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QQQ’s 2015 2nd-Quarter Performance And Seasonality

Summary The large-capitalization PowerShares QQQ behaved better in the first half than did the large-cap SPDR S&P 500 ETF. In the second quarter, the adjusted closing daily share price of the derivative of the Nasdaq-100 Index rose by 1.63 percent. In June, the fund’s share price fell by -2.48 percent. PowerShares QQQ’s (NASDAQ: QQQ ) adjusted closing daily share price in 2015’s first half ascended to $107.07 from $103.01, a climb of $4.06, or 3.94 percent. During the period, the ETF behaved better than the SPDR S&P 500 ETF (NYSEARCA: SPY ) by 2.83 percentage points and worse than the SPDR S&P MidCap 400 ETF (NYSEARCA: MDY ) and the iShares Core S&P Small-Cap ETF (NYSEARCA: IJR ) by -14 and -8 basis points, in that order. QQQ last quarter led SPY, IJR and MDY by 1.40, 1.46 and 2.74 percentage points, respectively. And most recently, QQQ last month lagged IJR, MDY and SPY by -3.54 percentage points, 1.21 percentage points and 47 basis points, respectively. Comparisons of changes by percentages in QQQ, SPY, MDY, IJR and the small-cap iShares Russell 2000 ETF (NYSEARCA: IWM ) during the first half, over Q2 and in June can be found in charts published in “SPY’s 2015 2nd-Quarter Performance And Seasonality.” Figure 1: PowerShares QQQ Top 10 Holdings, July 2 (click to enlarge) Notes: 1. The QQQ holding-weight-by-percentage scale is on the left (green), and the company price/earnings-to-growth ratio scale is on the right (red). 2. A meaningful P/E-G ratio is incalculable for the generally unprofitable Amazon.com Inc. ( AMZN ). Source: This J.J.’s Risky Business chart is based on data at Invesco’s PowerShares QQQ microsite and FinViz.com (both current as of July 2). QQQ’s constituent companies in general and its top 10 holdings in particular have a tendency to do big business in both domestic and foreign markets (Figure 1). Their sales’ geographic diversification has been an issue during the past year and will be an issue over the next year primarily because of the bias divergence in monetary policy at large central banks around the world, with the U.S. Federal Reserve oriented toward tightening and all the others oriented toward loosening. This bias divergence has had major effects on multiple financial markets, such as those centered on currencies. It has led to a stronger U.S. dollar on the one hand and a weaker euro, a weaker Japanese yen, a weaker British pound, a weaker Canadian dollar, a weaker Swedish krona and a weaker Swiss franc on the other hand. Accordingly, American products and services can cost more than their foreign-based competitors’ offerings in July 2015 than they did in July 2014. Apple Inc. (NASDAQ: AAPL ) does not compete materially on price, but many of QQQ’s constituent companies do so in their foreign markets. And I suspect the currency issue played a role in the first quarter, when only six of the ETF’s top 10 holdings beat their analysts’ consensus earnings estimates, according to Zacks . Meanwhile, these holdings’ P/E-G ratios indicate they are more dear than cheap, with equity-market participants assigning these firms valuations ranging from the apparently insane, Amazon.com, to the seemingly sane, Gilead Sciences Inc. (NASDAQ: GILD ). Figure 2: QQQ Monthly Change, 2015 Vs. 2000-2014 Mean (click to enlarge) Source: This J.J.’s Risky Business chart is based on analyses of adjusted closing monthly share prices at Yahoo Finance . QQQ performed a lot better in the first half of this year than it did during the comparable periods in its initial 15 full years of existence based on the monthly means calculated by employing data associated with that historical time frame (Figure 2). The same data set shows the average year’s weakest quarter was the third, with a relatively small negative return, and its strongest quarter was the fourth, with an absolutely large positive return. Figure 3: QQQ Monthly Change, 2015 Vs. 2000-2014 Median (click to enlarge) Source: This J.J.’s Risky Business chart is based on analyses of adjusted closing monthly share prices at Yahoo Finance. QQQ performed a lot worse in the first half of this year than it did during the comparable periods in its initial 15 full years of existence based on the monthly means calculated by using data associated with that historical time frame (Figure 2). The same data set shows the average year’s weakest quarter was the first, with a relatively small positive return, and its strongest quarter was the fourth, with an absolutely large positive return. Disclaimer: The opinions expressed herein by the author do not constitute an investment recommendation, and they are unsuitable for employment in the making of investment decisions. The opinions expressed herein address only certain aspects of potential investment in any securities and cannot substitute for comprehensive investment analysis. The opinions expressed herein are based on an incomplete set of information, illustrative in nature, and limited in scope. In addition, the opinions expressed herein reflect the author’s best judgment as of the date of publication, and they are subject to change without notice. Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More…) I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Sector Factors To Consider With Dividend ETFs

