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5 ETF Winners From Q3 Earnings Season

The Q3 2015 earnings picture appears weak especially with companies struggling to beat even low top-line estimates and declining fourth-quarter estimates. Total earnings for 90.3% of the S&P 500 companies that have reported so far are down 2.5% on an annual basis with a beat ratio of 68.3% while revenues decreased 4.6% with a beat ratio of 39.8%. In fact, the revenue beat ratio is the lowest relative to the recent quarters. Nevertheless, the technology sector bucked the revenue weakness and came up with better-than-expected results not only relative to pre-season expectations but also relative to the sector’s performance in the past quarters. Revenue surprise for the tech sector is 57.7%, just behind 58.3% for the medical sector. In terms of earnings surprises, transportation, conglomerates and medical are leading with impressive ratios of 85.7%, 83.3% and 81.3%, respectively. When it comes to stronger earnings growth rates, autos and transportation are the largest contributors with 30.7% and 22.5%, respectively. The other two sectors – medical and retail – also recorded double-digit earnings growth in Q3. With respect to revenues, retail has been trending up so far with growth of 18.4%, though results from about half of the retailers are still awaiting. Considering all the key metrics, several equity ETFs have impressed with their performances and have generated handsome returns over the trailing one month. While there are winners in many corners of the space, below are five ETFs that buoyed up on robust earnings results and crushed the broad market fund (NYSEARCA: SPY ) in the same period: ALPS Medical Breakthroughs ETF (NYSEARCA: SBIO ) – Up 11.4% This fund targets companies with one or more drugs in Phase II or Phase III FDA clinical trials by tracking the Poliwogg Medical Breakthroughs Index. It provides a well spread out exposure to 81 stocks in its basket with none holding more than 4.92% share. SBIO is a small cap centric fund, having amassed $160.9 million in its asset base. The product charges 50 bps in fees per year from investors and trades in average daily volume of around 151,000 shares. It has a Zacks ETF Rank of 2 or ‘Buy’ rating. PowerShares Nasdaq Internet Portfolio (NASDAQ: PNQI ) – Up 11.3% This fund targets the Internet corner of the broad technology space by tracking the Nasdaq Internet Index and charges 60 bps in fees per year. With AUM of $223.2 million, it holds a basket of 94 securities with concentration on the top five holdings at around 40.9% share. Large caps account for 70% share while the rest are evenly split between mid and small caps. The fund trades in a light volume of around 19,500 shares a day. In terms of industrial exposure, Internet software and services makes up for 57% share, followed by Internet retail (38.1%). PNQI has a Zacks ETF Rank of 2 with a High risk outlook. U.S. Global Jets ETF (NYSEARCA: JETS ) – Up 11.03% This fund provides exposure to the global airline industry, including airline operators and manufacturers from all over the world, by tracking the U.S. Global Jets Index. In total, the product holds 33 securities with double-digit allocation going to Southwest Airlines (NYSE: LUV ), American Airlines (NASDAQ: AAL ), Delta Air Lines (NYSE: DAL ), and United Continental (NYSE: UAL ). Other firms hold less than 4.1% share. The ETF has a certain tilt toward large cap stocks at 62% while small and mid caps account for 24% and 14% share, respectively, in the basket. The fund has gathered $49.4 million in its asset base while sees moderate trading volume of nearly 63,000 shares a day. It charges investors 60 bps in annual fees. iShares Dow Jones US Broker-Dealers ETF (NYSEARCA: IAI ) – Up 10.8% This fund offers exposure to the U.S. investment banks, discount brokerages, and stock exchange firms and tracks the Dow Jones U.S. Select Investment Services Index. The product currently holds 24 securities with largest allocation going to Goldman Sachs (NYSE: GS ) and Morgan Stanley (NYSE: MS ). The ETF has a nice mix of all cap securities with 52% going to large caps, 27% to small caps, and the rest to mid caps. The fund has accumulated $320.6 million in AUM and trades in moderate volume of nearly 64,000 shares a day. The product charges 43 bps in fees per year from investors and has a Zacks ETF Rank of 3 or ‘Hold’ rating. SPDR S&P Semiconductor ETF (NYSEARCA: XSD ) – Up 10.2% This fund targets the semiconductor corner of the broad technology space. It tracks the S&P Semiconductor Select Industry Index, holding 48 stocks in its portfolio. It is widely spread across securities as none of these allocates more than 3.86% of the assets. The product has a definite tilt toward small cap stocks at 60% while the rest is evenly split between the other two market cap levels. The fund is less popular in the semiconductor space with AUM of $155.5 million and average daily volume of about 160,000 shares. It charges 35 bps in fees per year and has a Zacks ETF Rank of 3. Original Post

