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Posts Tagged ‘fund’

Will Apple Inc. (NASDAQ:AAPL) Unveil Apple TV During The 2013 Consumer Electronics Show

January 8th, 2013

appleEach year Las Vegas hosts a show where gadget vendors show off the next greatest thing a 13-year old with a pocket protector will drool over.  It’s the 2013 Consumer Electronics Show in Las Vegas.  It’s an incredible event and I will Read more…

Uncategorized

Buy This Fund Manager for 50% Upside Potential

June 8th, 2011

Buy This Fund Manager for 50% Upside Potential

In the 1990s, not owning a Janus mutual fund in any of your investment accounts was tantamount to having to carry a Waltons lunch box at an all boys school in fourth grade. Believe me, I know what the word “ostracized” means and I really don't want to talk about it anymore. Anyway, Janus was one of the hottest of the hot growth fund managers during the tech-bubble era. Its flagship Janus Fund and high octane growth Janus Twenty fund took in billions and billions of dollars.

If you wanted aggressive growth back then, Janus was the go-to shop. Then, like an angry DJ pulling the record player arm off of the L.P., the music stopped…

Janus Capital Group Inc. (NYSE: JNS) was born in the late 1960s as Stillwell Financial, a subsidiary of Kansas City Southern Industries (NYSE: KSU), the parent company of the Kansas City Southern Railroad. l don't know about you, but when I think “railroads,” mutual funds always come to mind. But such was the fancy of 1960s and 1970s industrial conglomerates. (Remember Gulf and Western?) Anyway, the firm, so named for its flagship Janus Fund, switched to its current moniker permanently in 2003.

A 400% dividend hike and a tradition of superior growth management
One of my favorite sayings that can be applied to investing comes from hockey legend Wayne Gretzky: “I skate to where the puck is going to be!” Everyone who fancies themselves as an investment picker should have that tattooed on the palm of their hand and look at it at least 10 times daily. Back in the day, it seemed that Janus was always in scoring position.

The company turned in stellar numbers in the 1990s and produced rock-star fund managers, most notably Tom Marsico, who went on to fame and fortune at the helm of his own firm, Marsico Capital Management.

However, when the bubble burst, Janus experienced plenty of the associated heartache that included investor flight and participation in a Securities and Exchange Commission investigation into market timing for favored clients in 2003. The punishment came down in the form of Janus shelling out a cool $262 million in fines. Ouch.

But after the downturn of 2000-2002, large-cap growth (Janus' core competency) was out of style. Oil, gold, emerging markets, real estate, bonds and other asset sleeves have outperformed for nearly a decade. Still, all the while Janus has still been able to produce superior results: 42% of Janus' funds have either a four- or five-star ranking from Morningstar.

But all that may be changing. In the past few months, the broader equity markets have seen a significant shift from commodity-related stocks and international names to domestic (U.S. equity) industrials, transports, consumer staples, even utilities. The larger theme here, though, is that things are tilting toward U.S. large-cap equities, which is definitely in Janus' wheelhouse.

Is it Janus' time to rise?

At the end of March, Janus had about $173.5 billion under management compared with $165 million in 2010. In 2010, revenue recovered to $834.5 million, better than its 2008 level of $826.7 million and way better than the anemic 2009 revenue number of $684 million. This year is on track to improve on that number. First-quarter revenue came in at $265.4 million and is projected by analysts to total $922 million for the whole year, good for an increase of nearly 10.5% from last year. With its recent first-quarter report, the company also delivered a nice annual dividend boost from $0.04 to $0.20. This would put the current yield at around 2.1%. I'd say a 400% dividend hike is a good sign.

When tech stocks cratered, so did Janus. About 11 years ago, Janus was a $50-plus stock. The popping of the tech bubble and the economic slowdown attributed to 9/11 brought shares down to around $10 (see chart below). There was some nice movement back up to $30 during the highest period of the 2005-housing boom. However, thanks to the financial crisis of 2008, shares are back to their post-9/11 level.

Mutual Fund, OPTIONS, Real Estate, Uncategorized

Buy This Fund Manager for 50% Upside Potential

June 8th, 2011

Buy This Fund Manager for 50% Upside Potential

In the 1990s, not owning a Janus mutual fund in any of your investment accounts was tantamount to having to carry a Waltons lunch box at an all boys school in fourth grade. Believe me, I know what the word “ostracized” means and I really don't want to talk about it anymore. Anyway, Janus was one of the hottest of the hot growth fund managers during the tech-bubble era. Its flagship Janus Fund and high octane growth Janus Twenty fund took in billions and billions of dollars.

If you wanted aggressive growth back then, Janus was the go-to shop. Then, like an angry DJ pulling the record player arm off of the L.P., the music stopped…

Janus Capital Group Inc. (NYSE: JNS) was born in the late 1960s as Stillwell Financial, a subsidiary of Kansas City Southern Industries (NYSE: KSU), the parent company of the Kansas City Southern Railroad. l don't know about you, but when I think “railroads,” mutual funds always come to mind. But such was the fancy of 1960s and 1970s industrial conglomerates. (Remember Gulf and Western?) Anyway, the firm, so named for its flagship Janus Fund, switched to its current moniker permanently in 2003.

A 400% dividend hike and a tradition of superior growth management
One of my favorite sayings that can be applied to investing comes from hockey legend Wayne Gretzky: “I skate to where the puck is going to be!” Everyone who fancies themselves as an investment picker should have that tattooed on the palm of their hand and look at it at least 10 times daily. Back in the day, it seemed that Janus was always in scoring position.

The company turned in stellar numbers in the 1990s and produced rock-star fund managers, most notably Tom Marsico, who went on to fame and fortune at the helm of his own firm, Marsico Capital Management.

