Tag Archives: zacks funds

Materials ETFs Surge On Dow Chemical, DuPont Chemistry

The latest merger talks between chemical giants Dow Chemical (NYSE: DOW ) and DuPont (NYSE: DD ) might provide a fresh lease of life to the long-ailing material sector. This is especially true as total earnings from the basic material sector were down 18.8% on 214.4% lower revenues as of December 4. The potential merger is rumored to be worth about $130 billion and split the business of the new entity into three new, per sources , namely material sciences, specialty products and agrochemicals. As of December 9, Dow had a market cap of $66.01 billion, while DuPont had a market cap of $65.28 billion. The news was brought to light by The Wall Street Journal . However, there is no assurance of the merger and talks could even disintegrate. If at all the deal is cracked, it would require regulatory clearances in several countries, per Reuters. No comment was made by either of the concerned entities. Both firms are striving to cut their underperforming assets and are gradually shifting to the high-growth areas. In the latest concluded third quarter, Dow Chemical maintained its streak of earnings beat for eight successive quarters. Strong performance by the Plastics segment backed by a lower cost of raw materials like oil and natural gas drove this outperformance. Dow Chemical also raised its quarterly dividend by 10% to 46 cents, which is the highest in the company’s history, reflecting its core strength. However, Dow’s farm chemicals and seeds unit is reeling under pressure for about a year. On the other hand, DuPont beat earnings estimate on cost containment, but its revenues and profits slipped on a strong dollar as the company is heavily exposed to international markets and a soft agriculture business due to soft demand for crop protection products, per Reuters. In such a situation, joining forces would be a win-win case as the duo can cash in on each other’s strength. CNBC estimated a cost synergy of $3 billion from the likely merger. As soon as the news became viral, Dow and DuPont shares climbed about 11.9% each on elevated trading volumes. Plus, Dow Shares advanced about 0.6% after hours of December 9, while DuPont shares returned about 0.1%. Dow shares rose on 4.3 times the regular volume, while DuPont rose on 3.8 times the daily volume. Dow Chemical has a Zacks Rank #2 (Buy) and has a Value score of ‘B’ and a Growth score of ‘A’ despite hailing from a sector which is in the bottom 25% in the Zacks universe. DuPont has a Zacks Rank #3 (Hold). Solid price performance by these two chemical bellwethers led to a rally in material ETFs that are heavily invested in these two stocks. Though these funds have an unfavorable Zacks ETF Rank of 4 or’ Sell’ rating, they gained in the range of 2.1% to 3.3% on December 9 and are on investors’ radar for the weeks ahead. Materials Select Sector SPDR (NYSEARCA: XLB ) The most popular material ETF follows the Materials Select Sector Index. This fund manages about $2.18 billion in its asset base and trades in heavy volume of around 7.5 million. The ETF charges 14 bps in fees per year from investors. In total, the fund holds about 30 securities in its basket with DOW and DD taking the top two spots, with over 11% allocation each. In terms of industrial exposure, chemicals dominates the portfolio with three-fourth share, while ‘metals and mining’ and ‘containers and packaging’ round off the top three positions. XLB is off about 6.4% so far this year (as of December 9, 2015) but rose over 3% post the news. iShares U.S. Basic Materials ETF (NYSEARCA: IYM ) This ETF tracks the Dow Jones U.S. Basic Materials Index and holds 53 stocks in its basket. The fund has AUM of $353 million and charges 43 bps in fees and expenses. Volume is good as it exchanges around 106,000 shares a day. DOW and DD occupy the top two positions in the basket, with over 11% of assets each. The product is heavily skewed toward the chemical segment, as it makes up for more than three-fourths of the portfolio while steel, ‘forestry and paper’, ‘metals and mining’ receive minor allocations to IYM. The fund is down 10.7% year to date (as of December 9, 2015), but jumped over 3.3% in the key trading session. Vanguard Materials ETF (NYSEARCA: VAW ) This fund has amassed about $1.1 billion in its asset base and offers exposure to 120 stocks by tracking the MSCI U.S. Investable Market Materials 25/50 Index. The ETF has 0.12% in expense ratio. Here, DOW and DD are the top two firms accounting for nearly 8% share each. Chemicals make up for nearly 70% of assets, while ‘container and packaging’ and steel also make a nice mix in the portfolio. The fund is down 8.9% in the year-to-date frame (as of December 9, 2015), but added over 2.1% following the merger news. Fidelity MSCI Materials Index ETF (NYSEARCA: FMAT ) This fund provides exposure to more than 120 materials stocks with AUM of $68.8 million. This is done by tracking the MSCI USA IMI Materials Index. Here too, DOW and DD are the top two firms with nearly 8% allocation. Chemicals accounts for 69.7% share, while ‘container and packaging’, and ‘metals and mining’ round off the top three spots with double-digit exposure each. The ETF has 0.12% in expense ratio. The fund was up about 2.3% on December 9 but has lost 8.8% so far this year. Original post .

