Tag Archives: investing

Sector ETF Winners And Losers From The Winter Storm

Finally, the northeast U.S. encountered the winter storm Jonas defying widespread talks about a warmer winter this year. Freezing temperatures not only took the region under the quilt of heavy snow, but also left a deep impact on the U.S. economy. Though the snow storm has stopped, up to almost 30 inches of snow will likely paralyze economic activity for the coming few days. However, pros and cons are probably related to every event. Among all the sectors, there are a few that stand to gain from this blizzard, and others that are likely to be badly hit. Below we highlight some sectors which are in focus after the winter storm Jonas. Gainers Energy Why the energy sector is a clear winner of this weather disruption is anybody’s guess. As almost 50% of Americans use natural gas for heating purposes, expectations of higher usage of natural gas pushed up the commodity’s prices recently. Not only this, the positive side of increased heating demand was also felt in to the most beleaguered commodity – oil. As a result, the First Trust ISE-Revere Natural Gas Index Fund (NYSEARCA: FCG ) added over 5% on January 22 while the crude oil ETF, the United States Oil ETF (NYSEARCA: USO ) , advanced about 8.3% on the same day both on the cold snap and compelling valuation (read : Oil and Energy ETFs That Hit All-Time Lows ). Retail Retail sales have been a cause of concern for quite some time now. The key barometer of economic well-being is not keeping pace with economic growth. Retail and food services sales declined 0.1% in December, while the consensus had estimated the figure to remain unchanged. Meanwhile, retail sales increased 2.1% in 2015, its weakest yearly progress since 2009. One reason for this could be that after seeing one of the worst recessions few years ago, consumers are saving more and purchasing less. But the latest monthly slump was mainly due to the second-most mild December since late 1800s which debarred consumers to shell out on winter essentials like sweaters, coats or boots (read: Weak Retail Sales Hurt These ETFs; What Lies Ahead? ). So, the latest volley of snow and the expectation of chilly days ahead may boost sales of winter garments and benefit retailers. This theory put retail ETFs including the SPDR S&P Retail ETF (NYSEARCA: XRT ) , the Market Vectors Retail ETF (NYSEARCA: RTH ) and the PowerShares Dynamic Retail Portfolio ETF (NYSEARCA: PMR ) in focus. XRT, RTH and PMR were up 1.8%, 1.9% and 1.7%, respectively, on January 22. Losers Transportation Since roads, railways and runways are under the coverlet of almost record amounts of snow and people are locked inside, transportation stocks and the related ETFs are expected to be hurt. As per CNN , the Long Island Rail Road, suffered considerable damage during the storm and five out of its 12 branches- that make up about 20% of traffic in the rail network – will remain closed even after the storm, for repairs. Roadways are still not ready for communication and will likely leave an adverse impact on transportation ETFs like the SPDR S&P Transportation ETF (NYSEARCA: XTN ) and the iShares Transportation Average ETF (NYSEARCA: IYT ) . Though XTN and IYT added 1.9% and 1.3% respectively on January 22, 2016 in line with the broader market rally, their first-quarter results are likely to have a bearing of this cold snap. Both ETFs have a Zacks ETF Rank #4 (Sell). Airlines This sector is yet another victim of the whiteout. Such a momentous snow event has already cancelled about 10,000 flights. A rapid resumption seems implausible given the loads of snow on the runways and the still-unclear weather. Though airlines are trying to cope with storm-related losses by issuing weather waivers for fliers, we believe that airlines have to bear with some losses as travel demand has weakened. So, investors need to be watchful on the airline ETF, the U.S. Global Jets ETF (NYSEARCA: JETS ) . Like transportation ETFs, this airline ETF may also have to face some weakness in the Q1 earnings results. Hospitality Tourism and hospitality sectors are also likely to be hit during this snow storm. So, the PowerShares DWA Consumer Cyclicals Momentum Portfolio (NYSEARCA: PEZ ) which invests over 25% in Hotels, Restaurants & Leisure and over 11% in Airlines, or the PowerShares Dynamic Leisure and Entertainment Portfolio ETF (NYSEARCA: PEJ ) having considerable weights in restaurants, resorts and airlines are likely to feel the brunt of the snow storm as the underlying companies will do less business as long as the freezing phase continues. The Restaurant ETF (NASDAQ: BITE ) , otherwise a strong bet on the improving restaurant sector, might also see some weakness thanks to a temporary slack in sales. Link to the original post on Zacks.com

Using Active Share To Evaluate High-Yield Bond Portfolios

There are two chief ways of measuring a portfolio’s deviation from its benchmark: tracking error and active share. The first, tracking error , is the older and more traditional. It gauges a portfolio’s performance deviation from a benchmark return over time – essentially telling an investor how different the returns are from the benchmark. The second, active share , is newer but steadily gaining steam. It specifically measures how unique a portfolio is, at the holdings level, relative to the benchmark. Tracking Error vs Active Share Of the two, which is best? That’s the question MFS Fixed Income Portfolio Manager David Cole, Chief Risk Officer Joseph Flaherty, and Quantitative Research Analyst Sean Cameron set out to answer in an October 2015 white paper Active Share: A valuable risk measure for high-yield portfolios . As evident from the title, the trio values active share – but not exclusively. While active share can be an alternative to tracking error, one can complement the other, particularly in measuring the relative risk of a high-yield bond portfolio, which is the subject of the paper. Their findings: Active managers are increasingly being asked to demonstrate just how active they really are. Active share is the best measure for making this determination, since it looks at portfolios on the holdings level, whereas tracking error merely shows deviation of performance. Both can be useful, but tracking error is more a proxy for “systematic factor exposure,” whereas active share provides “valuable information on the degree of conviction,” according to the paper’s authors. As stated earlier, active share and tracking error can be used together, and this is especially useful in classifying high-yield bond portfolio managers. Using both measures allows investors to gauge a manager’s “activeness” and determine the sources of that activeness. According to the authors, “relatively high active share in combination with relatively low tracking error would be consistent with an active, diversified, high-yield credit manager.” Portfolio Insights Active share has typically been used in evaluating equity portfolios, but Cole, Flaherty, and Cameron show its usefulness-sometimes in conjunction with tracking error-in assessing high-yield bond portfolios, too. Active share in particular can give investors insight into the drivers of risk and return in credit-oriented fixed-income portfolios, which may have low tracking error but are actually quite active. “This,” according to the authors, “is consistent with a high-yield manager’s investment process, which frequently entails minimizing systematic risk while seeking to maximize returns from the security selection process.”