However, when the bubble burst, Janus experienced plenty of the associated heartache that included investor flight and participation in a Securities and Exchange Commission investigation into market timing for favored clients in 2003. The punishment came down in the form of Janus shelling out a cool $262 million in fines. Ouch.

But after the downturn of 2000-2002, large-cap growth (Janus' core competency) was out of style. Oil, gold, emerging markets, real estate, bonds and other asset sleeves have outperformed for nearly a decade. Still, all the while Janus has still been able to produce superior results: 42% of Janus' funds have either a four- or five-star ranking from Morningstar.

But all that may be changing. In the past few months, the broader equity markets have seen a significant shift from commodity-related stocks and international names to domestic (U.S. equity) industrials, transports, consumer staples, even utilities. The larger theme here, though, is that things are tilting toward U.S. large-cap equities, which is definitely in Janus' wheelhouse.

Is it Janus' time to rise?

At the end of March, Janus had about $173.5 billion under management compared with $165 million in 2010. In 2010, revenue recovered to $834.5 million, better than its 2008 level of $826.7 million and way better than the anemic 2009 revenue number of $684 million. This year is on track to improve on that number. First-quarter revenue came in at $265.4 million and is projected by analysts to total $922 million for the whole year, good for an increase of nearly 10.5% from last year. With its recent first-quarter report, the company also delivered a nice annual dividend boost from $0.04 to $0.20. This would put the current yield at around 2.1%. I'd say a 400% dividend hike is a good sign.

When tech stocks cratered, so did Janus. About 11 years ago, Janus was a $50-plus stock. The popping of the tech bubble and the economic slowdown attributed to 9/11 brought shares down to around $10 (see chart below). There was some nice movement back up to $30 during the highest period of the 2005-housing boom. However, thanks to the financial crisis of 2008, shares are back to their post-9/11 level.

Mutual Fund, OPTIONS, Real Estate, Uncategorized

The 5 Best-Performing ETFs of 2011

May 17th, 2011

The 5 Best-Performing ETFs of 2011

Despite the recent bearish effort, the stock market's still up 6% for the year. Some sectors and groups, however, are up more than others. Such outperformance begs the question: are these leading industries already over-baked, or is their current leadership an omen of what's to come?

Let's first identify the top-performing exchange-traded funds (ETFs) for the year so far, and tackle the tougher questions after that.

2011's year-to-date ETF winners
Just to clarify, leveraged funds have been removed this list of top performers, since they're more for speculators and less for buy-and-hold investors.

1. B2B Internet HOLDRs (NYSE: BHH): Of all the names that made the cut, this one may also be the most surprising. 'Business-to-business' (a nickname for the corporate-level marketplace of goods, supplies, and services) stocks like Ariba (Nasdaq: ARBA) and Internet Capital Group (Nasdaq: ICGE) – the only two names the fund holds — never really hit their enthusiasm stride again after the 2001/2002 recession. But, something is clearly lighting a fire now.

Note that owning the B2B Internet HOLDRs is essentially a play on Ariba, which makes up 90% of the fund's allocation. That may not be a bad thing though, as the decision to convert its platform from software-based to cloud-based is one stop closer to the company's goal of becoming a “Facebook for business.” With a forward-looking price-to-earnings ratio of 30.3 it's a little heavy in terms of valuation, but if last quarter's 41% increase in revenue is any indication, the company's on the right track.

2. United States Brent Oil Fund (NYSE: BNO): Why has this oil fund performed better than, say the U.S. Oil Fund (NYSE: USO)? That's because BNO is based on Brent futures, which are more popular in Europe and Asia, and more sensitive to the turmoil in the Middle East. USO is based on West Texas Intermediate oil futures, which have actually seen a bit of a delivery glut of late.

Either way, both funds are higher because oil prices have been rising, until recently. And, when oil swings, it tends to swing big. The Brent crude fund is down more than 12% for the month so far, with no help in sight.

3. Rydex S&P MidCap 400 Pure Growth (NYSE: RFG): This is nothing new — this cap/style group has been quietly leading the charge since the March-2009 bottom. Mid-sized companies have found a bit of a sweet spot in a moderate-growth environment. They're more nimble than the slower-moving large caps that aren't finding easy money in any longer, but better-funded and better-shielded than small caps. As long as economic mediocrity reigns, so too should the mid caps.

ETF, Uncategorized

The 5 Best-Performing ETFs of 2011

May 17th, 2011

The 5 Best-Performing ETFs of 2011

Despite the recent bearish effort, the stock market's still up 6% for the year. Some sectors and groups, however, are up more than others. Such outperformance begs the question: are these leading industries already over-baked, or is their current leadership an omen of what's to come?

Let's first identify the top-performing exchange-traded funds (ETFs) for the year so far, and tackle the tougher questions after that.

2011's year-to-date ETF winners
Just to clarify, leveraged funds have been removed this list of top performers, since they're more for speculators and less for buy-and-hold investors.

1. B2B Internet HOLDRs (NYSE: BHH): Of all the names that made the cut, this one may also be the most surprising. 'Business-to-business' (a nickname for the corporate-level marketplace of goods, supplies, and services) stocks like Ariba (Nasdaq: ARBA) and Internet Capital Group (Nasdaq: ICGE) – the only two names the fund holds — never really hit their enthusiasm stride again after the 2001/2002 recession. But, something is clearly lighting a fire now.

Note that owning the B2B Internet HOLDRs is essentially a play on Ariba, which makes up 90% of the fund's allocation. That may not be a bad thing though, as the decision to convert its platform from software-based to cloud-based is one stop closer to the company's goal of becoming a “Facebook for business.” With a forward-looking price-to-earnings ratio of 30.3 it's a little heavy in terms of valuation, but if last quarter's 41% increase in revenue is any indication, the company's on the right track.

