Tag Archives: undefined

The Second Cyber Security ETF Has Arrived

Summary Cyber security stocks have been a popular technology play this year. First Trust comes out with new cyber security ETF, the second offering in the space. Focus on the First Trust NASDAQ CEA Cybersecurity ETF. By Todd Shriber & Tom Lydon Confirming that cyber security is one of this year’s hottest investment themes, First Trust, the sixth-largest U.S. issuer of exchange traded funds, introduced on July 7th, the First Trust NASDAQ CEA Cybersecurity ETF (NasdaqGM: CIBR ) , the second cyber security ETF to come to market since November. The first is the well-entrenched, fast-growing PureFunds ISE Cyber Security ETF (NYSEArca: HACK ) , an ETF that needed less than eight months of trading to eclipse $1 billion in assets under management. HACK, the household name among cyber security ETFs, entered trading Tuesday with nearly $1.2 billion in assets under management . CIBR will track the Nasdaq CEA Cybersecurity Index, which “is designed to track the performance of companies engaged in the cybersecurity segment of the technology and industrials sectors. It includes companies primarily involved in the building, implementation, and management of security protocols applied to private and public networks, computers, and mobile devices in order to provide protection of the integrity of data and network operations,” according to a statement issued by First Trust. Amid a spate of public and private sector data breaches, the most recent afflicting personal data of federal employees, cyber security stocks are getting increased attention and, more importantly, are surging. Although it has given back some gains in recent weeks, HACK is up 12.4% year-to-date, more than triple the 3.9% gained by the Nasdaq Composite. “Cybersecurity is gaining global attention following recent high profile security breaches,” notes First Trust . “The opportunity for cybercrime is expected to grow and may cost the global economy as much as $575 billion annually. As cybercrimes continue to increase, the global cybersecurity market is forecast to grow at a compound annual growth rate (CAGR) of 10.3% from $95.6 billion in 2014 to $155.74 billion in 2019.” CIBR’s underlying index, which began trading on June 23, is home to 34 companies, including AhnLab, Akamai (NASDAQGS: AKAM ), Check Point Software (NASDAQGS: CHKP ), Cisco Systems (NASDAQGS: CSCO ), CyberArk (NASDAQGS: CYBR ) and FireEye (NASDAQGS: FEYE ), according to Nasdaq data . Companies must have a minimum market value of $250 million, a minimum three-month daily dollar trading volume of $1 million and a minimum free float of 20% to be eligible for the index. CIBR and HACK may not be alone in the cyber security ETF space for long as Direxion has plans to introduce leveraged bearish and bullish versions of HACK . Cyber Security Estimated Spending Growth Chart Courtesy: First Trust 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.

