Tag Archives: management

Time For Dow ETFs?

Dow Jones Industrial Average has been the worst performing index among the popular trio – S&P 500, Dow and Nasdaq – thanks mainly to a freefall in oil prices and rising rate worries in the U.S. Added to this, fears of a hard landing in China and its ripples throughout the world sent this key index into the correction territory in August. So far this year (as of October 9, 2015), SPDR Dow Jones Industrial Average ETF (NYSEARCA: DIA ) is down about 4%. However, things seemed to have been set right for the Dow Jones lately on the oil price jump and the diminishing prospect of a rate hike this year. Oil prices regained some of the lost ground as the U.S. count of oil and gas drilling rigs slipped to a five-year low. Also, the Energy Information Administration (EIA) expects a remarkable drop in U.S. crude production through the middle of next year before a turnaround in late 2016. Oil output is estimated to fall from 9.2 million barrels per day (bpd) in 2015 to 8.9 million bpd in 2016. Needless to say, the rise in oil prices supported energy stocks greatly in recent sessions. On the other hand, a weak September job data pushed the speculative timeline of the Fed rate lift-off to early next year. After all, the year-to-date monthly pace of job gains now averages 198K and the pace for the last three months is much lower at 167K. This compares with the monthly average of 260K for 2014, hinting at the lost momentum in U.S. economic growth. And the stocks surged in hopes of incessant cheap money flows. Moreover, a soft job report curbed the dollar strength which in turn provided a long-awaited boost to the commodities and material stocks. Though all the major benchmarks are correlated and got the boost they needed in October from the Fed and energy-centric optimism, Dow remained relatively more beaten-down and thus is more prone to a sturdy reversal. If this was not enough, a dovish Fed pushed the interest rates down to a lower territory. This in turn brightened the appeal for more yielding securities. Notably, among the top ETFs, Jones Industrial Average-based DIA yields 2.33% annually (as of October 9, 2015) against the S&P 500-based SPY ‘s 2.02% and Nasdaq-100 based QQQ ‘s 1.08%. Below, we highlight a few Dow Jones-based ETF options which could be intriguing options to play: DIA seeks to match the performance of the Dow Jones Industrial Average Index. The index is price weighted and measures the performance of 30 large cap stocks traded in the U.S. markets. Industrials, Financials, IT, Consumer Discretionary and Health Care all hold double-digit exposure in the fund. However, it is subject to company-specific concentration risks as it invests more than half of its portfolio in the top 10 holdings. This $11.6 billion-fund trades in large volumes of over 5 million shares daily and charges 17 bps in fees. It advanced 4.8% in the last 10 trading sessions (as of October 9, 2015). The fund has a Zacks ETF Rank #3 with a Medium risk outlook. iShares Dow Jones U.S. ETF (NYSEARCA: IYY ) This $941.1 million ETF also tracks the Dow Jones U.S. total market index. This fund has a proportionate exposure in almost all sectors with maximum emphasis on IT (19.77%), Financials (17.47%), Health Care (13.91%), Consumer Discretionary (13.55%), and Industrials (10.66%). Unlike DIA, this 1,280-stock fund invests less than 15% share in the top 10 holdings. IYY charges 20 basis points as fees and added 4.2% in the last 10 trading sessions. ALPS Sector Dividend Dogs ETF (NYSEARCA: SDOG ) This fund applies the ‘Dogs of the Dow Theory’ on a sector-by-sector basis using the S&P 500. This could be easily done by selecting the five highest yielding securities in each of the 10 GICS sectors and equally weighing them. These higher yielding stocks will appreciate in order to bring their yields in line with the market, leading to outsized gains. This approach results in a portfolio of 51 stocks with each security accounting for less than 2.33% of total assets. The fund focuses on yield in the large cap market while giving investors roughly equal exposure to all sectors. SDOG has accumulated $1.1 billion in AUM and trades in good volume of more than 180,000 shares. It charges 40 bps in annual fees and has an annual dividend yield of 3.63%. The ETF was up over 5.9% in the last 10 days. Original Post

