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Energy ETF: XLE No. 9 Select Sector SPDR In 2014

Summary The Energy exchange-traded fund finished ninth by return among the nine Select Sector SPDRs in 2014. The ETF was extraordinarily strong in the first half and even more extraordinarily weak in the second half. Seasonality analysis may be irrelevant until the commodity price of crude oil shows signs of stability. The Energy Select Sector SPDR ETF (NYSEARCA: XLE ) in 2014 ranked No. 9 by return among the Select Sector SPDRs that split the S&P 500 into nine segments. On an adjusted closing daily share-price basis, XLE dipped to $79.16 from $86.68, a drop of -$7.52, or -8.68 percent. As a result, it behaved worse than its sibling, the Utilities Select Sector SPDR ETF (NYSEARCA: XLU ) and parent proxy, the SPDR S&P 500 Trust ETF (NYSEARCA: SPY ) by -37.41 and -22.14 percentage points, in that order. (XLE closed at $72.86 Thursday.) XLE also ranked No. 9 among the sector SPDRs in the fourth quarter, when it performed worse than XLU and SPY by -25.29 and -17.00 percentage points, respectively. And XLE ranked No. 5 among the sector SPDRs in December, when it led SPY by 0.04 percentage point and lagged XLU by -3.79 points. Figure 1: XLE Monthly Change, 2014 Vs. 1999-2013 Mean (click to enlarge) Source: This J.J.’s Risky Business chart is based on analyses of adjusted closing monthly share prices at Yahoo Finance . XLE behaved a lot worse in 2014 than it did during its initial 15 full years of existence based on the monthly means calculated by employing data associated with that historical time frame (Figure 1). The same data set shows the average year’s weakest quarter was the third, with a relatively small negative return, and its strongest quarter was the first, with an absolutely large positive return. Inconsistent with its pattern last year, the ETF had a little gain in Q1, a big gain in Q2 and big losses in Q3 and Q4. Figure 2: XLE Monthly Change, 2014 Versus 1999-2013 Median (click to enlarge) Source: This J.J.’s Risky Business chart is based on analyses of adjusted closing monthly share prices at Yahoo Finance. XLE also performed a lot worse in 2014 than it did during its initial 15 full years of existence based on the monthly medians calculated by using data associated with that historical time frame (Figure 2). The same data set shows the average year’s weakest quarter was the second, with a relatively small positive return, and its strongest quarter was the third, with an absolutely large positive return. Meanwhile, I suspect seasonality analysis may be irrelevant until the commodity price of crude oil displays signs of stability. Figure 3: XLE’s Top 10 Holdings and P/E-G Ratios, Jan. 15 (click to enlarge) Notes: 1. “NA” means “Not Available.” 2. The XLE holding-weight-by-percentage scale is on the left (green), and the company price/earnings-to-growth ratio scale is on the right (red). Source: This J.J.’s Risky Business chart is based on data at the XLE microsite and Yahoo Finance (both current as of Jan. 15). With the possible exception of Schlumberger Ltd. (NYSE: SLB ), XLE’s top 10 holdings appear to range from fairly valued to overvalued (Figure 3). However, the numbers on the S&P 500 energy sector reported by S&P Senior Index Analyst Howard Silverblatt Dec. 31 indicated its valuation seems comparatively reasonable, with its P/E-G ratio at 1.16. Speaking of Schlumberger, the 2014 financial report it released Thursday was replete with evidence of the effects that the cratering in the commodity price of crude oil has had on the company in particular and, by extension, on the energy sector in general. Here are three of the highlights, or lowlights, of the report: [1] Although the functional currency of Schlumberger’s operations in Venezuela is the U.S. dollar, a portion of the transactions are denominated in local currency. Schlumberger has historically applied the official exchange rate of 6.3 Venezuelan Bolivares fuertes per U.S. dollar to remeasure local currency transactions and balances into U.S. dollars. Effective December 31, 2014, Schlumberger concluded that it was appropriate to apply the … exchange rate of 50 Venezuelan Bolivares fuertes per U.S. dollar as it believes that this rate best represents