2. United States Brent Oil Fund (NYSE: BNO): Why has this oil fund performed better than, say the U.S. Oil Fund (NYSE: USO)? That's because BNO is based on Brent futures, which are more popular in Europe and Asia, and more sensitive to the turmoil in the Middle East. USO is based on West Texas Intermediate oil futures, which have actually seen a bit of a delivery glut of late.

Either way, both funds are higher because oil prices have been rising, until recently. And, when oil swings, it tends to swing big. The Brent crude fund is down more than 12% for the month so far, with no help in sight.

3. Rydex S&P MidCap 400 Pure Growth (NYSE: RFG): This is nothing new — this cap/style group has been quietly leading the charge since the March-2009 bottom. Mid-sized companies have found a bit of a sweet spot in a moderate-growth environment. They're more nimble than the slower-moving large caps that aren't finding easy money in any longer, but better-funded and better-shielded than small caps. As long as economic mediocrity reigns, so too should the mid caps.

ETF, Uncategorized

Three Warning Signs of a Dangerous Dividend

May 11th, 2011

Three Warning Signs of a Dangerous Dividend

One fund is paying a tempting 11% yield. Another offers 8%. Which one should you reach for?

To answer that, you need to ask the right question.

The question is not, “How high is the yield?” Instead, it's “How secure is the dividend?” Dividend safety is far more important to total returns than yield size. I touched on this idea a few weeks ago.

World Wrestling Entertainment (NYSE: WWE) chopped its dividend by two-thirds in late April. The shares fell 9% in a day.

Alpine Total Dynamic Dividend Fund (NYSE: AOD) cut its monthly payments in half from $0.12 a share to $0.055 back in June 2010. The shares fell more than 13%.

The good news is that it is fairly easy to assess how secure payouts are — especially for income-focused funds. Here are the three warning signs to watch:

  • Return of capital
  • Undistributed net investment income (UNII)
  • Payout ratio

Return of capital — When a fund makes regular payments consisting of “return of capital,” it can be a signal of a dangerous dividend. Often, these payments are simply returns of an investors' own capital or shareholders' equity.

Funds supplement their distributions with returns of capital when investment income or gains aren't enough to maintain the dividend. In effect, the fund dips into its capital pool to keep up the dividend.

Undistributed net investment income (UNII) – Closed-end funds are required to distribute at least 90% of their taxable income each year to avoid paying corporate taxes on what's distributed. They also must pass along at least 98% of their income and net capital gains each year to avoid paying a 4% excise tax on what's distributed.

However, some managers elect not to distribute all income earned during the year and instead pay the 4% excise tax on this income. What's lost to taxes is gained in asset value, and the UNII can be used to supplement future distributions as needed.

So UNII secures the dividend and bodes well for dividend increases.

In contrast, over-distributed net investment income — when a fund distributes more than it made in a year — may be a sign of dividend danger. The statement of assets and liabilities tells you whether the fund has undistributed or over-distributed income.

Payout ratio Closed-end fund distributions typically can come from three sources: return of capital, capital gains and investment income. Of these, investment income from dividends and interest on portfolio holdings is generally the most predictable as payments are issued at regular intervals.

The payout ratio provides a handy measure of how much of the fund's distribution comes from investment income, net of expenses. The ratio provides a quick gauge of how secured the yield is by the fund's current portfolio holdings. So if a find earns $1.00 per share in net investment income and pays out $0.90, then you can quickly see the fund can cover its payments without dipping into its capital or depending on stock gains.

Action to Take –> One thing to keep in mind: I'm not saying you shouldn't look for investments with higher yields. It's just that when it comes to making a winning income investment, steady and secure dividends should be your top goal. If you keep these three items on your checklist when looking for a solid income investment, you should be on the right track.


– Carla Pasternak

P.S. — If you haven't watched, be sure to catch the webcast my colleague Daniel Moser recently put together on the power of dividend investing. For example, Philip Morris turned $10,000 into more than $460,000… thanks to a 22-year history of high and rising payments. Watch this video for more details.

Disclosure: Neither Carla Pasternak nor StreetAuthority, LLC hold positions in any securities mentioned in this article.

This article originally appeared on StreetAuthority
Author: Carla Pasternak
Three Warning Signs of a Dangerous Dividend

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Three Warning Signs of a Dangerous Dividend

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2 Stock Picks from the Best Mutual Fund on the Planet

April 19th, 2011

2 Stock Picks from the Best Mutual Fund on the Planet

Risk equals return. It's one of the most widely-held maxims in investing and, if you look at the numbers, the sentiment rings true. Stocks have returned about 9.5% a year since 1926, according to Ibbotson & Associates, clearly better than the roughly 5.5% return bonds have delivered annually during that time. And bonds have surely beaten cash, which returns nothing.

Even within one asset class such as stocks, the maxim holds true — the riskier the stock, the higher the potential return. That's surely the case if you look at the Fidelity Advisor Leveraged Company Stock Fund (Nasdaq: FLSAX), the top-performing mutual fund in the diversified U.S. category in the past 10 years according to Morningstar, returning an annual average of 15%. The fund's secret: embrace companies with plenty of debt, as their inherent riskiness leads many investors to shun them. As cash flow builds at these debt-laden firms, these companies can pay off debt, attracting investors that had shunned them previously and sending share prices higher.

Piggybacking with the pros

Fidelity's Tom Saviero has been running this fund since 2003, and though he's a bit chastened by the 2008 meltdown, he still prefers companies with ample debt loads. ON Semiconductor (Nasdaq: ONNN), which is the fund's largest holding, is a perfect example. The company just completed a major acquisition of Sanyo's Japanese semiconductor business by adding to its debt load. But the acquisition should sharply boost sales and profits for ON.

