Tag Archives: management

RSX: OPEC, Sanctions On Turkey And The Stubborn Ruble

Summary OPEC fails to provide support to oil prices, posing a significant risk for RSX. The story with Turkey is evolving as I predicted, and does not add much to the bear thesis. The ruble remains relatively overvalued. Market Vectors Russia ETF (NYSE: RSX ) had an interesting November. The ETF moved up and down, fueled by implications of Paris attacks, the shooting of the Russian jet by Turkey and the fluctuations of oil prices. In this article, I’ll focus on two major developments – the Russian sanctions on Turkey and OPEC’s decision to leave things as they are. Turkey In my article on RSX that was published right after the jet incident I stated that Russia’s response won’t be harmful for RSX components. This what exactly happened. In essence, Russia banned tourism and food from Turkey. The food ban comes into power on January 1, 2016, but multiple reports from Russian media show that it is already next to impossible to bring food from Turkey in reasonable time due to customs’ intense checks. Short-term, this will increase inflation, as Russia imports most fruits and vegetables that it consumes in winter because of obvious geographical reasons. As for RSX holdings , this might hurt the retailer Magnit, but I don’t think that it will have a big impact on Magnit’s bottom line. Russian president promised more sanctions on Turkey, but so far there was more harsh talk than real actions. Given the nature of the incident, tourism and food bans are a very light response. I anticipate more words (like the recent mutual accusations of involvement in the ISIS oil trade) from both sides as politicians want to score some points, but I expect little action. Among RSX holdings, the biggest risk is on Sberbank (OTCPK: OTCPK:SBRCY ), which is the fund’s biggest holding. Sberbank owns DenizBank, which is a notable player in the Turkish market. In the latest interview to the Russian media, Sberbank’s head German Gref stated that he saw no significant risks for Sberbank in Turkey, and I agree with his assessment. OPEC OPEC’s decision to live things as they were was predictable, but, nevertheless, was bad for Russia. I think that OPEC’s inability to function as an organization will put more pressure on the oil market. I recently argued that a perfect storm could push oil to $25 per barrel. Such a drop will push RSX way past the lows of December 2014. However, even current prices present an enormous threat to the Russian economy as the country eats through its emergency funds. The ruble The ruble (which is an important factor for the dollar-denominated RSX) stays relatively strong given the current oil price. The ruble-denominated oil price stubbornly stays around 2900 per barrel, while the Russian budget for 2016 needs at least 3150 per barrel. Sanctions on Turkey limit the Central Bank’s ability to decrease the rate, which is currently at 11% . However, if oil stays weak in the beginning of 2016, I expect that the Central Bank will have to cut the rate to provide some help to the Russian budget. Bottom line I remain bearish. RSX was clearly not the easiest short trade in the last few months. There was some optimism about Russia and buying activity was real. However, I question the Russian economy’s ability to successfully operate at current oil price levels. Also, as I think that the next leg down in oil is around the corner, I expect further weakness in RSX.

