Tag Archives: stocks

Inside NANR: The Most Successful New ETF Of 2016

Oil price volatility has put energy sector ETFs in focus since the start of this year. After tumbling to a 13-year low in mid February, oil has made an impressive comeback surging nearly 47% over the past one-month period. Robust performance was driven by improving demand/supply trends, which are rebuilding investors lost confidence in the rebalancing of the oil market. This is especially true given signs of falling production in the U.S. and the Organization of the Petroleum Exporting Countries (OPEC), hopes of a deal by major oil producers to freeze oil output at the January level, receding fears of a recession in the U.S., and signs of stabilization in China and the other developed economies (see: all the energy ETFs here ). Additionally, oil drilling activity in the U.S. has fallen to the lowest level since at least 1940 reflecting that U.S. output will continue to decline in the coming weeks. A slew of capital spending cuts last year and another round of major cuts this year added to the strength and will continue to curb oil production and reduce global supply. All these suggest that the oil market might bottom out after two years of persistent decline. However, volatility persists given increasing production in Iran, a strong dollar and weak global economic growth. Given the uncertain backdrop for oil, investors are seeking well-balanced exposure to the basket of natural resources companies instead of just energy sector allocation. And this drive has made the new ETF – SPDR S&P North American Natural Resources ETF (NYSEARCA: NANR ) – immense popular and successful so far this year. This fund offers exposure to the natural resources companies in the energy, materials and agriculture industries. This is because it has been getting the first-mover advantage and has accumulated $817 million in AUM in just three months of debut while surging 17.2% in the same period. Average daily volume is solid as it exchanges nearly 570,000 shares in hand (read: 5 Very Successful ETF Launches of 2015 ). Given this, it might be worth it to shed some light on this ETF and its holdings for those who are unfamiliar with the product, but are thinking about jumping in on the product. Below we highlight some of the key details regarding NANR, which made it one of the fastest-growing and most-successful ETFs of this year. NANR in Focus The ETF tracks the S&P BMI North American Natural Resources Index, charging investors 35 bps in fees and expenses. Holding 61 securities in its basket, it is highly concentrated on the top two firms – Exxon Mobil (NYSE: XOM ) and Chevron (NYSE: CVX ) – with over 9% share each. Other firms hold no more than 6.15% of assets. Materials make up for half of the portfolio, closely followed by 44.3% in energy and the rest in consumer staples. The product has a certain tilt toward large cap and value stocks as about more than two-third of the portfolio falls in the large-cap category while about half of it is classified as value picks. The combination of large-cap value securities has the potential to deliver higher returns and reduce overall volatility in the portfolio. In addition, these securities tend to outperform when considered on a long-term investment horizon and are less susceptible to trending markets. As such, these provide safety and could be the perfect choice for investors concerned about oil price volatility and its negative impact on the sector. In terms of performance, NANR has gained 15.6% year to date, easily outpacing the ultra-poplar Energy Select Sector SPDR ETF (NYSEARCA: XLE ) and the Materials Select Sector SPDR ETF (NYSEARCA: XLB ) . Investors should note that both these funds have plenty of holdings similar to NANR. Despite this, XLE and XLB are up just 3.4% and 2.3%, respectively. Link to the original article on Zacks.com