ON makes an incredibly wide range of chips that go into everything from mobile computing devices to cars. This is a semiconductor play on the broadening advances in technology, not just on one industry such as memory or microprocessors. Sanyo, which operated three major fabrication plants in Japan, could never really achieve profits in the industry and wanted out. ON, eyeing the large Japanese market, wanted in. ON's management realized it could acquire all of the legacy products, shutter a great deal of Sanyo's manufacturing capacity, and ultimately generate much better margins than Sanyo could. As analysts at DA Davidson note, “leveraging its scale, one of ON's competitive advantages has been the ability to successfully integrate strategic acquisitions of complementary semiconductor suppliers.”

The Sanyo deal represents ON's 10th acquisition in the past 10 years, and is the second-largest, at $480 million, behind a $900 million purchase of AMIS Holdings in 2007. Much of the Sanyo deal is being paid for with a loan from Sanyo — just the kind of debt leverage that the Fidelity Advisor Leveraged Company Stock Fund likes to see.

Analysts expect big things from the Sanyo deal, which could increase sales by 50%. Sanyo had operating margins below 2%, but ON thinks it can boost that figure to 10% in four to six quarters. If that happens, analysts think EPS (earnings per share) will jump from $1 this year to $1.30 in 2012. DA Davidson sees shares rising from $9.30 to $17, or 14 times their 2012 profit forecast. Needham thinks a multiple of 10 is more appropriate, and sees shares rising more modestly to $13.

A word of caution: The Japanese earthquake will hurt first quarter results, as ON has already discussed with analysts. But if the problems extend into the current quarter, then shares may stay range-bound until the acquired Sanyo operations are fully off the ground. This may explain why shares have slumped 20% in the past two months.

Housing would be a kicker

Operations at Owens-Corning (NYSE: OC), another key holding of the Fidelity fund, are already humming along right now, and with an eventual upturn in the housing market, this stock could really get going. About 2% of the fund is tied up in this company. Saviero likely appreciated this name for its balance sheet, which still carries more than $1.6 billion in debt, and

Mutual Fund, Uncategorized

2 Stock Picks from the Best Mutual Fund on the Planet

April 19th, 2011

2 Stock Picks from the Best Mutual Fund on the Planet

Risk equals return. It's one of the most widely-held maxims in investing and, if you look at the numbers, the sentiment rings true. Stocks have returned about 9.5% a year since 1926, according to Ibbotson & Associates, clearly better than the roughly 5.5% return bonds have delivered annually during that time. And bonds have surely beaten cash, which returns nothing.

Even within one asset class such as stocks, the maxim holds true — the riskier the stock, the higher the potential return. That's surely the case if you look at the Fidelity Advisor Leveraged Company Stock Fund (Nasdaq: FLSAX), the top-performing mutual fund in the diversified U.S. category in the past 10 years according to Morningstar, returning an annual average of 15%. The fund's secret: embrace companies with plenty of debt, as their inherent riskiness leads many investors to shun them. As cash flow builds at these debt-laden firms, these companies can pay off debt, attracting investors that had shunned them previously and sending share prices higher.

Piggybacking with the pros

Fidelity's Tom Saviero has been running this fund since 2003, and though he's a bit chastened by the 2008 meltdown, he still prefers companies with ample debt loads. ON Semiconductor (Nasdaq: ONNN), which is the fund's largest holding, is a perfect example. The company just completed a major acquisition of Sanyo's Japanese semiconductor business by adding to its debt load. But the acquisition should sharply boost sales and profits for ON.

ON makes an incredibly wide range of chips that go into everything from mobile computing devices to cars. This is a semiconductor play on the broadening advances in technology, not just on one industry such as memory or microprocessors. Sanyo, which operated three major fabrication plants in Japan, could never really achieve profits in the industry and wanted out. ON, eyeing the large Japanese market, wanted in. ON's management realized it could acquire all of the legacy products, shutter a great deal of Sanyo's manufacturing capacity, and ultimately generate much better margins than Sanyo could. As analysts at DA Davidson note, “leveraging its scale, one of ON's competitive advantages has been the ability to successfully integrate strategic acquisitions of complementary semiconductor suppliers.”

The Sanyo deal represents ON's 10th acquisition in the past 10 years, and is the second-largest, at $480 million, behind a $900 million purchase of AMIS Holdings in 2007. Much of the Sanyo deal is being paid for with a loan from Sanyo — just the kind of debt leverage that the Fidelity Advisor Leveraged Company Stock Fund likes to see.

Analysts expect big things from the Sanyo deal, which could increase sales by 50%. Sanyo had operating margins below 2%, but ON thinks it can boost that figure to 10% in four to six quarters. If that happens, analysts think EPS (earnings per share) will jump from $1 this year to $1.30 in 2012. DA Davidson sees shares rising from $9.30 to $17, or 14 times their 2012 profit forecast. Needham thinks a multiple of 10 is more appropriate, and sees shares rising more modestly to $13.

A word of caution: The Japanese earthquake will hurt first quarter results, as ON has already discussed with analysts. But if the problems extend into the current quarter, then shares may stay range-bound until the acquired Sanyo operations are fully off the ground. This may explain why shares have slumped 20% in the past two months.

Housing would be a kicker

Operations at Owens-Corning (NYSE: OC), another key holding of the Fidelity fund, are already humming along right now, and with an eventual upturn in the housing market, this stock could really get going. About 2% of the fund is tied up in this company. Saviero likely appreciated this name for its balance sheet, which still carries more than $1.6 billion in debt, and

Mutual Fund, Uncategorized

ETFs May Not Always Do What You Think: Example of Japan Nikkei and EWJ

April 13th, 2011

Exchange Traded Funds are gaining wide popularity for investors and traders alike, and for great reasons.  I need not trumpet the many benefits of trading or investing with ETFs.

