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Active Performance With WisdomTree

WisdomTree Investments (NASDAQ: WETF ) is an exchange traded fund (ETF) manager. They are the pioneers behind fundamentally-weighted ETFs that weigh stocks based on fundamentals like dividends and earnings, rather than market value. Their most popular products are international ETFs that hedge out currency movements. Their European and Japanese ETFs have been extremely popular with investors making them the 5th largest ETF provider in the US with nearly $60 billion under management. WETF have received the third largest inflows year to date behind only traditional market weighted indexes like Vanguard and BlackRock’s iShares. (click to enlarge) Source: WisdomTree investor presentation Unique among fund managers WETF is the only listed pure-play ETF manager. It’s a scarce asset with a superior business model to traditional managers. There is no key person risk, and because they construct the indexes have little chance of sustained under-performance. ETFs also benefit from first-mover advantage; once an ETF gains mindshare for its ticker, the volume and liquidity this generates makes it very difficult for new indexes to gain traction. Also unlike other fund managers, there are little concerns over capacity – an index is much more scalable than other investment strategies. No key person risk WETF have only 124 employees, there are no expensive fund managers and analysts to pay bonuses out to. The employees they do have are exceptional. The chairman and largest shareholder is Michael Steinhardt, a legend in the hedge fund world, who returned 24% per annum over a 28-year period. Jeremy Siegel, the Wharton professor and author of Stocks for the Long Run, is their investment strategy advisor. ETFs are the new mutual funds There are $2.1 trillion in ETFs in the US with $1.4 trillion in inflows since 2007 (see below). WETF has taken 4% of those inflows. This ETF trend is likely to continue with advisor moves to fee-for-service. The US ETF market grew at 18% last year. If market share continues to grow (only 13% see below), assuming that ETF inflows total $3 trillion over the next 10 years and WETF continues to take 4% of these inflows, WETF will eventually have hundreds of billions of funds under management. As funds under management triple, the stock should follow. Note these assumptions do not include the growth opportunities in Europe and the rest of the world who prefer the liquidity of ETFs based in the US. Their margins should also expand rapidly with this growth. It’s interesting to see that WETF is not only one of the fastest growing fund managers but also already one of the most profitable. Source: WisdomTree investor presentation The balance sheet is nice and simple. WETF is asset lite with $189 million in cash, free cash flow is very attractive due to tax losses. It’s also paying a 1.9% dividend. The risk is a weaker dollar and poor performance from the European and Japanese markets that will impact inflows. This is the key risk, but hedging is still low as a % of international ETFs being 15% of the international market. WETF have shown themselves to be innovative in coming up with new products, starting with a focus on dividends, emerging markets and currency hedging. Given their track record we believe they can come up with more fundamental products that the market needs. Outperforming with a passive investment WETF is the only listed pure-play ETF provider. Traditional funds management businesses are good businesses as they scale easily with very little people required. ETF providers have an even better business model. There is no key fund manager risk, it’s hard to underperform when you create your own benchmark, and indexes have few capacity constraints in how much capital they can manage. As advisers move to fee-for-service, the move to passive ETFs is a trend that will likely continue. WETF now has scale, but it’s also small enough to keep growing. As an active manager it’s a little ironic buying an ETF provider, but their superior business model should help WETF outperform the market. Disclosure: Decisive has a long position in WisdomTree ( WETF ). The material in this article is for informational purposes only and in no way constitutes a solicitation of business or investment advice. The material has been prepared without regard to any client’s or other person’s investment objectives. Before making an investment decision you should consider the assistance of a financial adviser and whether any investment or service is appropriate in light of your particular investment needs.

An Opportunity During Cloudy Days

Summary The volatility in the markets continues . With anxiety arrives opportunities. Here is one ETF with relatively low volatility and high dividend yield. The stock markets continue to move aggressively up and down. The uncertainty regarding the FED’s action next week drives the investors to levels of high anxiety where every small publication or clue regarding the coming interest rate hike leads to high volatility. History showed us that volatility phases are not short by nature and the best example to use is the 2011 summer selloff that took place due to the European debt concerns, and moreover, due to the U.S. credit rating downgrade. The length of high volatility phase back than was about three months, from early August till mid October. As the markets continue to be highly volatile opportunities for the long term, patient, investor are piling up. The first group of candidates to explore are the group of Aristocrats. Dividend Aristocrats are companies that have increased their dividend payouts to shareholders every year for the last 25 years. Among the more familiar names in this group are The Coca-Cola Company (NYSE: KO ), Chevron (NYSE: CVX ), AT&T (NYSE: T ) and Johnson & Johnson (NYSE: JNJ ). Overall there are about fifty members in this prestigious list of dividend stocks that are included in the Dividend Aristocrats index. Since pursuing fifty stocks in not really achievable the next best thing is to pursue an holding in an ETF that follows this index. SPDR Dividend ETF (NYSEARCA: SDY ) is a passive ETF that seeks to replicate S&P High Yield Dividend Aristocrats Index. I have written about SDY back in April when concerns regarding a correction that was coming about arose. Based on etfdb.com SDY has total of 101 holdings. That means that beyond tracking the Dividend Aristocrats Index the ETF is following the “Index of Champions” which, based on David Fish’s latest article , includes 106 companies. In order to assess the attractiveness of SPY compared to other ETFs I used the list of my best Big Cap ETFs that were published back in July : Vanguard Value ETF (NYSEARCA: VTV ), Vanguard Russell 1000 Value ETF (NASDAQ: VONV ), Vanguard S&P 500 Value ETF (NYSEARCA: VOOV ) and SPDR S&P 500 Trust ETF (NYSEARCA: SPY ). The behavior back in 2011: (click to enlarge) When looking at the graph which compares the performance of the five ETFs, going from January to October 2011, we can see that SDY delivered the best return compared to all benchmarks. During that time period between January to October it delivered a positive 1.8% while the other ETF delivered negative returns up to -3.9% . When zooming in to the crisis period, between June to October 2011 it was again SDY that delivered the best performance, dropping by only 2.2% while the other benchmark ETFs went down by up to 7.8% . When comparing the volatility of these ETFs using a Coefficient of Variation metric (Standard deviation divided by Average price) SDY also comes out with the lowest volatility score. Back to 2015: (click to enlarge) When comparing the same list of ETFs during a similar timeframe in 2015, going from January to September, SDY is still one of the better ETF performers delivering a -8.8% which is only second to SPY which delivered -6.3% during that timeframe. When zooming in to the crisis period, June to September 2015, SDY delivered the best return at -8.9% while the other ETFs delivered lower performance all the way down to -10.7% . While delivering the highest performance DY also demonstrated the lowest volatility during that timeframe of high volatility. Based on Morningstar.com SDY’s current dividend yield is at 2.46%. In 2014 the ETF delivered more that $3 to its shareholders and therefore I believe that the dividend return at these levels is higher that 3%. Conclusions: With high volatility arrive opportunities. SDY is an ETF that follows one of the most prestigious indexes. With lower volatility compared to its benchmarks I find it very attractive and waiting for it at $65. Happy investing 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. Additional disclosure: The opinions of the author are not recommendations to either buy or sell any security. Please do your own research prior to making any investment decision.