Catalyst Launches Hedged Commodity Fund And IPO Fund

Alternative specialist Catalyst Funds launched a pair of mutual funds on October 1: The Catalyst Hedged Commodity Strategy Fund (MUTF: CFHAX ), an alternative commodity fund, and the Catalyst IPOx Allocation Fund (MUTF: OIPAX ). As indicated by their respective names, the Hedged Commodity Strategy Fund provides investors with hedged exposure to a broad range of commodities, while the IPOx Allocation Fund invests in the stock of new public companies. Catalyst CEO Jerry Szilagyi says the new funds offer investors “intelligent alternative” investment products. “We believe these investment strategies offer investors a distinct approach with a strong upside, particularly in the current market where traditional investments are clouded with uncertainty,” he said, in an October 1 press release. Hedged Commodity Fund The Catalyst Hedged Commodity Strategy Fund gains exposure to commodities by investing in call and put options on physical commodity futures contracts. Positions may be long or short, and may include “high-quality short-term” fixed-income securities, especially two-year (and under) Treasurys, in addition to traditional commodities. The fund’s investments will be diversified across agricultural products, energy, and metals, and positions will typically be held for less than a year. Allocations will be determined on the basis of options volatility pricing, seasonal dynamics, and technical indicators. The fund’s strategy was designed to be independent of commodity-market direction and to produce returns that are uncorrelated with global equity and commodity-market returns. It will be managed by the same investment team that manages the Catalyst Hedged Futures Strategy Fund (MUTF: HFXAX ), and it will implement a similar investment strategy. IPOx Allocation Fund The Catalyst IPOx Allocation Fund invests specifically in U.S. IPOs. The fund will purchase stocks at and shortly after their IPOs, and it will diversify its investments across market-capitalizations. The fund’s strategy will consist of two components: Core Long and Dynamic . The former will track the IPOX U.S. 100 Index, which is a value-weighted index of the 100 largest U.S. IPOs. The latter will invest in 30 to 70 IPOs believed to be “valued attractively” and not included in the Index. For more information, visit catalystmf.com .

Time For These Surging High-Yield MLP ETFs?

Despite being related to the energy space, MLPs put up a brave front last year when oil nosedived to hit dirt cheap prices. The valor was thanks to their low correlation with the underlying commodity and the U.S. shale oil boom. But their winning streak snapped this year with oil prices sliding persistently for the last one-and-a-half years. All energy MLP ETFs/ETNs are deep in the red this year with the highest incurred loss being about 30% by the Yorkville High Income MLP ETF (NYSEARCA: YMLP ) . However, things took a turn for the better to enter the final quarter of the year. The oil price went past its $50 per barrel mark last week for the first time since July 2014, and rebounded from the six-year low level. The revival was backed by signs of falling supplies. A subdued greenback, a declining rig count and better demand/supply balance added to the optimism. All these pulled things together for MLP ETFs and sent the securities rallying. Below we highlight the drivers in detail and see if MLP ETFs are ready for a prolonged run. Declining Energy Output: The Energy Information Administration expects a remarkable drop in U.S. crude production through the middle of next year before a turnaround in late 2016. Oil output is estimated to fall from 9.2 million barrels per day (bpd) in 2015 to 8.9 million bpd in 2016. Low Interest Rate Environment: Since MLPs are publicly traded partnerships generally engaged in the transportation, storage, production or mining of minerals and natural resources, these often operate pipelines or similar energy infrastructure that makes it an interest rate-sensitive sector. With the Fed likely to be dovish this year on faltering global growth and a soft job market in the U.S., interest rates have started to show a downtrend which in turn has pushed the bond yields lower. Quite expectedly, in a low rate environment, MLPs are back on the table helped by a favorable operating backdrop. High-Yielding Options: MLPs catch investors’ eyes as these do not pay taxes at the entity level and are thus able to pay out most of their income (more than 90%) in the form of dividends like the REIT firms. While most traditional income asset classes produced miniscule yields, MLPs lured investors with their higher payouts and stable cash flows (read: Boost Income and Growth with MLP ETFs ). So, if interest rates dive, MLPs will not have to pay higher for the huge chunk of borrowed money which may in turn help them to raise/maintain their dividend payout ratio. Thanks to the above-mentioned developments, nearly all MLP ETFs held up pretty strongly in October. Below we highlight four of those that have returned at least 10% in the last 10 days. InfraCap MLP ETF (NYSEARCA: AMZA ) The active ETF looks to provide a high level of steady income and capital appreciation by providing exposure to a portfolio of high-quality, midstream energy MLPs and related general partners. This $21.4-million ETF charges 95 bps in fees (read: AMZA: First Actively Managed MLP ETF Hits the Market ). With this focus, Magellan Midstream currently occupies the top spot in the fund with roughly 11.68% allocation, followed by Plains All Amer Pipeline LP and Williams Partners LP with 11.56% and 11.47% allocation, respectively. The fund added about 10.9% in the last 10 days and yields 13.28% annually (as of October 9, 2015). UBS ETRACS Alerian Natural Gas MLP Index ETN (NYSEARCA: MLPG ) The note tracks the Alerian Natural Gas MLP Index giving exposure to the 15 largest natural gas infrastructure MLPs. The product manages an asset base of $22.9 million and trades in paltry volumes of roughly 2,000 shares a day. This note also charges 85 basis points a year and has a yield of 7.14%. The product advanced 10.2% in the last 10 days. Yorkville High Income Infrastructure MLP ETF (NYSEARCA: YMLI ) This $39.7-million product looks to track the Solactive High Income Infrastructure MLP Index. This is a rules-based index designed to provide investors a means of tracking the performance of selected infrastructure MLPs, with emphasis on current yield. The product charges 82 bps in fees and yields about 7.67% per year. The fund returned over 10.3% over the last 10 days (as of October 9, 2015). Link to the original post on Zacks.com