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Is It A Temporary Recovery For Oil?

Famous American industrialist, Jean Paul Getty once said: “Formula for success: rise early, work hard, strike oil.” Though the major oil suppliers followed Getty’s formula seriously, they forgot to consider the demand side. Since the middle of last year, the market is witnessing a free fall in crude prices. In fact, the price of West Texas Intermediate (NYSE: WTI ) fell nearly 60% as compared to mid-2014, when oil was trading above $100 each barrel. Though the price of WTI surged nearly 6% on Friday after jumping 10% a day before, there are still speculations that the momentum is hardly sustainable. The slump in oil prices took a toll on energy shares over the past few months. The biggest energy fund – the Energy Select Sector SPDR ETF (NYSEARCA: XLE ) – lost 8% and 17% in the past one-month and three-month periods, respectively. The slowdown in Chinese economy, an increase in the U.S. rig count, a stronger dollar and oversupply concerns emerged as the key reasons behind the slump. Will It Sustain? The recovery in crude prices at the latter half of last week comes as a surprise, since the fundamentals driving oil price are not so strong. A better-than-expected second-quarter U.S. GDP report, the rebound in Chinese stock markets and the decline in oil inventory emerged as the main reasons behind the surge. However, it is anticipated that these factors had a temporary effect on crude price, and will fail to offset the weak global economic picture and oversupply concerns in the long term. In China, which is the world’s second largest consumer of oil, manufacturing activity for the month of August touched the lowest level in the last six and a half years, basically underlining a frail economy. This also highlights that if China wants to reach its 7% GDP growth target in 2015 – the lowest in years – the country will have to come up with measures to stimulate its economy. In fact, without a step-up, some analysts apprehend that China’s economic activity may fall below 7% in the third quarter. Moreover, news that oil producers increased their rig count for five straight weeks shocked an already oversupplied market. Separately, the nuclear deal between Iran and the U.S. raised concerns about increased oil supply. Moreover, buoyed by higher output from Iraq and Saudi Arabia, the Organization of Petroleum Exporting Countries (OPEC) is currently producing oil higher than their target. Also, foreign oil companies are finding it more profitable to sell crude in an environment of stronger dollar, which in turn, is putting pressure on oil supply. Who are Making the Most? Recently released auto sales data indicates the benefits from the low oil price environment. U.S. auto sales came in ahead of expectations in July, fueled by demand for light trucks and sports-utility vehicles rather than fuel-efficient cars. The seasonally adjusted annual sales rate (SAAR) climbed 3.2%, from June to 17.6 million in July, its second highest tally in a decade. Meanwhile, the airline industry is one of the major gainers from this situation. In the second quarter, the aviation industry is said to have amassed a record quarterly profit of more than $5 billion. The plunge in fuel prices, along with strategic investments to bring in more passengers on board has buoyed profit margins. In this situation, the Auto fund – the First Trust NASDAQ Global Auto Index ETF (NASDAQ: CARZ ) – and airlines fund – the U.S. Global Jets ETF (NYSEARCA: JETS ) – will remain on investors’ radar in the coming days. Separately, along with strong labor market conditions, the decline in oil prices has played an important role in boosting consumer spending. According to the “advance estimate” released by the U.S. Department of Commerce, Real Personal Consumption Expenditure rose 2.9% during the second quarter, higher than the first quarter’s growth rate of 1.8%. Moreover, the Commerce Department reported that retail sales increased 0.6% in July from the previous month, in which sales had remained flat. Core retail sales increased 0.3%, following revised gains of 0.2% in June. In this favorable environment, investors will closely watch the performances of top two retail funds, the SPDR S&P Retail ETF (NYSEARCA: XRT ) and the Market Vectors Retail ETF (NYSEARCA: RTH ), in order to analyze the sector trend in coming days. Bottom Line With less and less possibility of a sustainable oil price recovery in the upcoming months, investors will do well to focus on the sectors discussed above in this volatile environment. Original Post

