Tag Archives: stocks

ETFs To Move On Mixed U.S. Job Data

Uncertainty seems to be the only thing that’s certain in the global investing backdrop. Several developed and emerging markets are dragging their feet currently, with the U.S. being the lone star planning a policy tightening. Since China messed up the global market with a bout of downbeat economic releases, all eyes were on the August U.S. job data as only this could throw light on the Fed’s rate hike decision. But like all other economic hints, the August job data also puzzled investors. The U.S. economy added 173,000 jobs in August which fell below the market expectation of 220,000 and the previous month’s tally of 245,000. If this was not enough, U.S. job numbers in August grew at the most sluggish pace in five months . While this raises questions about the domestic economy, a few investors might choose to look at the unemployment rate which dropped to 5.1% from 5.2%, the lowest since April 2008. A more-than-seven-year low unemployment rate should bolster the case for an imminent policy tightening. Additionally, average hourly wages rose 0.3% sequentially and 2.2% year over year. The average work week also nudged up to 34.6 from 34.5 in the prior and the year-earlier months. Rate Hike or Not? Now, this job picture gives fewer cues over the Fed’s imminent course of action. This coupled with the latest China issues makes the case more ambiguous. On the one hand, there’s an improving service sector, decent consumer confidence, a pretty strong housing market and a fall in unemployment rate hinting at the September lift-off. On the other hand, the missed job expectation in August is blurring the vision. Investors should not forget that there is always room for positive revisions in the monthly job numbers which might once again spark off a debate over Fed tightening. Whatever the case, several ETFs will be on the prowl to capitalize on this payroll-related news. ETFs to Move Among them, top U.S. equities ETFs SPDR S&P 500 ETF (NYSEARCA: SPY ), Dow Jones Industrial Average ETF (NYSEARCA: DIA ) and PowerShares QQQ Trust (NASDAQ: QQQ ) deserve special mention. On September 4, SPY, DIA and QQQ dived 1.5%, 1.7% and 1.2% respectively but started to gain their lost ground later on. Other ETFs that are highly vulnerable to Fed decisions are gold bullion ETFs including SPDR Gold Trust ETF (NYSEARCA: GLD ), emerging market ETFs like iShares MSCI Emerging Markets ETF (NYSEARCA: EEM ), Treasury bond ETFs like iShares 20+ Year Treasury Bond ETF (NYSEARCA: TLT ) and last but not the least the U.S. dollar ETF PowerShares DB US Dollar Bullish Fund (NYSEARCA: UUP ). While stocks and emerging market ETFs might underperform on policy tightening (as there will be a cease in cheap dollar inflows), UUP should gain. Gold ETFs will take a dive on a stronger greenback and treasury ETFs will start retreating on higher yields. Now it depends on how investors individually view the August job data and position their portfolio before the upcoming policy meet. Original Post

