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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.

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.

Clean Energy Fuels: Why You Can Consider Going Long

Summary CLNE’s margin has improved in the past year despite lower revenue as its margin/gallon is steady due to a diversified base of fleet operators and protection from the retail price. The price of natural gas/diesel gallon equivalent was $0.27 last month, which is way cheaper than diesel and gasoline, which is why CLNE’s volumes will continue increasing. CLNE’s natural gas volumes will increase as the addressable market grows from 74 million gallons last year to 1 billion gallons of diesel equivalent in 2018. CLNE could also benefit from an improvement in natural gas pricing as LNG exports from the U.S. begin next year, leading to lower oversupply and a move toward international pricing. The decline in natural prices has put the brakes on Clean Energy Fuels’ (NASDAQ: CLNE ) performance this year. After recording consistent top line growth until 2014, the company’s top line performance has slid this year. This is evident from the chart given below: Don’t miss the positives However, the above chart also shows that despite the drop in its top line, Clean Energy has managed to improve its margin profile since the downturn in natural gas pricing began. This is an impressive fact if we consider that low natural gas prices should have ideally pulled down Clean Energy Fuels’ margin profile, but the company has managed to keep its margin per gallon intact. For instance, last quarter, Clean Energy’s gross margin was $0.26 per gasoline gallon equivalent, down just $0.02 per gasoline gallon equivalent from last year. This is impressive if we consider that prices have dropped massively in the past year. The reason why Clean Energy’s margins have held steady in these difficult times is because the company has a diversified base of fleet operators that use its natural gas fuel volumes, and these are protected to some extent from the retail price due to the contracts in place. More importantly, it should also be noted that despite lower diesel prices, the use of natural gas fuel has not dropped as fleet operators have continued adding more NGVs to their fleets. This is clearly reflected by the fact that Clean Energy’s volumes delivered in the previous quarter grew 17% year-over-year. Now, on taking a closer look, it becomes clear that natural gas is still a cheaper fuel option than diesel despite the decline in diesel prices this year. Take a look at the following table for more clarity: Source: Westport Innovations Hence, the price of natural gas per diesel gallon equivalent stood at $0.27 last month, which is lower than the regular gasoline price of $2.059 per gallon and diesel price of $2.421 per gallon last month. So, it is not surprising to see that Clean Energy has seen an increase in its volumes delivered this year even though diesel prices have weakened, which lowers the incentive of switching to natural gas fuel for fleet operators. Why Clean Energy’s drop is an opportunity As discussed above, Clean Energy is seeing both volume and margin growth, while natural gas has an advantage over diesel in terms of both costs and emissions. As a result, the adoption of natural gas-powered trucks and buses should continue increasing going forward. For instance, in the past few years, the adoption of CNG trucks in the refuse transit market has increased, as shown below. More importantly, the adoption of heavy-duty LNG trucks as a percentage of overall sales will increase in the coming years, leading to an increase in gallons delivered from 74 million last year to 1 billion in 2018: (click to enlarge) Source: Clean Energy Fuels Hence, due to the advantages of natural gas, its adoption will increase going forward and help Clean Energy amplify its volumes delivered. However, as we saw earlier in the article, the steep drop in the price of natural gas has made it difficult for Clean Energy to grow revenue, but this might change next year onward as LNG shipments from the U.S. start gaining traction next year. By 2020, Australia and the U.S. are expected to make up for almost the entire 50% increase in global LNG trade, with the latter expecting to become an LNG exporter on the level of Qatar. Now, if we consider that the supply situation in the global LNG market is weak and the U.S. is aggressively building its LNG export infrastructure as shown in the chart below, the oversupply situation in the U.S. natural gas market will ease going forward as exports begin. Source: Cheniere Energy Also, due to these exports, the price of natural gas in the U.S. will move closer to international levels, which are higher, and eventually lead to better natural gas pricing in the U.S. as well. As a result, Clean Energy will see an increase in both revenue and margins going forward. Conclusion The performance of Clean Energy Fuels on the stock market has been no less than disappointing this year, but there are positives that we should not miss. The company’s volumes and margins are increasing, while a potential improvement in natural gas prices will be another tailwind. So, it seems like a prudent idea to buy shares of Clean Energy Fuels on the drop as it can deliver gains in the long run.