Flurry Of New Currency Hedged ETFs Fuels Price War

Currency hedging ETFs have been in vogue this year, given the ultra-loose monetary policy across the globe and a strong U.S. dollar against a basket of other currencies. The bullish trend in the dollar is likely to continue, as the Fed is primed to increase interest rates for the first time since 2006 later this year as the U.S. economy roars back to life. While cheap money flows are making international investment a compelling opportunity for U.S. investors this year, a strong dollar could wipe out the gains when repatriated in U.S. dollar terms, pushing international investment into the red, in spite of well-performing stocks. As a result, investors are flocking to currency-hedged ETFs. This has a double benefit. While these ETFs tap bullish international fundamentals, they dodge the effect of a strong greenback. So far, WisdomTree Investments (NASDAQ: WETF ) has been clearly leading the space with the WisdomTree Europe Hedged Equity ETF (NYSEARCA: HEDJ ) and the WisdomTree Japan Hedged Equity ETF (NYSEARCA: DXJ ) having AUM of $20.7 billion and $18.7 billion, respectively, thanks to the first-mover advantage, liquidity, price and brand name. However, its dominance now seems to be challenged by a flurry of new currency-hedged ETFs that have fueled a price war in the space. This is especially true as some issuers such as PowerShares, ProShares, State Street (NYSE: STT ) and iShares have come up with low-cost products in recent months that are much cheaper than those offered by WisdomTree. These could provide stiff competition to the established ETFs in the space, dulling their appeal. Here, we have highlighted some of the low-cost currency-hedged ETFs, all launched on the market in the past couple of months. ProShares Hedged FTSE Japan ETF (HGJP) This ETF provides exposure to the Japanese equity market with no currency risk by tracking the FTSE Japan 100% Hedged to USD Index. It charges just 0.23% in annual fees, which is half the expense ratio for a similar exposure provided by other products. Expense ratios for the Deutsche X-trackers MSCI Japan Hedged Equity ETF (NYSEARCA: DBJP ), the iShares Currency Hedged MSCI Japan ETF (NYSEARCA: HEWJ ) and DXJ are 0.45%, 0.48% and 0.48%, respectively. ProShares Hedged FTSE Europe ETF (HGEU) This fund targets the European market and provides a hedge against six major European currencies. It follows the FTSE Developed Europe 100% Hedged to USD Index, charging investors 0.27%. Here again, the expense ratio of HGEU is half compared to that of 0.45% for the Deutsche X-trackers MSCI Europe Hedged Equity ETF (NYSEARCA: DBEU ), 0.51% for the iShares Currency Hedged MSCI EMU ETF (NYSEARCA: HEZU ) and 0.58% for the WisdomTree Europe Hedged Equity ETF ( HEDJ ). PowerShares Europe Currency Hedged Low Volatility Portfolio ETF (NYSEARCA: FXEU ) This ETF offers new ways to gain exposure to European stocks, and is perhaps the first product providing two popular ETF investing strategies – low volatility and currency hedging – at the same time. Despite the fact that its unique features and combo offer what the others lack, FXEU charges a low expense ratio of 0.25%. SPDR EURO STOXX 50 Currency Hedged ETF (NYSEARCA: HFEZ ) This ETF looks to track the performance of the EURO STOXX 50 Hedged USD Index. It is basically a holding of the SPDR EURO STOXX 50 ETF (NYSEARCA: FEZ ), with currency hedge tacked onto it. The fund has an expense ratio of 0.32%, which is lower than that of many other products in the European currency-hedged space. iShares Currency Hedged MSCI ACWI ex U.S. ETF (NYSEARCA: HAWX ) This fund offers exposure to stocks in the developed (excluding the U.S.) and emerging markets by tracking the MSCI ACWI ex USA 100% Hedged to USD Index, while at the same time providing a hedge against any fall in the currencies of the specified nation. It is basically a holding of its unhedged version, the iShares MSCI ACWI ex-U.S. Index ETF (NASDAQ: ACWX ), with currency hedge tacked onto it. The product charges 0.36%, which is cheaper by 4 bps compared to the Deutsche X-trackers MSCI All World ex US Hedged Equity ETF (NYSEARCA: DBAW ) providing a similar exposure in the space. Given the lower expense ratios, these ETFs could see solid asset flows in the coming months if they succeed in outperforming or at least remain on par with the others in the space. The trends too should continue to favor international investing. Original Post