Duke – All Set To Deliver Growth Going Forward

Summary Company’s increased focus on regulated operations will drive future growth. Duke faces challenges in international segments, which could weigh on earnings in the near term. Growth will stay strong in long term, backed by company’s domestic regulated operations. Stock’s current valuation stays compelling as it is trading at a cheap forward P/E of 13.9x. Duke stays an impressive investment prospect for income-hunting investors, as it offers a solid dividend yield of 4.8%. Duke Energy (NYSE: DUK ) stays a core utility stock for income-hunting investors, as it offers a solid yield of 4.8% , above the industry average of 4%, and has a solid fundamental outlook. I think Duke is a high quality, large utility cap utility with a healthy and visible path towards the average EPS growth rate of 5% through 2019; the company’s low-risk domestic regulated business investments will drive its future growth. Moreover, the company’s strong rate base growth through 2019, along with its plan to hold operational and maintenance ((O&M)) expenses flat through 2016 will augur well for its earnings and dividend growth in the coming years. Also, the stock’s current valuation stays cheap; I think the stock should trade in line with its industry’s average P/E of 15.9x. Despite the fact that the company is facing challenges at its international segment, Duke Energy International, which may affect its performance in upcoming quarters, I think Duke is one of the best large cap defensive utility stocks. Growth Catalysts Duke has a solid fundamental outlook, and the company has been working to strengthen its future earnings growth. I think the company has taken the right strategic decisions in recent quarters, including repatriating cash from the international segment and the sale of Midwest assets, which will have a favorable impact on its performance going forward. Also, the company’s increasing focus on the core domestic regulated operations, which contributed almost 90% towards its total earnings, will improve its business risk profile. The company expects to enjoy EPS growth rate in a range of 4%-6% in future, which will be supported by its $42 billion capital investment plan through 2019. Going forward, attractive regulated investments including natural gas pipeline, NCEMPA asset acquisition and accelerated infrastructure investment, will drive its future growth. The company recently completed the $1.25 billion NCEMPA asset purchase, earlier than expected, which will have a positive impact of $0.04 per share on the 2015 EPS. Separately, if Duke moves ahead with its plan to file a new grid modernization plan in Indiana by the end of 2015, it will bode well for its stock price. Furthermore, the company is correctly taking initiatives to expand its renewable energy fleet, which will allow it to comply with the increasing environmental regulations to reduce carbon emissions and maintain reliable cost effective power generation assets. The company has been working on different solar and wind energy projects; Duke plans to add 500MW of solar capacity over the next ten years. Given the company’s consistent emission reduction efforts, the company has successfully lowered CO2 by 22% since 2005 through the transition to natural gas fleet, retirement of older coal units and investment in renewable energy sources. The company is moving ahead nicely to meet emission reduction by 32% by 2030. To further strengthen and support future growth, I think the company should focus more on renewable energy projects and make new investments towards natural gas reserves, which will offer rate base growth. Despite the strong performance of the company’s domestic regulated segment, its international segment continues to face challenges, which remains a concern for investors. Brazil’s economic and hydro challenges, lower oil prices and foreign exchange headwinds continue to weigh on the company’s consolidated EPS. The company needs to announce some additional opportunities around infrastructure development and acquisitions to offset the weakness of its international business operations. Also, the Brazilian government’s recent announcement to help companies like Duke, who have to dispatch thermal plants before hydro plants, could help the company’s international segment’s operations. However, I think that if the performance of the international segment does not improve in the upcoming quarters, the company needs to consider the option of selling its international operations, which will allow it to focus more on high quality domestic regulated operations, which will also augur well for its stock price. Summation Duke is positioned well to deliver healthy growth in future years. The company’s increased focus on regulated operations, along with robust capital investment profile through 2019, will drive its future growth. The company faces challenges in its international segments, which could weigh on its earnings in the near term, but in the long term, growth will stay strong, backed by its domestic regulated operations. The stock’s current valuation stays compelling as it is trading at a cheap forward P/E of 13.9x , versus the utility industry forward P/E of 15.9x ; in my opinion, Duke should at least be in line with its industry average, given its constructive regulatory environment, above average earnings growth and accelerating dividend growth. Duke stays an impressive investment prospect for income-hunting investors, as it offers a solid dividend yield of 4.8% at compelling valuation. 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.