Tag Archives: industry

4 Wealthy ETFs Of 2015

Thanks to unique strategies, creativity, transparency, diversification benefits, enhanced tax competences, low turnover and low cost, the global ETF industry has seen explosive growth, snapping up a large market share from mutual funds and hedge funds. In fact, overcoming all the odds and uncertainties in the market, the ETF industry surpassed hedge funds for the first time this year (read: How ETFs Are Overtaking Hedge Funds ). Low cost has been one of the biggest crowd pullers into the ETF world. Globally, the industry has over 6,000 products with AUM of more than $3 trillion from 271 providers listed on 63 exchanges in 51 countries at the end of October, as per ETFGI . It has gathered $287.3 billion in new capital in the first 10 months of the year, up 22.3% year over year. About 60.8% ($174.8 billion) of the total inflows came from the U.S. ETFs while 23.8% came from Europe. Canada and Japan products account for $10.1 billion and $35 billion of inflows, respectively. The rapid growth can primarily be attributed to currency hedging strategies, smart beta and factor investing. In particular, currency hedging is the most sought after ETF strategy of this year due to strength in U.S. dollar brought about by the global monetary easing policies against the Fed tightening policy. This is because the currency hedged funds look to strip out currency exposure to a foreign economy via the use of currency forwards or other instruments that bet against the non-dollar currency while at the same time offer exposure to foreign stocks. After that, investors are embracing smart stock-selection techniques and strategies to alleviate the risks in the market through smart beta products. The smart beta strategy helps to capture market inefficiencies in a transparent way by adding extra metrics like dividends, volatility, revenue, earnings, momentum, equal weight and other fundamental factors to the market cap or rules-based indices. It takes specific factors from the active management universe at a lower cost and instills it in a passive listed fund (read: 5 Smart Beta ETFs to Beat the Choppy Market ). Given this, we have highlighted four ETFs that are enjoying incredible AUM growth this year. Deutsche X-trackers MSCI EAFE Hedged Equity ETF (NYSEARCA: DBEF ) – AUM Growth: 93.2% This ETF, with an asset base of around $13.7 billion and average daily volume of more than 3.9 million shares, emerged as the biggest winner in the currency hedge space. It has pulled in about $12.8 billion in capital so far this year. This fund targets the developed international stock market with no currency risk and tracks the MSCI EAFE US Dollar Hedged Index. In total, the product holds 917 securities in its basket with none holding more than 1.93% share. However, it is skewed toward the financial sector, which makes up for one-fourth of the portfolio, while consumer discretionary, industrials, consumer staples and health care round off the top five with double-digit exposure each. Among countries, Japan takes the top spot at 23%, closely followed by United Kingdom (18%), France (10%) and Switzerland (10%). The fund charges 35 bps in fees per year from investors and has gained 6.1% so far this year. It has a Zacks ETF Rank of 3 or ‘Hold’ rating. QuantShares U.S. Market Neutral Anti-Beta ETF (NYSEARCA: BTAL ) – AUM Growth: 90.7% This fund invests in low beta securities and simultaneously in short high beta stocks of approximately equal dollar amounts within each sector. It seeks to deliver the spread return between low and high beta stocks. This can easily be done by tracking the Dow Jones U.S. Thematic Market Neutral Anti-Beta Index. This approach results in long and short positions in 200 stocks, in equal proportions. The fund is expensive, charging 1.49% in fees per year and trades in a good volume of about 142,000 shares per day. BTAL is unpopular having AUM of $9 million, out of which $8.16 million has been scooped up this year. The fund is down 2.9% in the year-to-date timeframe. WisdomTree Europe Hedged Equity Index ETF (NYSEARCA: HEDJ ) – AUM Growth: 75.8% HEDJ has gathered about $15.7 billion in capital since the start of 2015 that has boosted its asset base to over $20.7 billion. The ETF tracks the WisdomTree Europe Hedged Equity Index holding 128 securities with each security holding no more than 6.08% of assets. It is also pretty well spread across a number of sectors with consumer staples, industrials, consumer discretionary, financials and health care taking double-digit exposure each. Among countries, Germany (25.9%), France (24.5%), the Netherlands (17.1%) and Spain (16.6%) dominate the holdings’ list. The fund charges 58 bps in annual fees and sees an average daily volume of about 4.9 million shares. It has surged 11.7% in the year-to-date timeframe and has a Zacks ETF Rank of 3 or ‘Hold’ rating. First Trust Dorsey Wright Focus 5 ETF (NASDAQ: FV ) – AUM Growth: 72.8% This ETF tracks the Dorsey Wright Focus Five Index, which provides targeted exposure to the five First Trust sector and industry-based ETFs that Dorsey, Wright & Associates (DWA) believes have the maximum chance of outperforming the other ETFs in the selection universe. Securities with high relative strength scores (strong momentum) are given higher weights. Currently, the product has the highest exposure to the biotech sector via the First Trust NYSE Arca Biotechnology Index ETF (NYSEARCA: FBT ) at 24.8%, followed by the First Trust DJ Internet Index ETF (NYSEARCA: FDN ) and the First Trust Health Care AlphaDEX ETF (NYSEARCA: FXH ) at 21.3% and 19.4%, respectively. It has attracted over $3.2 billion, propelling its total AUM to $4.4 billion. FV trades in solid volumes of more than 2.1 million shares a day on average but charges a higher 94 bps in fees. The ETF has returned 4.2% in the year-to-date timeframe. Link to the original post on Zacks.com