The Average Joes Of The Dow

Summary We all know about the Dogs of the Dow. Last week I wrote about the Dow’s lowest-yielding stocks – the Gods of the Dow. The next step was to look at the middle-yielding stocks – the “Average Joes of the Dow.” See the results. In the past week I released an article, exclusively on SA, called ” The Gods of the Dow .” The main thrust of the article was to compare the performance of the 10 highest-yielding stocks of the Dow (the Dogs) against the 10 lowest-yielding stocks (what I called “the Gods”) over a decade. The Dogs won the contest by quite a margin. Here is a summary chart showing the performance of the investment strategies. The next logical step is to see how the middle 10 stocks of the Dow would perform. I call this cohort of stocks the “Average Joes of the Dow.” I am having a bit of fun running these tests, but I do believe these 3 groups – the Dogs, the Gods, and the Average Joes – act as rough proxies for value investment, growth investment and the middle ground in between. The Average Joes of the Dow Investment Strategy On December 31, buy the Dow’s 10 middle-yielding stocks. Hold these stocks for a year. Sell the 10 positions on December 31 the following year. Repeat the above process annually. Note: Stocks that are dropped from the Dow during the course of the year are still held until year-end — e.g., you would still hold AT&T through December 31, 2015, if you had purchased it December 31, 2014. Another note: The data for the test comes from the “Dogs of the Dow” website. I am not sure what would happen in the event or a merger or acquisition. A current example would be Pfizer: Allergan has proposed acquiring Pfizer in 2016. If you bought Pfizer on December 31, 2015, you would most likely sell the merged company or acquirer on December 31, 2016, but I am uncertain as to how such events were handled in this historic data set. The Dogs of the Dow Investment Strategy The same as above, but you buy the 10 highest-yielding stocks of the Dow year after year. The Questions What was the annual performance of each strategy on a total return basis? What was the overall performance of each strategy over a 10 year period? Some Sample Data The Dogs of the Dow on December 31, 2014 were: (NYSE: T ) AT&T 33.59 5.48% (NYSE: VZ ) Verizon 46.78 4.70% (NYSE: CVX ) Chevron 112.18 3.82% (NYSE: MCD ) McDonald’s 93.7 3.63% (NYSE: PFE ) Pfizer 31.15 3.60% (NYSE: GE ) General Electric 25.27 3.48% (NYSE: MRK ) Merck 56.79 3.17% (NYSE: CAT ) Caterpillar 91.53 3.06% (NYSE: XOM ) ExxonMobil 92.45 2.99% (NYSE: KO ) Coca-Cola 42.22 2.89% The Average Joes of the Dow on 31 December 2014 were: PG Procter & Gamble 91.09 2.82% IBM International Business Machines 160.44 2.74% CSCO Cisco Systems 27.82 2.73% JNJ Johnson & Johnson 104.57 2.68% MSFT Microsoft 46.45 2.67% JPM JPMorgan Chase 62.58 2.56% DD DuPont 73.94 2.54% INTC Intel 36.29 2.48% BA Boeing 129.98 2.25% WMT Wal-Mart 85.88 2.24% The Results The total returns each year of the Joes vs. the Dogs is shown in the chart below: 2005 2006 2007 2008 2009 Joes 7.65% 18% 16.60% -24.81% 26.65% Dogs -3.46% 25.80% 2.10% -36.56% 17.19% 2010 2011 2012 2013 2014 Joes 16.40% 9.25% 13.19% 33.77% 11.63% Dogs 21.43% 16.85% 8.95% 28.54% 6.45% Here’s a year-by-year comparison of the Joes Vs the Dogs in an easier-to-read graphic. The true outperformance is best explained by considering how well a $10k investment in each strategy on December 31, 2004, would have fared, as shown below: Over the 10-year period, the Joes strongly outperformed the Dogs. The Dogs strategy would have nearly double your money in 10 years, turning $10,000 into $19,320 — not bad. But the Joes strategy would have performed much better, turning $10,000 into $30,320! Conclusion First of all, I want to qualify the above analysis with the observation that it is only based on 10 years of data. As such, the Joes may have had a few exceptionally good years at the start of the decade which then exaggerates out-performance in the later years of the decade. Indeed looking at the Joes cohort from 31 December 2014, one would be concerned by some of the picks: P&G has lost 14% TR YTD IBM has lost 11% TR YTD Wal-Mart has lost 28% TR YTD But despite the above, the Average Joes has only lost 3% YTD on a total return basis. The Joes has included some good performers: MSFT has gained 20% TR YTD Boeing has gained 15.5% TR YTD JPMorgan Chase has gained 10% TR YTD The Dogs have had a better 2015 so far, with just a 1% loss. I have to say it is quite comforting to know that with such big individual losers in the Joes, that the overall loss is not too bad. I know in my own portfolio that I have had big losers this year, and it is quite easy to dwell on those underperformers. When I look at my total performance, it’s actually okay — it’s breaking even — and I need to focus on the big picture.