Summary Dividend stock ETFs have been losing assets as Treasuries sold off and yields rose. The selling pressure in dividends provides a warning for what could occur in a rising rate environment. A good chunk of dividend ETF portfolios are allocated in utility stocks, which are sensitive to changes in interest rates. By Todd Shriber & Tom Lydon Thanks to the jump in Treasury yields, a rise that has been fueled by speculation the Federal Reserve will soon raise interest rates, investors are departing some noteworthy dividend exchange traded funds. Of the four largest dividend ETFs, only the Vanguard High Dividend Yield ETF (NYSEArca: VYM ) has seen inflows this year, while the iShares Select Dividend ETF (NYSEArca: DVY ) is the worst outflows offender of the four due in part to its 31.5% weight to the lagging utilities sector. Once the Federal Reserve hikes interest rates, U.S. dividend stocks and exchange traded funds could experience a meaningful correction after investors piled into the yield-paying assets during the low rate environment. That is particularly true of dividend ETFs with big weights to rate-sensitive utilities and real estate stocks. Reports Chris Dieterich for Barron’s : Part of the concern: All that money that’s flowed in over the past six years could be yanked out just as quickly, as investors scramble to take profits at the first whiff of market trouble. That’s happened twice over the past two years, first in 2013 and again in the past few months, when the stocks that have fallen hardest were those with the highest yields. Take utilities, the highest yielders among the S&P 500’s 10 industry groups. Utility stocks on the S&P 500 are fresh off a 6.7% plunge in the second quarter, the worst of any U.S. stock sector, while the S&P 500 overall was flat. With Treasury yields climbing, utilities-heavy dividend ETFs are lagging. For example, DVY is off nearly 3% this year while the S&P 500 is up 1.8%. The First Trust Value Line Dividend Index Fund (NYSEArca: FVD ) has lost 1.2% thanks to an almost 23.75 weight to utilities stocks, indicating investors have mistakenly added over $118 million to that ETF this year. On the bright side, recent history shows dividend ETFs can whether the rising Treasury yields storm. That happened in 2013 when Treasury yields surged, but DVY and FVD gained an average of 27.8%, though that lagged the 32.3% returned by the S&P 500. The caveat with 2013 is that the Utilities Select Sector SPDR (NYSEArca: XLU ) gained more than 10%, a feat unlikely to be repeated this year. DVY remains alluring for income ETFs , in part due to a screening methodology that includes dividend growth and payout ratios. However, stock selection by yield could make DVY vulnerable to increased lethargy if Treasury yields continue higher. FVD follows the Value Line Dividend Index, which equally weights components and utilizes the proprietary Value Line research to select components. Specifically, stocks are ranked by the Value Line Safety Ranking of 1 or 2 out of 5, which are based on price stability and financial strength. Additionally, the index excludes stocks with a dividend yield lower than the S&P 500. iShares Select Dividend ETF (click to enlarge) Tom Lydon’s clients own shares of DVY. Disclosure: I am/we are long DVY. (More…) I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Long The S&P 500 But Feeling A Little Uneasy? PUTX May Be Your Answer

Summary Investors in the broad U.S. equity market feeling uneasy or anticipating a correction may buy put options on the S&P 500 for protection. If the timing is right this “insurance” can be valuable. A better way to provide downside protection while also providing upside potential returns is by selling cash collateralized puts on the S&P 500. Investors in the broad U.S. equity market feeling uneasy or anticipating a correction may buy put options on the S&P 500 for protection. If the timing is right this “insurance” can be valuable. However, more often than not, we see the cost of this insurance, buying these puts, reduces returns. A better way to provide downside protection while also providing upside potential returns is by selling cash collateralized puts on the S&P 500. This is exactly the strategy of the recently launched ALPS Enhanced Put Write Strategy ETF (NYSEMKT: PUTX ). PUTX was spearheaded and developed by Rich Investment Solutions, which is a sub-adviser to the new fund. Kevin Rich, founder