Tag Archives: market-vectors

A High-Yield Option For Income Investors

Investing in financial markets has become considerably more difficult since the summer. High yielding assets, as well as stocks have taken a beating. Market Vectors High-Yield Muni ETF, however, has seen a steady increase in principal, while providing an attractive dividend yield. As the Treasury yield curve has contracted, alongside falling equity markets, investors have been left with few avenues to invest. Higher yielding dividend stocks, generally yielding below 3%, have seen declines in principle due to the most recent equity market rout. Additionally, junk bonds have seen broad selling pressure as investors shunned riskier assets for fear of slowing economic activity. A lone star, however, has emerged in the form of the Market Vec tors High-Yield Municipal Index ETF (NYSEARCA: HYD ) . This asset has risen close to 4% since early July, while yielding a dividend of 4.81%. This combination of appreciation of principle, as well as stable dividend yield, could be a smart play for investors seeking income in coming months. With the Federal Reserve stuck to its zero-bound lending rate, income investors have had trouble finding sustainable income sources. The global economy continues to weaken, alongside the persistence of foreign central banks loosening monetary policy, causing the Fed to potentially have trouble hiking rates in the near future. The chart below is of the iShares 7-10 Year Treasury Bond ETF (NYSEARCA: IEF ) over the iShares 20+ Year Treasury Bond ETF (NYSEARCA: TLT ) . This indicator represents the Treasury yield curve. When the indicator declines, it signals a contraction of the yield curve, and thus lowered expectations of a rate hike for monetary policy. Since peaking in the summer of 2015, slowing economic growth, and global financial market volatility has spooked Fed members, forcing them to push out their projected time frame for hiking rates. Furthermore, with investors continuing to buy bonds, yields have fallen to levels providing very little income for investors. (click to enlarge) Moreover, financial market volatility has pushed both junk bonds, and broader equity markets lower. Investors feel that equity markets have topped globally, and the combination of falling currencies, and commodities signal that global growth concerns are finally resulting in increased caution. While dividend stocks may be outperforming the market on a relative basis, these companies are still losing value in 2015. As U.S. earnings season disappoints, investors are pushing all sectors lower. Additionally, weak equity market performance is weighing on junk bonds as risk sentiment diminishes. After my degradation of basically every asset class, there seems to be one lone performer that has provided true safe-haven status. High yielding municipal bonds have outperformed as investors favor the comfort of government backed securities, alongside an attractive yield. As municipalities have lowered their leverage in recent years, their perceived stability has risen. This index also does a nice job of spreading risk, allowing investors to get exposure to a basket of riskier municipal bonds, with lower overall default risk. The Market Vectors High-Yield Muni ETF has proven a strong investment amid the recent volatility in bonds, equities, and currencies. As long as the Fed prolongs raising rates, and financial markets remain volatile, this high yielding municipal ETF should provide steady gains. (click to enlarge)

OIH: What’s Next For The ETF After Schlumberger, Cameron Intl. Merger?

Market Vectors Oil Services ETF is the largest fund in the oilfield services space with nearly $1.1 billion of assets under management. The fund has outperformed its rivals this year, posted one of its biggest weekly gains last week, and could rise again in the future as M&A activity picks up. Focus now shifts to the fund’s fifth largest holding National Oilwell Varco which could move to acquire FMC Technologies. The slump in oil prices has dragged the oilfield services stocks, but last week, the Market Vectors Oil Services ETF (NYSEARCA: OIH ), posted one of its biggest gains this year as Schlumberger (NYSE: SLB ), the fund’s top holding, announced its decision to acquire Cameron International (NYSE: CAM ), its fourth largest holding. Market Vectors Oil Services ETF is the largest fund in this space with nearly $1.1 billion of assets under management. The fund concentrates on investing in 25 of the largest U.S. listed oil services companies ranging from Schlumberger, to land driller Helmerich & Payne (NYSE: HP ), offshore driller Transocean (NYSE: RIG ), oilfield equipment maker McDermott International (NYSE: MDR ) and fracking sand provider U.S. Silica (NYSE: SLCA ). The fund’s primary strength is its focus on few but well established companies that have significant economic moats. Most of the fund’s underlying holdings have seen several downturns before and are well positioned to face the current one. By comparison, other funds, such as the iShares U.S. Oil Equipment & Services ETF (NYSEARCA: IEZ ) and the SPDR S&P Oil & Gas Equip & Service ETF (NYSEARCA: XES ), have exposure to nearly twice as many companies, but this includes a number of medium to small cap players that have bore the brunt of the oil price collapse. As a result, these funds have underperformed this year when compared against Market Vectors Oil Services. OIH Top Ten Holdings Schlumberger 22.43% Halliburton (NYSE: HAL ) 13.76% Baker Hughes (NYSE: BHI ) 8.57% Cameron International 5.78% National Oilwell Varco (NYSE: NOV ) 5.31% Helmerich & Payne 4.29% Weatherford International plc (NYSE: WFT ) 4.15% Tenaris S.A. (NYSE: TS ) 3.98% FMC Technologies, Inc (NYSE: FMC ) 3.71% Transocean Ltd. 3.12% On a year-to-date basis, Market Vectors Oil Services has fallen by 14.4% while iShares U.S. Oil Equipment & Services and SPDR S&P Oil & Gas Equip & Service have declined by 17.3% and 25.3% respectively. But last week, Market Vectors Oil Services climbed by nearly 13.5% when two of its biggest holdings announced a merger agreement which has been unanimously approved by the boards of the two companies. As I have mentioned in my previous articles ( here and here ), the deal is positive for Schlumberger as well as the offshore drilling industry. But the merger can also open doors to further consolidation in the oilfield services space. And that could push Market Vectors Oil Services higher. The subdued pricing environment, with crude hovering near the low $40s, will force the exit of marginal producers and lead towards industry consolidation with bigger, well established companies buying the weaker ones, just as we’ve seen in every oil cycle over the last three decades. Schlumberger’s purchase should give confidence to other oil service companies who’ve been patently waiting for acquisition opportunities. The four largest stocks of Market Vectors Oil Services, namely Schlumberger, Halliburton, Baker Hughes and Cameron International, are already working towards mega mergers. But investors should watch out for National Oilwell Varco , which provides equipment and components to exploration and production companies. National Oilwell Varco has been struggling in the downturn, but it is one of the oldest and well established companies in the energy sector that has a wide economic moat. Furthermore, the company comes with a solid track record of making bolt-on acquisitions during downturns. In fact, historically, these acquisitions have played a crucial role in fueling the company’s growth. And currently, the company has been actively looking for acquisition opportunities. During the most recent conference call , National Oilwell Varco’s management said that they have already raised the size of their credit facility to $4.5 billion “in preparation for potential [acquisition] opportunities.” There are a number of companies that could be on National Oilwell Varco’s radar such as Dril-Quip (NYSE: DRQ ) and Forum Energy Technologies (NYSE: FET ). But if National Oilwell Varco follows in Schlumberger’s footsteps by buying a company with highly advanced technological capabilities and significant offshore exposure, then there is no bigger name than FMC Technologies which dominates the global subsea equipment market. A potential tie-up would not only give birth to one of the world’s biggest equipment maker in the energy industry, but could also lift Market Vectors Oil Services higher as National Oilwell Varco is the fifth largest and FMC Technologies is the ninth largest holding of the fund. Although Market Vectors Oil Services has struggled this year and could continue to remain under pressure in the near term, at least until we get a clear idea of where the oil price and the 2016 exploration and production budgets are heading, it can prove to be an interesting speculative play on an uptake in mergers and acquisition activity, especially since its underlying companies are actively seeking acquisition opportunities and a merger between National Oilwell Varco and FMC Technologies – two of its ten largest holdings, is very much possible. Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More…) I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

