Tag Archives: ideas

6 Inverse Leveraged ETFs Soaring To Start 2016

As fresh signs of a slowdown in China and a relentless slide in crude sparked off fears of a global slowdown, the U.S. stocks posted their worst five-day start to the year in history. The S&P 500 index plunged 6% while Dow Jones tumbled 6.2% last week. The tech-heavy Nasdaq Composite index, which outperformed last year, lost 7.3%. Additionally, a strong dollar, geopolitical tensions in the Middle East and weak corporate earnings are weighing heavily on investor sentiment. This is especially true as earnings in the S&P 500 are projected to decline 5.3% for Q4 2015. This would mark three consecutive quarters of a year-over-year decline in earnings since Q1 2009 to Q3 2009, as per the earnings Factset . Amid myriad woes, investors have little reason to believe that the bull market will complete its seventh year on March 9 and thus shunned U.S. equities. According to etf.com , investors pulled out $5.8 billion in capital from U.S. equity ETFs. This has resulted in huge demand for inverse or leveraged inverse ETFs for investors seeking to make big gains in a short span. In fact, many products provided outsized gains (over 30%) in the first week of 2016, though these involve a great deal of risk when compared to traditional products. Below, we have highlighted five such ETFs that crushed the market last week and should continue doing so at least for the near term if global sentiments remain volatile. These products either create an inverse long/short position or leveraged inverse long/short position in the underlying index through the use of swaps, options, future contracts and other financial instruments. Direxion Daily S&P Biotech Bear 3x Shares (NYSEARCA: LABD ) This product seeks to deliver thrice (3x or 300%) the inverse (opposite) daily performance of the S&P Biotechnology Select Industry Index. The fund has amassed $33.4 million in its asset base and average daily volume of more than 632,000 shares. It charges investors 95 bps in annual fees and expenses. The ETF delivered whopping returns of 51.8% in the first week of 2016. VelocityShares 3x Inverse Crude ETN (NYSEARCA: DWTI ) This product provides three times inverse exposure to the daily performance of the S&P GSCI Crude Oil Index Excess Return. The ETN is a bit pricey as it charges 1.35% in annual fees while average daily volume is solid at 1.4 million shares. It has managed $374 million in its asset base and surged 38.4% last week. ProShares UltraProShort Nasdaq Biotechnology (NASDAQ: ZBIO ) This fund seeks to deliver thrice the inverse performance of the NASDAQ Biotechnology Index. It has accumulated $12 million in its AUM and charges 95 bps in annual fees. Average trading volume is moderate, exchanging about 73,000 shares a day in hand. The fund gained nearly 38.1% in the same time frame. Direxion Daily FTSE China Bear 3x Shares (NYSEARCA: YANG ) This fund provides thrice the inverse return of the FTSE China 50 Index. The product has AUM of around $82.8 million and sees good trading volume of 251,000 shares a day on average. Expense ratio came in at 0.95%. YANG returned nearly 36.2% over the past one-week period. Direxion Daily Semiconductor Bear 3x Shares (NYSEARCA: SOXS ) This ETF provides three times inverse exposure to the PHLX Semiconductor Sector Index. It charges 0.95% in annual fees and trades in average daily volume of more than 117,000 shares. It has managed $45.9 million in its asset base and gained 33.3% last week. Direxion Daily Natural Gas Related Bear 3x Shares (NYSEARCA: GASX ) This product provides three times inverse exposure to the natural gas segment of the equity market, which tracks the ISE-Reverse Natural Gas Index. It has amassed $3.8 million in its asset base while volume is paltry at around 8,000 shares. Expense ratio came in at 0.95%. GASX was up 31.5% in the first week of 2016. Bottom Line As a caveat, investors should note that such products are extremely volatile and suitable only for short-term traders. Additionally, the daily rebalancing – when combined with leverage – may force these products to deviate significantly from the expected long-term performance figures. Still, for ETF investors who are bearish on the equities and oil for the near term, either of the above products could make an interesting choice. Clearly, a near-term short could be intriguing for those with high-risk tolerance, and a belief that the “trend is the friend” in this corner of the investing world. Original Post