However, I wanted to bring up a recent example of Japan and the spike in trading of the popular EWJ ETF which left a few invstors bewildered, especially if they were tracking along with Japan’s Nikkei Index.

Here – Let’s see what the assumption was and what went wrong on the chart:

First, let’s chart Japan’s Nikkei Index:

Although I’ve labeled a clean five-wave move up into the 10,800 level, I wanted to call your attention to what happened after mid-March’s earthquake/tsunami/nuclear crisis – namely the sharp rebound in the index from the 8,200 ‘panic’ low to the recent 9,800 resistance level.

Generally, traders like to play bounces from panic situations on charts – it’s a very risky reversal (or mean reversion) strategy that can pay-off quickly for those risk-seekers willing to step in front of terrible news (and terrible price falls on the chart) and buy while others across the globe are selling ferociously.

Even a move from 8,800 or 9,000 to the current 9,800 level was an 8% to 10% possible move that risk-seekers could have enjoyed a quick profit.

The 9,800 level is now seen as a critical resistance level that could spark the end of the rally and the beginning of a downturn… or from a more bullish standpoint, any firm breakthrough above 9,800 then 10,000  ups the odds that the Nikkei will re-test the prior highs.

But I’m getting ahead of myself.

Say you called the bounce correctly and sought to profit from it using the popular EWJ (iShares MSCI Japan index), you might have been surprised with an unexpected recent loss as the EWJ share price declined while the Nikkei remained at resistance.

This is the EWJ recent chart:

First, the EWJ did not have the clean 5-wave stair-step pattern up as the Nikkei did.  The EWJ took a more straight-line rally with almost non-existent retracements to the rising moving averages.

Second, and more significant – though the EWJ fund bounced up off the mid-March panic low (again allowing profit from aggressive/quick traders), the fund also retraced into resistance (this time the 20d EMA) but then took a sharp dive over the last two weeks while the Nikkei remained poised under its resistance level.

That meant that if EWJ traders didn’t exit their aggressive ‘mean reversion’ swing trade into the $10.60 level, their profits quickly diminished as price fell from this level – unlike the Nikkei which flat-lined at resistance.

Keep in mind, however, that the EWJ is NOT tied to the Nikkei Index, but instead to the MSCI Japan Index Fund (link via Yahoo Finance).

This is another example of how important it is to take a few extra minutes to read information on ETF structure along with composition and goals, else you could wind up with different trading (or investing) results than you intended, even though your trade thesis/logic was ultimately correct.

Also, overseas ETFs may be subject to effects from currency fluctuations (particularly the recent volatility in the Yen) moreso than ETFs based on US Indexes or Sectors.  But that’s another issue.

ETFs are a great tool to play macro-events, particularly in countries, currencies, and commodities without using the FOREX or Futures market, but always take a moment to read what the ETF is, what it seeks to accomplish, and what goals the fund seeks to accomplish (or what index the fund tracks).

Otherwise, you could get your analysis correct, but still not profit the full amount due to factors about the ETF you selected to trade.

Corey Rosenbloom, CMT
Afraid to Trade.com

Follow Corey on Twitter:  http://twitter.com/afraidtotrade

Corey’s new book The Complete Trading Course (Wiley Finance) is now available!

Read more here:
ETFs May Not Always Do What You Think: Example of Japan Nikkei and EWJ

Commodities, ETF, Uncategorized

ETFs May Not Always Do What You Think: Example of Japan Nikkei and EWJ

April 13th, 2011

Exchange Traded Funds are gaining wide popularity for investors and traders alike, and for great reasons.  I need not trumpet the many benefits of trading or investing with ETFs.

However, I wanted to bring up a recent example of Japan and the spike in trading of the popular EWJ ETF which left a few invstors bewildered, especially if they were tracking along with Japan’s Nikkei Index.

Here – Let’s see what the assumption was and what went wrong on the chart:

First, let’s chart Japan’s Nikkei Index:

Although I’ve labeled a clean five-wave move up into the 10,800 level, I wanted to call your attention to what happened after mid-March’s earthquake/tsunami/nuclear crisis – namely the sharp rebound in the index from the 8,200 ‘panic’ low to the recent 9,800 resistance level.

Generally, traders like to play bounces from panic situations on charts – it’s a very risky reversal (or mean reversion) strategy that can pay-off quickly for those risk-seekers willing to step in front of terrible news (and terrible price falls on the chart) and buy while others across the globe are selling ferociously.

Even a move from 8,800 or 9,000 to the current 9,800 level was an 8% to 10% possible move that risk-seekers could have enjoyed a quick profit.

The 9,800 level is now seen as a critical resistance level that could spark the end of the rally and the beginning of a downturn… or from a more bullish standpoint, any firm breakthrough above 9,800 then 10,000  ups the odds that the Nikkei will re-test the prior highs.

But I’m getting ahead of myself.

Say you called the bounce correctly and sought to profit from it using the popular EWJ (iShares MSCI Japan index), you might have been surprised with an unexpected recent loss as the EWJ share price declined while the Nikkei remained at resistance.

This is the EWJ recent chart:

First, the EWJ did not have the clean 5-wave stair-step pattern up as the Nikkei did.  The EWJ took a more straight-line rally with almost non-existent retracements to the rising moving averages.

Second, and more significant – though the EWJ fund bounced up off the mid-March panic low (again allowing profit from aggressive/quick traders), the fund also retraced into resistance (this time the 20d EMA) but then took a sharp dive over the last two weeks while the Nikkei remained poised under its resistance level.

That meant that if EWJ traders didn’t exit their aggressive ‘mean reversion’ swing trade into the $10.60 level, their profits quickly diminished as price fell from this level – unlike the Nikkei which flat-lined at resistance.

Keep in mind, however, that the EWJ is NOT tied to the Nikkei Index, but instead to the MSCI Japan Index Fund (link via Yahoo Finance).