RSX: Bear Thesis In Progress

Summary The Greek drama and news that sanctions on Iran could be lifted put serious pressure on oil prices. The Ruble will continue to weaken. The Saudi deal does not impact the short thesis. I’ve recently written an article on the Market Vectors Russia ETF (NYSE: RSX ), where I outlined my bear thesis on the Russian market. The situation evolved fast. When the initial article was published, Brent oil was trading near $63. As I am writing this article, Brent oil trades at $57.50 after it touched $55.60. This was a spectacular movement, and I even got a message from a reader who was wondering whether it was time to buy RSX. The rationale of such thesis is quite simple – oil often rebounds after big moves. I think that this reader was not the only one wondering whether the plunge in oil was the opportunity to buy RSX at cheaper prices, so I decided to write a follow-up on my initial thesis. The Russian ruble – not as weak as I expected My initial thesis consisted of three main points: Russian ruble will weaken, the economy will continue to suffer and oil will drop. I will revisit them one by one. Since June 26, the ruble tumbled 4% against the dollar. The movement against the basket of currencies, which consists of dollar and euro, was more modest. I expected that ruble would be weaker. Many factors affect the value of the Russian currency, but the main factor is the price of oil. The oil price is the key variable for both the Russian economy and the Russian budget. It’s the price of oil in rubles that matters for the Russian budget. In the end of 2014, several Russian officials stated that the “comfortable” price of oil was 3600 rubles per barrel. However, as oil plunged and ruble tumbled, stabilization of the national currency became a top priority. Back in June 26, the oil price denominated in rubles was 3467. As I’m writing this article, the price of oil fell to 3277 rubles. In my initial article, I stated that the Russian budget was stretched. At the same time, the Russian Central Bank started to buy dollars at the open market to bring the country’s reserves back to $500 billion. I think that the price of oil in rubles will soon drift towards 3400-3500 level – either by forces of the market or with a little help from the Russian Central Bank. Even if oil prices stay at current levels, this will lead to further weakness of the ruble and put pressure on dollar-denominated RSX. The economy – deal with Saudi Arabia does not change the big picture Many readers already know that Saudi Arabia decided to invest up to $10 billion in Russia over the next five years. Some people speculate that some of this money could end up on the stock market. In my view, this will not be the case. What is important is the duration of the deal – five years, and the sectors – agriculture, medicine, logistics, retail and real estate. While the economy matters a lot when you buy a Russian market ETF, the fate of the actual holdings of this ETF matters more. The majority of the money will be spent on agricultural projects, and there is no agricultural producers in RSX’s holdings . Among related companies, Uralkali, the Russian producer of potash, accounts for just 2.02% of RSX’s holdings. All in all, I think that this news do not change the bear thesis. The oil plunge The Greek drama and news that sanctions on Iran could be lifted put serious pressure on oil prices. In my view, the story is far from its end. I think that oil still has room to fall, especially if the nuclear deal with Iran is successful. As I highlighted in my initial article, I believe that there is a structural imbalance between supply and demand. In my opinion, the strength of oil prices’ reaction to negative news confirms this thesis. Bottom line Let me guess your ultimate bullish argument: in a five-year period, Russian market will be higher as oil rebounds, sanctions are lifted and investors realize how cheap Russian stocks are. That may be true. However, a bearish thesis on a country is by definition not designed for five-year time frames. In shorter time frames, the bearish thesis remains valid. I expect that weaker ruble, poor economy and falling oil will continue to put pressure on RSX. Disclosure: I am/we are short RSX. (More…) I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.