Tag Archives: ideas

A View From The Beach

Why should we diversify? Click to enlarge Photo: Petr Kratochvil. Source: Public Domain Pictures The reason to diversify is simple in some ways. Don’t put all your eggs in one basket, because that basket may fall. Spread things out – you don’t know what disaster lies ahead. And the math of diversification is pretty straightforward: your average risk is the average of all your asset returns, but volatility goes down based on how uncorrelated those assets are. If one stock zigs when the other zags, the overall portfolio is a lot more stable. By combining a lot of assets with different characteristics, you get an efficient portfolio. Click to enlarge Efficient Frontier: Source: Wikipedia But the psychology of diversification is hard. By holding assets in different asset classes from different industries that sit at different places in the capital structure, you can pretty much guarantee that some of your investments will look lousy. Consider the mid-2000s. Emerging markets were hot, generating 30% returns several years in a row. Growth stocks were dogs. Now, things are reversed. Emerging markets are beset by falling commodity prices and weakening global demand, while growth stocks shine. Click to enlarge Periodic Table of Investment Returns. Source: Callen Associates The temptation is to get rid of the assets that aren’t doing so well – like cutting the slow kids from a sports team. But that’s the mistake. Asset prices are adaptive – they adjust to our expectations. By avoiding assets with low expected returns, you make it a lot harder to beat the market’s expectations. The surest way to underperform is to sell assets when they’re down. No one knows what the next hot sector will be. Asset returns are like the wind: they blow in one direction, then change. We just don’t know when that change will happen. And whether the next breeze will be a light zephyr – or a hurricane!

What Do Twitter And Zynga Earnings Mean For Social Media ETF?

The Global X Social Media Index ETF (NASDAQ: SOCL ) is going through a rough patch. The ongoing tech rout, mainly instigated by overvaluation concerns amid broad-based gloom and a weak guidance issued by LinkedIn Corporation (NYSE: LNKD ) , was already there to punish the fund (read: LinkedIn Crashes: Should You Connect with Social Media ETF? ). Then, fresh woes emanated from the fourth-quarter earnings results from social networking site Twitter (NYSE: TWTR ) and social game developer Zynga (NASDAQ: ZNGA ) will likely compel investors to stay away from the social media ETF in the near term. Twitter’s Q4 in Detail The company’s fourth-quarter 2015 loss per share (excluding the stock-based compensation expense) of $0.07 was narrower than the Zacks Consensus Estimate of $0.13 loss per share. Including the stock-based compensation expense, the company posted a loss of $0.13 per share on a GAAP basis. This was narrower than the year-ago loss of $0.20 per share. The company’s non-GAAP earnings (excluding the stock-based compensation expense) were $0.16 per share, up 33.3% year over year. Revenues of $710.5 million in the quarter missed the Zacks Consensus Estimate of $718 million. Revenues were up 48.3% from the year-ago period. Absent the impact of negative currency translation, revenues grew 53%. The company finished the quarter with an average 320 million monthly active users (MAU). This indicated no change quarter over quarter and 9% year-over-year expansion. Although this is the first quarter that Twitter has seen no user growth sequentially, investors clearly could not digest the fact. The blow came in the form of guidance as well. Twitter anticipates total revenue between $595 million and $610 million for the first quarter of 2016, way below the Zacks Consensus Estimate which was pegged at $630 million prior to the release. Market Impact The soft MAU metric, an earnings miss and soft revenue guidance dampened investors’ mood as the stock tumbled 3% after hours. Year to date, the stock is down 35.3%. In the last one year, the stock has plunged about 70%. Twitter has a Zacks Rank #3 (Hold), which is subject to change post earnings release. The stock is a good growth and momentum play with a Zacks Style Score of ‘A’, but it lacks the value quotient as indicated by the score of ‘F’. There is a high chance that Twitter will decline in the coming trading sessions, especially given the ongoing correction in the online and social media space. Zynga’s Q4 in Detail GAAP loss per share (excluding the stock-based compensation expense) of $0.02 cents was narrower than the Zacks Consensus Estimate of $0.04 cents loss per share. Including the charges, GAAP loss was $0.5 per share, same as the year-ago quarter. Zynga’s revenues of $185.8 million beat the Zacks Consensus Estimate of $177 million. Zynga also failed to live up of analysts’ projection as it expects first-quarter 2016 revenues in the range of $160-$175 million, below the Zacks Consensus Estimate of $177 million. Market Impact Zynga also saw a landslide in its shares after hours with a 10.8% plunge. Year to date, the stock is down 20.5%. Though the stock currently has a Zacks Rank #3, it looks like that the rank is due for a downgrade. The stock is a decent momentum play with a Zacks Style Score of ‘A’, but its value and growth scores are not optimistic. Social Media ETF in Focus Notably, Twitter does not have a sizable exposure in the overall ETF world, with SOCL holding just 2.7% share in it. However, the company’s results are crucial to the entire social media sector. Plus, a freefall in the shares of Zynga – which accounts for about 3% of SOCL – will make matters worse. However, SOCL has strong long-term fundamentals and carries a Zacks ETF Rank #2 (Buy). So, investors having a strong gut for risks can play this dip. SOCL is down 19.3% so far this year (see all technology ETFs here). Link to the original post on Zacks.com

Lipper U.S. Fund Flows-February 3, 2016

By Tom Roseen Did we just see mutual fund investors turn on a dime? After yanking nearly $5 billion from their accounts the previous week, this past week’s data show estimated net flows of $2.1 billion into equity mutual funds-for their first positive flows week this year. Although the benchmark Dow Jones Industrial Average was up for the week, the scant 392 points probably wasn’t as important as a rising sentiment that 16,000 is as good a floor as any we’ll find in this market. But count equity exchange-traded funds’ (ETFs’) authorized participants among the unconvinced: they withdrew about $8.5 billion (net), backing out of the SPDR S&P 500 Trust ETF ( SPY , -$3.2 billion ) and the iShares Russell 2000 ETF ( IWM , -$1.2 billion ) , but they made modest contributions to the SPDR Gold Trust ETF ( GLD , +$758 million ) . Taxable bond mutual funds suffered their thirteenth weekly net outflows (-$523 million), but the week’s magnitude was the lightest yet. The Loan Participation Funds classification (-$333 million) notched its twenty-eighth consecutive week of outflows from mutual fund investors and High Yield Funds suffered outflows of $108 million as investors kept a wary eye on the junk sector. On the other hand, bond ETFs collected $671 million of inflows as the week’s biggest individual bond ETF inflows belonged to the iShares 7-10 Treasury Bond ETF ( IEF , +$412 million ) , while the iShares iBoxx $ Investment Grade Corporate Bond ETF ( LQD , -$423 million ) led the outflows list. Municipal bond mutual fund investors added $585 million to their accounts while the muni market gained 0.48% for the week-after the previous week’s little tumble. Money market funds saw outflows of $3.8 billion this past week, of which institutional investors pulled $4.2 billion and retail investors redeemed $400 million.