This is another example of how important it is to take a few extra minutes to read information on ETF structure along with composition and goals, else you could wind up with different trading (or investing) results than you intended, even though your trade thesis/logic was ultimately correct.

Also, overseas ETFs may be subject to effects from currency fluctuations (particularly the recent volatility in the Yen) moreso than ETFs based on US Indexes or Sectors.  But that’s another issue.

ETFs are a great tool to play macro-events, particularly in countries, currencies, and commodities without using the FOREX or Futures market, but always take a moment to read what the ETF is, what it seeks to accomplish, and what goals the fund seeks to accomplish (or what index the fund tracks).

Otherwise, you could get your analysis correct, but still not profit the full amount due to factors about the ETF you selected to trade.

Corey Rosenbloom, CMT
Afraid to Trade.com

Follow Corey on Twitter:  http://twitter.com/afraidtotrade

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ETFs May Not Always Do What You Think: Example of Japan Nikkei and EWJ

Commodities, ETF, Uncategorized

The Trend Is Your Friend

April 5th, 2011

Taking a look at recent trends can be a good way to get a feel for market direction and identify   Electronically Traded Funds (ETFs) that are poised to take advantage of the anticipated market moves. Here are two ETFs that I expect will perform very well in the current environment.

Pick #1:  Powershares DB Commodity Index Tracking Fund (DBC)

This fund is composed of futures contracts on 14 of the most heavily-traded and important physical commodities in the world.

This fund is energy-heavy, which will work in its favor in the current environment. The price of West Texas Intermediate (WTI) crude has blasted through overhead resistance. The next overhead resistance for WTI crude is $122.  Oil could run higher.  DBC also lets you enjoy the generally inflationary trend in commodities of all stripes.


My price target on the DBC is $37 in the next 6 months.

Pick #2:  The ProShares Ultra Oil & Gas Fund (DIG)

The DiG tries to track twice (200%) the daily performance of the Dow Jones U.S. Oil & Gas Index. Components of that index include oil drilling equipment and services, coal, oil companies-major, oil companies-secondary, pipelines, liquid, solid or gas fossil fuel producers and service companies.

The companies that make up this fund should make a killing at current oil levels, and should continue to rake in a fortune even if crude oil pulls back to test support at $96 a barrel.


After looking at the trends, I think DIG is going to $86.

In today’s market, we all know anything can happen, but watching the trends and understanding the goals of the investment fund can help identify smart investment moves to  make now.  Without a doubt, the ETFs I’ve mentioned today are structured and trending to perform  in the near-term market environment.  We’ll continue to keep you informed as we identify other ETF commodity opportunities.

Sean Brodrick is a natural resources expert and editor of Crisis Profit Hunter, a monthly newsletter with a primary mission to help you profit from crisis situations and other dynamic forces affecting the global economy. Commodities and dividend-paying stocks are central to his approach, and he also delivers practical advice for uncertain economic times. For more information on Crisis Profit Hunter, click here.

Sean is also the editor of Red-Hot Global Resources, a weekly newsletter that aims to help you rack up profits with commodity-focused exchange-traded funds (ETFs) and natural resource-sensitive stocks that operate around the world. For more information on Red-Hot Global Resources, click here.

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The Trend Is Your Friend

Commodities, ETF, Mutual Fund, Uncategorized

Major Moves Mar: Active ETFs Assets Jump 20% To Cross $4bn

April 1st, 2011

March was a shaky month for the markets, with the equity markets dipping and then rebounding just as quickly to end the month nearly even. The Nasdaq Composite was at one point more than 6% off its February end close, before bouncing strongly to close the month down only 0.63%. The S&P500 and Dow Jones Industrial were able to recover enough to end slightly up for the month.

The active ETF space saw some interesting developments during the month as well. March saw the launch of one more new actively-managed ETF from WisdomTree, the Asia Local Debt Fund (ALD: 50.98 0.00%), which became the 12th active ETF from WisdomTree to hit the market. PIMCO also made the headlines as its premier active ETF, the Enhanced Short Maturity Fund (MINT: 100.93 0.00%), got some spotlight by crossing an important landmark to join the billion-dollar club. Another important development during the month was BlackRock iShares receiving SEC approval to launch actively-managed ETFs in the US. iShares had a pending filing with the SEC requesting exemptive relief to launch two active ETFs, one an equity focused fund and another a fixed-income fund. If iShares takes advantage of the approval and moves ahead to bring its own active ETFs to market, it could give the entire active ETF space a big push forward thanks to the marketing prowess of the world’s largest ETF issuer.

Despite the strong percentage growth in active ETF assets month-on-month, the absolute amount of investors assets held by active ETFs is still paltry compared to the broader trillion-dollar ETF industry. We explore three big hurdles that continue to hold back actively-managed ETFs.

Fund Flows:

(Click table to enlarge)

Active ETF assets in the US jumped by 20% in March to cross the $4 billion mark, ending the month strong at $4.2bn in assets. Unlike other months, the gains were quite well spread out and came from many different funds and issuers.

AdvisorShares appears to have found a “blockbuster” fund in its Cambria Global Tactical ETF (GTAA: 26.21 0.00%) which has rocketed to $145mn in assets since its launch in Oct 2010. This puts GTAA a fair distance ahead of any other fund from AdvisorShares, in terms of assets. GTAA is managed by Mebane Faber and Eric Richardson, both authors of popular book The Ivy Portfolio. AdvisorShares earlier launches though appear to have stagnated and some actually appear to be losing assets. Assets managed by the Mars Hill Global Relative Value Fund (GRV: 22.36 0.00%) have dropped drastically from $43mn in Nov 2010 to under $18mn at the end of this month. Cumulatively though, AdvisorShares now manages in excess of $250mn in assets as it continues its success as a platform for managers to launch active ETFs.

