Tag Archives: management

Why Income Investors Should Not Ignore Preferred Stock ETFs

Preferred stocks have been quite popular among income-seeking investors due to their juicy yields but many now wonder how these securities will perform in a rising rate scenario. We believe that there is still a case for investing in these securities. What are Preferred Stocks? Preferred stocks are hybrid securities that have characteristics of both debt and equity. They have a higher claim on assets and earnings than common stock. Preferred stocks are either perpetual (without any maturity date) or have long-term maturity (30 to 50 years). Like bonds, preferred stocks are usually rated by rating agencies. Most preferred dividends have the same tax advantage that the common stock dividends currently have. However, while companies have the obligation to pay interest on the bonds that they issue, dividends on preferred stock can be suspended or deferred by the vote of the board. Why Should You Invest in Preferred Stocks? Juicy yields around 5-6% are the main attraction for investors. Further, preferred stocks have low correlations with common stocks and hence add diversification to a stock-centric portfolio. Further, these securities have much lower volatility than stocks and provide stability to portfolios. Risks Like bonds, preferred securities are sensitive to changes in the interest rates. In the event of rising interest rate, the value of these securities will fall. But I believe that in the current scenario, when interest rates are expected to stay “lower for longer,” the impact will be minimal. Preferred securities also face credit risk as the issuer may not be able to meet the claims of investors. However, both the ETFs that we have discussed below have minimal exposure to energy sector, where chances of default are higher. Many preferred securities have call provision, i.e. the issuer has the right to redeem its preferred stock or convert it to common stock, but call is usually exercised by issuers when interest rates are falling. ETFs to Consider iShares S&P U.S. Preferred Stock Index (NYSEARCA: PFF ) is the most popular and liquid preferred stock ETF in the space. It has a lot of exposure to banks and other financials, which are expected to do well in rising rate scenario. PowerShares Variable Rate Preferred Portfolio Fund (NYSEARCA: VRP ) holds variable- and floating-rate preferred stocks which reduces interest rate risk. Thus, VRP could be a nice option for income-seeking investors in the rising rate scenario. To learn more, please watch the short video below: Original Post

Believe In T. Rowe Price? Invest In These EM ETFs

Worries over the emerging market (EM) bloc are piling up on the impending Fed tightening, commodity market crash, slowing growth and currency weakness. If this was not enough, China – the largest emerging market – is seeing a serious upheaval in its financial market and economy and sending shockwaves to the entire EM bloc. Several hedge funds are cutting their stake in EM equities and ETFs in the wake of the Fed move. Capital inflows to emerging markets are likely to turn negative this year for the first time since 1988. The fund outflows ($12.4 billion) in Q3 were the highest since the first quarter of 2014 when the emerging market funds bled $12.7 billion in assets. In September, emerging market ETFs witnessed $1.9 billion of extraction. Though bond funds were also unsteady, equities were hit hard. Two top EM ETFs – Vanguard FTSE Emerging Markets ETF (NYSEARCA: VWO ) and iShares MSCI Emerging Markets ETF (NYSEARCA: EEM ) – have shed 12% and 10.6% so far this year (as of November 20, 2015). However, not all emerging markets are seeing the same downtrend at least, if we are to go by T. Rowe Price , an American publicly owned investment firm. As per the organization, an improving U.S. economy will lug along other regions of the world including this vulnerable part, though a short-term setback in EM securities can’t be overruled. Moreover, the organization remains upbeat on several specific economies. Below we highlight those economies and their respective ETFs for investors who want to follow T. Rowe Price. Philippines T. Rowe Price described this economy as bearing all the features investors look for in an emerging market, i.e. growth, great demographics and a current account surplus. The Philippine economy recorded 66 successive quarters of economic growth. Barclays indicated that the economy has grown 6% on average per annum under the current administration, while inflation stayed at 3.7%, which is quite commendable as per the standard of emerging markets, per Financial Times. The Philippines economy grew 5.6% in the second quarter of 2015, which is still a strong growth rate compared with other developed economies. This calls for a look at iShares MSCI Philippines ETF (NYSEARCA: EPHE ). The fund has a Zacks ETF Rank #3 (Hold) with a Medium risk outlook. EPHE is down 9.6% so far this year (as of November 20, 2015). India Though India’s economic growth slowed to 7% in the June quarter, consecutive interest rate cuts, decline in sky-high inflation, still-laudable economic growth and hopes of pro-growth policy reforms under the ministry of prime minister Narendra Modi put India investing in the best position in the BRIC bloc. An acute plunge in oil prices also went in favor of the huge oil-importing nation India. Currency condition is also not as vulnerable as it was in 2013 when taper talks ravaged the EM equities. Greenback gained about 2% against the Indian rupee in the last one month. Thus, India ETFs like PowerShares India Portfolio (NYSEARCA: PIN ), iShares MSCI India ETF (BATS: INDA ) and EGShares Indxx India Small Cap Fund (NYSEARCA: SCIN ) can be followed. However, each of these three ETFs is in red this year. PIN and INDA has lost about 8% while SMIN is down 1.7%. Indonesia T. Rowe Price views Indonesia as a contrarian bet and seeks bottom fishing. Indonesia ETFs have seen a horrendous sell-off this year and the worst-performing emerging market ETFs in the year-to-date frame. MSCI Indonesia ETF (NYSEARCA: EIDO ) is down about 22.3% so far this year. However, such a beating has made the Indonesia ETF fairly valued at the current level. Also, stimulus packages announced by its pro-growth President Joko Widodo put this largest Southeast Asian economy on watch for gains. In the last one month (as of November 20, 2015), U.S. dollar was over 2% up against the Indonesian Rupiah. T. Rowe Price has termed Indonesia as the ‘India of tomorrow’. Peru T. Rowe Price has a choice in the struggling Latin American pack too, i.e. in Peru. The country is famous for the production of this metal, the price of which has slid steeply this year. Peru’s economy will likely expand 3.9% year over year in Q4 and close out 2015 with a growth rate of about 3%, as per a central bank official . This will miss the central bank’s prior full-year growth forecast of 3.1% by a slight margin. The bank official went on saying that the economy’s 2016 growth will be 4.2%, unless an adverse weather condition hits the economy. Investors can play this growth via iShares MSCI All Peru Capped ETF (NYSEARCA: EPU ). Peru ETF has lost over 30% so far this year (as of November 20, 2015). Original Post

