Tag Archives: investment

Before The Fed Rate Hike, Buy These Stocks And ETFs

When the Fed meets for the final time in 2015, many investors are expecting them to do something that hasn’t been done in nearly a decade, raise rates. The last such rate hike came back in 2006 and brought us up to 5.25%, but it didn’t last long as rates soon cratered before finding bottom near zero in December of 2008 and staying there ever since. But now with an economy on more solid footing and inflation slowly starting to creep back towards a two percent target rate, it may be time to hike rates. After all, the whole idea of zero percent rates was predicated on a crisis situation. It is hard to say that we are still in a ‘crisis’ now, suggesting it is well past the time to consider a rate hike for the economy. Some investors still remain woefully underprepared for this reality, believing that a rate hike simply will not happen. But with a parade of Fed officials coming out lately to say otherwise, not to mention a CME Fed Watch reading approaching 80% chance for a hike , it is looking more and more likely that a hike is all but inevitable at this point. There is still plenty of time to prepare though. A closer look at financial stocks and also bond instruments which will not be hit by rising rates seems like a good plan for now. As such, I have taken a look at a few such good options below, any of which could make for solid choices ahead of a rate hike, no matter when the inevitable does strike: CBOE Holdings (NASDAQ: CBOE ) The Chicago Board Options Exchange may not be the first name you think of in a rising rate scenario, but it could actually be one of the better positioned – and more overlooked – choices in the space. That is because the company’s primary products, options on the S&P 500 and volatility-linked options, stand to see more trading as the Fed adjusts rates (with volatility coming especially into focus). Analysts have also begun to adjust their opinion of CBOE stock as we have seen broad analyst estimate increases in the past quarter. The full-year consensus estimate has increased from $2.21/share to $2.41/share in the past ninety days while we have also seen a positive trend for the next year time frame too. CBOE is also riding an earnings beat streak of three straight quarters and in each of these reports the company has beaten estimates by at least 4%. So not only has CBOE been an impressive pick as of late, but it could be a stealth choice for investors to play a Fed rate hike, and especially considering this is currently a Zacks Rank #2 (Buy) security right now. E-Trade Financial (NASDAQ: ETFC ) When the Fed raises rates, it is great news for investment brokers. Companies in this space make money off of the float, or invested capital that hasn’t been allocated to securities yet. And when rates increase, the return companies like E-Trade can generate is even greater. Though there are many names in the investment broker space, ETFC stands out as a great choice right now. The company is expected to see double-digit EPS growth this year while it currently has an earnings ESP of 6.9%. Best of all, analysts have begun to raise their estimates for the stock while all the recent estimates for the current year EPS have gone higher in the past two months. This has been enough to move ETFC to a Zacks Rank #1 (Strong Buy) making it a great pick ahead of a possible rate hike. WisdomTree Barclays U.S. Aggregate Bond Negative Duration Fund (NASDAQ: AGND ) A lot of investors like the safety of bonds and I can see how this can make up a decent size position of many portfolios. However, rising rates are generally bad news for bonds as bond prices have an inverse relationship with rates. Fortunately, WisdomTree’s ETFs in the bond space look to mitigate these worries with a lineup of negative duration products. These funds move higher when yields do and thus can be great bond choices for investors in this type of environment. Costs aren’t too bad here either at just 28 basis points a year, while yields come in at about 2%. And with an effective duration of roughly -4.5 years, this should benefit from rising rates but still won’t be too volatile either. Ex-Rate Sensitive Low Volatility Portfolio (NYSEARCA: XRLV ) If equities are more of your game but you are still concerned about volatility, than XRLV is definitely worth a closer look. This fund looks at 100 S&P 500 components that exhibit both low volatility, and low interest rate risk. This approach looks to exclude those that tend to perform the worst in rising rate environments, giving a tilt towards financials (28%), industrials (21.8%), and consumer staples (15%). There is definitely a large-cap focus here, but mid caps still make up nearly one-third of the portfolio too. XRLV will definitely be a lower risk choice to play the rising rate trend while it is a pretty cheap selection too at just 25 basis points a year in fees. And while volume isn’t great here, the product does have a pretty tight bid ask spread thanks to its focus on highly liquid securities trading in the U.S. market. Original Post