As mentioned above, PIMCO’s MINT also crossed the $1bn mark during March and closed the month close to $1.2bn in assets. Investors have clearly warmed up to well to this money-market alternative, thanks to its relative outperformance versus other money market funds and also thanks to the strong brand name of PIMCO behind the fund.

WisdomTree also saw encouraging investor response for its recent new launches. The Emerging Local Debt Fund (ELD: 51.91 0.00%) has continued to gather investor assets relentlessly, crossing the $700mn mark to become the second largest active ETF in the US. At this rate, ELD should become the second to join the billion dollar club in a few months. It’s recently launched funds – the Managed Futures Strategy Fund (WDTI: 52.10 0.00%) and the Dreyfus Commodity Currency Fund (CCX: 26.85 0.00%) – also continued to impress, with WDTI gaining another $30mn in assets and CCX ending the month at $131mn. Its latest launch, the Asia Local Debt Fund (ALD: 50.98 0.00%), hit the market on March 17th and has been quick to attract interest with the fund having gathered $173mn in assets in no time.

For a complete listing of actively-managed ETFs, head to our Active ETFs Database.

(Click table to enlarge)

In Canada, Horizons AlphaPro launched another new fund called the Enhanced Income Equity ETF (HEX), which designs a portfolio of equally-weighted Canadian large caps, combined with a covered call writing program to generate income. AlphaPro’s assets have now gone beyond the $500mn mark, however, assets continue to be concentrated in its Corporate Bond Fund (HAB), which has in excess of $300mn in assets.

New Entrants, Filings and Closures:

1. AdvisorShares details Meidell Tactical Advantage ETF (MATH) – direct link

2. Russell withdraws active ETF application, terminates trust – direct link

ETF

IN FOCUS: Peritus High Yield ETF (HYLD)

March 31st, 2011

Launch Date: November 30, 2010

Links: Website, Factsheet, Prospectus

Investment Strategy:

HYLD is an actively-managed ETF that aims to generate high current income with capital appreciation being a secondary goal. The fund achieves this through investments in high yield debt securities which provide good yields on principal. The fund is sub-advised by Peritus Asset Management which takes a “value-based, active credit approach” to selecting investments in the high yield market. The managers intentionally avoid the new issue market and focus on finding opportunities in the secondary market. The managers also have the flexibility to utilize US Treasuries as a way to hedge the portfolio during times of market stress.

As of March 20th, the portfolio was very well diversified across sectors with allocations to high yield bonds across 20 sectors in all. The largest allocation was a 14% weight to the Oil & Gas sector. The largest allocation to an individual bond was 5.22% to United Refining bond maturing in 2018, yielding 10.5%. Given the generally higher yields within the junk bond space, it doesn’t come as a surprise that the SEC yield is high at 7.44%. The average duration of the fund was about 3 years.

Portfolio Managers:

Peritus Asset Management serves as the sub-advisor to HYLD. The portfolio managers making the day-to-day decisions are:

Timothy Gramatovich, Chief Investment Officer – Mr. Gramatovich is the co-founder of Peritus and has been involved in the high yield space for 25 years.

Ronald Heller, CEO & Senior Portfolio Manager – Mr. Heller is the co-founder of Peritus and oversees the portfolio management and trading activities.

The Numbers:

Net Expense Ratio – 1.35% (with a fee waiver of 0.02%)

Market Cap – $23.4 million

Average Daily Volume –  5,515 shares

What’s special about it?

1. There are already several index ETFs that provide investors with passive exposure to the high yield space, such as the iShares iBoxx $ High Yield Corporate Bond Fund (HYG) and the SPDR Barclays Capital High Yield Bond ETF (JNK). However, HYLD will be the first ETF to provide exposure through an actively-managed fund. The high yield space is definitely one where there is a lot of potential value add that can be derived through active management, given the wide disparity in credit quality amongst issuers.

2. Having the ability to increase allocation to US Treasuries also provides the fund managers with a tool to manage downside risk. High yield bonds are definitely one of the riskier and more volatile asset classes which tends to get hit hard during market downturns. In those situations, having the ability to reduce exposure to the high yield space in an active fund can be crucial.

Performance:

The Active Bear ETF has only been on the market for 4 months, a period too short to make a fair assessment of an active manager. The fund is benchmarked to the Barclays US High Yield Index. The 4 month performance chart below compares the market price performance of HYLD to its index counterparts, HYG and JNK, which provide passive exposure to the high yield space. Taking the yield component into account, HYLD has a 30-day SEC yield of 7.44%, compared to 6.31% for HYG and 6.56% for JNK.

The prospectus provides a longer performance history for a composite of funds that are managed by Peritus according to a mandate similar to HYLD. The Peritus High Yield Composite, as of Dec 31, 2009, had returned 85% over the previous 1 year, while the Barclays Capital US High Yield Index returned 58%. Since inception in 2000, the composite has returned 10.38% versus 8.21% for the index.

Analysis:

Positives –

- As mentioned, the ability to apply discretion to the selection of high yield bonds is quite valuable in this space as the credit quality of junk bond issuers can vary significantly. As such, holding a portfolio supported by some credit research would appear to better off than having exposure to every bond in an high yield index. In the case of HYLD, the benefits of active management seem to show up in the fund’s outperformance.

Negatives –

- The portfolio still has a relatively short performance history and given that the fund only launched in Nov 2010, investors do not yet have a sense of how the managers and the portfolio will perform in more difficult market environments when high yield bonds tend to suffer the most.

- The daily trading volume in HYLD and the current asset base of $23 million is not very encouraging for new investors. Investors do not need to worry about significant price impact if they want to trade a large block of shares, since the ETF’s market maker has the ability to create or redeem shares. However, due to the low volume, investors might face a higher than normal bid-ask spread.