Westar Energy: A Progressive Utility With A 3.5% Yield

Summary Westar Energy harnesses wind in Kansas for cheap power. Westar Energy retiring three old coal and gas plants. Westar implemented a $78 million rate increase in October. Westar Energy (NYSE: WR ) is a progressive utility company that is aggressively moving to clean power. Westar Energy plans to nearly double its clean power while reducing fossil fuel energy by 7%. In my previous article about Westar Energy, I told investors to buy this stock around $37 per share as the company adds cheap wind power while reducing coal. Kansas has some of the strongest winds in the country. Westar is prepared for tougher environmental regulations from the Clean Power Plan. The Clean Power Plan establishes state-by-state targets for carbon emissions reductions, and it offers a flexible framework under which states may meet those targets. The final version of the rule would reduce national electricity sector emissions by an estimated 32% below 2005 levels by 2030. Westar Energy has sufficient capacity right now to meet demand. But on a conference call with investors, Mark Ruelle, president and chief executive officer, said the investment in wind is primarily because it’s so inexpensive with the tax credits. The move also is a bit of a hedge on what form the Clean Power Plan takes in Kansas. Ruelle said wind energy is a bargain right now. (click to enlarge) Ruelle said Westar Energy has sent out requests for proposals to add another 500 megawatts of power. Right now 9% of Westar’s generation is from renewable resources, but that number will grow to 17% of generation in 2016. Nearly all of this energy will be from wind. Westar Energy’s energy generation mix includes 700 megawatts from wind energy, with commitments to add another 600 megawatts under development for a total of 1,300 megawatts. In addition, Westar is now considering adding another 500 megawatts on top of the 1,300. “We’re continuing to evaluate, but right now it looks like it makes more sense for our customers if we own all of our sizable portion of the incremental renewables,” Ruelle said. “Today our renewables portfolio is heavily imbalanced for PPA (Purchase Power Agreement) vs. ownership and if we don’t re-balance it a bit that might set us and our customers up for problems down the road when the PPAs expire, plus customer economics favor ownership,” Ruelle said. Westar Energy recently announced plans to close three small units at Lawrence, Tecumseh and Hutchinson by the end of the year. These are the first major unit that Westar has closed in the past few decades. The Lawrence and Tecumseh units burn coal, and the Hutchinson one uses natural gas. “It’s been good for our customers to hold on to these small old units as long as we reasonably could, but for a number of reasons, now is the right time to let them go,” Ruelle said. “They have lasted decades longer than anyone ever imagined, some of them are older than me, but given the clean power plan, their age, size and our need to manage expenses, it just doesn’t make sense to pour more money into them. They reflect two small 50s and early 60s vintage COLI units and a 60s vintage gas steamer. Together they are just 350 megawatts and less than 1% of plant investment.” Third quarter Westar Energy’s third quarter was sluggish. Cool-to-mild temperatures in August hurt demand for electricity. Westar Energy posted 3Q15 earnings of $138.2 million or $0.97 per share, compared with $146.9 million or $1.13 per share in 3Q14. Earnings for the nine-month period ended Sept. 30, 2015, were $253.4 million or $1.84 per share, compared with $270.3 million or $2.08 per share for the same period in 2014. The company has narrowed its 2015 earnings guidance range to $2.18-$2.25 per share from $2.18-$2.33. The company issued preliminary 2016 earnings guidance of $2.38-$2.53 per share. The company has strong financial strength. The company’s debt is investment grade. Total long-term debt was $2.941 billion at the end of 3Q15, compared to $3.224 billion at the end of 2014. The stock trades around 18.8 times earnings, which is a slight premium to its peers. Westar will see earnings improve in the fourth quarter and in 2016 due to implementation of a $78 million rate increase, approved by the Kansas Corporation Commission. Risks Utilities are sensitive to interest rates. When the Federal Reserve begins raising interest rates, these stocks are likely to take a hit. Utilities had a nice run up in 2014, but haven’t performed well in 2015. The Utilities Select Sector SPDR Fund (NYSEARCA: XLU ) is down -9.47% YTD. Westar stock has held up fairly well in 2015, down only -1.14% YTD. Ruelle said one large chemical producer had reduced consumption of electricity due in part to the low prices for oil. I believe we are near a bottom in oil but the price recovery will be slow and arduous. Weather is always a factor with utilities. Westar benefits from extremely hot temperatures in the summer and really cold temperatures in the winter. 2015 was mild to moderate most of the year in Kansas. Conclusion If Westar falls into the high $30s again, investors may want to consider buying the stock. Westar is a well-run utility with strong financials and steady income. The stock offers a yield of 3.5% with potential for modest appreciation. I bought WR at $37.03 on Aug. 27, 2015. The stock recently traded at $41.32 per share, a gain of 11.58% plus the gain from the $0.36 dividend for a total gain of 12.55%. I’m holding o nto the stock. Long-term investors will get the dividend and likely modest appreciation with a 12-month target price of $44.