3 Mid-Cap Value ETFs For Every Kind Of Investor

Mid-cap value ETFs are often overlooked, yet have significant upside. Quasi-active management at some funds have helped performance while reducing risk. They also offer modest dividend yield, making them exceptional for all investors. I am a value investor, meaning I look for stocks that the market hasn’t discovered yet or that are out of favor for some reason. One of my favorite areas for value stocks is the mid-cap arena. Some of my best picks over the years have been those that started as small-caps and grew due to their success. It’s these overlooked stocks whose stories I like that I spend most of my time on. However, I can’t spend all my time on them, and that’s why I’ve been hunting down 3 mid-cap ETFs to share with aggressive investors, conservative investors, and the average investor. Why own a mid-cap ETF? Other than the fact that mid-cap stocks have historically outperformed their larger brethren and offer the best chances of obtaining a multi-bagger return, you must have diversification in your portfolio. Sector outperformance occurs all the time, and the more diversification you have, the better. If you don’t have diversification, then you risk seeing your overall portfolio fall more in bad times by having your money overly concentrated. Here are my choices for mid-cap value ETFs for the average Joe investor, aggressive investor and conservative investor. For aggressive investors, have a look at the WisdomTree MidCap Earnings Fund (NYSEARCA: EZM ) . I like its very low expense ratio of 0.38%, which is more than covered by its 1.2% yield. As quasi-actively managed model, it means there’s a bit more risk involved than an ETF that seeks to mirror an index. It takes companies in the top 75% of the market capitalization of the WisdomTree Earnings Index, removes the top 500 largest companies, and is earnings-weighted in December of each year. Thus, companies with greater earnings generally have larger weight in the index. So it isn’t just blindly cap-weighted. The fund holds 612 stocks. The top 10 account for about 6% of the total asset base, and this speaks to its broad diversification. The top holdings tend to rotate quite a bit. Right now, the top three are WABCO Holdings (NASDAQ: WB ), Santander Consumer USA Holdings (NYSE: SC ) and Brunswick Corp. (NYSE: BC ) . It has 25% of assets invested in financials, 19% in industrials, 17% in consumer discretionary, 13% in IT, 6% in utilities, 6% in materials, and 5% in energy. This more aggressive approach is why it has significantly outperformed the S&P 500 since inception in February of 2007 – 79% to 37%. It’s also why it carries a beta of 1.14 over 3 years, where 1.0 means it carries about the same risk as the S&P 500. For the average Joe investor, I’m sticking with the same fund family in the form of the WisdomTree MidCap Dividend Fund (NYSEARCA: DON ). The approach is somewhat similar to the previous fund but even less actively managed. The fund holds the companies that compose the top 75% of the market capitalization of the WisdomTree Dividend Index after the 300 largest companies have been removed. The index is dividend-weighted annually to reflect what each company is expected to pay in the coming year. The dividend yield isn’t something investors will kill to own, but at 2.76%, it more than covers the 0.38% expense ratio. The fund’s assets are also nicely diversified with 396 stocks. The top 10 holdings are about 10% of the total asset base. The top components also tend to rotate a good deal. The biggest holdings now are Maxim Integrated Products (NASDAQ: MXIM ), Mattel (NASDAQ: MAT ) and Ameren (NYSE: AEE ). The fund has earned about the same return of the S&P 500 but with a beta of 0.95, meaning about 5% less risk. If you’re a conservative, then take a look at the PowerShares Russell Midcap Pure Value Portfolio (NYSE: PXMV ) . Be alert that up until May 22 the fund was known as the PowerShares Fundamental Pure Mid Cap Value Portfolio. First of all, the fund removes the largest 70% of cumulative fundamental weight from a mid-cap value index. It then takes the remaining companies and screens them via fundamental analysis – including five-year average sales, cash flow, latest book value and five-year average dividend. Then there’s another step. The stocks are compared to the sector to see which ones are valued below their peers. So this is a more actively managed fund, which I would generally characterize as carrying more risk. Yet the historic returns are such that when adjusted for risk, I feel it is a more conservative choice. It has 21% concentration in utilities, which adds to the conservative approach and also boosts the yield over 3%. This ETF holds only 161 stocks, which is a bit more concentrated than I’d like, but is perfectly acceptable. The top 10 holdings account for 11% of assets. The sector diversity is also nice, with 46% financials, 3% consumer, 6% industrial, 4% IT, 4% materials, and 11% energy. As with any article regarding investments, you should never rely on information you read without doing your own due diligence. My articles contain my honest, forthright and carefully considered personal opinion, and conclusions, containing information derived from my own research. This may include discussions with management. I do not repeat “talking points” but may quote management from an interview. I am never influenced by third parties in arriving at my conclusions. Do not solely rely on my articles or anyone else’s when making an investment decision. Always contact your financial advisor before investing in any security. Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More…) I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

OIH: What’s Next For The ETF After Schlumberger, Cameron Intl. Merger?

