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All That Crap About Not Panicking?

Markets were down on Monday, of course; right now the S&P 500 is at 2057, right around where it started the year. In a way, we have no idea what will happen; and in a way, we know exactly what will happen. More importantly, we know that whenever the market finishes going down, it will then go up and make a new high with the variable being how long it takes. By Roger Nusbaum, AdvisorShares ETF Strategist It is still true. As I write this post Monday after the close, there is still a lot of uncertainty on how Greece will precisely play out. Markets were down on Monday, of course; right now the S&P 500 is at 2057, right around where it started the year and is flirting with its 200 day moving average. We have seen this sort of thing many times before, and after this clears up, there will be other big scary events , a term Ken Fisher has used previously. In a way, we have no idea what will happen; and in a way, we know exactly what will happen. As I write this, again on Monday afternoon, we don’t know when the global selling in equities will end (it might already be over by the time this post is published); we don’t know whether or not China, Puerto Rico or anything else will pile on to send markets lower, even into a bear market (this is not a prediction). This could be serious or it could be one of the many big scary events that are quickly forgotten; we don’t know. We do know that the media will overreact. More importantly, we know that whenever the market finishes going down, it will then go up and make a new high, with the variable being how long it takes. The FTSE 100 recently eclipsed a high dating back to 2000; of course the NASDAQ broke its high from 2000 as well. At some point, the Nikkei will break the high from 1989, but again, no one knows when. There are different implications for different types of market participants, but they all revolve around the same things; not panicking and sticking to the strategy you thought would be a good idea when things hit the fan as they occasionally do. People in the accumulation phase need to keep accumulating. While the FTSE did just make a new high from 2000, that index has about doubled since 2009, so someone who kept accumulating should have caught most of that up move with the equity portion of their portfolio. People in the withdrawal phase should be prepared to take defensive action if that is the strategy they laid out for themselves ahead of time, or stand pat if that is the strategy they laid out for themselves ahead of time. A defensive strategy, which is what I believe in doing, offers the opportunity to make it a little easier emotionally to ride out large declines (remember, at this point we have no idea whether a large decline is coming) and standing pat (save for rebalancing) relies on remembering ahead of time that large declines will be uncomfortable, but that they end and then markets recover, with the only variable being how long it takes; repeated for emphasis. I realize none of this is new and at a high level this is something everyone knows, but knowing and doing can be two different things. Hopefully, a reminder is useful. Editor’s Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks. 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. I have no business relationship with any company whose stock is mentioned in this article. Additional disclosure: To the extent that this content includes references to securities, those references do not constitute an offer or solicitation to buy, sell or hold such security. AdvisorShares is a sponsor of actively managed exchange-traded funds (ETFs) and holds positions in all of its ETFs. This document should not be considered investment advice and the information contain within should not be relied upon in assessing whether or not to invest in any products mentioned. Investment in securities carries a high degree of risk which may result in investors losing all of their invested capital. Please keep in mind that a company’s past financial performance, including the performance of its share price, does not guarantee future results. To learn more about the risks with actively managed ETFs visit our website AdvisorShares.com .