the economics of Schlumberger’s business activity in Venezuela. As a result, Schlumberger recorded a $472 million devaluation charge. [2] In response to lower commodity pricing and anticipated lower exploration and production spending in 2015, Schlumberger decided to reduce its overall headcount to better align with anticipated activity levels for 2015. Schlumberger recorded a $296 million charge associated with a headcount reduction of approximately 9,000. [3] Schlumberger determined that, primarily as a result of the recent decline in commodity prices, the carrying value of its investment in [a Schlumberger Production Management] development project in the Eagle Ford Shale was in excess of its fair value. Accordingly, Schlumberger recorded a $199 million impairment charge. I suspect many other energy-sector firms will be making similar announcements in the weeks, months and quarters to come. Figure 4: EUR/USD, Crude Oil And XLE, 2014 Daily Prices (click to enlarge) Note: The crude-oil and XLE scale is on the left, and the EUR/USD scale is on the right. Source: This J.J.’s Risky Business chart is based on analyses of adjusted closing daily share prices of XLE reported by Yahoo Finance ; closing daily prices of the New York Mercantile Exchange’s Cushing, OK Crude Oil Future Contract 1 reported by the U.S. Energy Information Administration ; and daily foreign-exchange rates of the euro/U.S. dollar, or EUR/USD, currency pair reported by the Federal Reserve Economic Data site of the Federal Reserve Bank of St. Louis. As indicated previously , I believe XLE’s upward movement in the first half of last year was primarily driven by market participants’ concern about the battle over control of Middle Eastern crude-oil assets between Islamic State of Iraq and the Levant, or ISIL, fighters on the one side and Iraqi government, Kurdish and aligned forces on the other side. I think the ETF’s downward movement since then has been primarily driven by market participants’ concern about the battle over monetary policy between major central banks: The U.S. Federal Reserve is oriented toward tightening, while the Bank of Japan, European Central Bank and People’s Bank of China all are oriented toward loosening. This bias divergence at the biggest central banks in the world already has had major effects on multiple markets, ranging from currencies (e.g., the euro/U.S. dollar cross, or EUR/USD) to commodities (e.g., crude oil) to the energy sector of the equity market (e.g., XLE), as suggested by Figure 4. Along this line, the amazing disappearance of about 18.79 percent in the euro/Swiss franc cross, or EUR/CHF, Thursday was but the latest manifestation of the wobbles in financial markets around the world. Measured by the daily prices of the components of the above chart, the EUR/USD currency pair peaked at $1.3927 March 13 (revisiting the area May 6), crude oil per barrel peaked at $107.26 June 20 and XLE per share peaked at $100.77 June 23. Their respective declines since then are clearly related, statistically speaking. Their lockstep movements appear likely to continue unless the Federal Open Market Committee makes clear it will delay the anticipated announcement of its interest-rate hikes April 29 and that it is preparing to carry out asset purchases under its fourth formal quantitative-easing program of the 21st century, aka QE4. The FOMC may be hard-pressed to present a convincing rationale for those actions, given the conditions described in “SPY Slips And U.S. Economic Index Slides In December.” But, without them, XLE may continue to be the equivalent of a canary in coal mine where things are looking darker by the day. Disclaimer: The opinions expressed herein by the author do not constitute an investment recommendation, and they are unsuitable for employment in the making of investment decisions. The opinions expressed herein address only certain aspects of potential investment in any securities and cannot substitute for comprehensive investment analysis. The opinions expressed herein are based on an incomplete set of information, illustrative in nature, and limited in scope. In addition, the opinions expressed herein reflect the author’s best judgment as of the date of publication, and they are subject to change without notice.

