Tag Archives: ideas

Follow Warren Buffett With These ETF Strategies

Everybody dreams of becoming rich and famous like Warren Buffett, Carl Icahn, Daniel Loeb and David Tepper. After all, these Wall Street gurus have successfully put their money in the right place and continue to reap huge returns. Buffett’s Berkshire Hathaway Inc. (NYSE: BRK.B ) has enjoyed an average growth rate of about 20% annually. Furthermore, Berkshire Hathaway has added more than 80% over the last five years (as of May 5, 2016) that is better than the gain of over 69% from the broader market ETF SPDR S&P 500 ETF (NYSEARCA: SPY ) during the same timeframe. Thanks to this feat, following billionaires’ investment strategies is a fad. While investing in Berkshire is always a good way of following Buffett, who is commonly known as The Oracle of Omaha, there are numerous other ways to reproduce this stock market veteran’s investment theme and add a spark to one’s portfolio. Normally, Buffett takes interest in companies trading below what he believes is their intrinsic value. He aims long-term outperformance and apparently ignores short-term travails. Since there is a huge craze of Buffett-style investing, we analyze below a few key investing strategies derived from Berkshire Hathaway’s annual general meeting. We also highlight the related ETFs for investors who want to follow this investment veteran. Excuse Yourself from IPOs The global IPO market has been on a tear lately and people churned out enough money from it. A rock-bottom interest rate environment and an even more impressive performance by the U.S. stock indices charged up the IPO market. IPO ETF First Trust US IPO Index Fund (NYSEARCA: FPX ) returned about 94% in the last five years (as of May 4, 2016), but the wining trend seem to be waning lately. The fund was off about 5.8% in the last one year and is down 1.9% so far this year (as of May 4, 2016) . But Buffet seems to be no fan of IPOs and finds them risky bets. As investors get to know very little about the company’s past or financial record , this technique does not go well with value investing. Berkshire on Acquisition Spree; Time for M&A ETF? Berkshire Hathaway Inc. acquired Precision Castparts , one of the leading manufacturers of aerospace components in a $37.2 billion deal, in the first quarter of 2016. Also, Buffett indicated that Berkshire Hathaway will continue to chase large acquisitions, going forward. This means that big acquisitions will likely be in the cards and investors can play IQ Merger Arbitrage ETF (NYSEARCA: MNA ) to cash in on the likely booming trend. Buffett’s Confusion with Negative Rates: Where to Find Yield? As several central banks are now practicing negative rates right from the ECB to BoJ, income from government bonds have declined considerably. Even in the U.S., interest rates have been at very low levels. But these hurt several corners of the business world like the financial sector. In fact, retirees also find it hard to earn interest income. Buffett is unsure about this policy as “anything that reduces the value of having money is going to affect Berkshire” . Keeping these issues in mind, investors can go for some safe but high-yielding products like PowerShares S&P 500 High Dividend Low Volatility ETF (NYSEARCA: SPHD ). The fund yields 3.33% annually (as of May 5, 2016). For European market, investors can play with First Trust STOXX European Select Dividend Index Fund (NYSEARCA: FDD ) . FDD yields 4.09% annually (as of May 5, 2016). Warren Buffett is long on Euro: Should you Really Follow this One? Don’t get shocked! Yes, Buffett, who is a benevolent promoter of the value investing, has said that Berkshire Hathaway owns Euros. In this case, think twice before copying him because Berkshire Hathaway has huge business exposure in Europe and uses the currency as payments for its operations there. But we warn investors not to be outright bullish on euro as the ECB is on a super easing mode. Though the currency lately gained strength on a weaker greenback and certain improvement in the Euro zone, the rally can lose momentum any time. So, better be watchful before betting on Euro ETF CurrencyShares Euro ETF (NYSEARCA: FXE ) . Have Faith in U.S. GDP: What to Play? Buffett admits that the U.S. GDP growth is certainly sluggish, but not awful . Though Q1 GDP was lackluster, the momentum can pick up in Q2. Plus, dollar has moderated lately on a dovish Fed, which in turn can boost exports. We suggest playing mid-cap value ETFs which offer the best of both the worlds – small and large. These have limited foreign exposure and are thus expected to gain from a falling U.S. dollar. Thus, a softer dollar and a slowly improving U.S. economy make a winning combination for mid-cap ETFs. Mid caps are less volatile than small-cap stocks. Vanguard Mid-Cap Value ETF (NYSEARCA: VOE ) is an example among many that can be tapped to play the trend. Original post

