Tag Archives: zacks funds

Time For Semiconductor ETFs?

The semiconductor space was a hot spot and one of the best-performing sectors in 2014, courtesy of encouraging industry fundamentals. But its fundamentals have slackened of late, with the struggling PC market. The second quarter of 2015 witnessed PC shipments falling 9.5% year over year, marking the steepest decline since third-quarter 2013, per Gartner. A strong greenback, higher inventories in the semiconductor and electronics supply chain and the launch of Windows 10 were held responsible for this decline, per the research agency. This, coupled with semiconductor giant Intel Corporation’s (NASDAQ: INTC ) underperformance wreaked havoc in the space. Notably, the INTC stock is down over 23% this year (as of September 1, 2015). Compelling Valuation Semiconductor stocks and the related ETFs have seen a considerable slide this year that erased its prior year’s gains and slipped into the negative territory in the one-year frame. Now, semiconductor analysts believe that most of the downside is reflected in the current level. Chip stocks have declined 25% and are now due for their way up as per analysts . Semiconductor ETF Market Vectors Semiconductor ETF (NYSEARCA: SMH ) presently trades at a P/E (TTM) of 17 times against the broader technology ETF Technology Select Sector SPDR ETF ‘s (NYSEARCA: XLK ) P/E (TTM) of 18 times and high-flying Internet ETF First Trust Dow Jones Internet ETF’s (NYSEARCA: FDN ) P/E of 41 times. Moreover, the space might witness a surge in sales in the latter part of 2015 as it includes the all-important shopping season and is likely to see a significant increase in the purchase of smartphones. In fact, World Semiconductor Trade Statistics (WSTS) also approves of this pattern as the agency forecast that the semiconductor market will be mainly propelled by smartphones and automotive this year. Moreover, some analysts opine that the PC market is set for a rebound helping the companies like Intel. All semi ETFs including SMH, iShares PHLX Semiconductor ETF (NASDAQ: SOXX ) , SPDR S&P Semiconductor ETF (NYSEARCA: XSD ) and PowerShares Dynamic Semiconductors Fund (NYSEARCA: PSI ) gained about 2.3%, 2.4%, 4.7% and 2.7%, respectively, in the last five trading sessions. Caution Having said this, we would like to note that the fundamentals are yet to improve for the semiconductor sector. The sector is still hovering in the bottom 18% region of the Zacks Industry Rank. The world semi market is expected to grow 3.4% year over year this year (per WSTS), while growth for 2016 and 2017 will likely be 3.4% and 3%, respectively. Also, not all semiconductor ETFs are as cheap as SMH, as other ETFs including XSD and PSI presently have a P/E (TTM) of 27 times and 23 times. All of the above-mentioned ETFs have weighted alpha of negative 9.34, 10.68, 4.84 and 3.51 respectively hinting at further bearishness. Still, investors eyeing this apparently rebounding space might watch these semiconductor ETFs closely. SOXX in Focus This ETF follows the PHLX Semiconductor Sector Index and offers exposure to 30 domestic firms. It is highly concentrated on the top 10 firms with about 60% of total assets. Two-thirds of the portfolio is dominated by large-cap stocks while mid-caps take the remainder, with just 3% going to small caps. The fund has amassed $331 million in its asset base and trades in average volume of roughly 600,000 shares a day. The product charges 47 bps in fees a year from investors. SOXX has a Zacks ETF Rank #3 (Hold). SMH in Focus This fund provides exposure to 26 securities by tracking the Market Vectors US Listed Semiconductor 25 Index. Of these, two firms – Intel and Taiwan Semiconductor Manufacturing dominate the fund’s return with a combined 35% of total assets while other firms hold no more than 6.06% share each. From a market cap look, the product focuses on large cap stocks, as together these account for about 81% of the portfolio. The product has managed assets worth $354 million and charges 35 bps in annual fees and expenses. It is heavily traded with volume of more than 4.3 million shares per day. This fund has a Zacks ETF Rank #3. XSD in Focus This fund tracks the S&P Semiconductor Select Industry Index, holding 47 stocks in its portfolio. It is widely spread across each security as none of these allocates more than 3.09% of the assets. The product has a definite tilt toward small-cap stocks at 54%, followed by 28% in mid-caps and 18% in large caps. The fund is less popular and illiquid with AUM of $108.1 million and average daily volume of under 100,000 shares. It charges 35 bps in fees per year. The fund has a Zacks ETF Rank #3. PSI in Focus This Zacks ETF Rank #3 fund tracks the Dynamic Semiconductor Intellidex Index, holding 30 securities in the basket with none holding more than 5.93% of assets. Here again, the ETF is skewed toward small caps at 46% while large caps and mid-caps account for 36% and 18%, respectively. The product, with AUM of $62 million is often overlooked by investors and hence sees a lower average daily volume of 45,000 shares. Expense ratio came in at 0.63%. Original Post

