Tag Archives: market-vectors

RSX: The Bear Thesis

Summary Ruble will continue to weaken. The economy is in bad shape, and production was not helped by the weak ruble. The oil is looking weak too, which is very dangerous for the Russian oil producers and the economy. Despite recent weakness, the Russian Stock Market (NYSEARCA: RSX ) is still up almost 25% year-to-date. The wild moves seen in last December are almost forgotten. However, I see several reasons why RSX can go lower. The Russian Ruble The Russian currency has somewhat stabilized after falling to as much as 80 rubles per dollar in December of 2014. Currently, you can buy a dollar with 55 rubles. However, I see reasons why the ruble could go lower, hurting the dollar-denominated RSX. The first reason is the key interest rate. The key rate, which was increased to 17% by the Russian Central Bank at the height of the crisis, was recently lowered to 11.50%. This move helped the bank stop the rally in the Russian ruble. The Central Bank also started buying $200 million per day in order to bring the reserves back to $500 billion. At the end of May, international reserves stood at $356.8 billion. In my view, the key rate will be lowered further, because the economy is in a bad shape. In April, industrial production fell ( Google translate link ) by 4.5%. In comparison, industrial production fell by just 0.6% in March. This means that the ruble is not weak enough to help local producers, which will make the Central Bank more eager to bring interest rate down and push the ruble lower. The Economy As I mentioned above, production is stagnating. So is consumption. In May, real earnings of Russian citizens contracted ( Google translate link ) by 6.4%. According to official estimates, it would take three years to bring earnings back to the level of 2014. This fact means problems for the consumer-oriented part of RSX holdings like Sberbank ( OTCPK:SBRCY ), Magnit (retailer), VTB Bank, and Mobile Tele Systems (telecom). The decrease of consumer spending could especially hurt Magnit, which has been growing very fast and opened 1,618 new shops last year. The budget is stretched, and the Russian Ministry of Finance is even ready to cut the sacred cow – military spending. Oil Russia is still overly dependent on oil prices, and I’m bearish on oil. Brent oil managed to make a spectacular run from under $50 per barrel to almost $70 per barrel. The decline in the number of U.S. rigs and conflicts in the Middle East help oil gain ground. In my view, oil has run out of upside catalysts. The conflicts in Yemen and Iraq are very far from being resolved, but this does not lead to an upside in oil. The number of working rigs in the U.S. has dropped by more than 50% compared to 2014, but this fact no longer helps oil. Despite recent cuts, supply still exceeds demand, and this means more pressure on oil prices. Pressure on oil hurts the economy, and hurts Russian oil producers, like Surgutneftegas, Lukoil ( OTCPK:LUKOY ) (and Tatneft ( OTCPK:OAOFY ), which are heavily represented in RSX. Bullish Argument The eternal bullish argument for the Russian market is its undervaluation based on different metrics. Interestingly, in Russia, this argument, which was widely used five or ten years ago, is now stated with sarcasm. Yes, you can still choose the metric that you like, choose the peers and find out that Sberbank, Gazprom ( OTCPK:OGZPY ) and others are relatively undervalued. In fact, they have always been. This undervaluation is chronic and, in my view, nothing will change on this front unless the country goes through serious structural changes. Bottom line I am bearish on RSX. I believe that the combination of weaker oil, sluggish economy and falling ruble will send RSX closer to lows seen in December of 2014. Disclosure: I/we have no positions in any stocks mentioned, but may initiate a short position in RSX over 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.

