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Will $20 Crude Soon Be A Reality? Short These ETFs

Oil has been the most perplexing commodity of 2015, with big busts and occasional rises seen in a very short period of time. In particular, oil tanked to a seven-year low on Monday after the Organization of the Petroleum Exporting Countries (OPEC) failed to address the growing supply glut. Crude plunged 6% to $37.50, and Brent oil tumbled more than 5% to $40.73. What Happened? At its meeting on Friday, OPEC members decided to continue pumping near-record levels of oil to maintain market share against non-OPEC members like Russia and U.S. in an already oversupplied market. Iran is also looking to boost its production once the Tehran sanctions are lifted. As per the Iran oil minister, Bijan Namdar Zanganeh, production will likely increase by 500,000 barrels a day within a week after the relaxation in sanctions and by 1 million barrels a day within a month. Oil production in the U.S. has also been on the rise, and is hovering around its record level. Further, the latest bearish inventory storage report from the EIA has deepened the global supply glut. The data showed that U.S. crude stockpiles unexpectedly rose by 1.2 million barrels in the week (ending November 27). This marks the tenth consecutive week of increase in crude supplies. Total inventory was 489.4 million barrels, which is near the highest level in at least 80 years. On the other hand, demand for oil across the globe looks tepid given slower growth in most developed and developing economies. In particular, persistent weakness in the world’s biggest consumer of energy – China – will continue to weigh on demand outlook. Notably, manufacturing activity in China shrunk for the fourth straight month in November to a 3-year low. The International Monetary Fund (IMF) recently cut its global growth forecast for this year and the next by 0.2% each. This is the fourth cut in 12 months, with big reductions in oil-dependent economies, such as Canada, Brazil, Venezuela, Russia and Saudi Arabia. That being said, the International Energy Agency (IEA) expects the global oil supply glut to persist through 2016, as worldwide demand will soften next year to 1.2 million barrels a day after climbing to the five-year high of 1.8 million barrels this year. In addition, a strengthening dollar backed by the prospect of the first interest rate hike in almost a decade as soon as two weeks is weighing heavily on oil price. This suggests that the worst for oil is not over yet, with some forecasting a further drop in the days ahead. Notably, the analyst Goldman and OPEC predict that crude price will slide to $20 per barrel next year. How to Play? Given the bearish fundamentals, the appeal for oil will remain dull in the coming months. This has compelled investors to think about shorting oil as a way to take advantage of the strong dollar and commodity weakness. While futures contract or short-stock approaches are possibilities, there are host of lower-risk inverse oil ETF options that prevent investors from losing more than their initial investment. Below, we highlight some of those and the key differences between them: PowerShares DB Crude Oil Short ETN (NYSEARCA: SZO ) This is an ETN option, and arguably the least risky choice in this space, as it provides inverse exposure to WTI crude without any leverage. It tracks the Deutsche Bank Liquid Commodity Index – Oil, which measures the performance of the basket of oil future contracts. The note is unpopular, as depicted by its AUM of $17.2 million and average daily volume of nearly 20,000 shares a day. The expense ratio came in at 0.75%. The ETN gained 17.5% over the last 4-week period. ProShares UltraShort Bloomberg Crude Oil ETF (NYSEARCA: SCO ) This fund seeks to deliver twice (2x or 200%) the inverse return of the daily performance of the Bloomberg WTI Crude Oil Subindex. It has attracted $126.8 million in its asset base, and charges 95 bps in fees and expenses. Volume is solid, as it exchanges nearly 1.3 million shares in hand per day. The ETF returned 38.8% over the last 4 weeks. PowerShares DB Crude Oil Double Short ETN (NYSEARCA: DTO ) This is an ETN option providing 2x inverse exposure to the Deutsche Bank Liquid Commodity Index-Light Crude, which tracks the short performance of a basket of oil futures contracts. It has amassed $67.1 million in its asset base, and trades in a moderate daily volume of around 59,000 shares. The product charges 75 bps in fees per year from investors, and surged about 34% in the same time frame. VelocityShares 3x Inverse Crude Oil ETN (NYSEARCA: DWTI ) This product provides 3x or 300% 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 it trades in heavy average daily volume of 1.6 million shares. It has amassed $174 million in its asset base, and has delivered whopping returns of nearly 61% in the trailing four weeks. 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 make these products deviate significantly from the expected long-term performance figures (see all Inverse Commodity ETFs here ). Still, for ETF investors who are bearish on 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

Is The Time Ripe For 50% Currency Hedged ETFs?