U.S. Turns Hotbed Of Hiring: ETFs And Stocks To Surge

The U.S. labor market has been on a hiring spree, outperforming other economies across the globe. The economy added 292,000 jobs in December to add up to 2.65 million jobs for all of 2015. This represented the second consecutive year of strong job growth since 1999. Moreover, the unemployment rate held steady at a seven-year low of 5% for the third consecutive month. While wage growth remained tepid in December with average hourly wages declining by a penny to $25.24, it increased 2.5% for 2015, marking the best year for wage gains since the Great Recession. This shows that wage growth is definitely gaining momentum. The robust data shows that the U.S. is one of the healthiest economies in the world that has been able to withstand global uncertainty stemming from the China turmoil, a relentless slide in oil price and a strong dollar. Further, it has spread optimism into the economy, which is now likely to be able to handle another rate hike, though the Fed is unlikely to raise rates before March. Market Impact Following the upbeat job data, the U.S. stocks initially moved higher, halting a two-day rout that has wiped out $4 trillion from global equities this year. But the renewed slide in crude prices reversed overall gains, pushing the stocks in deep red at the close. Investors could take advantage of the beaten down prices and buy stocks and ETFs that are the largest beneficiaries of job gains. Below, we have highlighted some of the funds that will likely see smooth trading in the days ahead. ETFs to Consider PowerShares DB US Dollar Bullish Fund (NYSEARCA: UUP ) A healing job market and the resultant improving economy will pull in more capital into the country and lead to an appreciation of the U.S. dollar. UUP is the prime beneficiary of the rising dollar as it offers exposure against a basket of six world currencies – euro, Japanese yen, British pound, Canadian dollar, Swedish krona and Swiss franc. This is done by tracking the Deutsche Bank Long US Dollar Index Futures Index Excess Return plus the interest income from the fund’s holdings of the U.S. Treasury securities. In terms of holdings, UUP allocates nearly 57.6% in euro while 25.5% collectively in the Japanese yen and British pound. The fund has so far managed an asset base of $1.1 billion while sees an average daily volume of around 1.9 million shares. It charges 80 bps in total fees and expenses, and added 0.2% on the day following the jobs report. The fund has a Zacks ETF Rank of 3 or ‘Hold’ rating with a Medium risk outlook. SPDR S&P Homebuilders ETF (NYSEARCA: XHB ) Solid labor market fundamentals along with affordable mortgage rates will continue to fuel growth in the recovering homebuilding sector, creating a buying opportunity in homebuilders and housing-related stocks. In addition, the slower and gradual rates hike will not impede the growth prospect of the sector, at least in the short term. The most popular choice in the homebuilding space, XHB follows the S&P Homebuilders Select Industry Index. In total, the fund holds about 37 securities in its basket with none accounting for more than 4.71% share. The product focuses on mid-cap securities with 65% share, followed by 25% in small caps. The fund has amassed about $1.5 billion in its asset base and trades in heavy volume of more than 3.5 million shares. Expense ratio comes in at 0.35%. XHB lost 1.7% on the day and has a Zacks ETF Rank of 2 or ‘Buy’ rating with a High risk outlook. SPDR S&P Retail ETF (NYSEARCA: XRT ) Retail will also benefit from accelerating job growth and a moderate rise in wages that will increase the consumer spending power. XRT tracks the S&P Retail Select Industry Index, holding 101 securities in its basket. It is widely spread across each component as none of these holds more than 1.33% of total assets. Small-cap stocks dominate more than three-fifths of the portfolio while the rest have been split between the other two market cap levels. XRT is the most popular and actively traded ETF in the retail space with AUM of about $616.6 million and average daily volume of around 4.2 million shares. It charges 35 bps in annual fees and shed 3% on the day. The product has a Zacks ETF Rank of 1 or ‘Strong Buy’ rating with a Medium risk outlook. Stocks to Consider Though several sectors will benefit from healthy hiring, the direct beneficiary is the staffing industry. The industry bodes well at least in the near term given the superb Zacks Industry Rank (in the top 10%) at the time of writing. Investors seeking to ride out the optimism could look at a few top-ranked stocks having a Zacks Rank #1 (Strong Buy) or #2 (Buy) with a Growth Style Score of B or better using our Zacks Stock Screener. Cross Country Healthcare, Inc. (NASDAQ: CCRN ) Based in Boca Raton, Florida, Cross Country is a leading healthcare staffing services’ company which primarily focuses on providing nurse and allied, and physician staffing services and workforce solutions. The stock is expected to deliver earnings growth of 26.9% for fiscal 2016 versus the industry average growth of 25.5%. The stock lost 0.9% in Friday’s trading session and currently has a Zacks Rank #1 with a Growth Style Score of ‘A’. Heidrick & Struggles International, Inc. (NASDAQ: HSII ) Based in Chicago, Illinois Heidrick & Struggles International is one of the leading global executive search firms. With years of experience in fulfilling clients’ leadership needs, it offers and conducts executive search services in every major business center in the world. The stock is expected to post earnings at a growth rate of 19.2% annually in fiscal 2016, which is higher than the industry average of 17.4%. HSII gained 0.3% on the day and has a Zacks Rank #1 with a Growth Style Score of ‘A’. Tarena International, Inc. (NASDAQ: TEDU ) Based in Beijing, the People’s Republic of China, Tarena International is a leading provider of professional education services in China with core strength in information technology professional education services including classroom training. Tarena has an incredible earnings growth projection of 69.8% for fiscal 2016 compared to the industry average of 17.4%. The stock was up 0.4% in the Friday session and has a Zacks Rank #2 with a Growth Style Score of ‘B’. Original Post

Is It Time For Smart-Beta ETFs To Enter The Bond Markets?

By Detlef Glow The new year has started, but the financial markets are still affected by topics from the old year. One of the topics that has come up again is the liquidity of bonds in general-and bond funds in particular. From my point of view nearly all that can be said has been said about this topic. After all this discussion about liquidity in the bond markets and the possible implications for bond funds, especially exchange-traded funds (ETFs), one might raise the question of whether these issues could be addressed with smart-beta products. These products concentrate on the liquidity of securities in addition to using the two main drivers of performance-duration and credit risk. Since the liquidity of the underlying securities is already an issue for ETFs that track the broad indices, even “plain-vanilla” products are nowadays not far from being smart-beta products. That is because of the optimization techniques used to replicate the returns of the underlying index using the tradable securities in the index basket. In this regard a smart-beta strategy that employs the liquidity of the bonds would help to build liquid indices for all kinds of bond sectors, which could then easily be replicated by funds. In addition, a smart-beta approach could help investors overcome the major struggle of market-weighted bond indices: these indices give the highest weightings to issuers (companies, countries, etc.) with the highest outstanding debt in the respective investment universe. This approach can lead to high single-issuer risk within the portfolio, which is normally not the intention of an investor who buys into a broad market index. A smart-beta approach could limit the issuer risk by introducing a cap within the index methodology. From my point of view smart-beta ETFs could be the answer to the questions and concerns raised by investors around bond indices. Since investors tend to buy only products they understand, the index construction must be quite smart. At the same time it must be as simple as possible, so investors can easily understand the investment objective and the risk/return profile of the index and therefore of the ETF. That said, in my opinion it is time for smart beta to enter the bond markets. The views expressed are the views of the author, not necessarily those of Thomson Reuters.