Solid Q1 Earnings Fail To Boost Pharma ETFs

Like the past several quarters, the healthcare sector has impressed with strong Q1 earnings. This is especially true as total earnings for 79.2% of the sector’s total market capitalization are up 8.8% on revenue growth of 11.2%, with earnings and revenue beat ratios of 80% and 70%, respectively. In fact, healthcare is the fourth best performing sector in terms of earnings growth trailing autos, construction, and consumer discretionary. Among the most notable players, Johnson & Johnson (NYSE: JNJ ) was the first major drug company to report earnings on April 19, followed by Eli Lilly and Company (NYSE: LLY ) and Bristol-Myers Squibb Company (NYSE: BMY ) on April 26 and April 28, respectively. Two other major U.S. drug companies – Pfizer (NYSE: PFE ) and Merck (NYSE: MRK ) – reported on May 3 and May 5, respectively. These industry primes posted solid results raising their full-year outlook that boosted investors’ confidence in the space. Notably, Eli Lilly missed our earnings estimates while Merck lagged on the revenue front. Johnson and Johnson Earnings in Focus The world’s biggest maker of healthcare products continued its long streak of earnings beat and beat our estimate on the top line buoyed by strong prescription drug revenues and a weakening dollar. Earnings per share came in at $1.68, four cents ahead of the Zacks Consensus Estimate and 7.7% higher than the year-ago earnings. Revenues inched up 0.6% year over year to $17.5 billion and edged past the Zacks Consensus Estimate of $17.42 billion (read: Healthcare ETFs to Buy on Blockbuster J&J Q1 Results ). Johnson & Johnson raised its guidance for fiscal 2016. The company now expects revenues in the range of $71.2-$71.9 billion compared with the previous forecast of $70.8-$71.5 billion. Additionally, the earnings per share guidance has been raised from $6.43-$6.58 to $6.53-$6.68. The Zacks Consensus Estimate at the time of the earnings release was pegged at $71.5 billion for revenues and $6.52 for earnings per share. These were higher than the mid-point of the company’s projection. JNJ has gained 0.2% to date since its earnings announcement. Pfizer Earnings in Focus The U.S. drug giant also topped the Zacks Consensus Estimate for both the top and the bottom lines, and raised the guidance for fiscal 2016. Earnings per share of 67 cents and revenues of $13.0 billion were ahead of our estimates by 12 cents and $1.0 billion, respectively. Notably, earnings per share grew 32% while revenues jumped 20% year over year. For fiscal 2016, Pfizer upped its revenue guidance to $51-53 billion from $49-$51 billion and earnings per share guidance to $2.38-$2.48 from $2.20-$2.30. The mid-points were much higher than the Zacks Consensus Estimate of $51.3 billion for revenues and $2.29 for earnings per share at the time of the earnings release. Shares of PFE are down 0.4% since the earnings announcement. Merck Earnings in Focus Earnings per share came in at 89 cents, four cents ahead of the Zacks Consensus Estimate and 4.7% higher than the year-ago earnings. Revenues slipped 1.2% year over year to $9.3 billion, and were slightly below the Zacks Consensus Estimate of $9.5 billion. Merck now expects earnings per share in the range of $3.65-$3.77 and revenues in the band of $39.0-$40.2 billion for 2016. This is in contrast with the previous guidance of $3.60-$3.75 and $38.7-$40.2 billion, respectively. The Zacks Consensus Estimate at the time of the release was pegged at $3.71 for earnings per share and $40.1 billion for revenues. The stock has lost about 1.3% following its earnings announcement. Bristol-Myers Earnings in Focus Bristol-Myers reported earnings per share of 74 cents, outpacing our estimate by 8 cents and increasing 4% from the year-ago quarter. Also, revenues rose 9% to $4.39 billion and edged past the Zacks Consensus Estimate of $4.24 billion. Like the other drug makers, the company also revised its earnings per share outlook upward to $2.50-$2.60 from $2.30-$2.40 for fiscal 2016. The low end was much higher than our estimate of $2.42 at the time of the earnings announcement. Revenues are expected to grow in the low double-digit range. Shares of BMY are down 1.5% to date since the earnings announcement. Eli Lilly Earnings in Focus Earnings of 83 cents at Eli Lilly missed the Zacks Consensus Estimate by a couple of cents and came in 5% lower than the year-ago earnings. Revenues grew 5% to $4.86 billion but fell short of our estimate of $4.87 billion. However, Eli Lilly raised its 2016 earnings per share guidance to $3.50-$3.60 from $3.45-$3.55 and revenue guidance to $20.6-$21.1 billion from $20.2-$20.7 billion. The Zacks Consensus Estimate at the time of the earnings release was pegged at $3.55 for earnings and $20.7 billion for revenues. Shares of LLY have tumbled 3.41% since the earnings release. ETF Angle The string of earnings beat and upbeat outlook failed to boost pharma stocks and ETFs as the industry is grappling with drug pricing issues. Below, we have highlighted the ETFs in detail: PowerShares Dynamic Pharmaceuticals Portfolio ETF (NYSEARCA: PJP ) This is by far the most popular choice in the pharma space that follows the Dynamic Pharmaceuticals Intellidex Index. The product has AUM of about $1.1 billion and sees good volume of around 192,000 shares a day. The fund charges 56 bps in fees and expenses from investors. Holding 23 stocks, the fund invests over 5% share each in the in-focus five firms. The ETF shed about 7.4% over the past 10 days and has a Zacks ETF Rank of 3 or ‘Hold’ rating with a High risk outlook. iShares U.S. Pharmaceuticals ETF (NYSEARCA: IHE ) This ETF provides exposure to 42 pharma stocks by tracking the Dow Jones U.S. Select Pharmaceuticals Index. The in-focus firms occupy the top five holdings in the basket accounting for combined 40.6% of total assets, suggesting heavy concentration. The product has $607.8 million in AUM and charges 45 bps in fees and expense. Volume is moderate as it exchanges about 52,000 shares a day. The fund has lost 7.9% over the past 10 days and has a Zacks ETF Rank of 3 with a Medium risk outlook. SPDR S&P Pharmaceuticals ETF (NYSEARCA: XPH ) This fund provides exposure to the pharma companies by tracking the S&P Pharmaceuticals Select Industry Index. With AUM of over $465.9 million, it trades in moderate volume of around 190,000 shares a day and charges 35 bps in fees a year. In total, the product holds 40 securities with the in-focus five firms taking nearly 5% share each. The product was down 9.73% in the same period and has a Zacks ETF Rank of 3 with a Medium risk outlook. Market Vectors Pharmaceutical ETF (NYSEARCA: PPH ) This ETF follows the MVIS US Listed Pharmaceutical 25 Index and holds 26 stocks in its basket. Pfizer, Bristol-Myers, Johnson & Johnson and Merck make up for over 5% share each while Eli Lilly accounts for 4.7% of assets. The product has amassed $261.3 million in its asset base and trades in a moderate volume of about 105,000 shares a day. Expense ratio came in at 0.36%. The fund has lost 5.3% over the past 10 days. It has a Zacks ETF Rank of 2 or ‘Buy’ rating with a Medium risk outlook. Link to the original post on Zacks.com