Utility ETFs Slide On Weaker-Than-Expected Q3 Earnings

The utility sector disappointed in its third-quarter results over the last two weeks with earnings and revenue miss from some of the major players in the space, including Duke Energy Corporation (NYSE: DUK ), NextEra Energy (NYSE: NEE ) and Dominion Resources Inc. (NYSE: D ). However, a recovering U.S. economy, warmer-than-normal weather and ultra-low interest rates helped boost the top and bottom lines of most of these companies. The latest concern threatening the utility sector is the possibility of an interest rate hike in December by the Fed following stellar jobs report for October and the Fed Chair Janet Yellen’s affirmative stance on it. This high-yielding, capital intensive sector mostly resorts to external sources of financing to carry out its generation, distribution and transmission projects. Therefore, a rising interest rate environment certainly does not bode well for them. Below we have highlighted the third-quarter results of the aforementioned utility companies in detail. Duke Energy Duke Energy reported adjusted earnings of $1.47 per share for the quarter that fell short of the Zacks Consensus Estimate of $1.52 by 3.3%. However, quarterly earnings rose 5% year over year on the back of warmer weather compared to the previous year. Further, robust growth in its regulated utilities business as well as the North Carolina Eastern Municipal Power Agency acquisition led to the upside. Total revenue was $6,483 million, lagging the Zacks Consensus Estimate of $6,595 million by 1.7%. Nevertheless, revenues increased 1.4% on a year-over-year basis, driven mainly by rise in the company’s regulated electric unit’s revenues. The company tapered its high end of the earlier 2015 earnings guidance range to $4.55-$4.65 per share from $4.55-$4.75 per share. Shares of the company declined 5.5% (as of November 9, 2015) since its earnings release on November 5. NextEra Energy NextEra Energy’s quarterly adjusted earnings of $1.60 per share missed the Zacks Consensus Estimate of $1.64 by 2.4%. Despite this, earnings climbed 3.2% year over year on the back of higher revenues from Florida Power & Light Company. However, operating revenues of $4,954 million surpassed the Zacks Consensus Estimate by 2.7% and increased 6.5% from the year-ago level. NextEra reaffirmed its 2015 earnings guidance of $5.40-$5.70 per share and expects the figure to come in on the upper end of the range. Meanwhile, earnings per share are expected in a range of 5.85-$6.35 for 2016 and $6.60-$7.10 for 2018. Shares of the company went down nearly 5% since its earnings release on October 28. Dominion Resources Dominion Resources’ quarterly operating earnings of $1.03 per share lagged the Zacks Consensus Estimate of $1.06 by 2.8%. However, earnings increased 10.8% from 93 cents per share in the prior-year quarter due to normal weather and earnings from farmout transactions. The company’s operating revenues of $2,976 million also missed the Zacks Consensus Estimate of $3,181 million by 6.4% and declined about 2.4% year over year. Dominion expects to earn 85 cents to 95 cents per share for the fourth-quarter 2015 compared with 84 cents per share in the year-ago period. The company reaffirmed its 2015 earnings guidance of $3.50 to $3.85 per share. Shares of the company fell 5.2% since its earnings release on November 2. ETFs in Focus The sliding stock prices of these utility companies following the dull third-quarter results have adversely impacted the performance of ETFs with significant exposure to them. Below we have highlighted three of these ETFs, which have lost around 5% in the past two weeks. Investors are advised to exercise caution before investing in these ETFs as the looming rate hike is expected to worsen their performance in the coming days ahead. Utilities Select Sector SPDR (NYSEARCA: XLU ) XLU is one of the most popular in the space with nearly $6.3 billion in AUM and average daily volume of roughly 12.5 million shares. The main purpose of this fund is to provide investment results that correspond to the performance of the Utilities Select Sector Index. This fund holds 29 stocks with NextEra Energy, Duke Energy and Dominion Resources holding the top three spots with a combined exposure of nearly 25% in its assets. The fund charges only 15 bps in investor fees per year and currently carries a Zacks ETF Rank #3 (Hold) with a Medium risk outlook. Vanguard Utilities ETF (NYSEARCA: VPU ) This ETF tracks the MSCI US Investable Market Utilities 25/50 Index, measuring the performance of 81 U.S. utilities stocks as classified under the Global Industry Classification Standard. Duke Energy, NextEra Energy and Dominion Resources occupy the top three positions in the fund with a combined exposure of a little more than 20% in the fund’s assets. The fund has amassed $1.6 billion in its asset base and trades in a moderate volume of 144,000 shares per day. It is even cheaper than XLU with 12 bps in annual fees and carries a Zacks ETF Rank #3 with a Medium risk outlook. iShares Dow Jones US Utilities (NYSEARCA: IDU ) The fund follows the Dow Jones U.S. Utilities Sector Index, measuring the performance of 60 utility stocks in the U.S. equity market. Duke Energy, NextEra Energy and Dominion Resources are placed in the top three positions in the fund, together accounting for a share of nearly 21% of the total assets. The fund manages an asset base of around $560 million and exchanges about 182,000 shares per day. It is a bit expensive with 43 bps in annual fees and has a Zacks ETF Rank #3 with a Medium risk outlook. Original Post