2 Aristocrat ETFs

Summary Both NOBL and SDY replicate the S&P Dividend Aristocrats Index. A long-term investor might consider to possess a position in this type of ETF instead of purchasing dozens of different stocks. Here is a comparison between these two ETFs with high-quality holdings. Following my recent article regarding the SPDR Dividend ETF (NYSEARCA: SDY ), I have been asked whether SDY is also attractive when compared to the ProShares S&P 500 Dividend Aristocrats ETF (NYSEARCA: NOBL ). In order to compare between these two exchange-traded funds, I have added a third benchmark that represents the S&P 500 Index: the SPDR S&P 500 Trust ETF (NYSEARCA: SPY ). At first, I looked at the profile of the two ETFs that aim to follow the Dividend Aristocrats index. ETF Profile: Based on information from etfdb.com, it seems that in term of fees, both SDY and NOBL share the same expense ratio at 0.35% a year. SPY is cheaper, as it charges only 0.09%. Another observation is that the number of SDY’s holdings is double that of NOBL’s holdings. SDY is actually following the S&P High Yield Dividend Aristocrats Index, or “The Index of Champions”. This list includes more than 100 companies and can be found in David Fish’s CCC list . This is a composition of companies that increased their dividends in the last 25 consecutive years, including companies that had paid higher dividends in every calendar year. NOBL includes 53 holdings which follow the criterion of annual dividend increase for at least 25 years. The full list of Dividend Aristocrats can be found here . The difference in lists is demonstrated through both the top ten holdings and the sector-wise distribution of each ETF’s holdings: (click to enlarge) (click to enlarge) While NOBL holdings are leaning towards Consumer Defensive and Industrial sectors with companies like The Procter & Gamble Company (NYSE: PG ), Johnson & Johnson (NYSE: JNJ ) and Pentair Inc. (NYSE: PNR ), SDY is almost equally invested in Consumer Defensive, Industrials as well as Financial Services and REITs. Companies like Federal Realty Investment Trust (NYSE: FRT ), National Retail Properties, Inc. (NYSE: NNN ) and 1st Source Corporation (NASDAQ: SRCE ) are captured in SDY and not in NOBL. That is the reason why SDY can provide a higher dividend yield. ETF Performance: When comparing the performance of SDY, NOBL and SPY, we can see that since January 2014 until September 2015, NOBL actually did very well. In the recent sell-off, it actually dropped the least compared to the other two ETFs. NOBL ETF was established in late 2013, so it does not possess a historical performance track record. SDY’s return is lower on both the 3-year returns as well as the 5-year returns compared to SPY, as it is heavily tending towards Value holdings, while SPY’s holdings includes Growth companies. ETF Volatility: When comparing the volatility of these three ETFs, based on the Coefficient of Variation metric (Standard deviation divided by Average price), it was SDY which demonstrated the lowest volatility in the long run (0.035), while NOBL demonstrated lower volatility throughout the recent sell-off (0.023). ETF Payout: Both NOBL and SDY are trying to follow an index of dividend-paying stocks. NOBL has a short payout history, and therefore, by using the 2014 payout levels, which was 80c per share, the dividend yield in 2015 should be ~1.74%. If extrapolating the distribution that was paid in the first half of 2015, the dividend yield is expected to be closer to 2%. So, NOBL’s dividend rate is ~2%. SDY usually pays an extra payout in the last quarter of a calendar year. Using at the distribution levels of $3.74 per share in 2014, the yield is very close to 4%. Using the first half of 2015 as a proxy for the second half of the year, the yield is 2.5%. In either case, it is clear that the higher diversity that SDY holds allows the ETF to pay higher dividend yield to its shareholders. Conclusions: Both SDY and NOBL are ETFs that replicate indexes of top quality. NOBL’s core holdings are the top 50 Dividend Aristocrats, while SDY’s holdings list is broader. The broader list allows SDY to pay higher dividend, but it holds slightly higher risk. For investors who seek dividend income, SDY is the way to go. For investors who seek high quality with low volatility, NOBL is the way to go. For investors who are willing to take higher risk, care less about the dividend for higher return in the long run, SPY is the way to go. I am currently in favor of SDY due to its payout. 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.