This New Alternative Energy ETF Continues To Bleed

Renewable energy YieldCos continue to feel the pain. This investment vehicle was once conceptualized and launched for the sake of helping energy companies raise cheaper project financing while benefiting investors through higher distributions and yield. But now they continue to bear the brunt due to several reasons. First, the recent crash in crude oil prices to the $40 level is taking its toll on YieldCo stocks. Low oil prices reduce the demand for renewable energy and therefore YieldCos. Second, the slowdown in China, the world’s biggest producer of solar panels, doesn’t bode well for them. China is projected to grow by 6.8% in 2015, which would be the lowest in 25 years. Third, the brightened prospect of an interest rate hike by the Fed in December makes the high-yielding YieldCo stocks less appealing to investors. Further, a rising interest rate scenario is never desirable for them, as it raises their cost of project financing on which they are highly dependent. Finally, YieldCos need to issue shares (generally at higher prices than their IPOs) from time to time to raise capital for new investments as most of their cash flow gets wiped out by paying dividends. However, they are facing difficulties on this front due to depressed renewable energy stocks and an oversupply of YieldCos in the market, making investors reluctant to pay higher prices. Let us consider the performance of three new YieldCos, TerraForm Power, Inc. (NASDAQ: TERP ), TerraForm Global, Inc. (NASDAQ: GLBL ) and 8point3 Energy Partners LP (NASDAQ: CAFD ). Shares of TerraForm Power lost a significant 73.8% since its IPO was launched by SunEdison, Inc. (NYSE: SUNE ) last year. On the other hand, shares of TerraForm Global, also launched by SunEdison, cooled off 59.3% since its IPO this August. Meanwhile, shares of 8point3 Energy Partners shed 42.1% since its IPO launched by FirstSolar Inc. (NASDAQ: FSLR ) and SunPower Corp. (NASDAQ: SPWR ) in June this year. Notably, SunEdison YieldCos – TerraForm Power and TerraForm Global – posted dismal quarterly results at the beginning of this month. TerraForm Power reported a loss of 3 cents per share for the 2015 third quarter in sharp contrast to the Zacks Consensus Estimate of earnings of 28 cents. On the other hand, TerraForm Global reported a considerably wider-than-expected loss of 33 cents per share for the quarter compared with the Zacks Consensus Estimate of a loss of 14 cents. The oldest surviving YieldCo, Brookfield Renewable Energy Partners LP (NYSE: BEP ), formed by Brookfield Asset Management (NYSE: BAM ), also posted a wider-than-expected loss of 7 cents per share compared with the Zacks Consensus Estimate of a loss of 5 cents at the beginning of this month. The YieldCo had generated earnings in the three preceding quarters. These adverse developments have led Global X YieldCo ETF (NASDAQ: YLCO ) to tumble 32.2% since its launch in May this year by Global X (as of November 23, 2015). YLCO intends to diversify the risk of owning YieldCo stocks by tracking the Indxx Global YieldCo index. The ETF holds 20 securities with Brookfield Renewable Energy Partners, NextEra Energy Partners, LP (NYSE: NEP ) – a NextEra Energy, Inc. (NYSE: NEE ) YieldCo – and NRG Yield, Inc. (NYSE: NYLD ) – a NRG Energy, Inc. (NYSE: NRG ) YieldCo – taking up the first, second and third spots with 12.13%, 9.02% and 8.36% shares, respectively. The fund is highly concentrated in its top 10 holdings, which account for 68.74% of total assets. It has a global footprint with the U.S. occupying the top spot at 37%, followed by Canada (31%), U.K. (20%) and Spain (12%). YLCO has gathered a meager $3.5 million in assets and trades in a paltry volume of 4,000 shares. It charges 65 bps in annual fees from investors and has a dividend yield of 2.8% (as of November 23, 2015). Original Post

VEU: Now Might Be A Good Time To Add Foreign Equity Exposure To Your Retirement Portfolio

