Tag Archives: flight

Junk Bond ETF ANGL Soaring: Will Its Flight Last?

Heightened volatility is driving investors to safe havens, making 2016 the year of the bond market. While long-term bonds are the undisputed winners, the high yield corner has drawn attention over the past three-months on investors’ drive for higher yields and a rebound in oil price. In addition, high-yield spreads have tightened significantly from 8.64 on February 12 to 6.36 currently, as per the BofA Merrill Lynch US High Yield Option-Adjusted Spread , making junk bonds attractive. This suggests that investors are now demanding lower premium than comparable Treasury bonds to compensate for the risk. However, the risk of default is on the rise, dampening the appeal for junk bonds. This is because the resumption of the slide in commodity prices and renewed global growth concerns are weighing on companies’ profits and balance sheets yet again. As per Moody’s Investors Service, global junk bond defaults will accelerate to 5% by the end of November, up from the previous forecast of 4.6% one month ago, and 3.8% in March. Fitch Ratings expects high yield bond defaults to climb to 6% this year from 4.5% last year and touch the highest level since 2000 (read: Junk versus Investment Grade Corporate Bond ETFs ). Given the heightened credit risk and low rate environment, investors thronged the high yield quality fund – VanEck Vectors Fallen Angel High Yield Bond ETF (NYSEARCA: ANGL ) . The fund gained 12.3% in the year-to-date time frame, outperforming the broad bond fund (NYSEARCA: BND ) and junk bond fund (NYSEARCA: JNK ) by wide margins. ANGL in Focus This ETF seeks to track the performance of the BofA Merrill Lynch US Fallen Angel High Yield Index, which focuses on the ‘fallen angel’ bonds. Fallen angel bonds are high yield securities that were once investment grade but have fallen from grace and are now trading as junk bonds. This unique approach gives the portfolio 248 securities that are widely spread across them, with none holding more than 1.65% of assets. The fund has an effective duration of 5.67 years and year to maturity of 9.33. Additionally, the product mainly comprises BB and B rated corporates, which together make up for 85.3% of the asset base. Bonds from energy and material sectors occupy the top two positions with 25.2% and 22.1%, respectively, while financial and communications round off the top four with double-digit allocation (read: all the High Yield Bond ETFs here ). ANGL has amassed $158.7 million in its asset base while trades in moderate volume of 82,000 shares a day on average. It charges a relatively low fee of 40 bps per year from investors and yields 5.20% per annum. Behind The Success of ANGL The fallen angels strategy is immensely successful this year as the number of fallen angels has increased substantially on a series of debt downgrades among energy and material firms – the top two sectors of the ETF. In this regard, Moody’s snatched investment grade ratings from 51 companies and gave them the junk status at the end of the first quarter, up from eight in the fourth quarter and 45 for the whole of 2015. These downgrades have boosted the performance of the ETF as bond price generally rebounds after losing an investment grade rating. Additionally, the rebound in oil prices from the 12-year low reached in mid-February injects further strength into these bonds and the ETF. As a result, fallen angels bonds tend to have lower default rates than their more traditional junk bond counterparts, thus offering better risk-reward profiles. These have a history of outperformance in nine out of the last 12 calendar years, according to Market Vectors. Moreover, the outperformance of ANGL was spurred by its higher average credit quality as about three-fourths of the portfolio carry the upper end rating (BB) of the junk category, leaving just less than 4% to the risky CCC-rated and lower. Link to the original post on Zacks.com

Biotech On The Edge? Try Better-Performing Healthcare ETFs