ETF Update: A Look Back At November And 9 Funds To Kick Off December

Summary Every week, Seeking Alpha aggregates ETF updates in an effort to alert readers and contributors to changes in the market. There were 9 launches last week and a total of 21 in November. Have a view on something that’s coming up or a new fund? Submit an article. Welcome back to the SA ETF Update. My goal is to keep Seeking Alpha readers up to date on the ETF universe and to gain some visibility, both for the ETF community, and for me as its editor (so users know who to approach with issues, article ideas, to become a contributor, etc.) Every weekend, or every other weekend (depending on the reader response and submission volumes), we will highlight fund launches and closures for the week, as well as any news items that could impact ETF investors. There were 21 launches in November, with just 2 closures, so a net gain of 19 funds. Taking a look back, we see a continuing focus on Smart Beta ETFs. These are funds that hope to capitalize on the perceived systematic biases or inefficiencies in the market, rather than the traditional index construction around market capitalization or sectors. This has been a growing trend in the industry and I expect to see more before the end of the year. November Total Launches Fund Name Ticker iShares Currency Hedged MSCI ACWI Minimum Volatility ETF HACV iShares Currency Hedged MSCI EAFE Minimum Volatility ETF HEFV iShares Currency Hedged MSCI EM Minimum Volatility ETF HEMV iShares Currency Hedged MSCI Europe Small-Cap ETF HEUS iShares Currency Hedged MSCI Europe Minimum Volatility ETF HEUV BlueStar TA-BIGITech Israel Technology ETF ITEQ First Trust SSI Strategic Convertible Securities ETF FCVT PowerShares Russell 1000 Low Beta Equal Weight Portfolio USLB PowerShares FTSE International Low Beta Equal Weight Portfolio IDLB AlphaClone International ETF ALFI Goldman Sachs ActiveBeta International Equity ETF GSIE FlexShares Currency Hedged Morningstar DM ex-US Factor Tilt Index Fund TLDH FlexShares Currency Hedged Morningstar EM Factor Tilt Index Fund TLEH Global SmallCap Dividend Fund GSD iShares Core International Aggregate Bond ETF IAGG First Trust Heitman Global Prime Real Estate ETF PRME WisdomTree Global Hedged SmallCap Dividend ETF HGSD Etho Climate Leadership U.S. ETF ETHO Deutsche X-trackers FTSE Developed ex US Enhanced Beta ETF DEEF Deutsche X-trackers Russell 1000 Enhanced Beta ETF DEUS FlexShares Real Assets Allocation Index Fund ASET Fund launches for the week of November 30th, 2015 SPDR Fossil Fuel Free ETF opens for business (12/1): Among the top holdings of the SPDR S&P 500 Fossil Fuel Free ETF ( SPYX ) are Apple (NASDAQ: AAPL ), Microsoft (NASDAQ: MSFT ), GE (NYSE: GE ), J&J (NYSE: JNJ ), Wells Fargo (NYSE: WFC ), Amazon (NASDAQ: AMZN ), Berkshire Hathaway (NYSE: BRK.A ), JPMorgan (NYSE: JPM ), Facebook (NASDAQ: FB ), and Alphabet (NASDAQ: GOOG ). The gross expense ratio is 0.25%, the net 0.20%. Alpha Architect launches a new active ETF (12/2): The MomentumShares U.S. Quantitative Momentum ETF (BATS: QMOM ) picks its holdings with a quantitative model designed to find positive momentum firms. As detailed by the company’s whitepaper on QMOM, “We consider the term momentum to mean a continuation of past returns-past winners tend to be future winners, while past losers tend to be future losers.” State Street launches 3 new factor-focused SPDR funds (12/4): State Street’s (NYSE: STT ) new funds all select high-value, high-quality and low-size firms from within the Russell 1000. However, each tracks a different fourth factor as well, included in the name of the funds: The SPDR Russell 1000 Momentum Focus ETF (NYSEARCA: ONEO ), the SPDR Russell 1000 Low Volatility Focus ETF (NYSEARCA: ONEV ) and the SPDR Russell 1000 Yield Focus ETF (NYSEARCA: ONEY ). These 3 funds all fall into SPDR’s growing selection of Smart Beta ETFs. Direxion launches a new fund and brings 2 back from the dead (12/4): The Direxion Daily S&P Biotech Bear 1X Shares (NYSEARCA: LABS ) offers inverse exposure to the S&P Biotechnology Select Industry Index, which is the index of choice for the SPDR S&P Biotech ETF (NYSEARCA: XBI ). If the Direxion Daily Natural Gas Related Bear 3X Shares (NYSEARCA: GASX ) and the Direxion Daily Healthcare Bear 3X Shares (NYSEARCA: SICK ) sound familiar, it’s because we have seen them before. GASX and SICK were shut down in Q3 2014 and Q3 2014 respectively. SICK’s bull counterpart, the Direxion Daily Healthcare Bull 3x Shares ETF (NYSEARCA: CURE ), had been seeing strong growth until May, which may have been when Direxion decided to give SICK another chance. The first ETF focused on Latin American REITs (12/4): The Tierra XP Latin America Real Estate ETF (NYSEARCA: LARE ) offers investors access to real estate investment trusts (REITs) and real estate operating companies (REOCs) in Latin America. According to a press release at the launch, this ETF was a big team effort: “The ETF was introduced by a partnership between Tierra Funds, ETF Managers Group, ISE ETF Ventures, and XP Gestão de Recursos, an XP Group company.” This is the first ETF targeting Latin American REITs specifically. There were no fund closures for the week of November 30, 2015 Have any other questions on ETFs or ETNs? Please comment below and I will try to clear things up. As an author and editor I have found that constructive feedback is the best way to grow. What you would like to see discussed in the future? How can I improve this series to meet reader needs? Please share your thoughts on this first edition of the ETF Update series in the comments section below. Have a view on something that’s coming up or a new fund? Submit an article .