MDY’s 2015 2nd-Quarter Performance And Seasonality

Summary The SPDR S&P MidCap 400 ETF in the first half ranked No. 1 among the three most popular exchange-traded funds based on the S&P Composite 1500’s constituent indexes. In the second quarter, the ETF’s adjusted closing daily share price dipped by -1.12 percent. And in June, the fund’s share price dropped by -1.28 percent. The SPDR S&P MidCap 400 ETF (NYSEARCA: MDY ) during 2015’s first half was first by return among the three most popular ETFs based on the S&P Composite 1500’s constituent indexes: It expanded to $273.24 from $262.52, an increase of $10.72, or 4.08 percent. Over the same period, MDY behaved better than the iShares Core S&P Small-Cap ETF (NYSEARCA: IJR ) by 6 basis points and the SPDR S&P 500 ETF (NYSEARCA: SPY ) by 2.91 percentage points. In contrast, MDY last quarter performed worse than SPY and IJR by -1.34 and -1.29 percentage points, in that order. Most recently, MDY last month lagged IJR by -2.34 percentage points and led SPY by 73 basis points. Comparisons of changes by percentages in SPY, MDY, IJR, the small-capitalization iShares Russell 2000 ETF (NYSEARCA: IWM ) and the large-cap PowerShares QQQ (NASDAQ: QQQ ) during the first half, over Q2 and in June can be found in charts published in “SPY’s 2015 2nd-Quarter Performance And Seasonality.” Figure 1: S&P 400 EPS , 2010-2014 Actual And 2015 Projected (click to enlarge) Notes: (1) Estimates are employed for the 2015 data. (2) The EPS scale is on the left, and the change-in-EPS scale is on the right. Source: This J.J.’s Risky Business chart is based on analyses of data in the S&P 500 Earnings and Estimate Report released June 30. MDY may have behaved OK in the first half, but the ETF might have a hard time performing OK in the second half. As Howard Silverblatt, senior index analyst at S&P Dow Jones Indices, indicated in the S&P 500 Earnings and Estimate Report series this year, the analysts’ average earnings-per-share estimate for the S&P 400 index underlying MDY for 2015 slipped to $71.31 June 30 from $75.06 March 26 (Figure 1). And I believe this EPS estimate continues to be highly unrealistic, as it would require growth of 21.13 percent over last year. As a result, I think there will be more downward revisions in this estimate, which collectively will not constitute an MDY tailwind. Figure 2: MDY Monthly Change, 2015 Vs. 1996-2014 Mean (click to enlarge) Source: This J.J.’s Risky Business chart is based on analyses of adjusted closing monthly share prices at Yahoo Finance . MDY behaved worse in the first half of this year than it did during the comparable periods in its initial 19 full years of existence based on the monthly means calculated by employing data associated with that historical time frame (Figure 2). The same data set shows the average year’s strongest quarter was the fourth, with an absolutely large positive return, and its weakest quarter was the third, with an absolutely small negative return. Figure 3: MDY Monthly Change, 2015 Vs. 1996-2014 Median (click to enlarge) Source: This J.J.’s Risky Business chart is based on analyses of adjusted closing monthly share prices at Yahoo Finance. MDY also performed worse in the first half of this year than it did during the comparable periods in its initial 19 full years of existence based on the monthly medians calculated by using data associated with that historical time frame (Figure 3). The same data set shows the average year’s strongest quarter was the fourth, with an absolutely large positive return, and its weakest quarter was the third, with an absolutely small negative return. Disclaimer: The opinions expressed herein by the author do not constitute an investment recommendation, and they are unsuitable for employment in the making of investment decisions. The opinions expressed herein address only certain aspects of potential investment in any securities and cannot substitute for comprehensive investment analysis. The opinions expressed herein are based on an incomplete set of information, illustrative in nature, and limited in scope. In addition, the opinions expressed herein reflect the author’s best judgment as of the date of publication, and they are subject to change without notice. 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.