and CEO of Rich Investment Solutions, came from Deutsche Bank where he created and launched the commodity and currency-based ETFs: the PowerShares DB Commodity Index Tracking Fund (NYSEARCA: DBC ), the PowerShares DB Agriculture Fund (NYSEARCA: DBA ), the PowerShares DB U.S. Dollar Index Bullish Fund (NYSEARCA: UUP ), and the PowerShares DB U.S. Dollar Index Bearish Fund (NYSEARCA: UDN ), among others. In 2013 ALPS and Rich launched the first put writing ETF called the ALPS U.S. Equity High Volatility Put Write Index Fund (NYSEARCA: HVPW ). For many years CBOE has published two benchmark indices on at-the-money monthly put and call writing: the CBOE S&P 500 Put Write Index (PUT), and the CBOE S&P 500 BuyWrite Index (BXM). There have been ETFs in the market tracking BXM for some time but not on PUT. As PUT has shown historically superior returns compared to BXM, there is recent renewed interest and new products coming to market offering investors access via ETFs. With that in mind, we asked Kevin Rich a few questions about their new fund they just launched with ALPS. Dave Fry: Good to talk with you again Rich, can you please tell us a about PUTX? Kevin Rich: Thanks. PUTX is the first broad based put write strategy ETF. PUTX will sell one month at-the-money put options on the S&P 500 every month, or twelve times a year. It’s designed for investors looking for a defensive investment in the in the S&P 500. Selling monthly, at-the-money puts on the S&P 500 has historically generated 18% – 21% option premium per year. While this premium represents close to the maximum upside return of the PUTX strategy, it represents the possible downside protection over the course of a year in a declining market. Dave Fry: Interesting, so is it tracking the CBOE PUT index, which hypothetically sells puts monthly as I understand? Kevin Rich: No, PUTX is not a passive index tracking fund, so it will not replicate the PUT index or strategy. PUTX will look to sell options on a monthly basis not only on the SPX am settled options that the PUT index uses, but PUTX but will also be able to sell options on the SPX pm settled options or on the American style options on the S&P 500® Trust ETF (NYSEARCA: SPY ). PUTX should be able to pick up additional premium over the benchmark index by expanding the underlying options it uses. Dave Fry: Any other differences between PUTX and the CBOE PUT index? Kevin Rich: Yes, PUTX will not simply go long short term U.S. T-bill like the PUT index; rather PUTX will its cash in short duration investment grade fixed income securities. Further, PUTX will have the ability to bring in additional premium intra-month when we see there is an opportunity to roll some strikes up without taking material additional risk for the fund. Dave Fry: Not to harp on the comparison, but do you expect PUTX to track the CBOE PUT index closely? Kevin Rich: Yes, our expectation is we will have a high correlation and beta to the PUT index, but with the strategy differences described earlier we believe PUTX should be able to generate additional returns over the benchmark. Dave Fry: I would expect to have seen the BXM and PUT indices have identical returns over time but PUT has outperformed. Why do you feel selling puts offers and advantage over selling calls? Theoretically they should be the same, but there are 2 main reasons why PUT has outperformed. First, PUT sells ATM or slightly OTM of the money puts, while BXM sells ATM or slightly OTM calls. OTM puts not only provide some additional downside protection to a declining market (OTM calls by definition do not), they also tend to be priced more richly than OTM calls providing more premium. Second, PUT collateralizes its short put position by investing in TBills, while BXM covers its short call positions by investing in the S&P 500. As a result, PUT performance benefits from interest income while BXM only benefits from dividend income. Dave Fry: I know you have just launched, but who do you expect to use PUTX and where might it fit in a portfolio? Kevin Rich: Initially we would expect RIAs, funds and institutions familiar with the mechanics and benefits of broad based put writing strategies to adopt PUTX. Really any holder of the S&P 500 should consider diversifying into PUTX because of its defensive potential. Others may hold PUTX in their liquid alternative bucket. Advisers in the larger wire house firms will recognize the potential for PUTX to diversify and add returns over their existing buy write investments, so we expect pick up form these firms; some initially, and others over time. Dave Fry is founder and publisher of ETF Digest and has been covering U.S. and global ETFs since 2001. ETF Digest was named one of the most informative ETF websites in the 10th Annual Global ETF Awards. Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More…) I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.