Tag Archives: stocks

Hedged And Inverse Bond ETFs To The Rescue If Rates Rise

The behavior of the fixed income market is different this week from the last. This is because a few hawkish comments from some Fed officials completely ruled out the dovish mood felt last week after the Fed announced no rate hike in its latest meeting and cut the number of projected rate hikes for this year (read: Buy Ranked Dividend Growth ETFs in Focus after Fed Meeting ). In any case, the recent data points corroborated sturdy U.S. economic growth. Plus, comments from Atlanta Fed president Dennis Lockhart, San Francisco Fed president John Williams and Richmond Fed president Jeffrey Lacker once again stirred up the rate hike talks, going by Reuters . As per these officials, the reduced rate hike projection mainly reflected the tantrums thrown by the global financial market, which are now showing signs of cooling off. The two important indicators to measure the timing of another rate hike – labor market and inflation – are both stabilizing. San Francisco Fed president even said that he would promote a hike as early as April. Against this backdrop, speculation of a sooner-than-expected hike in the Fed interest rates is rife again. As a result, U.S. treasury yields recorded the biggest single-day rise in over a week on March 21, 2016. On March 21, yields on 10-year Treasury notes jumped 4 bps to 1.92% while yields on two-year Treasury notes rose 3 bps to 0.87%. Investors should note that fixed-income investing has enjoyed a great show so far in 2016, especially in the longer part of the yield curve, as risk-off trade sentiments have brightened the appeal for safer assets. However, the prospect of rising rates and risks to capital gains of the bond holdings have left investors jittery about the safety of their portfolio. Given the situation, many investors may pull their money out of the bond market. At a time like this, investments in U.S. bonds with significant protection from potential rising rates can be good bets. Some opportunistic investors could capitalize on this backdrop in the form of inverse ETFs too. Market Vectors Treasury-Hedged High Yield Bond ETF (NYSEARCA: THHY ) The fund seeks to replicate the price and yield performance of the Market Vectors U.S. Treasury-Hedged High Yield Bond Index. THHY has a weighted average maturity of 9.83 years while its effective duration is at negative 0.50 years. The product is high yield in nature as evident from its 30-day SEC yield of 6.04% (as of March 21, 2016). THHY charges 0.50% of expense ratio. The fund added about 5.5% in the last one month (as of March 21, 2016) (see all the junk bond ETFs here ). ProShares High Yield Interest Rate Hedged ETF (BATS: HYHG ) HYHG is another ETF which has an interest rate hedge built into its strategy as it takes a duration-matched short position in U.S. Treasury futures. Like HYGH, it also has a pretty high yield (and a modest expense ratio of just 50 basis points) of 8.77% in 30 Day SEC terms (as of February 29, 2016), indicating that this could be a safer bond and yield play for investors anxious about rising rates. This $85.1 million ETF was up 8.1% in the last one-month frame (as of March 21, 2016). ProShares Investment Grade-Interest Rate Hedged ETF (BATS: IGHG ) This investment grade fund too offers interest-hedge benefit to investors. The fund looks to track the Citi Corporate Investment Grade (Treasury Rate-Hedged) Index which comprises long positions in USD-denominated investment grade corporate bonds issued by both U.S. & foreign domiciled companies while adopting short positions in US Treasury notes or bonds of approximate equivalent duration to the investment grade bonds. The index seeks to achieve an overall effective duration of zero. Its 30-Day SEC yield stands at 3.93% (as of February 29, 2016) while it charges 30 bps in annual fees. The $135.4-million fund was up 4.4% in the last one month (as of March 21, 2016). Barclays Inverse US Treasury Aggregate ETN (NASDAQ: TAPR ) The note provides investors a unique strategy to hedge against or benefit from the rising U.S. dollar interest rates by tracking the Barclays Inverse US Treasury Futures Aggregate Index. This benchmark employs a strategy, which follows the sum of the returns of the periodically rebalanced short positions in equal face values of each of the 2-year, 5-year, 10-year, long-bond and ultra-long U.S. Treasury futures contracts. If the price of each Treasury futures contract increases or decreases by 1% of its face value, the value of index would decrease or increase by 5% over the same period. The $15.5-million fund charges 43 bps in annual fees. It added about 4.4% in the last one month (as of March 21, 2016). Link to the original post on Zacks.com

Heavy Construction, Automakers Among 10 Groups Up 20% in Four Weeks

The market has had a nice five-week run. So have oil prices. The S&P 500 on Tuesday traded as high as 13.6% above its Feb. 11 low of 1810.10 and back on positive ground for the year. West Texas Intermediate crude was 53% above its February low — its best move since a nine-month, 62% climb to near $115 a barrel in 2010-11. That combination had, on Tuesday, driven 10 industry groups to gains of more than 20% over the past four weeks. Three of those groups were oil-related: International Exploration and Production, U.S. E&P, and Field Services. But the biggest gains did not come from oil. At the top of the list, Metal Products-Distributors had hammered out a 45% gain over the past four weeks. The group is up 73% from a January low, although still 45% below its high mark set in April 2014. Olympic Steel ( ZEUS ) and Norway’s Norsk Hydro ( NHYDY ) are a few of the names that have been around for decades. The only stock in the group with a Composite Rating from IBD above 90 is the relatively newer  Park-Ohio Holdings ( PKOH ), which trades a far-too-thin 51,000 shares a day. The next biggest gain — a 30% rise — comes from the automakers group. No surprise that the star here is Tesla Motors ( TSLA ). Tesla put in a 70% advance off its Feb. 9 low of 141.05, retaking support at both its 10- and 40-week moving averages.  The stock’s chart is volatile and sloppy, but arguably is presenting a deep cup base with a 243.73 buy point. This setup comes just ahead of Tesla’s release of its mass market Model 3 , slated for late next week. India’s Tata Motors ( TTM ) is also below a cup-base buy point. But, while analysts expect Tesla’s EPS to rebound sharply this year and next, consensus views see Tata’s earnings losing ground again this year (down 44% to $1.97 a share) before a projected 199% rebound in 2017. Steel producers and specialty steel makers took two of the top five gains among industries. Big moves by specialty steel heavyweights Carpenter ( CRS ) and Allegheny ( ATI ) helped power the group’s 29% advance. But the fundamentals of both stocks have much work to do before making the leadership grade. On the strictly steel products side, Nucor ( NUE ) and Steel Dynamics ( STLD ) are basing. Both are still fundamentally weak, although Steel Dynamics’ EPS are forecast to rebound 78% this year and 29% in 2017. In the Building-Heavy Construction group, big-bore builders Fluor ( FLR ) and Aecom Technology ( ACM ) helped drive the advance. Thinly traded Granite Construction ( GVA ) broke out of a cup-with-handle base at 44.93 on Tuesday. Analyst consensus projects that the road and highway builder’s EPS will jump 31% this year and 35% in 2017. Metal ore miners swept up 23% in the past four weeks. A sharp rebound in iron ore prices, sparked by pledges of reduction in China’s steel industry production, fueled advances by both large and small players in the group. But few in the industry see conditions truly improving until late this year, or early in 2017.