Issues in winter 2016 are similar to those in summer 2015. Like China, the U.S. biotech space went berserk in the first week of 2016 with the Nasdaq Biotechnology index losing over 8.7%. With this, the sector snapped the winning momentum of the last four years (an average 7% return ). One of the reasons behind the slump was the Chinese stock market rout that stemmed from soft economic data and its ripple effect on other asset classes. Though there is no direct correlation between the Chinese market and the U.S. biotech space, the flight to safety was prevalent in the first week of 2016. Investors fled the high-growth and high-momentum investing areas like biotech and parked their money in the safe-haven assets. Additionally, a host of early-stage companies chose secondary stock offerings at discounted prices last week. Now, stock prices tend to swing when publicly offered. In fact, fresh issuance dilutes the shares and lowers their value. This is especially true when the stocks are sold at deep discounts to the current market price. As per analysts, Akebia Therapeutics (NASDAQ: AKBA ) and Epizyme (NASDAQ: EPZM ) priced their stocks at $9 each, down 36.6% and 68.4% respectively from their 52-week highs. In any case, biotech stocks have long been guilty of overvaluation. Even after the sell-off, the biggest biotech ETF the iShares Nasdaq Biotechnology (NASDAQ: IBB ) trades at 22 times P/E (ttm) compared with 17 times P/E of the SPDR S&P 500 ETF (NYSEARCA: SPY ) . Yes, the sector holds a lot of promise, but occasional risk-off trade sentiments and overvaluations are threats to it. Though we believe that after such a steep sell-off, biotech stocks will rebound in the coming days, it is wise for value investors to take some rest off biotech stocks and ETFs, and instead turn their attention towards the more stable, diversified but equally promising broader healthcare ETFs. Inside Broader Healthcare Space The broader healthcare sector is also full of strength. A whirlwind of mergers and acquisitions, promising industry fundamentals, plenty of drug launches, growing demand in emerging markets, ever-increasing healthcare spending and Obama care play major roles in making it a lucrative bet for the long term. Moreover, healthcare is said to be recession-proof in nature. As a result, in the recent market rout, the following healthcare stocks were less damaged and lost in the range of 3-5.4% compared with 16.5% losses at the BioShares Biotechnology Clinical Trials ETF (NASDAQ: BBC ) . Let’s take a look at the healthcare ETFs that resisted the recent wild sell-offs to a large extent. Investors should note that most of the following healthcare ETFs hold a Zacks ETF Rank #1 (Strong Buy). iShares US Healthcare Providers ETF (NYSEARCA: IHF ) This ETF provides exposure to 50 companies that provide health insurance, diagnostics and specialized treatment by tracking the Dow Jones U.S. Select Healthcare Providers Index. About half of the portfolio is dominated by managed care firms while healthcare services and healthcare facilities round off the top three. The fund has amassed $681.8 million in its asset base while charging 45 bps in annual fees. IHF fell nearly 3.63% in the first week of 2016 and has a Zacks ETF Rank of 1. iShares Global Healthcare ETF (NYSEARCA: IXJ ) This $1.45-billion global healthcare ETF holds 90 stocks. Pharma, biotech and life sciences have three-fourth of the share while the rest is occupied by healthcare equipment and services. The fund is heavy on the U.S. (65.7%) followed by Switzerland (11%). The product charges 48 bps in annual fees and lost 3.4% in the last five trading sessions (as of January 8, 2016). Health Care Select Sector SPDR ETF (NYSEARCA: XLV ) The most popular healthcare ETF follows the Health Care Select Sector Index. This large cap centric fund manages about $13.2 billion in its asset base. Expense ratio comes in at 0.14%. In total, the fund holds 58 securities in its basket. Pharma accounts for 38.7% share from a sector look while biotech (24.1%), healthcare providers and services (18.6%), and equipment and supplies (13.9%) make up for a double-digit exposure each. The Zacks Rank #1 fund was off 3.6% in the first week of 2016. iShares U.S. Medical Devices ETF (NYSEARCA: IHI ) The fund has amassed about $720 million in assets invested in 50 stocks. Healthcare equipment has around 85.8% exposure followed by life sciences (13%). The fund charges 45 bps in fees. The fund lost about 4% in the last five trading sessions (as of January 8, 2016). Original Post

The PowerShares S&P SmallCap Utilities Portfolio ETF – Simply Energetic