10 Reasons Why Every Serious Investor Should Read Barrons

All serious investors investing for their future should subscribe to and read this weekly newspaper. Barrons is an antidote to main-stream financial news media that carries articles with screaming headlines of euphoria or disaster that intimidates investors. Barrons uses analysis and facts in addition to speaking with some of the most respected investors on Wall Street when setting out their opinions. Barrons follows up their stock picks periodically with continued analysis as to why they were right or wrong in addition to whether such picks are still valid. Barrons provides information, market data and columns covering all aspects of the U.S. economy and markets, world markets and other useful commentary. Many years ago we knew someone who was an equity-derivatives trader on Wall Street. That trader, who made almost $1 million in a year at the age of 27, told us we should read The Economist and Barrons each week. We read The Economist for a year or so, but the volume of reading required each week was overwhelming. Then, however, we started reading Barrons and we have never stopped. Barrons’ regular subscription cost is about $200 a year, but the publisher is always running special subscription offers. Currently an investor can obtain their first 26 weeks for $1 a week. We purchased our current Barrons subscription using 1900 airline miles. However you pay for Barrons, we believe all that serious investors investing for their future should subscribe to and read this weekly newspaper that arrives on Saturday mornings. We are not alone in our appreciation for Barrons. Here are some other articles discussing why Barrons is a valuable financial resource and how a reader should use the information contained within. Why we read Barrons generally As readers of our articles know, we do not look highly upon the most mainstream of financial-news-media outlets. Mainstream financial news media includes CNBC, Fox Business News and any news feed Internet financial web site that carries articles with screaming headlines of euphoria or disaster. Such mainstream financial media is not designed to truly help individual investors in a calm and sober manner. Rather, such mainstream financial news is designed to attain large viewership numbers. In our minds, mainstream financial media is on par with tabloid journalism. Harsh? Yes, but all too true. Barrons is different in that whether their news is bullish or bearish, they do not hit the reader over the head with histrionic language. Rather, Barrons uses analysis and facts in addition to speaking with some of the most respected investors on Wall Street when setting out their opinions. In addition, they have cartoons on par with New Yorker magazine to make you smile even when your recent investment performance is making you frown. In this article, we will briefly discuss why we read Barrons specifically. 1 – Up and Down Wall Street This article basically outlines the mood of overall markets, world economies and politics. This section is valuable to establish an overall investment mood for readers. This article typically starts with outlining the previous week’s trading and then interweaves economic data, political news both American and Foreign, significant events and commentary by well-known Wall Street players to establish a current mood for past week of trading and the mood that may lead off the upcoming week of trading. Reading this article is a must. 2 – Follow up to Barrons stock picks One thing you will rarely if ever see in the majority of financial publications is a follow up to buy and sell recommendations with regard to individual stocks, industry-related groups of stocks or overall market calls. Barrons is different. Barrons periodically reviews their stock picks whether they were good or bad calls. In a Barrons follow up, they will either say why a stock continues to be a buy, sell or whether their opinion has changed based on intervening news and set out an explanation for their opinion. Accountability for opinions is a rare commodity, and Barrons willingness to stand behind their successes and failures gives us confidence to consider and act on future Barrons recommendations. 3 – The Trader This article generally begins sets out the recent week’s movements in the market indexes by the numbers and ties in news related events that may have moved the markets up or down. Quotes from well-known Wall Street veterans are frequently set out in the beginning of this article. As this article moves forward there are usually one or two specific stock recommendations that a reader may further research and then act upon. Overall this article is one we read every week. 4 – Insider Transaction filings This section, while small, sets out a small but useful section of the top 20 largest insider buys and sales for the week along with an insider transactions ratio. Although insider transactions are available in many places, we like that the information is gathered all in one small place. In addition, the insider transaction ratio is a chart that indicates whether an overall market mood is bullish or bearish based on recent insider activity. We have used this tiny section successfully as a partial basis for some of our past investment decisions. 5 – Speaking of Dividends This article is valuable in that it recounts the previous week’s dividend activity such as dividend increases, reductions or special dividends. When the previous week did not have a significant amount of dividend news, this article recounts dividend trends in the overall markets that are valuable to consider for any dividend investor. 6 – Market Laboratory Barrons is old school so to speak in that it still gathers a significant amount of economic, commodity, market index, short interest, individual stock, dividend, bond, currency, foreign market and earnings calendar data. While a reader may be able to find much of this data in other places on the Internet, in Barrons, it is all in one place. Not all of the information will be valuable to every reader. We like the earnings calendar announcements, short interest tables, weekly new high/low tables, dividend data and research reports. 