Tag Archives: venezuela

Bank ETFs Surge: Will The Momentum Last?

Finally, the battered banking stocks found reasons to turn around. As soon as the April Fed minutes hinted at a June rate hike possibility, banking, along with many other financial stocks, rallied on May 18. The going was tough for bank stocks and ETFs for quite some time, mainly due to the twin attacks of a delay in any further Fed rate hike after a liftoff in December and the energy sector slump. But things are now falling in space for this woebegone sector. Hawkish Tone in Fed Minutes Citing plenty of positive drivers in the market, including a healing labor market, a bullish inflation outlook, strong retail, consumer sentiment and housing data, the Fed minutes brought back the sooner-than-expected rate hike talks on the table. The yield on the 10-year U.S. Treasury note jumped 11 bps to 1.87% on May 18, while the yield on the 2-year U.S. Treasury note rose 8 bps to 0.90%. This steepening of the yield curve was a tailwind for banking stocks, as these improve banks’ net interest margins. This is because the interest rates on deposits are usually tied to short-term rates, while loans are often tied to long-term rates. Revival in Oil Prices U.S. banks have significant exposure to the long-beleaguered energy sector, where chances of credit default are higher. In February, the S&P cut its outlook on several regional banks with substantial energy sector exposure, citing a likely increase in non-performing assets. Among the biggies, Wells Fargo (NYSE: WFC ) reported around $42 billion oil and gas credit in February. The situation was the same for JPMorgan (NYSE: JPM ), whose energy loan accounts for 57% of the investment-grade paper . JPMorgan’s $44 billion energy sector exposure was a cause for concern given the below-$30-oil-per-barrel mark a few months back. However, those days of crisis seem to have passed, with oil prices showing an impressive rally lately and hovering around a seven-month high on falling supplies and the possibility of rising demand. Political imbalance in countries like Nigeria and Venezuela and expected moderation in the shale boom should put a brake in the supply glut. This increased hopes for a revival in the energy sector, which, in turn, is likely to benefit the banking sector too. JPMorgan Ups Dividend This leading financial firm announced a dividend hike on May 17, 2016, after the market closed. The company declared a quarterly cash dividend of $0.48 per share, representing a more than 9% rise over the prior payout. Per analysts , the strength in its consumer businesses helped the bank to opt for this. JPM shares jumped about 3.9% in the key trading session of May 18, benefitting the ETFs that invest heavily in the company. Notably, JPMorgan’s first-quarter 2016 earnings of $1.35 per share beat the Zacks Consensus Estimate of $1.26. Net revenue of $24.1 billion was also ahead of the Zacks Consensus Estimate of $23.9 billion. Needless to mention, this announcement uplifted the big banks’ financial image. All these showered ample gains in banking stocks on May 18. Below, we highlight a few (see all Financial ETFs here ): SPDR S&P Regional Banking ETF (NYSEARCA: KRE ) – Up 4.24% SPDR S&P Bank ETF (NYSEARCA: KBE ) – Up 4.15% PowerShares KBW Regional Banking Portfolio ETF (NYSEARCA: KBWR ) – Up 4.14% First Trust Nasdaq ABA Community Bank ETF (NASDAQ: QABA ) – Up 3.87% PowerShares KBW Bank Portfolio ETF (NYSEARCA: KBWB ) – Up 3.76% iShares U.S. Regional Banks ETF (NYSEARCA: IAT ) – Up 3.73% Apart from banking sector ETFs, other financial ETFs also shined on May 18. Among the lot, the iShares U.S. Broker-Dealers ETF (NYSEARCA: IAI ), up 3.11%,deserves a special mention. Notably, this ETF is also a beneficiary of the rising rate environment. Going Forward Since all the drivers are likely to remain in place for some time, the road ahead for banking ETFs should not be edgy. Even if the Fed does not act in June, it should act by September. Moreover, after two years of struggle, tension in the oil patch is likely to take a breather, as supply-demand dynamics look favorable for the near term. However, if bond yields decline on risk-off trade sentiments emanated from global growth issues, financial ETFs might come under pressure. Original Post