Summary Very Concise with some excellent defensive holdings. Low beta, good average cash flow and dividends. Also has the potential for capital appreciation. Recent events have put investors on the defensive against the increasing potential of a global economic contraction. It might be a good idea for the individual investor to channel funds towards defense, too. However, as it is with financial markets, the flight to safety will inevitably drive ‘defensive’ asset prices up and thus valuations beyond what is sensible. So how may the individual investor play defense without over paying? There just might be a solution. What drives utilities in the first place? The Housing market does, for one! Since new construction, either single family homes or multiple unit construction require utility services, particularly, gas, water, electricity and data , the recovering U.S. housing market has given a boost to the utility sector. According to the U.S. Department of Housing and Urban Development 883,000 units were complete in 2014 and the annualized 2015 rate, based on July data, will result in a seasonally adjust rate of 987,000. Further, it’s important to observe that utility service isn’t simply a ‘one-time-installation’. It is the unit dwelling, itself, generating revenue for the utility for decades, as long as it’s occupied. (click to enlarge) The PowerShares S&P SmallCap Utilities Portfolio ETF (NASDAQ: PSCU ) is a top performer in its ETF class. So straight away, it seems as though there’s uniqueness in the theme not found in other funds. Although uniqueness may be a winning quality in the arts and sciences, investors require more substance. So then, what makes this fund a good performer? According to Invesco : … The PowerShares S&P SmallCap Utilities Portfolio ((fund)) is based on the S&P SmallCap 600 ® Capped Utilities & Telecom Services Index … …companies are principally engaged in providing either energy, water or natural gas utilities, as well as services designed to promote or enhance the transmission of voice, data and video over various communications media, including wireline, wireless (terrestrial-based), satellite and cable … The interesting feature is that the fund meets its objective with only 20 holdings (as of mid-September). Before going into the individual holdings, it’s worth noting the subsector allocations. Data from Invesco With a mere 20 companies, it seems superfluous to analyze the ten heaviest weightings. It’s worth noting that 52.489% of the fund is concentrated in its top 7 holdings. Also, upon careful examination of the individual company businesses, there are few ‘pure-play’ utilities in the fund. For example, Piedmont Gas (NYSE: PNY ) is a ‘pure-play’ in natural gas, distribution pipeline and storage, including LNG. Piedmont is the heaviest weighted of the fund’s holdings at 9.964%, contributes a 3.47% dividend, has a P/E of 21.15, a price to book multiple of 2.14, price to cash flow of 10.74 and a high but sustainable payout ratio of almost 72%. American States Water (NYSE: AWR ) is more typical of the basic utility providers in the fund, distributing water through its pipeline network, which includes wells, reservoirs, and water treatment facilities. However, it also diversifies into electrical transmission infrastructure and a gas fueled electric generating plant. AWR provides a 2.26% dividend, with a P/E of 24.5, price to book of 3.10 times, price to cash flow of 14.16 times and a payout ratio of 52.49%. On the extreme end there’s Avista Corp (NYSE: AVA ) which comprises 4.54% of the fund’s total holdings. Although its primary business is to provide natural gas and electricity services , it also has real estate investments, provides venture capital and sheet metal fabrication for electrical enclosures, digital device parts, as well as parts for renewable energy systems and the medical industry, and lastly investments in mining. (According to Reuters, these ‘sub-segments’, “… do not form part of any reporting segment …”). Avista pays a 4.20% dividend, a P/E ratio of 17.57%, a price to book multiple of 1.29, a price to cash flow multiple of 7.69 and has a high but sustainable payout ratio of just over 72%. Piedmont, American States Water and Avista are in the top half of the fund’s weightings. Interestingly, all the telecoms are in the bottom half of the fund’s weightings. Only three of the 7 telecom holdings pay dividends. Top