The global currency world has been on a tumultuous ride on central banks’ comments. The basic perception has been that the currency-hedged developed market ETFs will be on a roller-coaster ride since the second half of 2015 and in 2016 on divergent economic policies between the U.S. and others. So far, the investing trend has paralleled the belief as the greenback peaked to multi-year highs on looming policy tightening and currencies like euro and yen plunged on the ongoing QE measures. However, the trend was volatile at the start of December. While the Fed repeatedly put stress on a slower rate hike trajectory once the action is taken, the European Central Bank (ECB) – widely viewed as stepping up its QE measure – fell short of expectations. The ECB maintained the amount of monthly government bonds purchase at €60 billion. Additionally, the cut in deposit rates (by 10 bps) was also below the expected 0.15-0.20%. Thanks to a less dovish ECB, the common currency euro surged and logged its largest one-day gain against the greenback in over six years. The CurrencyShares Euro Trust ETF (NYSEARCA: FXE ) was up 3.2% on December 3. Across the pond, the Fed is preparing for a rate hike this month but is expected to apply a petite and slow hike which in turn can cut some strength from the greenback. Now that the oil price is due for more pain ahead with OPEC members agreeing on pumping up more oil, global inflation will remain for a few more months. This leaves the Fed with no option other than taking the policy tightening issue easy. After all, the U.S. economy is yet to meet a key Fed agenda of 2% inflation. Plus, the greenback has advanced over 7% so far this year (as of December 7, 2015). The U.S. dollar ETF, the PowerShares DB US Dollar Bull ETF (NYSEARCA: UUP ), is now just 3.2% down from the 52-week high price, indicating less upside potential from the current level. All in all, though the greenback is likely to remain strong ahead and euro is likely to weaken, volatility is likely to crop up now and then. In the last five sessions (as of December 7, 2015), UUP lost over 1.3% while FXE gained about 2.4%. This might put the currency hedging global investing at risk. Notably, currency hedging is a beneficial technique when the USD is strengthening relative to the concerned foreign currency. But investors would incur losses on repatriating their foreign income while the USD is falling. In this backdrop, a 50% hedged ETF can be an intriguing option to minimize risks and sail through all kind of market dynamics. Below we highlight three ETFs that could be on watch in the coming days, if the U.S. dollar slips and other currencies strengthen on central bank policies and economic developments. These funds may guard your portfolio from extreme situations and will likely deliver moderate returns. IQ 50 Percent Hedged FTSE International ETF (NYSEARCA: HFXI ) The fund follows the FTSE Developed ex North America 50% Hedged to USD Index and has amassed about $41.6 million in assets after debuting in July. The fund charges 35 bps in fees. The fund added over 2.1% in the last three months (as of December 7, 2015) (see all broad developed world ETFs here). IQ 50 Percent Hedged FTSE Europe ETF (NYSEARCA: HFXE ) The $37.6-million fund tracks the FTSE Developed Europe 50% Hedged to USD Index. The fund charges 45 bps in fees and was up about 1% in the last three months (as of December 7, 2015). IQ 50 Percent Hedged FTSE Japan ETF (NYSEARCA: HFXJ ) The $26.6-million fund looks to follow the FTSE Japan 50% Hedged to USD Index. The fund charges 45 bps in fees and gained over 7% in the last three months. Original Post