Oil Rally Likely To Continue: ETFs And Stocks To Watch

Oil prices have shown an impressive rally over the past week on outages and supply disruptions around the world, suggesting that the global oil market might be rebalancing faster than expected. In addition, Goldman (NYSE: GS ), one of the most bearish forecasters, gave an added boost by suddenly turning bullish on the commodity. In fact, oil prices hit a seven-month high, with crude rising to over $48.50 per barrel and Brent currently hovering near $50 per barrel. Improving Fundamentals The oil market seems to be rebalancing, with shrinking supply and rising demand. This is especially true as the massive wildfire that broke last week in Fort McMurray, Alberta, is now at the doorstep of the oil-sands mines. This resulted in the evacuation of thousands of workers and cut Canadian oil production by at least 1 million barrels a day. Clearly, this marks a massive reduction given that Canada is the world’s fifth-largest oil producer, with an average output of 4.4 million barrels of oil per day. Additionally, militant attacks and the threat of nationwide strike pushed Nigeria’s oil output to a 20-year low of 1.4 million barrels per day. Political instability and economic meltdown in Venezuela also contributed to fears of oil supply disruption. Further, oil production in China fell 5.6% year over year in April and 2.7% in the first four months of 2016, while the U.S. saw a year-over-year decline of 0.7 million barrels a day last month. Moreover, the U.S. Energy Information Administration (EIA) expects oil production from the seven shale regions – Bakken, Eagle Ford, Haynesville, Marcellus, Niobrara, Permian and Utica – to fall by 113,000 barrels a day to 4.96 million barrels a day in June from May. The agency also predicts global demand to grow on higher Chinese and Indian consumption. It expects demand to rise by 1.4 million barrels per day for this year and 1.5 million barrels per day for the next, compared to the earlier projections of 0.3 million barrels per day and 0.2 million barrels per day, respectively. Goldman Turns Bullish The unexpected supply disruption of as much as 3.75 million barrels a day and sustained demand has duly prompted Goldman to turn bullish on oil. The investment bank now believes that the two-year big oil supply glut has taken a “sudden halt” and turned to a deficit. It said “the oil market has shifted from nearing storage saturation to being in deficit much earlier than expected.” As a result, Goldman raised the price target for crude oil to $45 per barrel for the second quarter and $50 per barrel for the second half from $35 per barrel and $45 per barrel, respectively, predicted in March. However, the analyst cautioned that the market would return to surplus in the first half of 2017 on increased exploration and production activity. Diminishing “Contango” Impact The spread between the near-term futures contracts and the later-dated contracts has reduced, thereby giving a boost to oil prices. In particular, the spread between the oil futures contracts expiring later this year and similar contracts expiring in late 2018 narrowed to $1.21 from $8 in December 2015 . This reduced contango suggests that the supply glut may be falling, after years of overproduction. If this trend continues to persist going into the peak refining season, the oil market may move into a state of backwardation, where later-dated contracts are cheaper than near-term contracts. This is bullish for the commodity. ETFs to Tap While there are several ETFs to play the recent rally in oil prices, we have highlighted three funds each from different zones that are the biggest beneficiaries from this trend. Oil Futures ETFs – United States Oil ETF (NYSEARCA: USO ): This is the most popular and liquid ETF in the oil space, with AUM of $3.9 billion and average daily volume of more than 42 million shares. The fund seeks to match the performance of the spot price of West Texas Intermediate (WTI or U.S. crude). The ETF has 0.45% in expense ratio and gained 8.4% over the past five trading days. Energy ETFs – PowerShares S&P SmallCap Energy Portfolio ETF (NASDAQ: PSCE ): This fund offers exposure to the energy sector of the U.S. small cap segment by tracking the S&P Small Cap 600 Capped Energy Index. Holding 32 securities in its basket, it is highly concentrated on the top three firms with a combined 37.1% share, while other firms hold less than 6.6% of total assets. The fund is less popular and less liquid, with AUM of $52.4 million and average daily volume of about 38,000 shares. The expense ratio came in at 0.29%. PSCE was up about 5% in the same time period (see all the energy ETFs here ). Leveraged Oil ETFs – VelocityShares 3x Long Crude Oil ETN (NYSEARCA: UWTI ): This is the popular leveraged fund targeting the energy segment of the commodity market through WTI crude oil futures contracts. It seeks to deliver thrice the returns of the S&P GSCI Crude Oil Index Excess Return and has amassed over $1 billion in its asset base. It trades in heavy volumes of 12.8 million shares a day, though it charges a higher fee of 1.35% per year. UWTI surged 26.4% over the past five trading sessions. Stocks to Tap We have chosen three stocks using our Zacks stock screener that have a Zacks Rank #1 (Strong Buy) or #2 (Buy) with a VGM Style Score of “A” or “B”. The combination of these two offers the best upside potential. Murphy USA, Inc. (NYSE: MUSA ): This Zacks Rank #1 company is a retailer of gasoline products and convenience store merchandise primarily in the United States. It saw positive earnings estimate revision of 21 cents for fiscal 2016 over the past 60 days and has an expected growth rate of 42.12%. The stock has a VGM Style Score of “A”. Enbridge, Inc. (NYSE: ENB ): This Zacks Rank #2 company with a VGM Style Score of “B” is a leader in energy transportation and distribution in North America and internationally. It saw positive earnings estimate revision of 18 cents over the past two months and has an expected growth rate of 8.69% for this year. McDermott International, Inc. (NYSE: MDR ): This Zacks Rank #1 company is a leading provider of integrated engineering, procurement, construction and installation services for offshore and subsea field developments worldwide. It saw an estimate revision to 4 cents from a loss of 3 cents over the past 60 days. It has a VGM Style Score of “B”. Contrarian View While we expect the oil price rally to continue in the near term, many market experts believe the rise is temporary and that the market will again be flooded with more oil once the problem of outages is resolved. Further, Saudi Arabia and Iran are keen on increasing their output. Original Post