Big Oil Portfolio – Reviewing It After The Recent Lows

Summary Like all other oil investments, the Big Oil Portfolio has taken a significant hit over the past few months. The fundamentals of none of the portfolios in the company has changed, instead, the only that has changed has been oil prices. The portfolio has a large amount of cash at hand should future opportunities present themselves. Introduction I have not provided an update for my Big Oil Portfolio since July . However, over the past few weeks, oil (NYSEARCA: USO ) has taken a significant hit dropping down to recent lows of less than $40 per barrel. The goal of this article is to take another look at the Big Oil Portfolio since the last update. Last Five Year Oil Prices – Bloomberg Oil prices remained relatively constant from 2011 – 2014. However, since reaching a peak, oil prices took a major hit dropping down to a bottom in January 2015. Oil prices bounced back up and then dropped back down forming a double bottom in March 2015 before recovering to around $60. In recent weeks, two majors things have weighed down on the market. The first was slowing economic growth in China, a major economic producer. The second was fears of a nuclear deal being signed with Iran which would result in a significant market glut. This resulted in another drop down in oil prices down to less than $40 per barrel followed by a recent small recovery. Goal The Big Oil Portfolio was originally created during a period of higher oil prices with the stated goal of building a strong portfolio for a recovery in oil prices. The goal of the article was to take a hypothetical person with $100,000 to invest in oil stocks. In this case, we will assume that you want to invest in large oil companies that are financially secure and will provide investors with income for many years to come. There are several reasons to invest in financially secure large caps during such a crash. However, the biggest one are the two words, ‘financially secure’. Should the oil crash last for longer than expected or get worse than expected, these companies will be able to last significantly longer than the competition. Portfolio Name Number of Share Purchase Price Current Price ExxonMobil (NYSE: XOM ) 150 $86.87 $72.48 Chevron (NYSE: CVX ) 200 $106.62 $76.62 Royal Dutch Shell (NYSE: RDS.A ) 100 $62.16 $49.51 ConocoPhillips (NYSE: COP ) 100 $65.62 $47.19 Schlumberger Limited (NYSE: SLB ) 100 $92.69 $74.96 Phillips 66 (NYSE: PSX ) 100 $80.99 $77.20 Total S.A. (NYSE: TOT ) 430 $52.80 $44.11 Total Amount Invested: $99,894.50 Approximate Dividend Received: $971.00 Annual Dividend Income: $3884.95 Portfolio Cash: $14,578.45 Portfolio Discussion For those who are new to the realm of cyclical business, especially ones like oil where an oversupply of a few percent can cause a 50% drop in price, numbers like those seen above can be quite scary. However, it is worth pointing out that the numbers seen above solely exist because of the change in the price of oil. In fact, with the exception of the drop in oil prices, which has fallen approximately 20% since the last article, the fundamentals of none of the other companies has changed. In fact, the only thing that has changed fundamentally in the portfolio since the original article was the decision to sell Apache Corporation (NYSE: APA ). Apache Corporation is a strong corporation with solid potential, however, the thing I disliked about it is the fact that the majority of its assets are located in the United States. The goal of the portfolio is to form a broad portfolio of stable oil companies with exposure to a number of areas and Apache Corporation did not fit within that mandate. Purchases Now that we have discussed the changes in the portfolio, the portfolio now has $14,578.45 in cash sitting around. Recent factors have combined to make the perfect storm of oil prices. SSE Index Crash – Thomson Reuters The above image shows the Chinese SSE stock index. Partially due to a slowing economic growth rate and partially due to fear of a bubble, the Chinese stock index peaked around June before dropping sharply. As a major consumer of oil, fear of a decreasing Chinese growth rate has also hurt oil prices. This has been combined with recent ideas of a potential nuclear deal between the United States and Iran. Should Iran bring its production back online, that could result in a huge amount of new production that could cause a significant oil surplus. This money will be used to purchase 252 shares of the Lehman Aggregate Bond Fund (NYSEARCA: LAG ). The Lehman Aggregate Bond Fund invests in safe bonds with a modest dividend paid on a monthly basis. More so, the fund maintains a relatively solid price and remains a solid holding of cash for potential future purchasing opportunities. Future Market Situation Now that we have talked about the portfolio’s goals along with its holdings and discussed the portfolio along with its purchases, it is now time to talk about the true driver of this portfolio. The future market situation. Because in the end, it’s really oil prices that move this portfolio around. Annual Change in U.S. Crude Production – EIA The above image shows the change in U.S. crude production. Since 2008, as a result of growing shale production, American production has been steadily increasing. This surplus is what led to the current oil crash. However, in recent weeks, U.S. oil production has been steadily decreasing. The spending cuts are finally starting to have an affect and production is starting to decrease. This is starting to solve the overall oil supply. I expect the recent lows in oil production to potentially be tested again but I would be surprised if prices fall any distance below that. Production has started slowing down while demand, driven partly by lower prices, has continued increasing. This should help cause a recovery in oil prices. Conclusion The Big Oil Portfolio is made of a number of strong oil majors several of which have a long record of paying dividends. These companies have a strong dividend that they will be able to continue paying despite the recent slump in oil prices. However, decreasing economic growth in China coupled with the potential of higher oil production from Iran has caused oil prices to take a significant hit these past weeks which has also affected the portfolio. The portfolio does however have a good amount of cash in reserve should an opportunity present itself. This cash along with dividend growth should help support a recovery in the portfolio when prices eventually recover. 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.