Is The Kinder Morgan Plunge An Opportunity To Buy Its ETFs?

While the collapse in oil price has battered the energy sector as a whole, pipeline operators have been the worst hit. This is because the oil rout has prompted the cash-strapped oil producers to cut their spending on projects that pipeline operators were relying on to fund investor payouts. The move has taken a huge toll on Kinder Morgan’s (NYSE: KMI ) balance sheet and dividend payout. Shares of KMI have been in a free-fall territory over the past five days, plunging nearly 30%. From a year-to-date look, Kinder Morgan has lost 60.8% of its value. The problems for Kinder Morgan started last Monday when it unveiled plans to increase its stake to 50% from 20% in a struggling natural gas pipeline company of America. The woes aggravated the next day when Moody’s Investors Service lowered the outlook for the company from stable to negative, raising concerns over the sustainability of a high dividend. Finally, the largest pipeline infrastructure company in the world slashed its dividend by 75% for the first time in its history to conserve cash. The company’s quarterly dividend is now 12.5 cents, a sharp fall from 51 cents. The new policy of reduced dividend will begin from the fourth quarter. The move negates the promise of increasing dividend by 6-10% for the next year that the company made on November 18. Since the majority of KMI’s stockholders are income-oriented, the action led to a huge decline in the share price. KMI’s shares tumbled 6.5% to a record low of $14.70 in after-market hours on Tuesday’s trading session. However, the dividend cut would be beneficial for the company in the long term as it will improve its financial position and help to maintain its investment grade status. Standard & Poor’s appreciated the move by reaffirming its stable outlook on the company. The agency believes that “the move will enable the company to continue to execute on its future growth plans and maintain a total net debt to EBITDA ratio around 5.5x for the next several years.” Additionally, Moody’s reversed its recent downgrade in outlook to stable from negative. As a result, the current slump in the stock could represent a great buying opportunity for long-term investors. This is especially true as the stock currently trades at a P/E ratio of 23, lower than the industry average of 25.6. In addition, the current yield is still impressive at 3.40% even with the massive dividend cut and the share price fall. Investors seeking to tap this opportunity could consider MLP ETFs having largest allocation to this oil and gas pipeline giant. Below we highlight four products in detail: Global X MLP & Energy Infrastructure ETF (NYSEARCA: MLPX ) This product follows the Solactive MLP & Energy Infrastructure Index and holds 39 stocks in its basket. Of these, Kinder Morgan takes the third spot with 7.4% of total assets. In terms of industrial exposure, about 84% of the portfolio is allocated to the oil and gas pipelines and distribution, while oil refining and marketing firms make up for 12% share. The fund has amassed $84.8 million in its asset base and charges 45 bps in annual fees. Volume is good at around 161,000 shares on average. MLPX was down 17.4% over the past five days. First Trust North American Energy Infrastructure ETF (NYSEARCA: EMLP ) This ETF is an actively managed fund designed to provide exposure to the securities headquartered or incorporated in the U.S. and Canada and engaged in the energy infrastructure sector. EMLP is one of the popular funds in this space with AUM of $827.5 million and average daily volume of 410,000 shares. Expense ratio came in at 0.95%. The product holds 66 securities, with Kinder Morgan occupying the second position in the basket at 5.8%. From a sector look, about half of the portfolio is allocated to pipelines while electric power companies round off the top two at 41.1%. The fund lost 9.6% in the past five days. Tortoise North American Pipeline Fund (NYSEARCA: TPYP ) This fund follows the Tortoise North American Pipeline Index, holding 101 securities in its basket. Oil & gas pipelines make up for 72% of assets followed by natural gas utilities at 17%. Here, Kinder Morgan occupies the fifth spot with a 4.9% share. The product recently debuted in the space and has accumulated $17.9 million in its asset base in six months. It trades in lower average daily volume of 13,000 shares while charges 70 bps in fees per year from investors. The ETF was down about 13% in the same period. ALPS Alerian Energy Infrastructure ETF (NYSEARCA: ENFR ) This fund tracks the Alerian Energy Infrastructure Index, holding 36 stocks in its basket. Of these, Kinder Morgan takes the thirteenth place with a 3.9% share. Oil and gas pipeline and the distribution sector dominates the fund’s return at 79%, while utilities, and oil refining and marketing take the remainder. The ETF is unpopular and illiquid having gained $10.5 million in total asset base. The fund trades in a paltry volume of 5,000 shares. It charges 65 bps in fees per year from investors and lost 13.6% in the past five days. Original Post