4 Energy Mutual Funds To Buy As Oil Prices Move North

For a considerable period of time, the energy sector was plagued by an abundant supply of oil. While major oil producing nations pumped oil, demand moved south on global economic sluggishness. However, disruptions in oil suppliers, including Nigeria and Canada, were more than welcome by the beleaguered energy sector. U.S. shale output is also likely to decline in June says the U.S. Energy Information Administration (EIA). These factors collectively helped U.S. crude price to reach a seven-month high on Tuesday and the Goldman Sachs Group, Inc. (NYSE: GS ) to have a bullish outlook. The banking behemoth went a step further saying that it expects crude demand to improve this year, which will further reduce the demand-supply disparity. Given these positive trends, investing in energy mutual funds won’t be a bad proposition. Nigerian Saboteurs, Canadian Wildfires Supply outages in Nigeria along with wildfires in Canada continue to boost oil prices. In Nigeria, attacks by a militant group called Delta Avengers on oil installations led to shut down in production. Nigeria reduced its crude production to 1.69 million barrels per day (bpd), hitting its lowest level in 22 years. The group has recently bombed an offshore platform owned by Chevron Corporation (NYSE: CVX ). Among the other attacks, this group targeted a series of refineries and an export terminal. The Alberta region in Canada has, on the other hand, been under fire for two weeks now that is threatening major oil sands production facilities. According to the Conference Board of Canada, these facilities are estimated to produce 1.2 million barrels a day, which almost comprise $1 billion in economic activity. Investors are also keeping an eye on other oil producing nations such as Venezuela and China. Venezuela is in the grip of a serious economic crisis. The country is currently operating under a “constitutional state of emergency,” thanks to its high inflation rate and shortages in food and power. Meanwhile, China witnessed crude output of 4.04 million bpd in April this year, reflecting a 5.6% decline from the year-ago level. Goldman Projects Deficit in Oil Market Supply shortages mostly in Nigeria and Canada prompted Goldman Sachs to say that the oil market is facing a deficit in crude production. Goldman reversed its bearish bet and raised its oil price forecast for this year to $51 a barrel. A few months ago, Goldman projected that oil prices would remain around $20 per barrel following crude oversupply. Goldman also said that “the oil market has gone from nearing storage saturation to being in deficit much earlier than” it anticipated. U.S. Shale Oil Output Declines According to the monthly report from the EIA, output from seven major U.S. shale plays is likely to fall by 113,000 bpd to 4.85 million bpd in June. The profitability of shale drillers has been seriously affected, leading to such a projection. At the Eagle Ford shale play in South Texas, oil output is expected to witness the highest drop, down 58,000 barrels in June. The Bakken Shale play, which stretches from Canada into North Dakota and Montana, will experience the second largest decline in output, a projected fall of 28,000 bpd, the report mentioned. Top 4 Energy Mutual Funds to Invest In Oversupply of oil has always been a major concern for energy companies. But, as mentioned above, supply side disruptions have helped oil prices gain momentum. Demand, on the other hand, is expected to gain traction. Goldman projects 2016 worldwide crude demand to improve by 1.4 million bpd, which is higher than its prior expectation. This will further bridge the gap between supply and demand. Banking on these bullish trends, it will be judicious to invest in mutual funds that have considerable exposure to the energy sector. We have selected four such energy mutual funds that have given impressive year-to-date returns, boast a Zacks Mutual Fund Rank #1 (Strong Buy) or #2 (Buy), offer a minimum initial investment within $2,500 and carry a low expense ratio. Funds have been selected over stocks, since funds reduce transaction costs for investors. Funds also diversify the portfolio without the numerous commission charges that stocks need to bear. Fidelity Advisor Energy Fund A (MUTF: FANAX ) invests a major portion of its assets in securities of companies engaged in the energy field, including the conventional areas of oil, gas, electricity and coal. FANAX’s year-to-date return is 12.5%. Annual expense ratio of 1.11% is lower than the category average of 1.47%. FANAX has a Zacks Mutual Fund Rank #2. Guinness Atkinson Global Energy Fund (MUTF: GAGEX ) invests the majority of its assets in equity securities of both U.S. and non-U.S. companies engaged in the production, exploration or discovery, or distribution of energy. GAGEX’s year-to-date return is 12.1%. Annual expense ratio of 1.41% is lower than the category average of 1.47%. GAGEX has a Zacks Mutual Fund Rank #2. Vanguard Energy Fund (MUTF: VGENX ) invests a large portion of its assets in the common stocks of companies involved in activities in the energy industry, such as the exploration, production and transmission of energy or energy fuels. VGENX’s year-to-date return is 16.4%. Annual expense ratio of 0.37% is lower than the category average of 1.47%. VGENX has a Zacks Mutual Fund Rank #1. Fidelity Select Energy Service Portfolio (MUTF: FSESX ) invests a major portion of its assets in securities of companies engaged in the energy service field, including those that provide services and equipment to the conventional areas of oil, gas, electricity, and coal. FSESX’s year-to-date return is 5.1%. Annual expense ratio of 0.81% is lower than the category average of 1.47%. FSESX has a Zacks Mutual Fund Rank #2. Original Post