4 Outperforming Sector ETFs Over The Past One Month

After a tumultuous ride in January and mid-February, the U.S. stocks witnessed the fourth consecutive week of gains on continued signs of improvement in the domestic and international markets. As a result, all the three major indices erased most of the losses made this year, climbing more than 6% over the past one month. With this, the S&P 500 and Dow Jones are down just over 1% each from a year-to-date look while the NASDAQ Composite Index has shed 5.2%. Behind the Surge A spate of stronger U.S. economic data infused enough confidence in the economy, erasing fears of a recession any time soon. In particular, factory activity contracted less than expected in February, suggesting that the beleaguered industry is stabilizing. About half of the industries have shown strength for the first time since August. Oil price has stabilized as the global oil glut has eased and the demand-supply trend is improving, thereby giving boost to the battered energy stocks. Notably, U.S. crude has risen 47% from a 13-year low of $26.21 a month ago. The rise in oil price has also calmed fears over the health of banks, especially those that are highly exposed to the energy sector. On the international front, the European Central Bank (ECB) turned more dovish in its meeting last week. The bank cut its deposit rate further by 10% to negative 0.4%, and lowered its refinancing rate and marginal lending rate by 0.5% each to zero percent and 0.25%, respectively. Further, it has expanded its monthly bond buying program from €60 billion to €80 billion. Additionally, the People’s Bank of China (PBOC) also stepped up its efforts to reinvigorate growth in the economy by fixing the yuan higher against the dollar at 6.4905, the strongest level seen this year. Investors should note that the Chinese turmoil and oil price slide were the main culprits of a steep downfall early in the year. The receding fears increased the appeal for riskier assets leading to a bullish trend in stocks, though bouts of volatility are still showing up. Given this, we have highlighted four sector ETFs that easily crushed the broad market funds by wide margins and were the star performers over the past one-month period. PowerShares S&P SmallCap Energy Portfolio ETF (NASDAQ: PSCE ) – Up 34.1% This fund provides exposure to the energy sector of the U.S. small-cap segment by tracking the S&P Small Cap 600 Capped Energy Index. It is less popular and less liquid with an AUM of $28.1 million and average daily volume of about 22,000 shares. Expense ratio comes in at 0.29%. Holding 33 securities in its basket, it is concentrated on the top firm with 16% share while other firms hold less than 10% of total assets. About 56.6% of the portfolio is tilted toward energy equipment and services while oil, gas and consumable fuels take the rest. PSCE currently has a Zacks ETF Rank of 5 or “Strong Sell” rating with a High risk outlook. SPDR S&P Metals and Mining ETF (NYSEARCA: XME ) – Up 28.0% The ETF offers a broad exposure to the U.S. metal and mining industry by tracking the S&P Metals & Mining Select Industry Index. Holding 26 stocks in its basket, it uses an equal-weight methodology and does not put more than 6.8% of assets in a single security. In terms of industrial exposure, steel makes up a large chunk at 52.6% while precious metals and gold mining round out the next two spots with a double-digit allocation each. The product has $314.6 million in AUM and trades in solid trading volumes of around 3.2 million shares per day on average. It charges 35 bps in fees and expenses. ETRACS ISE Exclusively Homebuilders ETN (NYSEARCA: HOMX ) – Up 24.0% This is an ETN option offering exposure to the companies that engage in the development and construction of homes and communities by tracking the ISE Exclusively Homebuilders Total Return Index. Notably, the index has 20 stocks in its basket with the largest allocation going to the top four firms with a combined share of 36.2%. The ETN has accumulated nearly $22 million in its asset base since its inception a year ago and trades in a light volume of about 32,000 shares. It charges 40 bps in annual fees and has a Zacks ETF Rank of 4 or “Sell” rating. PowerShares WilderHill Progressive Energy Portfolio ETF (NYSEARCA: PUW ) – Up 21.1% This fund provides exposure to 41 companies that focused on alternative energy, better efficiency, emission reduction, new energy activity, greener utilities, innovative materials and energy storage. This is easily done by tracking the WilderHill Progressive Energy Index. The ETF is pretty well spread out across various securities as each makes up for less than 3.7% of total assets. Oil, gas and consumables takes the top spot at 21.2% while electrical equipment and machinery make up for the next two spots with a double-digit exposure each. The fund has amassed $20.4 million in its asset base and sees paltry volume of nearly 5,000 shares a day. Expense ratio came in at 0.70%. PBW has a Zacks ETF Rank of 4. Original post

Don’t Be Fooled By The Short Squeeze

By Alan Gula, CFA On November 18, 2015, KaloBios Pharmaceuticals Inc. ( OTCPK:KBIOQ ) announced that Martin Shkreli and a consortium of investors had acquired more than 50% of its outstanding shares. The stock, which had closed at $2.07 that day, traded above $10 the day after the announcement. The next day, shares rose above $23 and closed at $18.45. The following Monday, the stock miraculously traded for over $45 per share. In just six trading days, the market cap of KaloBios had risen from under $4 million to over $160 million. It was a blatant example of market inefficiency. But what could cause such an irrational spike? The answer is an acute “short squeeze.” A sharp rally in the price of a stock puts pressure on short sellers, who are betting the stock will fall. They may feel the need (or be forced) to close out their short sales by buying the stock. The buying pressure from this short covering causes the stock to move higher, compelling even more traders to cover their shorts. Over the past month, we’ve seen a bevy of short squeezes as the U.S. stock market has bounced along with the price of crude oil. These squeezes haven’t been as spectacular as the above example, but judging by how heavily shorted some of these stocks are, they’ve been very painful for the short sellers, nonetheless. The following table shows a few of the largest squeezes: The short interest ratio (SIR) is the number of shares sold short divided by the average daily trading volume. The average SIR for S&P 500 constituents is 3.3 times. At 9.5 times, the average SIR for these stocks is much higher – and for good reason. The risk of bankruptcy is very high for the companies on this list. Thus, they all have Standard & Poor’s credit ratings of CCC+ or lower. Two of the companies are already in selective default (SD). Others will eventually join them. Many of the stocks on this list will end up worthless. Risks notwithstanding, the short squeezes have been eye watering. Chesapeake Energy Corp. (NYSE: CHK ) shot up 208%. Linn Energy LLC (NASDAQ: LINE ) annihilated the shorts with a 398% maximum gain over the past month. In spite of these equity gains, though, many of these companies won’t have fairy tale endings. For example, the 6% bonds due 11/15/2018 for Peabody Energy Corp. (NYSE: BTU ) have rallied, but they’re still trading around $7 ($100 par). The bond market is saying that there won’t be much recovery for senior unsecured creditors, which means that equity shareholders will be left with approximately zero. The equity shareholders of the companies listed above are deluding themselves if they think the market cap reflects underlying fundamentals. It’s important to recognize that a sharp rally in a stock doesn’t necessarily signal all is well. In most cases, these stocks aren’t rising from the ashes. In fact, many of the companies with the most violent short squeezes will end up filing for bankruptcy, just as KaloBios had to do on December 30, 2015. Safe (and high-yield) investing. Original Post Editor’s Note: This article covers one or more stocks trading at less than $1 per share and/or with less than a $100 million market cap. Please be aware of the risks associated with these stocks.