Tag Archives: management

What Happened To Natural Gas ETFs In October?

This year has been bad for commodities, and natural gas is no exception. China-led global economic slowdown, supply glut and stronger dollar ahead of an impending Fed rate hike have been battering the performance of the energy sector. However, October was a balanced month for natural gas as it faced both the odds and advantages. Natural gas kicked off the month with an amazing performance. There were a number of factors that led to the bullish trend in their prices despite oversupply concerns. After hitting its three-year low, natural gas prices began to rise due to short covering and bottom fishing by traders. This was complemented by rebounding optimism in crude oil as many oil producing companies are also engaged in the production of natural gas. Oil price crossed its $50 per barrel mark on October 8 for the first time since July. The rally extended when consensus of a chilly winter across the eastern parts of the U.S. began to build up. Cold weather boosts demand for natural gas, which is used by around 50% of the U.S. households as the main source of heating fuel. November through March is generally considered as a peak season for natural gas when heating demand is at a high. This led natural gas futures for November contract to settle at the highest level of $2.535 per MMBtu (million British thermal units) on October 12 since September 29. However, natural gas prices retreated in the second half of October when forecast of a warmer-than-normal winter in the U.S., partly due to the El Niño phenomenon, became pronounced for the coming weeks. In the last week of the month, MDA Weather Services had predicted that heating degree days (measurement reflecting the demand for energy required to heat a building) will be 178 over the next two weeks in contrast to 199 in the same period last year. The lower heating degree days indicates warmer weather in the lower 48 states of the U.S.. The forecast of a mild weather pushed natural gas prices to its three-year low of $1.948 per MMBtu on October 27, their lowest since April 2012. This intensified concerns of a supply glut as a mild winter means lower demand for natural gas. However, the supply situation didn’t turn to be as bad as expected when the U.S. Energy Information Administration (“EIA”) released its October 29 update on natural gas inventories for the week ended October 23. The EIA report revealed a less-than-expected rise in natural gas inventories in storage, which increased 63 Bcf (billion cubic feet) to 3,877 Bcf compared to the expected rise of 69 Bcf. This led to some respite in the natural gas market as its price surged 11% from the previous day to $2.257 per MMBtu on October 29. However, concerns about a mild winter loomed yet again, beginning to dampen prices at the start of November. ETFs that follow the natural gas futures witnessed the same swings during October. Below we highlight three of them that were strongly influenced by the topsy-turvy movements of the natural gas futures during the month. United States Natural Gas Fund (NYSEARCA: UNG ) UNG tracks the movements of the price of natural gas as delivered at the Henry Hub, Louisiana. The ETF has been able to manage $487 million in its asset base and is actively traded with about 5.6 million shares per day. It charges 60 bps in annual fees and expenses. The product gained 1.3% in the first half of October but retreated 13.3% in the second half of the month. United States 12 Month Natural Gas Fund (NYSEARCA: UNL ) This fund is designed to track, in percentage terms, the movements of natural gas prices. It has garnered nearly $13 million in assets and trades in an average volume of 23,000 shares a day. It charges 75 bps in investor fees and returned 2.3% in the first half of October but lost 8.8% in the latter half of the month. iPath Dow Jones-UBS Natural Gas Subindex Total Return ETN (NYSEARCA: GAZ ) GAZ follows the Dow Jones-UBS Natural Gas Subindex Total Return Index, measuring the returns that are available through an investment in the futures contracts of the Henry Hub Natural Gas futures traded on the NYMEX as well as the rate of interest from an investment in U.S. Treasury Bills. The note is quite overlooked as it has amassed just about $7 million in its asset base while it sees average volume of roughly 27,000 shares a day. It has an expense ratio of 0.75% and returned 4.5% in the October first half but retreated as much as 25% in the latter. Original Post