Market Vectors Oil Services ETF is the largest fund in the oilfield services space with nearly $1.1 billion of assets under management. The fund has outperformed its rivals this year, posted one of its biggest weekly gains last week, and could rise again in the future as M&A activity picks up. Focus now shifts to the fund’s fifth largest holding National Oilwell Varco which could move to acquire FMC Technologies. The slump in oil prices has dragged the oilfield services stocks, but last week, the Market Vectors Oil Services ETF (NYSEARCA: OIH ), posted one of its biggest gains this year as Schlumberger (NYSE: SLB ), the fund’s top holding, announced its decision to acquire Cameron International (NYSE: CAM ), its fourth largest holding. Market Vectors Oil Services ETF is the largest fund in this space with nearly $1.1 billion of assets under management. The fund concentrates on investing in 25 of the largest U.S. listed oil services companies ranging from Schlumberger, to land driller Helmerich & Payne (NYSE: HP ), offshore driller Transocean (NYSE: RIG ), oilfield equipment maker McDermott International (NYSE: MDR ) and fracking sand provider U.S. Silica (NYSE: SLCA ). The fund’s primary strength is its focus on few but well established companies that have significant economic moats. Most of the fund’s underlying holdings have seen several downturns before and are well positioned to face the current one. By comparison, other funds, such as the iShares U.S. Oil Equipment & Services ETF (NYSEARCA: IEZ ) and the SPDR S&P Oil & Gas Equip & Service ETF (NYSEARCA: XES ), have exposure to nearly twice as many companies, but this includes a number of medium to small cap players that have bore the brunt of the oil price collapse. As a result, these funds have underperformed this year when compared against Market Vectors Oil Services. OIH Top Ten Holdings Schlumberger 22.43% Halliburton (NYSE: HAL ) 13.76% Baker Hughes (NYSE: BHI ) 8.57% Cameron International 5.78% National Oilwell Varco (NYSE: NOV ) 5.31% Helmerich & Payne 4.29% Weatherford International plc (NYSE: WFT ) 4.15% Tenaris S.A. (NYSE: TS ) 3.98% FMC Technologies, Inc (NYSE: FMC ) 3.71% Transocean Ltd. 3.12% On a year-to-date basis, Market Vectors Oil Services has fallen by 14.4% while iShares U.S. Oil Equipment & Services and SPDR S&P Oil & Gas Equip & Service have declined by 17.3% and 25.3% respectively. But last week, Market Vectors Oil Services climbed by nearly 13.5% when two of its biggest holdings announced a merger agreement which has been unanimously approved by the boards of the two companies. As I have mentioned in my previous articles ( here and here ), the deal is positive for Schlumberger as well as the offshore drilling industry. But the merger can also open doors to further consolidation in the oilfield services space. And that could push Market Vectors Oil Services higher. The subdued pricing environment, with crude hovering near the low $40s, will force the exit of marginal producers and lead towards industry consolidation with bigger, well established companies buying the weaker ones, just as we’ve seen in every oil cycle over the last three decades. Schlumberger’s purchase should give confidence to other oil service companies who’ve been patently waiting for acquisition opportunities. The four largest stocks of Market Vectors Oil Services, namely Schlumberger, Halliburton, Baker Hughes and Cameron International, are already working towards mega mergers. But investors should watch out for National Oilwell Varco , which provides equipment and components to exploration and production companies. National Oilwell Varco has been struggling in the downturn, but it is one of the oldest and well established companies in the energy sector that has a wide economic moat. Furthermore, the company comes with a solid track record of making bolt-on acquisitions during downturns. In fact, historically, these acquisitions have played a crucial role in fueling the company’s growth. And currently, the company has been actively looking for acquisition opportunities. During the most recent conference call , National Oilwell Varco’s management said that they have already raised the size of their credit facility to $4.5 billion “in preparation for potential [acquisition] opportunities.” There are a number of companies that could be on National Oilwell Varco’s radar such as Dril-Quip (NYSE: DRQ ) and Forum Energy Technologies (NYSE: FET ). But if National Oilwell Varco follows in Schlumberger’s footsteps by buying a company with highly advanced technological capabilities and significant offshore exposure, then there is no bigger name than FMC Technologies which dominates the global subsea equipment market. A potential tie-up would not only give birth to one of the world’s biggest equipment maker in the energy industry, but could also lift Market Vectors Oil Services higher as National Oilwell Varco is the fifth largest and FMC Technologies is the ninth largest holding of the fund. Although Market Vectors Oil Services has struggled this year and could continue to remain under pressure in the near term, at least until we get a clear idea of where the oil price and the 2016 exploration and production budgets are heading, it can prove to be an interesting speculative play on an uptake in mergers and acquisition activity, especially since its underlying companies are actively seeking acquisition opportunities and a merger between National Oilwell Varco and FMC Technologies – two of its ten largest holdings, is very much possible. Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More…) I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.