Tag Archives: management

Market Neutral Funds: Best And Worst Of November

By DailyAlts Staff (click to enlarge) Market-neutral funds balance long and short holdings, generally in pursuit of something close to a 0% net-long exposure. This allows investment managers to neutralize beta and focus on generating alpha – or at least, that’s the idea. In November, the top three market-neutral mutual funds generated returns ranging from +0.94% to +3.52%, while the category’s three laggards returned between -2.53% and -3.19%. In this month’s review, we look beyond November’s performance and also consider the composition of each of the featured funds’ three-year standard deviation and Sharpe ratio. (click to enlarge) November’s Top Performers The top performing market-neutral mutual funds in November were: (click to enlarge) The QuantShares US Market Neutral Momentum ETF fund led the pack last month with its decidedly strong returns of +3.52%. Year to date through November 30, the fund had spectacular gains of 20.43%, but its annualized three-year return through that date stood at a lower +3.80%! Overall, the QuantShares US Market Neutral Momentum Fund’s three-year Sharpe ratio stood at 0.31. The Hussman Strategic International Fund’s +1.37% returns in November weren’t quite as impressive, but were still strongly positive for the month. However, the fund’s three-year return of -1.91% through November 30 is less impressive. On a risk-adjusted basis, the Hussman fund’s three-year Sharpe ratio stood at a dismal -0.28, as of November 30. Perhaps the best looking of the three funds was November’s third-best performer, the Turner Titan II Fund, which posted a 0.94% gain for the month. Its three-year annualized return of 4.69% is much stronger than its peers’, and the three-year Sharpe ratio of 0.82 is by far the best of any market-neutral fund reviewed this month. November’s Worst Performers The worst performing market-neutral mutual funds in November included: (click to enlarge) The Whitebox fund was the month’s worst, at -3.19%. For the first eleven months of 2015, the fund lost 6.56%, but its three-year annualized returns were in the black at +1.44%. What’s more, the fund’s Sharpe ratio of 0.27 was not only better than either of November’s other worst performing market-neutral funds, but among the top three of the six funds covered this month. The QuantShares US Market Neutral Value Fund lost 2.98% in November, bringing its year-to-date losses to 10.03% as of November 30. The fact that QuantShares has found itself on both the Best and the Worst lists for the month is a clear indication that momentum exposure worked in November (and the year), and value did not. On a three-year basis, the fund was in the black, with annualized returns of +0.30%. Finally, the Hussman Strategic Growth Fund was November’s third-worst performer, also earning Hussman the distinction of being in both the penthouse and the doghouse for the month. Of the three biggest losers from last month, the Hussman fund has the worst looking long-term results: a three-year annualized return of -8.88%. Its three-year Sharpe ratio of -1.38 was also easily the worst of the bunch. Past Performance does not necessarily predict future results. Meili Zeng and Jason Seagraves contributed to this article.

A Comprehensive Guide To Russia ETFs

After struggling with falling energy prices and western sanctions following the Ukraine crisis, Russia seems to be coming back on track. The Russian benchmark stock index, the Micex, recently touched its seven-year nadir while major ETFs tracking the Russian equity market have been reflecting gains. Much of the recovery in the country is linked to the oil and gas industry as the state derives about half of its revenues from the industry and 25% of its GDP is based on it. Oil prices have been recovering on rising geo-political tensions across the world ranging from the situation in Syria and Northern Iraq to the recent downing of a Russian jet by Turkey. International benchmark Brent Crude reached its two-week high of above $46 recently, a rebound from the six-year low of roughly $43 in August. The impact of the Syrian crisis may look short-lived but that’s not the end of the story. Recently, Saudi oil minister indicated at a possible cooperation between OPEC and non-OPEC nations to deal with the over-a-year-long production turf war to stabilize the oil market at their meeting on December 4. Stabilization in Russian ruble is another reason for the inflow in Russian ETFs. A weak ruble in the past has been the major factor for investors’ distaste for these ETFs as they lower dollar-denominated returns. Ruble has rebounded about 34% from its year-to-date low of around 50 to around 65 against the greenback currently. In fact, Goldman Sachs (NYSE: GS ) expects ruble to be one of the good performing currencies in 2016 along with the U.S. dollar and the Mexican peso. Moreover, increasing prospects of cooperation between Russia and the west over the war against the extremist group Islamic State have been boosting investor confidence. This led to the possibility of the U.S. lifting economic sanctions imposed on Russia following the Ukraine crisis. Recently, the International Monetary Fund (IMF) released projections that indicated stabilization in the Russian economy in 2016. IMF expects the economy to contract only 0.6% next year following a 3.8% squeeze in 2015, given the impact of lower oil prices. It further predicted inflation to fall to 12.7% at the end of this year and will continue to do so in 2016 from the current rate of 15.7%. It also hinted at improvements in the trading situation in the country despite its high dependence on oil exports. Below we discuss three ETFs tracking the Russian equity market that posted double-digit gains in the year-to-date time frame (as of November 25, 2015). Investors should closely monitor the movement of these ETFs in the days ahead, particularly following the OPEC meeting next week. Market Vectors Russia ETF (NYSEARCA: RSX ) This is the most popular ETF with an AUM of nearly $2 billion. The fund tracks the Market Vectors Russia Index with the highest exposure to the energy sector (42.9%), followed by materials (17.8%) and financials (13.9%). It has a basket of 37 stocks with top three holdings including Sberbank of Russian Federation, Gazprom ( OTCQX:GZPFY ) and Lukoil ( OTCPK:LUKOY ). The ETF trades in a solid volume of 11.9 million shares per day and charges 63 bps in annual fees. It added 19.7% in the year-to-date time frame and has a Zacks ETF Rank #4 (Sell) with a High risk outlook. iShares MSCI Russia Capped (NYSEARCA: ERUS ) This ETF tracks the MSCI Russia 25/50 Index, measuring the performance of equity securities in the top 85% by market capitalization of equity securities listed on stock exchanges in Russia. The ETF with a basket of 27 stocks is also heavily weighted to energy sector (53.4%) followed by financials (18%) and materials (9.8%). Gazprom, Pjsc Gazprom and Sberbank of Russia are the top three holdings in the fund. ERUS has an AUM of $240 million and exchanges roughly 411,000 shares in hand per day. It charges 62 bps in annual fees and returned around 16.8% so far this year. It has a Zacks ETF Rank #4 with a High risk outlook. SPDR S&P Russia ETF (NYSEARCA: RBL ) RBL follows the S&P Russia Capped BMI Index with a basket of 43 stocks. It also gives the highest preference to the energy sector (47.1%) followed by financials (14.8%) and materials (11.3%). Gazprom, Lukoil and Sberbank occupy the top three spots in the fund. The product has amassed around $26 million in assets and trades in a paltry volume of roughly 9,300 shares per day. It charges 59 bps in investor fees and gained 17.8% in the year-to-date period. It carries a Zacks ETF Rank #4 with a High risk outlook. Original Post