Don’t Sell Your XLF

Yesterday a very bearish piece was published on XLF. But I think the author’s arguments are factually incorrect. XLF should perform well as rates normalize. Yesterday, fellow SA author James Stefurak published a piece on the F inancial Select Sector SPDR ETF (NYSEARCA: XLF ), explaining that now is the time to sell given that he sees 20%+ downside for the ETF. A variety of reasons are given for this bearishness but given that I steadfastly disagree with both the reasoning and final conclusion of the piece, please accept this article as my humble and well-intentioned rebuttal. The first point given for why XLF is doomed is concentration. Like most ETFs, XLF has a few key names that make up a significant proportion of the fund. This is normal and even if it wasn’t, the top three names only make up 25% of the fund. The author says if “something goes awry” with one of the top holdings the XLF will tank. That is, of course, true but that’s true of the SPDR S&P 500 Trust ETF (NYSEARCA: SPY ) as well or any other fund. I’m not sure what qualifies as “something going awry” but the author seems to imply that would mean a total liquidation of the holding. Not sure about you but playing for JPMorgan (NYSE: JPM ) or Wells Fargo (NYSE: WFC ) to go out of business and sink the XLF is probably not the highest probability trade I’ve heard of. The XLF isn’t really all that concentrated and besides, concentration is not a reason to sell by itself. If that were the case then all exchange-traded products would be off limits. Next up is the housing recovery and here, I see some efficacy in the arguments made. It is true the housing market is having a tough time producing sales due to a lack of inventory and high prices. This will crimp earnings for the big mortgage players going forward so the author is right about that. Where we differ is in whether or not this information is priced in. The author seems to think the market doesn’t yet know about this information but this has been going on for a year or more now; the market is well aware that mortgage originations are weak. He also draws comparisons to the financial crisis but these are quite short-sighted because the banking landscape is a completely different world than it was in 2008. Capital levels and controls are infinitely stronger and more robust and with regulators watching every move large banks make, the idea of another 2008 style meltdown is pretty far-fetched. Derivative exposure is the next reason to sell I’ll touch on here. This is one that bears have been pointing to forever as a reason that the world is going to explode. Yes, the dollar values are huge in the derivative market but that doesn’t mean that banks are on the hook for a quadrillion dollars in losses if the world economy sneezes. This “reason” for a selloff is ridiculous and has been touted for years to no avail. The derivative market is not a reason to sell because derivatives to a large degree are hedging instruments. There is no possible scenario where they all come due at once which is what bears continuously tout as the reason the stock market will collapse. It’s beyond the realm of possibility and should be ignored. Finally, the author claims that many financials are actually negatively correlated to interest rates and quotes this as yet another reason to sell. I was dumbfounded when I read this because regardless of whatever evidence may be presented, the market is telling you otherwise and that is all that matters. You don’t have to take my word for it; here are just three examples of where the financials rallied this year as rates moved up ( here , here and here ). It is important to note that this is not my opinion; this is hard evidence that the market likes when rates move up for financials. Presenting anything besides this isn’t intellectually honest. On the valuation piece, the author makes assumptions that I find entirely too bearish without presenting any basis for how the numbers were chosen. This removes the efficacy of the price target because the extreme bearishness has no basis presented. To quote the author: “We have a 12-month price target for XLF at $19.75 which represents an approximate 20% discount to current share price. This downside is conservative. We modeled various assumptions including equity market selloffs (12% U.S. equity market selloff), interest rate rises (the 3-month LIBOR at 35 basis points, the 30-year fixed mortgages of 4.50%, the U.S 10-year Treasury above 3%) and U.S. unemployment rate moving higher (to 5.8%, U-6 rate up to 11.3%) and a bottoming of the delinquency rate on Commercial Real Estate (FRED’s ‘DRCR’).” Based on what? A 12% selloff in equities would produce a sizable selloff in XLF but that’s true of any stock fund; that is not a reason to sell XLF specifically. Rates rising would be a positive, not a negative, as I already outlined. And unemployment is moving up towards 5.8%? Again, based on what? The Federal Reserve is projecting 5% out to at least 2017 so no offense to the author, but I’ll stick with that. Wrapping up, I see very little reason to sell XLF based upon the forecasts of the author’s piece. The evidence presented largely lacks substance in my view and in particular, the section on valuation. If equities in general sell off, of course XLF will go down. But other than that, forecasts for economic doom and gloom are not a reason to sell XLF. Before you run out and dump your XLF – which I think will perform very well as rates rise – please make sure you look at both sides of the argument. 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: I am long several names in the XLF but not long the fund itself.