EQT Corporation – Strong Position In A Growing Natural Gas Field

Summary EQT Corporation has watched its stock price drop by more than 50% since the start of the oil crash. For an oil company, the company’s dividend is negligible dividend. At the same time, the company’s natural gas production is growing rapidly bringing increasing earnings. Introduction EQT Corporation (NYSE: EQT ) is one of the largest natural gas producers in the Appalachian Basin. The company is headquartered in Pennsylvania and operates throughout the Appalachian mounts. The company has significant stakes in the natural gas fields there. EQT Corporation – RMUS Entry Media EQT Corporation has had a difficult time recently. The company has seen its stock price drop from $110 per share before the oil crash in mid-2014 down to recent lows of just over $50. At the same time, the company has a negligible dividend yield of 0.23% compared to a dividend yield almost 7 times that in 2012. Investment Highlight s Now that we have talked about the company, let us now talk some about the company’s investment highlights. The company has 10.7 trillion cubic feet of proven reserves amounting to 22 years of production at the current rate. At the same time the company has 42.8 trillion cubic feet of 3P reserves amounting to more than 87 years. On top of that, the company has a proven ability to increase its reserves with a > 25% forecasted production volume sales growth for the year of 2015. At the same time, the company has a 90% interest in EQGP (NYSE: EQGP ) which has a $4.8 billion market cap and has dropped almost 40% since the start of the crash. Lastly the company has a strong equity position. The company has $1.7 billion in cash along with a $1.5 billion undrawn credit revolver. The company’s cash position amounts to approximately $10.6 per share, impressive for a company in such difficult times. (click to enlarge) EQT Resources – EQT Investor Presentation The above image shows the company’s resources along with its impressive acreage and midstream assets. The company’s 9100 pipeline miles and 3.4 million acres leave significant room for the company to explore. These explorations could significant increase the company’s reserves. Production Growth Now that we have talked about the company’s investment highlights, it is time to talk about the company’s production growth. (click to enlarge) Marcellus Shale Production – EQT Investor Presentation The above image shows the company’s Marcellus Shale play which has impressive growth potential. The company began horizontal drilling on the area in 2008 and has seen 32% year over year growth since then. That has resulted in production growing from 200 million cubic feet a day from 2008 up to 1800 million cubic feet per day in 2015. (click to enlarge) EQT Proven Reserves – EQT Investor Presentation The company’s proven reserves have also impressive grown as a result of the company’s Marcellus shale assets. The company’s reserves in the Marcellus have grown from 2.879 billion cubic feet in 2010 to 8.284 billion feet in 2014. The company’s Marcellus assets also make up more than 50% of its 3P reserves. (click to enlarge) EQT Development Area – EQT Investor Presentation The company is currently focused on developing its core Marcellus assets with much if it focused in a core development area. This area contains 600,000 acres along with an impressive 23.3 trillion cubic feet or 3P reserves of 31 trillion cubic feet of total resource potential. At the same time the company drilled 138 wells in 2015 and plans on continue drilling additional wells. (click to enlarge) EQT Production Costs – EQT Investor Presentation At the same time, the Marcellus plays, the company’s largest assets have impressive fundamentals even after taxes. The company’s current margins after tax at $2.5 natural gas are 22%. With current natural gas prices at $2.05 the company should barely be breaking even. (click to enlarge) EQT Operating Expenses – EQT Investor Presentation However, the company has been maintaining noticeably lower operating costs compared to the rest of its peers. The company’s per-unit operating expenses are the lowest among its peers while the company’s 3-year F&D costs are the fourth rank among its peer group. Conclusion EQT Corporation has had a difficult time recently watching its stock price drop more than 50% since the start of the original stock market crash. At the same time, the company offers a negligible dividend of roughly 0.23% per year. As a result, I do not recommend investors get involved for the dividend. However, the company has an impressive Marcellus asset play with millions of acres and tens of trillions of cubic feet worth of reserves. The company drilled over 150 wells in 2015 and plans to continue drilling a large number of additional wells that could increase its reserves. For investors interested in averaging into a strong position at a low prices, EQT Corporation is a strong corporation with huge potential. Those who get into now and average down should see impressive long term gains.