Half Holdings Type Weight Market Cap (billions) Yield P/E Beta Payout Ratio Piedmont Gas, Storage 9.964% $3.123 3.47% 21.15 0.47 71.98% UIL Holdings (NYSE: UIL ) Electric and Gas 8.986% $2.719 3.60% 23.23 0.47 41.37% Southwest Gas (NYSE: SWX ) Gas, Construction 8.621% $2.607 2.92% 18.85 0.63 52.90% Northwestern Corp (NYSE: NWE ) Electricity and Natural Gas 7.906% $2.391 3.78% 15.05 0.52 73.30% New Jersey Resources (NYSE: NJR ) Gas and renewables 7.866% $2.379 3.45% 15.72 0.57 50.23% Consolidated Communications (NASDAQ: CNSL ) Network, Video, Voice, Data, Landline 4.59% $1.005 7.79% N/A 0.74 N/A American States Water Water, Electric infrastructure 4.556% $1.475 2.26% 24.49 0.56 52.49% South Jersey Industries (NYSE: SJI ) Gas and Electric 4.554% $1.636 4.21% 15.23 0.73 62.93% Northwest Natural Gas (NYSE: NWN ) Gas and Electric 4.544% $1.217 4.18% 24.14 0.30 49.89% Avista Corp Electric, Gas, RE, Venture funds, metal manufacturing 4.54% $1.957 4.20% 17.57 0.57 72.29% All Tabled Data From Reuters, YaHoo! and PowerShares The lower half weightings of the fund contains those Telecommunications Services. Lumos (NASDAQ: LMOS ) , 1.42% of total holdings contributes a 4.66% dividend yield to the fund. Lumos provides mainly fiber optic infrastructure for voice, data, IP service and also provides wireless. The company as a low P/E of just over 13 times, a price to book of 2.7 times, price to cash flow of 4.14 and a low payout ratio of 32.61%. Generally, it focuses on the fiber optic backbone and related services. On the other hand Atlantic Tele-Network (NASDAQ: ATNI ) , at 4.06% of the fund, is a holding company providing land-line, wireless telephony, data, DSL and provides electricity through solar power generation. Further, Atlantic Tele-Network services the Caisos, Turks, Aruba, Guyana and the U.S. Virgin Islands. ATNI does not contribute a dividend to the fund. The company has a P/E of 35.21, price to book of 1.74 times and price to cash flow of 11.68. It has revenues of about $353.57 million with 8.5% year over year revenue growth. Bottom Half Holdings Type Weight Market Cap (billions) Yield P/E Beta Payout Ratio Laclede Group (NYSE: LG ) Gas 4.537% $2.252 3.54% 16.03 0.36 42.55% El Paso Electric (NYSE: EE ) Electric, Renewables 4.493% $1.431 3.33% 17.61 0.32 56.51% Allete (NYSE: ALE ) Water, Electric, Renewables, Coal 4.422% $2.360 4.18% 16.10 0.74 61.20% Atlantic Tele-Network Wireless, Wired, Broadband, International and Domestic 4.061% $1.202 1.75% 35.21 0.96 55.37% 8×8 (NASDAQ: EGHT ) Telecom, Telephony, Video Cnfrc 3.813% $0.739 0.00% 536.29 0.41 0.00% Cincinnati Bell (NYSE: CBB ) Telecom, VOIP, Wireless 3.71% $0.719 0.00% 5.96 1.17 0.00% Iridium (NASDAQ: IRDM ) Satellite, global communications 2.851% $0.651 0.00% 11.82 0.87 0.00% General Communications (NASDAQ: GNCMA ) Wireless and Landline Tel 2.748% $0.694 0.00% N/A 1.31 0.00% Spok Holdings (NASDAQ: SPOK ) Enterprise Communication Solutions 1.817% $0.352 3.05% 19.15 0.70 58.57% Lumos Networks Fiber optics, VOIP 1.42% $0.276 4.66% 13.93 0.01 32.61% All Tabled Data From Reuters, Yahoo! and PowerShares Only four of the 20 holdings do not pay a dividend, yet the average yield of the dividend paying companies is just over 3.00% and has an average payout ratio of 41.70%. The average market capitalization is indeed in the ‘small-cap’ range at $1.559 billion and the fund has low volatility with an average beta of 0.62 and the shares are marginable With the exception of 2015, the fund’s share price has had respectable, steady returns. The fund’s P/E is 19.99, has 400,000 shares outstanding and has a low trading volume. Lastly, the fund is currently trading at a discount to its NAV and the 0.29% total expense ratio is well below the ETF industry average of 0.44%. The point of the matter is that PSCU is concise with some pretty smart picks, has a good dividend yield, is mainly in a defensive sector, yet has potential for capital appreciation through its telecommunication service holdings, yet is a relatively lightly traded fund. Period YTD 1-Year 3-Year 5-Year Inception 4/7/2010 Share Price -6.34% 2.25% 9.96% 12.56% 10.67% All Tabled Data From Reuters, YaHoo! and PowerShares It seems to be the type of defensive investment that will perform reasonably well in both good and bad economic cycles and in particular a fund that may serve as a long term holding.