A Juicy 5% Yield From Emerging Markets But Be Aware Of The Risks

Summary The SPDR S&P Emerging Markets Dividend ETF has a yield of over 5% but dividend inconsistency and region exposure make it a risky proposition. The fund has sizeable positions in China and Brazil – two areas that have been hotbeds of political turmoil. The fund has underperformed the broad MSCI Emerging Markets index since its inception and an above average beta suggests a fund that comes with risks. Income-seeking investors often look to familiar sectors like financials and utilities to generate a higher yield from their equities. A place that investors may not consider for dividend income is emerging markets but, believe it or not, there are some significant yields in this space. The SPDR S&P Emerging Markets Dividend ETF (NYSEARCA: EDIV ) has been around for over four years and boasts a little over $300M in assets. Since its inception, the fund has trailed the iShares MSCI Emerging Markets ETF (NYSEARCA: EEM ) and one of its larger competitors, the WisdomTree Emerging Markets Equity Income ETF (NYSEARCA: DEM ) on a total return basis. EDIV Total Return Price data by YCharts The 5% yield is no doubt tantalizing but it’s important to recognize how that dividend is achieved and how much risk is involved in obtaining it. Not surprisingly, the fund has performed poorly as emerging markets have been hammered over the last year or more. The fund is down a total of 24% over the past one-year period and 35% since inception. The fund is fairly well diversified across the broad economy. The fund has 5% or higher allocations to eight different sectors with communications and technology stocks accounting for roughly 40% of total fund assets. More conservative areas like financials, industrials and basic materials count 30% of the portfolio bringing overall portfolio risk down although a 3 year beta of 1.16 suggests a more aggressive portfolio when compared to emerging markets overall. While ETF Database indicates this portfolio has one-third of its assets in “developed” markets, a look at the fund’s country and region allocation shows its exposure to primarily less developed and risky markets. China (10% of fund assets) for all of the volatility it has experienced over the past year is actually one of the fund’s better performing regions. Brazil (8%) has been the worst performer among the fund’s larger allocations due to the political unrest resulting from the Dilma Rousseff regime. Other regions like Taiwan (27%), South Africa (14%) and Turkey (9%) are all down double digits in the one-year period. Another risk comes from the quarterly dividend volatility. Income seekers looking for a predictable quarterly dividend should probably look elsewhere. Historically, most of the fund’s annual dividends come in the 2nd and 3rd quarter and trail off to minimal levels in the 1st and 4th quarters. Trailing 12-month dividend yields were down below 4% during the summer of 2014 and have risen to their current level of 5.16% thanks in part to the fund’s share price drop. The fund has paid $1.342 per share in dividends over the past four quarters compared to $1.645 per share in the four quarters prior to that. Conclusion This ETF has been able to consistently deliver annualized yields of over 4% but there’s a great deal of volatility involved to get there. Global economic weakness has hit emerging markets hard over the past year and the dividend is just one piece to consider here. The quarterly dividend payments are very inconsistent and the fund has larger exposures to areas with significant political and economic risks. This ETF has a place in a broader portfolio as a smaller high risk high return position but those looking for a predictable income producing investment should probably look elsewhere.