Inside Vanguard’s New Muni Bond ETF

Vanguard Group, known for its low-cost offerings, has been making great strides in recent times in launching products on varied themes. At present, it is offering around 70 U.S. listed ETFs, and has managed to secure the second position (with about $457.1 billion market cap) among the top 10 fund sponsors list, following BlackRock (NYSE: BLK ). Most recently, the issuer stepped into the muni bond market. The fund trades under the name of Vanguard Tax-Exempt Bond ETF (NYSEARCA: VTEB ). Let’s look into the fund. The Proposed Fund in Focus As per the prospectus , the fund looks to track the performance of the investment-grade U.S. municipal bond market. The goal will be achieved by tracking the S&P’s National AMT-Free Municipal Bond Index. The basket is long-duration in nature. The fund charges 12 bps in fees, and the expense ratio is 86% less than the average expense ratio charged by funds with similar constituents. How Does it Fit in a Portfolio? Municipal bonds are great picks for investors seeking a steady stream of tax-free income. Usually, the interest income from munis is exempt from federal tax, and sometimes even state taxes, making these especially attractive to investors in the high tax bracket looking to reduce their tax liability. The proposed fund also looks to follow munis that have their interests excused by U.S. federal income taxes and the federal Alternative Minimum Tax (AMT). However, investors should note that tax-free bonds have lower yields than taxable bonds. With the increase in the U.S. taxes, the demand for municipal bonds has grown by leaps and bounds among high earners. The best part of the fund is that it includes high-quality muni bonds. Recently, the sentiment about the creditworthiness of some munis like Puerto Rico soured. Also, a gradually improving U.S. economy will provide relief to investors, as the credit quality of the municipal bonds could improve, thereby reducing default rates. Though yields will likely rise in the coming days, as the Fed is set to hike rates sometime in 2015, the tax benefit will look more promising with rising yields. For example, a 10% yield translates into 18% (for high tax payers) after considering the tax exemption as noted by Bloomberg . Probably this is why Vanguard has endorsed the idea of tax exemption the most. ETF Competition The fund has managed to amass about $50 million in assets within just 10 days of launch, which can be considered as a benchmark of its success. After all, Vanguard is known as a low-cost producer. VTEB is the lowest-cost product in the muni bond ETF space (see all muni bond ETFs here ). Still, this new fund has big competition in the form of the iShares National AMT-Free Muni Bond ETF (NYSEARCA: MUB ). MUB is the highest-grossing muni ETF, with about $5.2 billion assets. Plus, this fund also tracks the same index, i.e. the S&P National AMT-Free Municipal Bond Index, to provide exposure to a basket of 2,782 investment-grade securities. The average maturity for MUB stands at 5.54 years, while the duration is 4.74 years. The fund has a 30-day SEC yield of 1.73% and charges 25 basis points as expenses per year. In a nutshell, though Vanguard made a late entry to this thriving space, it is off to a strong start. Going forward, it should not face hurdles in garnering investors’ money, despite iShares’ presence with an ultra-popular product. Original Post

Relief For Leveraged Oil ETFs

What a great contrast. While the otherwise surging U.S. markets ended August on a three-year low note (as a basis of monthly performance) and U.S. index futures are on a retreat, oil – the prolonged pain for investors – staged a rally. Oil has been trapped in a downward spiral since mid-2014. For over one year, there was hardly any relief for oil prices. Supply glut, be in the U.S. or in the other oil-rich nations, and global growth worries that resulted in demand concerns were responsible for the collapse in the oil prices. However, oil signaled a turnaround last Thursday, jumping over 10% and representing the biggest one-day rally in over six years. Gains kept rolling even on Friday and Monday, marking the largest three-day oil price gain in 25 years . This matters a lot for a commodity like oil, the price of which declined over 60% in the last one year (read: Oil Tumbles to Six-Year Low: ETF Tale of Two Sides ). In particular, the U.S. economy grew 3.7% in Q2, which beat the initial reading of 2.3% growth and 0.6% expansion recorded in the seasonally weak Q1. While this ruled out some demand-driven worries, the calm in the stock market turbulence in the latter part of last week and lower inventory crude stockpiles in the U.S. initiated this bright spell (read: Positive News Flow Sparks Off Rally in Oil ETFs ). On August 31, oil futures added over 8%. The optimism originated from the indication that the Organization of Petroleum Exporting Countries (OPEC) may cut back on production. Moreover, the U.S. government also reduced its estimate of domestic oil output. Domestic production in June was 9.3 million barrels a day, about 100,000 barrels short of the earlier prediction. Plus, the biggest synthetic crude oil manufacturer in Canada stopped production following a fire, which in turn boosted Canadian oil prices, per Reuters . A few analysts believe that these extraordinary gains in oil prices actually overprized the recent positive news. Compelling valuation is yet another reason for the bounce. So while positive news drove up all oil ETFs, fat gains were tied to the leveraged oil plays. Post oil price recovery, leveraged oil ETFs VelocityShares 3x Long Crude Oil ETN (NYSEARCA: UWTI ) with triple leverage and ProShares Ultra Bloomberg Crude Oil ETF (NYSEARCA: UCO ) with double exposure to the index added over 72% and 45%, respectively, in the last five trading sessions (as of August 31, 2015). Over the last three-day period (as of August 31, 2015), the funds were up 81% and 50%, respectively (read: 10-Minute Guide to 10 Most Popular Leveraged ETFs ). However, investors should note that leveraged ETFs are apt for short-term trading due to their extremely volatile nature. This is even truer for oil as this investing zone can be touted as one of the most risky plays. Global recovery is yet to be full-fledged with several economies tottering. So, demand-driven concerns are well in place. Now, recovery depends on when production cut takes place, if at all it happens. So, investors need to be vigilant while investing in the leveraged oil ETFs. Original post