future strip pricing of $40 to $45 per barrel of crude doesn’t slip lower. The current price of oil won’t support the distributions. As with most energy plays including some infrastructure plays that have recently cut dividends, the whole issue of forecasts are the reliance on unstable commodity prices. With a 41.2% ownership stake in Oneok Partners, Oneok is highly reliant on the business that obtains the majority of profits from natural gas liquids. The remaining business comes from the gathering, processing and transmission of natural gas via pipelines. As with most domestic energy infrastructure plays, the business is set up for long-term growth. Low natural gas prices are set to fuel demand growth and facilitate the export of LNG around the globe. The company expects to see immediate growth from the Williston Basin where a substantial amount of gas is flared due to a previous lack of pipelines. At the same time, one-third of all ethane being rejected comes from the Oneok Partners system again providing more upside when petrochemical plants on the Gulf Coast are completed by 2017. The whole problem with an investment in Oneok is surviving the drastic fall in energy prices combined with sizable debt loads. With the shift to more fee-based contracts in 2016 and the extra cash at Oneok to support Oneok Partners survive the brutal pricing environment for commodities, the stock is a solid long-term investment in a very diversified portfolio that can absorb the risk. The recommendation is for investors to not chase Oneok higher today. Let the stock come back down before starting a position as the MLP sector likely faces more strains as other industry players undoubtedly cut dividends.