Euro ETFs On Volatile Ride: What Next?

Last week, the European Central Bank (ECB) hit headlines by extending its asset buying program by six more months to March 2017. The bank cut its deposit rate by 10 bps, shoving it deeper into the negative territory to -0.3%. ECB’s aim is to wipe out deflationary threats and boost economic growth in the common currency bloc. The markets did not appreciate the decision wholeheartedly as they expected an outsized expansion in the QE policy. To their utter disappointment, the ECB maintained the amount of monthly government bonds purchase at €60 billion. Additionally, the cut in deposit rates was also below the expected 0.15-0.20%. As a result, the common currency euro surged and logged its largest one-day gain against the greenback in over six years. The CurrencyShares Euro Trust ETF (NYSEARCA: FXE ) was up 3.2% on December 3. But since October, the euro has dropped over 5% against the greenback in anticipation of a very dovish act from the ECB. Several analysts are betting on the euro-dollar parity as the euro gained strength and the Fed is putting stress on a slower rate hike trail once it pulls the trigger. We expect the latest strength in the euro to be short-lived. After all, a recovering U.S. economy and a soft Eurozone economic backdrop will keep the monetary policy divergent for long. The Fed may apply a petite measure of hike now, but will likely speed up policy normalization once the economy gathers steam. Across the pond, the ECB might act more benignly if the present quantum and duration of the QE measure fails to pull up the sagging economy. Possibilities of further monetary easing by the ECB and euro’s thinning status as a reserve currency might result in a further slide in euro. Notably, after yuan’s inclusion in IMF’s SDR currency basket, euro lost its weight from 37.4% to 30.93 %. The move will take effect from October 2016. Investors should note that FXE is down 10.6% so far this year (as of December 4, 2015). Although, it is presently exhibiting a volatile trend on the double whammy of the ECB shock and the confusion over how fast the Fed will proceed on the rate hike path. Fortunately, ETFs offer several options to investors to accomplish this task. Below, we highlight a few choices in the inverse ETF space. These ETFs profit when the euro declines and may be suitable for hedging purposes against the fall in the currency (see all inverse currency ETFs here). ProShares Ultra Short Euro ETF (NYSEARCA: EUO ) This leveraged ETF looks to provide twice the inverse exposure to the performance of euro versus the U.S. dollar on a daily basis. The product has amassed over $500 million in AUM while it trades at a volume of 800,000 shares daily. However, given its active management style, the ETF charges a hefty annual expense ratio of 95 basis points. Though EUO lost 6.3% on December 3, the day ECB delivered a less-than-expected action, the fund crawled up over 1.5% on the day next as euro started paring gains. The product has enjoyed a gain of 18.2% on a year-to-date basis on a weak euro. Investors could book more profits off this fund should the euro continue to struggle. Market Vectors Double Short Euro ETN (NYSEARCA: DRR ) This is an exchange-traded note issued by Morgan Stanley. The product seeks to track the performance of the Double Short Euro Index. For every 1% weakening of the euro relative to the greenback, the index normally gains 2%. The choice is an overlooked one with just $54.8 million in AUM. The product charges an expense ratio of 0.65% a year. On a year-to-date basis, the product has advanced about 21% (as on December 4, 2015). It rose 1.84% on December 4, the day after the ECB action. Original Post