ETF

This Fund Is Up 50%, But Could Rally For Years to Come

March 24th, 2011

This Fund Is Up 50%, But Could Rally For Years to Come

You've no doubt heard plenty as to why commodities are going through the roof. Yes, turmoil in the Middle East plays a part. As does a weakening U.S. dollar.

But perhaps the underlying catalyst in the commodities pits is China. The nation's $5 trillion economy is 90 times bigger than it was when economic reforms took place in 1978.

Major industrial hubs like Shenzhen (which has 25,000 manufacturing facilities) deserve much of the credit. China is the world's largest exporter, shipping out huge quantities of toys, electronics, apparel, automobiles and other products. The country accounts for nearly one-fifth of the world's manufacturing activity.

But before you can make a finished good, you have to start with raw materials. You can't assemble cars without steel — and you can't make steel without coal or iron ore. But these basic building blocks are in relatively short supply.

China devours more than half of the world's iron ore supply each year and two-thirds of its metallurgical coal. But the list certainly doesn't end there.

Production of copper, for example, can't be turned on and off like tap water. There just aren't many new projects that can be brought online quickly, and existing mines often run at 100% capacity.

China also consumes more than one-third of global copper supplies and nearly 40% of the world's aluminum. And it has an appetite for oil — about 9.4 million barrels a day and rising.

Efforts to clamp down on inflation may temper demand, but the impact will be short-lived. There is little that can halt China's inevitable rise. By some estimates, construction activity in Beijing alone is greater than that in all of Europe.

The country can't support its own weight, so it's meeting the deficit by importing iron ore from Brazil, coal from Australia, nickel from the Philippines, and bauxite (for aluminum) from Indonesia.

And let's not forget that China isn't the only country fighting for a limited supply of these backbone raw materials — India is another hungry consumer. The massive infrastructure boom taking place there will require huge amounts of steel and other building blocks.

There will be ebbs and flows in demand. And China won't always grow at double-digit rates. But the global economy simply can't function without the basic materials and hard assets being consumed at a ever-greater pace.

I found the easiest way for individual investors to profit is with a fund. The world's supplies of most real assets are controlled by a surprisingly small group of companies. One fund can let you basically buy them all.

For example, BlackRock Real Asset Equity Trust's (NYSE: BCF) $770 million portfolio is geared primarily to the metals and mining sector. You won't find any second-rate companies watering down results. The fund targets major players such as Brazil's Vale (NYSE: VALE), South Africa's Impala Platinum (OTC: IMPUY.PK), and Russian conglomerate MMC Norilsk.

Metal/mining heavyweights soak up about 45% of the fund's assets. Another 30% of the portfolio is devoted to energy producers like Arch Coal (NYSE: ACI) and PetroChina (NYSE: PTR), as well as the supporting cast of equipment service providers. The remainder is split between chemicals and forestry products.

Action to Take –>

Commodities, Uncategorized

This Fund Is Up 50%, But Could Rally For Years to Come

March 24th, 2011

This Fund Is Up 50%, But Could Rally For Years to Come

You've no doubt heard plenty as to why commodities are going through the roof. Yes, turmoil in the Middle East plays a part. As does a weakening U.S. dollar.

But perhaps the underlying catalyst in the commodities pits is China. The nation's $5 trillion economy is 90 times bigger than it was when economic reforms took place in 1978.

Major industrial hubs like Shenzhen (which has 25,000 manufacturing facilities) deserve much of the credit. China is the world's largest exporter, shipping out huge quantities of toys, electronics, apparel, automobiles and other products. The country accounts for nearly one-fifth of the world's manufacturing activity.

But before you can make a finished good, you have to start with raw materials. You can't assemble cars without steel — and you can't make steel without coal or iron ore. But these basic building blocks are in relatively short supply.

China devours more than half of the world's iron ore supply each year and two-thirds of its metallurgical coal. But the list certainly doesn't end there.

Production of copper, for example, can't be turned on and off like tap water. There just aren't many new projects that can be brought online quickly, and existing mines often run at 100% capacity.

China also consumes more than one-third of global copper supplies and nearly 40% of the world's aluminum. And it has an appetite for oil — about 9.4 million barrels a day and rising.

Efforts to clamp down on inflation may temper demand, but the impact will be short-lived. There is little that can halt China's inevitable rise. By some estimates, construction activity in Beijing alone is greater than that in all of Europe.

The country can't support its own weight, so it's meeting the deficit by importing iron ore from Brazil, coal from Australia, nickel from the Philippines, and bauxite (for aluminum) from Indonesia.

And let's not forget that China isn't the only country fighting for a limited supply of these backbone raw materials — India is another hungry consumer. The massive infrastructure boom taking place there will require huge amounts of steel and other building blocks.

There will be ebbs and flows in demand. And China won't always grow at double-digit rates. But the global economy simply can't function without the basic materials and hard assets being consumed at a ever-greater pace.

I found the easiest way for individual investors to profit is with a fund. The world's supplies of most real assets are controlled by a surprisingly small group of companies. One fund can let you basically buy them all.

For example, BlackRock Real Asset Equity Trust's (NYSE: BCF) $770 million portfolio is geared primarily to the metals and mining sector. You won't find any second-rate companies watering down results. The fund targets major players such as Brazil's Vale (NYSE: VALE), South Africa's Impala Platinum (OTC: IMPUY.PK), and Russian conglomerate MMC Norilsk.

Metal/mining heavyweights soak up about 45% of the fund's assets. Another 30% of the portfolio is devoted to energy producers like Arch Coal (NYSE: ACI) and PetroChina (NYSE: PTR), as well as the supporting cast of equipment service providers. The remainder is split between chemicals and forestry products.

Action to Take –>

Commodities, Uncategorized

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