Top ETF Stories To Watch For In November

The third quarter of 2015 was shockingly downbeat for the broader U.S. market and the global indices with the China-led tumult culminating into a bloodbath in August and September. Needless to say, investors will keenly watch the market movement in the fourth quarter. With the first month of Q4 finally bringing back the strong stretch for the U.S. market, investors must now be hoping for more and seeking to carve out some solid gains. Traditionally, the three months from November through January mark the most successful run of the stock market. A consensus carried out from 1950 to 2014 shows that November ended up offering positive returns in 43 years and negative returns in 22 years, per moneychimp.com . In fact, all the three major indices are now positive from the year-to-date look with the S&P 500 rising 2.5%, Dow Jones Industrials Average gaining over 0.5% and Nasdaq composite climbing 8.6%. With vacations, holiday season buying and seasonal optimism taking charge, investors might reap more returns to close out 2015. However, before riding on the cyclicality, one should not cast out the presently-hot areas of the global investing arena, which will play the kingmakers in November. This is why we highlight the top financial stories and the related ETFs which should be strongly watched this month. Fed Rate Lift-off Talks and Rising U.S. Bond Yields Turning on rounds of hearsay about the lift-off, the Fed brought the December rate hike possibility back on to the table in October end. Yes, the central bank is supportive now, citing a slowing job market, moderating U.S. economic growth and subdued inflation. But it was finally the easing of the upheaval in the global market that led it to mull over policy tightening this year, if possible. Post Fed meeting at October end, investors rapidly shifted their bets with futures contracts entailing a 52% December hike possibility (at the current level) compared with 34% preceding the statement. In anticipation of a faster lift-off, the 10-year Treasury bond yields jumped 18 bps to 2.23% in six days (as of November 3, 2015). The rising yields give cues of the fact that though Q3 U.S. economic growth tallied 1.5 % in Q3, falling short of the 1.6% expectation, investors are hardly paying heed to the soft GDP data, rather wagering on a sooner-than-expected lift-off. As a result, sectors benefitting from higher rates showed strength in recent trading. Financial ETFs like SPDR S&P Regional Banking ETF (NYSEARCA: KRE ) and U.S. dollar ETF PowerShares DB US Dollar Bullish Fund (NYSEARCA: UUP ) performed nicely and could be in watch this month. High Yield Bond ETFs Back into Business After having a troublesome time in the first half of the year, the scope of outperformance for the high-yield bond ETFs is now opening up. Investors seeking to beat the yields provided by the benchmark U.S. treasury bonds might flock to this segment. Corporate bonds are also showing an uptrend on rising issuance. In October, as much as $ 100 billion worth of U.S. corporate bonds were sold. This dynamics in the high-risk fixed-income market should put bonds like BulletShares 2016 High Yield Corporate Bond ETF (NYSEARCA: BSJG ), High Yield Long/Short ETF (NASDAQ: HYLS ) and High Yield Interest Rate Hedged ETF (BATS: HYHG ) in focus. Biotech Bounce The biotech space saw choppy trading in the past few weeks on drug pricing concerns. While the sell-off made the space affordable, a few more days of easy money from the Fed should be supportive of this high-beta sector. Needless to say, the operating fundamentals of the biotech space are stronger than many other sectors. As a result, ETFs like Dynamic Biotech & Genome ETF (NYSEARCA: PBE ), SPDR S&P Biotech ETF (NYSEARCA: XBI ) and ALPS Medical Breakthroughs ETF (NYSEARCA: SBIO ) would be in focus throughout this month. Inside the Chinese Wall Now who can forget China? Surprises and shocks from the world’s second largest economy are rampant these days. In October, China reduced the key interest rates by 25 bps which marked the sixth slash since last November. Apart from these, China enacted a volley of accommodative measures to boost domestic consumption. Of which, scrapping of its long-standing ‘one-child’ policy was eye-catching. Since, the so-far-rolled-out measures to jumpstart the ailing economy went down the drain, investors can very well expect some other stimulus measures this month. Chinese ETFs including Market Vectors ChinaAMC SME-ChiNext ETF (NYSEARCA: CNXT ) and iShares MSCI China Small-Cap ETF (NYSEARCA: ECNS ) are worth a watch. European Delight Though Q3 was patchy for the continent, Q4 has so far been joyous for the European region. No, economic data hasn’t been great; but it is ECB’s promise to beef up the ongoing QE measure (if need be) that has started showering gains on the European stocks and ETFs. As a result, all currency-hedged European ETFs including Europe Hedged SmallCap Equity Fund (NYSEARCA: EUSC ), Europe Hedged Equity Fund (NYSEARCA: HEDJ ) and Currency Hedged MSCI Germany ETF (NYSEARCA: HEWG ) are set for a northbound journey since last month and are likely to top investors’ list in November too. Original Post

Goal-Oriented Investing

By Seth J. Masters How should investors assess the asset-allocation decisions they or their advisors make? In our view, the key benchmark is the investor’s own goals. The display below assesses the success of three plausible asset allocations for meeting the risk and return goals of three different hypothetical investors. Investor A wanted annualized returns greater than 5%, with no peak-to-trough drawdown deeper than 20%. Investor B targeted annualized returns greater than 7%, with no drawdown deeper than 30%. Investor C cared only about achieving a return greater than 7%, with no drawdown constraint at all. The display shows the share of all rolling 10-year periods from January 1976 to June 2015 in which each investor would have achieved his goals through each of three different mixes of global stocks and municipal bonds. The conservative (30% stock/70% bond) allocation would have most often achieved Investor A’s conservative goals, with his lower return objective and tighter drawdown limit. The moderate and growth-oriented portfolios, by contrast, would have repeatedly exceeded his drawdown constraint. The moderate (60/40) portfolio would have most often met Investor B’s goals. And the growth-oriented (80/20) portfolio would have had the greatest success rate in meeting Investor C’s goals. When risk isn’t an issue, stocks are the asset of choice. This display underscores the importance of matching a portfolio’s asset allocation to the investor’s return and risk objectives. Investors who don’t select an asset allocation that fits their objectives are likely to be disappointed. Of course, this illustration covers only simple return and drawdown goals. In most real-world situations, investors also need to take into account their expected cash flows, their tax situation, prevailing market conditions, and a host of other factors. And real-world investors can choose between more than two asset classes. But no matter how complex the objectives an investor seeks, or how diverse his or her asset allocation, we think one simple standard should apply: The asset allocation has to be designed around the investor’s objectives. If not, the investor is unlikely to be satisfied with the plan and unlikely to stick with it. The views expressed herein do not constitute research, investment advice or trade recommendations and do not necessarily represent the views of all AB portfolio-management teams. Seth Masters, Chief Investment Officer – Bernstein