Exelon Cements Credentials As A Long-Term Stock

Summary Growth investments directed at improving generational assets and growing regulated asset base will ensure rate base growth and earnings stability for the company in the long run. Recent POM acquisition approval is signaling that EXC’s regulated EPS growth will improve in coming quarters. Future cash flows remain strong due to EXC’s efforts to have a large, regulated asset base. I reiterate my bullish stance on Exelon Corporation (NYSE: EXC ); the company is making good progress on its plan to have an extended regulated asset base through acquisitions and investments. EXC’s ongoing capital investments in several infrastructure development projects will add value to shareholder wealth, which will portend well for the stock price. Moreover, the company’s nuclear operation divesture plan is still under consideration; the plan, if approved, will strengthen EXC’s competitive position in the long run. The company’s rapidly growing regulated asset base provides a foundation for stable earnings and cash flow base, which will support dividend growth in future years. EXC currently offers an attractive dividend yield of 3.9%. Attractive Long-Term Growth Path Since the start of 2015, the volatile interest rate environment has weighed on utility stocks, and the utility sector underperformed the broad market in 1H’15. Owing to improving economic conditions in the U.S., the Fed is likely to increase short-term interest rates in 2H’15, which will put pressure on the stock prices of utility companies, including EXC. Despite the fear of a rise in interest rates, I believe EXC’s performance in the coming quarters will stay strong, mainly supported by the correct strategic efforts of the company. EXC, along with other utility companies in the industry, including American Electric Power (NYSE: AEP ) and PPL Corp. (NYSE: PPL ), have a robust capital spending outlook, which will support earnings growth in the next five years. EXC is following the industry norm by making hefty growth investments and acquisitions in regulated business to secure its long-term growth. During 2014, EXC spent almost $1.78 billion on several infrastructural growth-related projects, up 46.6% year-over-year. As per its recent sustainability report, the company has invested around $3.1 billion for electric and gas utility infrastructure, which includes a $500 million investment in the installation of smart meter technology during 2015. I believe the company’s recent approach to provide safe and reliable energy is bringing convenience for customers in a way that creates value for it over the long term. Another important area of investment has been EXC’s increased focus on improving its power generation capacity through the expansion and improvement of the gas business. In this regard, the company’s previously acquired 6 natural gas power plants in Maryland have started operations from June 28. The 128MW power plants will benefit EXC by improving its natural gas production capacity in the Maryland state and will ultimately add towards its rate base growth and positively affect the stock price. Moreover, the company has recently received approval for the much-awaited PEPCO Holdings (NYSE: POM ) merger from the Delaware Public Service Commission (PSC); the $6.8 billion merger is expected to complete in 2H’15, which will strengthen the company’s regulated operations and will positively affect the stock price. The upside of this merger rests in improving the EXC business and financial risk profile, as its regulated operations will increase; the company’s management expects that the merger will add nearly 15 cents-to-20 cents to EXC’s EPS during the first full year of operation. In fact, a rate base of nearly $26 billion has been projected for the combined entity, which indicates significant upside for its future ROE and cash flows. Moving ahead, under its plan of making strategic investments in diversifying the power generation portfolio, the company is planning to spend around $16 billion over the next five years, which I believe will enhance EXC’s future financial performance. On the other side, the company’s plan to shut down its loss making, Illinois-based 6 out of 11 nuclear power plants is still on hold. Recently, five of these nuclear units have failed to clear PJM’s base residual auction; despite the inability of its nuclear units to qualify for the PJM rate base auction, analysts are hoping that EXC will generate $150 million more in capacity revenue during 2017-2018 than it would have attained if all of its capacity had cleared the auction. However, the failure to qualify for the PJM auction has strengthened the company’s case before legislatures to shut down the nuclear plants. So, either the FERC should support them or LCPS standards should be changed to support its nuclear operations. While EXC is still in talks with the FERC to lower LCPS standards, I continue to believe that the closure of nuclear power plants is positively affecting the company’s performance in the long term, and will allow the company to focus more on stable regulated operations. EXC has an attractive dividend payment plan, which is strongly backed by its healthy cash flow base. Thus far, its healthy dividend payments have earned the company a decent dividend yield of 3.9% and a modest payout ratio of 48% , which indicates that there is significant room left for further dividend hikes, if the company opts to increase the payout ratio. Given EXC’s strong commitment to having a large, regulated asset base, I continue to believe in the security and sustainability of EXC’s future cash flow base, which ensures dividend stability and dividend growth in the years ahead. I recommend investors to keep track of the upcoming 2Q’15 earnings, as the company will provide an update on its capital expenditure outlook and will discuss its plans to increase regulated operations, which could have a significant impact on the stock price. According to the company’s guidance, EXC is expected to report EPS in a range of $0.45-$0.55 for Q2’15. In contrast, analysts are anticipating EPS of $0.51 for 2Q’15. The following table shows analysts; EPS forecast for EXC’s 2Q’15. Consensus EPS Forecast Low EPS Forecast High EPS Forecast 2Q’15 $0.51 $0.48 $0.55 Source: Nasdaq.com Risks The company continues to face operational and financial risk from its nuclear energy generation assets. Moreover, uncertainty about regulatory rate approvals, changes in national energy demand, stringent environmental standards and unforeseen negative economic changes are key risks that might hamper EXC’s future stock price performance. Conclusion I am bullish on EXC and believe the company will deliver a healthy performance in the long term. The company’s growth investments directed at improving its generational assets and growing its regulated asset base will ensure rate base growth and earnings stability in the long run. Furthermore, the recent POM acquisition approval is signaling that EXC’s regulated EPS growth will improve in the coming quarters. Moreover, the company’s future cash flows remain strong due to its efforts to have a large, regulated asset base, which will support dividend growth and make dividends more stable. Analysts have also projected a healthy next five-years earnings growth of 4.9% for EXC, as shown below in the chart. Source: Nasdaq.com 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.