The Recent Insider Selling Tells You Zip. Insider Buying Says Much More

In the ongoing debate about whether stocks are cheap or too expensive, the bears got some assurance from news that insider selling is on the rise. Investors often watch what insiders do because insiders are supposed to be better informed about their companies than the rest of us. So if insiders are selling, it must be because they know stocks are overvalued. Right? Not necessarily. I’m in the camp that believes stocks in general are too expensive right now. I would not be surprised to see another round of insider selling in the near future. Yet insider selling activity has no bearing on my view. On the contrary, I believe insider selling tells us very little about overvaluation. That’s because there are so many reasons why insiders might sell stock. A conviction that the stock is overvalued is only one possibility. Insiders might sell stock simply to raise cash. After all, insiders sometimes receive a relatively large proportion of their total compensation in the form of stock or options. Actual cash might make up a smaller proportion. So if these insiders want to buy a new home or send their kids to college, they might sell stock to raise cash. Insiders might also sell stock to diversify. It’s simply too risky for anyone to have all of their labor and most of their wealth tied up in just one company. It makes perfect sense for insiders to sell stock every once in a while to spread their wealth into other assets. Here’s yet one more reason why insiders might sell. Many employees are compensated at least in part with stock options. As a result, they can get hit with a tax liability when they exercise their options. They might sell some of the stock they received from exercising the options just to pay Uncle Sam. That’s not to say that a sudden spike in the amount of insider selling couldn’t be something to worry about. However, knowing that there are so many reasons why insiders might sell, I have to conclude that insider selling activity is not a useful signal of a market top. Insider buying is another story entirely. There are many reasons why insiders might sell, but there is only one major reason why insiders would buy. They buy because they believe the stock is undervalued. It’s true that a new member of the board of directors might be encouraged to buy some stock just for appearance’s sake, but that’s an exception to the rule. If insiders are using their own cash to buy stock, that a bullish signal. This just happened at one of the companies on my Bottom Line’s Money Masters recommended stock list. This company recently announced quarterly earnings that fell short of expectations. As often happens in such cases, the stock sold off in response. Yet my analysis convinced me that this stock is extremely undervalued. Apparently, several insiders agree. At least five of them purchased shares following the selloff. The CEO bought the most, spending $185,000 of his own money. That might not seem like a lot, but he didn’t acquire the stock as a result of an employee ownership plan or the exercise of options. He made a direct purchase on the open market using real cash. This CEO already owned a large stake in the company. The fact that he is willing to add to that stake should send a clear signal to other shareholders that the guy running the company is convinced the stock is cheap – so convinced that he is putting his money where his mouth is.