Did Restaurant Earnings Impact This New ETF?

With the introduction of the new Restaurant ETF (NASDAQ: BITE ) at the end of last month, time has come to evaluate the impact of the recent spate of restaurant industry earnings on it. Most of the restaurant stocks delivered better-than-expected earnings and rising same-store sales (comps) in the last reported quarter. The upbeat results definitely speak about the strong fundamentals of the industry. Low fuel cost, an improving U.S. economy, rising consumer confidence, higher consumer spending and better job prospects all bode well for the restaurant industry. Let us take a quick glance at some of these results. Restaurant Earnings in Detail McDonald’s Corporation (NYSE: MCD ) posted earnings per share of $1.40 for the third quarter that beat the Zacks Consensus Estimate of $1.27 by 10%. Earnings, in constant currencies, grew 44% year over year driven by decline in total costs and expenses and a lower share count. Revenues of $6.62 billion declined 5% year over year due to currency headwinds but grew 7% in constant currencies, beating the Zacks Consensus Estimate by 2.7%. This was driven by comps growth at all its segments. The maker of hamburgers and fries expects comps to grow in the fourth quarter as well. Starbucks Corporation’s (NASDAQ: SBUX ) adjusted earnings of 43 cents per share in the fourth quarter of fiscal 2015 missed the Zacks Consensus Estimate of 44 cents by 2.3%. However, earnings were on the higher end of management’s guided range and grew 16% year over year as solid top-line growth offset lower margins. Sales rose 18% to $4.91 billion, outpacing the Zacks Consensus Estimate of $4.89 billion by 0.5% driven by robust comps. Global comps growth of 8% was higher than a 7% rise in the previous quarter, driven by increased traffic trends. The company expects revenues to grow more than 10% in fiscal 2016, excluding the extra 53rd week. Comps are expected to grow somewhat above the mid-single-digit range. Buffalo Wild Wings Inc.’s (NASDAQ: BWLD ) third-quarter results were disappointing. The restaurant operator’s adjusted earnings of $1.00 per share fell 12.2% year over year and were short of the Zacks Consensus Estimate of $1.28 by 22% owing to higher food and labor costs. Despite a 22% increase, the company’s revenues of $455.5 million missed the consensus estimate by roughly 1.8%. It also expects single-digit net earnings growth for 2015 compared with 13% growth expected previously. The Wendy’s Company’s (NASDAQ: WEN ) adjusted earnings came in at 9 cents per share, exceeding the Zacks Consensus Estimate by 12.5% and year-ago earnings by 28.6% driven by lower expenses and improved margins. Total revenue of $464.6 million beat the consensus mark of $442.0 million by 5% but declined 6.5% from the prior year. The company marginally revised its earnings, EBITDA and comps guidance for 2015 on the basis of strong year-to-date operating results and encouraging response to the 4 for $4 promotion that began in October. ETF Impact Strong results notwithstanding, the performance of restaurant stocks has not been commensurate due to several headwinds like the threat of higher labor costs due to demand for rising minimum wages, price wars, strong currency and a slowdown in the Chinese economy. This found a reflection in the performance of BITE, which exclusively focuses on this industry. The fund has tumbled 5.8% since its launch (as of November 12, 2015). Except McDonald’s and Starbucks, nearly all the stocks in the fund’s top 10 holdings nosedived in the past one month. Investors, therefore, should exercise caution before hopping into this niche ETF and closely monitor its price movements in the coming days. Let us take a look at this ETF in greater detail. BITE tracks the BITE Index, which is an equal-weighted index comprising 45 publicly-traded companies in the U.S. The fund’s holdings include some of the renowned companies in the restaurant industry that operates a broad variety of restaurant formats raging from quick serve and fast casual to casual dining and fine dining. The fund’s top five holdings include McDonald’s, Starbucks, Carrols Restaurant Group Inc. (NASDAQ: TAST ), Chuy’s Holdings, Inc. (NASDAQ: CHUY ) and Ruth’s Hospitality Group Inc. (NASDAQ: RUTH ). Together, the top 10 holdings occupy 27.6% of the fund’s assets. BITE has net assets worth $2.4 million and is thinly traded with an average volume of around 5,000 shares per day. The fund is a bit expensive with 0.75% in expense ratio. Original Post