7 – 13D Filings A 13D filing is a filing with the Securities and Exchange within 10 days of attaining a greater than 5 percent position of a company’s securities. This information is valuable to investors interested in high or low profile investment stakes built up in a particular company’s stock by an investment entity such as an investment group. 8 – Weekly stock profiles This article or group of articles profiles one or two stocks a week in the small, medium and large capitalization range that provides a valuable starting point for an investor to research new investment ideas. Be careful of buying too quickly though as Barrons profile articles are known to provide a bounce in a profiled company’s stock in the week or so following the profile. A profile of a stock an investor already owns is still valuable as such profile provides a continued thesis for holding a stock into the future. 9 – The weekly headline article The weekly headlines article may focus on individual stocks, industry stocks, mutual funds, economic trends, various economies around the world. This headline article may not always be of interest to a reader but still should be read for the sake of deepening one’s knowledge in regard to various topics as they relate to the U.S. or world economies. 10 – Everything else Not everything in Barrons will interest a reader, but for the sake of completeness and increasing knowledge a reader should try to read most of the articles and columns which tend to run one page or less. There is: 1) Editorial Commentary by Thomas Donlan which tends to express his quite conservative views about politics, business and the economy; 2) D.C. Current by Jim McTague which focuses on American politics and the business world also with a conservative viewpoint; 3) CEO spotlight which focuses on the CEO of a company and their life and the performance and future direction of the company the CEO heads; 4) Technology week which we believe is one of the weakest links in Barrons as this column gushes over Apple, Inc. (NASDAQ: AAPL ) on a seemingly weekly basis; 5) the European Trader, Asian Trader, Emerging Markets and Commodities Corner columns; 6) Current Yield which focuses on bonds; 7) a mutual fund or investment group and their investments along with their outlook for the U.S. and world economies; and 8) Striking Price which focuses on the options market and market volatility. There is more, but to keep this article brief we have set forth the highlights of Barrons. Conclusion We have noticed that many people who have attained some form of monetary “success” either through their own efforts or inheritance read Barrons. We read it because their analysis is intelligent, informed and rational. The articles contained within Barrons address an investor with respect and do not scream their opinions to gain attention. Barrons, however, with their long and storied history is respected, incisive, listened to and quoted on a weekly basis year after year. As such, every investor who seriously wants to succeed for their own well being should read it regularly.

Diversify With A Cheap, Broad Munis Bond ETF

Investors may be exposed to markups when buying individual muni debt securities. Diversify with a broad municipal bond ETF instead. A look at muni bond ETF options, including short-duration plays. Fixed-income investors may be paying more than necessary when purchasing individual municipal debt securities. On the other hand, people can use munis exchange traded funds for a cheap way to access the market. Three U.S. regulators have began scrutinizing municipal bond markup fees that could cut into investor returns, reports Aaron Kuriloff for the Wall Street Journal . The markup shows the difference between a muni debt security’s current offering price among dealers and the higher price a dealer charges a customer. The markup typically occurs when a dealer acts as a principal who buys and sells from a personal account as opposed to brokers who facilitate trades for a nominal fee. As an alternative, Allan Roth, founder of Wealth Logic, believes that investors should use low-fee bond funds instead, arguing that markups the funds pay are smaller since ETF providers purchase in bulk and are more acquainted with the market. Additionally, Roth points out that muni funds can instantly help investors diversify through one single investment since the bond funds hold hundreds if not thousands of individual debt securities. For instance, the iShares National AMT-Free Muni Bond ETF (NYSEArca: MUB ) has a 0.25% expense ratio and includes 2,470 component holdings. The SPDR Nuveen Barclays Municipal Bond ETF (NYSEArca: TFI ) has a 0.23% expense ratio and 535 holdings. The Market Vectors Intermediate Municipal Index ETF (NYSEArca: ITM ) has a 0.24% expense ratio and 985 components. “Even if I have $5 million to buy municipal bonds, I really can’t diversify enough by buying individual bonds,” Roth said in the article. “And if I have $500,000, then I really can’t diversify.” Moreover, while purchasing individual bonds from one’s home state provides additional tax breaks, an investor may be overexposed to their state, especially the bond is based off the economy that supports his or her job and home, Roth added. With muni ETFs, investors can also spread out risk with various state exposure. The three muni ETFs are market-cap weighted, so the states with the largest outstanding debt have the biggest weights, which include California, New York and Texas, respectively. Additionally, some analysts and advisors suggest sticking to short- or intermediate-term funds since long-term bond funds are more susceptible to interest rate risks. MUB has a 6.34 year duration, ITM has a 6.92 year duration and TFI has a 7.14 year duration. There are also a number of short-term municipal bond ETFs available, including the SPDR Nuveen Barclays Short Term Municipal Bond ETF (NYSEArca: SHM ) , which has a 2.89 year duration, Market Vectors-Short Municipal ETF (NYSEArca: SMB ) , which has a 3.1 year duration, and iShares Short Term National AMT-Free Muni Bond ETF (NYSEArca: SUB ) , which has a 2.06 year duration. The Vanguard Group is also planning its first foray into the muni bond ETF space with the Vanguard Tax-Exempt Bond Index Fund, which will track the S&P National AMT-Free Municipal Bond Index. Max Chen contributed to this article .