Summary Investing for retirement can be as simple or as complex as you want to make it. One well diversified global ETF with a low expense ratio is a good start. Given the relative under-performance of foreign equities over the last five years, now might be a good time to add exposure to foreign equities to your retirement portfolio. This article reviews VEU, an ETF that can be added effectively to the core portion of most investors’ portfolios to increase exposure to foreign equities. Simply Investing – Philosophy Whether you are just starting to invest for yourself or your kids or are taking back control of your investments from an investment advisor, keep investing simple, consistent, diversified and low cost and you will significantly increase your chance of success. One well diversified global ETF with a low expense ratio is all that is required for many people starting to invest in equities, and an ETF that meets these criteria is the Vanguard Total World Stock ETF (NYSEARCA: VT ). As an investor’s experience, time dedicated to investing activities and desired risk, increases, investors can add ETFs to the core of their portfolio to gain exposure to new areas or increase exposure to areas that the investor believes will outperform. The next step for many investors is to allocate a percentage of their portfolio to “edge” positions, which offer additional risk and opportunity. Vanguard FTSE All-World ex-US ETF (NYSEARCA: VEU ) This article reviews VEU, an ETF that can be added effectively to the core portion of many investors’ portfolios to increase exposure to foreign equities. VEU – Regional allocation and investment synopsis Source: Vanguard (allocation as of 10/31/2015) VEU seeks to track the performance of the FTSE All-World ex US Index. It has holdings in approximately 2,500 stocks with broad exposure across developed and emerging non-US equity markets around the world. VEU’s broad global diversification helps to minimize volatility that any one region may experience. As can be seen above, VEU’s heaviest weighting is in European stocks. Investors looking to increase their exposure to foreign stocks should consider whether they want a heavy concentration of European stocks in their foreign stock ETF, when adding this ETF to their portfolio. VEU performance compared to the S&P 500 (click to enlarge) Source: Yahoo Finance (11/29/2015) As the chart above shows, the S&P 500 has significantly outperformed VEU over the last five years. There are a number of reasons for this including the relative strength of the US economy and the US dollar compared to foreign economies and currencies. While the out-performance of the US market may continue for some time, after such an extreme period of under-performance by foreign stocks, now might be a good time to start building or add to a core position in foreign stocks in anticipation that this under-performance will, at some point, at least partially reverse itself. VEU -Equity characteristics Source: Vanguard (as of 10/31/2015) As the table above indicates, VEU is very well diversified, holding 2,508 stocks. The median market cap is quite large at $28.5 billion. VEU’s current price/earnings ratio at 17.4 is high compared to historical levels for global markets. The high current price/earnings ratio is not unique to VEU. The price/earnings ratios for US markets and many global markets are currently higher than historical norms. These high price/earnings ratios are likely due to the low returns that alternative investments, such as fixed income, currently offer. Investing for retirement should be done on a consistent basis. A simple investment plan, makes consistent investment that much more likely to happen. The relatively high current price/earnings ratio of stocks suggests that if you have a large amount of capital to invest today, it is advisable to dollar cost average this investment into the market over a period of time. VEU – Top 10 holdings Source: Vanguard (as of 10/31/2015) VEU’s top ten holdings are dominated by European companies, with eight out of the ten holdings European. As previously indicated, European stocks make up 47% of VEU’s holdings, so they are somewhat over-represented in this list of VEU’s top ten holdings, but these top ten holdings make up only 8.9% of total net assets. VEU – Expense ratio and dividend yield VEU’s expense ratio is 0.14%, this is well below the average expense ratio of similar funds at 1.16%. Given the relatively high price of the market today, it is likely that future returns may be lower than those recently experienced. In this environment, it is important that the core of your portfolio is allocated to funds with low expense ratios like VEU. The forward looking dividend yield is 2.95% based on the last four quarters distributions. Conclusion Your chance of long term investment success increases significantly by keeping your investing simple, consistent and well diversified. Most investors can benefit by building a core position in a well diversified global ETF with a low expense ratio like the Vanguard Total World Stock ETF. After establishing an initial core position in a global ETF, then additional low cost, well diversified ETFs can be added to the core portion of your portfolio to gain exposure to areas under-represented or which the investor believes will out-perform. With the relative under-performance of foreign stocks compared to the US market over the last five years, now might be a good time to increase your exposure to foreign stocks by to adding a low cost, well-diversified foreign stock fund like VEU to the core portion of your portfolio.