Will Volatility ETFs Rule In May?

The start of May has been tumultuous for the global stock market with volatility levels flaring up once again. The sluggish manufacturing numbers from China and U.S., a bout of softer-than-expected economic readings out of Europe and a weaker-than-expected April ADP jobs report in the U.S. have data cast a pall over the market all over again (read: Manufacturing Churns Out Slow Growth in US–ETFs in Focus ). This is especially true as the major U.S. benchmarks nosedived in last two days (as of May 4, 2016). The S&P 500 has reached the lowest level since April 11 . In fact, the ongoing earnings recession, tepid economic readings along with global growth worries have rattled the faith of investors. They have taken somber economic growth on the chin for long and sent the S&P 500 rallying as much as 15% from a February low. However, investors should note that signs of stability in the oil patch have done a lot to cool jittery investors’ nerves in this timeframe (read: MLP ETFs–Time to Invest on Oil Rebound or Too Risky? ). Now with growth worries back on the table, volatility levels have heightened and exchange-traded products designed to track the market volatility have received a shot in the arm. Volatility level is best represented by the CBOE Volatility Index (VIX). This fear gauge measures investors’ perception of the market’s risk and tends to rise during a downtrend or when investor panic starts to set in. As U.S. equities faltered, the volatility index climbed 9.3% in the past two trading days (as of May 4, 2016), suggesting that risks are rising and investors could definitely benefit from this trend. There are several ETF/ETN options available in the market that can provide some exposure to volatility. These products have proven themselves as short-time winners in chaotic times. Below we have highlighted short-term volatility products that will likely spring higher as long as growth issues continue to unsettle the global markets. As a caveat, investors should note that these products are meant for short-term trading: Regular Volatility ETFs A popular ETN option providing exposure to volatility, the iPath S&P 500 VIX Short-Term Futures ETN (NYSEARCA: VXX ) . The ETN focuses on the S&P 500 VIX Short-Term Futures Index Total Return. The index gives exposure to a daily rolling long position in the first and second month VIX futures contracts and replicates ‘ market participants’ views of the future direction of the VIX index at the time of expiration of the VIX futures contracts comprising the Index’. There are other products like the ProShares VIX Short-Term Futures ETF (NYSEARCA: VIXY ) and the VelocityShares Daily Long VIX Short-Term ETN (NASDAQ: VIIX ) . Leveraged Volatility ETFs Investors seeking to earn exorbitant gains in a very short time frame could tap leveraged volatility ETFs. Currently, there are two options available in this category – the ProShares Ultra VIX Short-Term Futures ETF (NYSEARCA: UVXY ) and the VelocityShares Daily 2x VIX Short Term ETN (NASDAQ: TVIX ) . Both products track the S&P 500 VIX Short-Term Futures Index. Link to the original post on Zacks.com