No High-Yield Relief For MLP ETFs Post Fed

The Fed went ahead and hiked the short-term interest rates after almost a decade and investors are probably looking for high-yield but stable investing tools to weather the prospective bounce in the U.S. Treasury yields, but this search will not be easy now. Investors need to be very careful while picking high-yields securities in the present market condition. This is because of the fact that the Fed hike is not the only threat to the market, a below-$40 oil price seems to be the main culprit now. As a result, conventionally high-yield securities MLPs, which are normally stable in nature too, are now having a bloodbath. MLPs are involved in the business of transportation and storage of oil and gas, and they are suffering even more than the oil producers from the downturn in the market. MLPs primarily benefit from an uptick in oil production. Oil Price Slump Hurts Now oil prices are in a freefall and hovering around a seven-year low following the prospect of more production from OPEC nations amid supply glut and falling demand. So energy MLPs are being crushed. Now, Russia’s deputy finance minister expects oil price to range between $40 and $60 per barrel in the next seven years. So one can easily expect how prolonged the pain could be for the MLPs. As you may know, MLPs often operate pipelines or similar energy infrastructures that make it an interest-rate sensitive sector. This group catches investor eye as the players in it do not pay taxes at the entity level and hence must pay out most of their income (more than 90%) in the form of dividends. Investors looking for higher income levels outside the traditional bond sources generally bet on these products. Rising Rate Scenario: A Pain A rising interest rate environment would also adversely impact the performance of MLPs for a number of reasons. First, higher interest rates lower the appeal of high-yielding stocks such as MLPs, which have historically offered around 5% in yields and hence have attracted investors’ attention due to ultra-low interest rates. Secondly, MLPs heavily depend on external financing to run their operations as they distribute most of their income as dividends. As a result, a rise in interest rates would increase their financing costs, which in turn would diminish their ability to keep distribution payments at the existing level. Dividend Cuts Also, thanks to the oil rout, the cash position of MLPs is weakening. Upstream exploration MLP companies earn from every barrel of oil and are being thrashed by the endless weakness in oil prices. U.S. oil producers are resorting to a cutback in oil production in response to falling prices. Since pipeline operators are heavily dependent on them, a blow to the MLP balance sheet is inevitable. The situation is so acute that Street.com indicated a few MLPs which may cut dividend – the sole lure of the MLP investing – in the near term. Already the largest energy infrastructure company in North America – Kinder Morgan, Inc. (NYSE: KMI ) – cut its dividend by 75% on December 8. The author in the Street.com believes that Targa Resources Partners (NYSE: NGLS ) and Vanguard Natural Resources (NASDAQ: VNR ), which yield about 20% and as high as 55%, respectively, may resort to a cutback in the coming days. Crestwood Equity Partners (NYSE: CEQP ) is yet another mid-stream MLP which yields about 38.52% annually in dividend, but is in the danger list. Others are NGL Energy Partners (NYSE: NGL ) presently yielding 26.42% and NuStar Energy (NYSE: NS ) with a dividend yield of 13.05% at present that may not be able to sustain the same payout in the coming months due to financing issues. ETF Impact All these have kept the MLP ETFs space depressed, each losing in the range 15% to 30% in the last one-month frame (as of December 14, 2015). Year to date, these products have lost in the range of 22% to 55%. InfraCap MLP ETF (NYSEARCA: AMZA ), Yorkville High Income MLP ETF (NYSEARCA: YMLP ) and Cushing MLP High Income Index ETN (NYSEARCA: MLPY ) were the worst hit during the last one-month frame. Original Post