Van Eck’s New ETF Targets Unlocked Spin Off Value

Summary Investor interest in corporate spinoffs is increasing fueled by eBay’s planned spinoff of PayPal and Carl Icahn’s involvement in the process. Currently, this ETF has only one competitor with a similar strategy giving this fund the potential to increase AUM nicely over time. Companies like Occidental Petroleum, Sears, Time Warner and Kimberly-Clark have all spun off business units recently. It’s not the first of its kind but the freshly launched Market Vectors Global Spin Off ETF (NYSEARCA: SPUN ) could be debuting at just the right time to take advantage of the increasing shareholder interest in capturing the intrinsic value that comes with companies spinning off subsidiaries. The most notable corporate spinoff is the one coming this summer – eBay’s (NASDAQ: EBAY ) planned spinoff of PayPal (Pending: PYPL ). eBay itself including PayPal has a market cap of around $75B but analysts are already frothing at the idea of PayPal’s value as an independent company. Needham & Co. came up with an estimate of around $50B . Carl Icahn and Elon Musk agree that PayPal needs to be spun off with Musk saying that PayPal could be worth as much as $100B . You can see why investors are so interested in PayPal’s spinoff. eBay isn’t the only company jumping on the trend. BHP Billiton (NYSE: BHP ), Occidental Petroleum (NYSE: OXY ), Kimberly-Clark (NYSE: KMB ), Chesapeake Energy (NYSE: CHK ), Time Warner (NYSE: TWX ) and Sears (NASDAQ: SHLD ) have all spun off units of their businesses recently. Therefore, the timing may be right for a launch such as this. The index provider, Horizon Kinetics, looks to maintain an equal weighted portfolio and capture value in all stages of the spinoff cycle. According to the fact sheet: For each company, an early entry at the start of the spin-off cycle aims to exploit valuation disconnects caused by selling pressure and pricing inefficiencies. A long-term hold seeks to capture periods of improved operating efficiency. Currently, the fund counts Abbvie (NYSE: ABBV ), Starz (NASDAQ: STRZA ) and Prothena (NASDAQ: PRTA ) among its top holdings. Like most newly launched ETFs, the asset base is small and the trading volume is thin. With assets under management at just $2M and the fund trading only a couple thousand shares a day it may be a while until this fund begins trading efficiently. In the short term, its counterpart, the Guggenheim Spin Off ETF (NYSEARCA: CSD ) might be a slightly better option at with over $500M in AUM and daily volume at almost 50,000 shares. The fund’s net expense ratio of 0.55% seems reasonable and compares favorably to the Guggenheim ETF’s ratio of 0.66%. While the ETF’s mandate aims to build a global portfolio the majority of holdings are still based in the U.S. 67% of the portfolio comes from the United States while Australia and the U.K. are the next largest countries represented at roughly 5% each. Consumer discretionary, financials and industrials are the largest sectors represented and comprise roughly 62% of the portfolio combined. Conclusion The ETF looks to capture an interesting and potentially profitable niche of the market and should be able to garner investor interest over time. The Guggenheim ETF is really the only other one out there with a similar strategy. This ETF may still be a little early in its life cycle to warrant any kind of significant investment but over time it should do fine. Given the fact that it’s primarily a small/mid cap portfolio, fairly concentrated and carries significant business-specific risk, this ETF carries a higher degree of risk and should be added to a broader portfolio appropriately. Longer term, I still like the potential of this fund. 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.

Market Vectors Rolls Out A Spin-Off ETF

The niche ETF concept has been at the top of every issuer’s mind lately. There is hardly any scope for plain vanilla products in this rapidly growing industry. Moreover, these unique investing options give investors a scope to play the various areas of the market in basket form, using strategies that are usually hard to reproduce in a regular-themed portfolio. Probably, inspired by this sentiment, Market Vectors recently rolled out a spin-off ETF. The Market Vectors Global Spin-Off ETF (NYSEARCA: SPUN ) in Focus The fund tracks the Horizon Kinetics Global Spin-Off Index and comprises approximately 87 multi-cap securities belonging to the developed world. The universe of companies eligible for inclusion in the Index includes those that have been spun off. As per the summary prospectus , “for each company, an early entry at the start of the spin-off cycle aims to exploit valuation disconnects caused by selling pressure and pricing inefficiencies. A long-term hold seeks to capture periods of improved operating efficiency.” The fund does not appear to be concentrated on the top 10 holdings as no stock accounts for more than 1.64% of the basket. Among individual holdings, Global Brands Group Holding Ltd, Prothena Corp Plc (NASDAQ: PRTA ) and Indivior Plc ( OTCPK:INVVY ) occupy the top three positions in the fund, which has a net expense ratio of 0.55%. In terms of sector allocation, the ETF has double-digit allocation each in Consumer Discretionary, Financials and Industrials with 25.2%, 19% and 18.5%, respectively. Geographically, the fund is heavy on the U.S. with more than 65% exposure while the U.K. (6.5%) and Australia (5.5%) come in as the distant second and third. How Does it Fit in a Portfolio? In a spin-off, a company detaches certain assets to make a separate company and ‘spins off’, or hands out shares in that entity to the current shareholders. The most usual cause of a spin-off procedure is that the stock price of a big diversified company is unable to reciprocate the fair value of all its branches of operations. These could actually be among one of the top performing assets in the market. This is true for SPUN which actually reflects the full-phase of the separated companies. The issuer noted that such entities normally underperform in the earlier phase of their life-cycle due to the absence of historical performances, dearth of analyst coverage, inferior peer comparisons and market cap issues. However, over the long term, these entities trend to perform better on availability of historical results and the consequent perfection in the analysts’ reports. Better management often makes these lucrative bets. Thus, from the long-term perspective, the fund might be well liked by investors. ETF Competition The coast is clear for this newly launched ETF as it has to compete with just one ETF namely the Guggenheim Spin-Off ETF (NYSEARCA: CSD ) . Otherwise there is no meaningful player in this space. This fund tracks the Beacon Spin-off index which looks to focus on about 40 companies that have been spun-off within the past 30 months, but not before six months prior to the applicable rebalancing date. The fund charges 66 bps in fees (net) which much lower than the newly ETF. Thus, from the expense ratio point of view, SPUN scores a point over CSD. Moreover, CSD has moderately heavy concentration risk with the top four holdings taking 5% to 6% each. Thus, we see no hurdle for SPUN in garnering investors’ money. Article originally published on Zacks.com