ETF Exchange Traded Funds
What Is An Exchange Traded Fund?
An exchange-traded fund or ETF is an investment vehicle traded on stock exchanges, much like stocks or bonds. An ETF holds assets such as stocks, bonds, or futures. Institutional investors can redeem large blocks of shares of the ETF (known as "creation units") for a "basket" of the underlying assets or, alternately, exchange the underlying assets for creation units. This creation and redemption of shares enables institutions to engage in arbitrage and causes the value of the ETF to approximate the net asset value of the underlying assets. Most ETFs track an index, such as the Dow Jones Industrial Average or the S&P 500.
An ETF is Like a Mutual Fund and a Closed End Fund
An ETF combines the valuation feature of a mutual fund or unit investment trust, which can be purchased or redeemed at the end of each trading day for its net asset value, with the tradability feature of a closed-end fund, which trades throughout the trading day at prices that may be substantially more or less than its net asset value. Closed-end funds are not considered to be exchange-traded funds, even though they are funds and are traded on an exchange. ETFs have been available in the US since 1993 and in Europe since 1999. ETFs traditionally have been index funds, but in 2008 the U.S. Securities and Exchange Commission began to authorize the creation of actively-managed ETFs.
April 22, 2014 - Top Ranked Energy ETFs and Stocks Set to Roar Higher by Zacks Investment Research
The energy sector has been performing remarkably well this year, especially following the geopolitical tensions in Russia, and is clearly outpacing the broad market indices. Further, the current demand/supply dynamics suggest higher oil prices, and in turn soaring prices for energy stocks and the related ETFs.
Russia Threatens Oil Supply
The situation in Russia is getting worse as the Ukrainian regime calls for military buildup against Russia on one hand, and the U.S. and European Union are looking for more tough sanctions against the country on the other if the crisis escalates further. This is especially true given that at least three pro-Russian militants were killed in the gun battle near the volatile eastern Ukrainian town of Slavyansk on Sunday.
Since Russia is a huge supplier of both natural gas and oil, Western Europe and other markets are heavily dependent on Russian production to fuel their economies. If the crisis escalates or European Union hits Russia with more sanctions then the latter could keep European markets away from its vast oil and natural gas supplies. This will result in higher oil prices, pushing Western Europe in search of other markets to meet their energy needs.
Encouraging Demand/Supply Trends
Though oil production in the U.S., the largest oil consumer, reached its highest levels in 24 years thanks to new hydraulic fracturing (fracking) methods and a boom in unconventional oil production, output in other countries is showing signs of waning. The civil unrest and operational issues in Libya and Iraq, reduced supplies in Saudi Arabia, and repairs and maintenance in Kazakhstan oil fields would take a toll on total oil supply going forward in addition to Russia’s reduced output.
As a result, non-OPEC supply is expected to fall by 0.25 million barrels per day this year to 29.8 million barrels per day, as per the International Energy Agency (IEA). The agency also expects global demand to rise a modest 1.5% to 92.7 million barrels per day this year. Most of the demand is expected to come from volatile emerging markets.
Moreover, the oil and energy industry currently has a Zacks Industry Rank in the top 38%, suggesting a bullish outlook for the broad sector. So the overall sector is looking quite promising at present, especially given some of the weakness in many of the high-flying names in other key sectors such as biotech and technology.
Fortunately, there are a few top ranked picks in this corner of the market, and we have described some below. Any of these could enjoy smooth trading and lead the market higher in Q2:
Top Energy ETFs
iShares U.S. Oil & Gas Exploration & Production ETF (IEO)
This ETF tracks the Dow Jones U.S. Select Oil Exploration & Production Index and holds 77 securities in its basket. The fund has $468.6 million in its AUM and trades in good volume of nearly 111,000 shares per day. It charges 46 bps in annual fees and expenses.
The product is heavily concentrated on the top firm – ConocoPhillips (COP) – at 12.9% while EOG Resources (EOG), Anadarko Petroleum (APC) and Phillips 66 (PSX) round off to the next three spots with combined 21.5% of assets. In terms of industrial exposure, exploration and production takes the top position at 70.60% while integrated oil & gas takes the remainder.
The fund added about 10% so far this year and has a Zacks ETF Rank of 1 or ‘Strong Buy’ rating with a ‘High’ risk outlook.
PowerShares DWA Energy Momentum Portfolio (PXI)
This fund provides exposure to 34 energy stocks having positive relative strength (momentum) characteristics by tracking the DWA Energy Technical Leaders Index. It has accumulated $203 million in its asset base and trades in small volume of about 24,000 shares per day. Expense ratio came in at 0.66%.
The ETF is somewhat concentrated on the top 10 holdings at over 44% with the largest allocation going to Cheniere Energy (LNG) and Continental Resources (CLR). From a sector look, three-fourths of the portfolio is tilted toward oil, gas & consumable fuels while energy, equipment and services make up for the remainder.
PXI is up 8.6% in the year-to-date time frame and has a Zacks ETF Rank of 2 or ‘Buy’ rating with a ‘High’ risk outlook.
Top Energy Stocks:
Sprague Resources LP (SRLP)
Investors looking for a concentrated play on a particular company in the energy industry could consider SRLP. This company is one of the largest independent suppliers of energy and materials handling services in the Northeast. Its products include home heating oil, diesel fuels, residual fuels, gasoline and natural gas.
SRLP has seen solid earnings estimate revisions for both the current quarter and the current year over the past month as about more than 50% of the analysts revised their estimates upward. In fact, over the past one month, the consensus estimate for the current quarter has risen from 4 cents per share to 6 cents per share while the current year estimates climbed from $1.47 per share to $1.61 per share. This suggests that a bright future is ahead for this company.
Sprague currently has a Zacks Rank #2 (Buy), meaning it could be primed for more growth in the months ahead.
Targa Resources Corp. (TRGP)
For a slightly different play on the energy segment, investors should consider TRGP. This company primarily supplies midstream natural gas and natural gas liquid services in the United States.
TRGP has also seen rising earnings estimates with about 40% of the analysts increasing earnings estimate for the current quarter and the current year over the past 30 days. The consensus estimate for the current quarter and current year stood at 61 cents and $2.71 per share, respectively (read: 3 Oil ETFs Stand Out on Russian Tensions).
This is up from 56 cents for the current quarter and $2.25 per share for the current year over the last 30 days. Further, the estimates represent a whopping year-over-year growth of 69.4% and 74.7% for this quarter and the year, respectively. This suggests the company’s incredible potential to grow in the coming months. Further, Targa currently has a Zacks Rank #2 (Buy), underscoring the company’s solid position.
Markets have been choppy of late as soft global economic fundamentals, stretched valuations and earnings warnings dampened investor mood. In light of this, it might be time to focus on a sector that is seeing rising earnings estimates, and is well positioned to benefit from the current geopolitical pressures.
Energy companies certainly poised to benefit from this scenario and any of the aforementioned picks could be solid choices to play this trend given the uncertain market environment.
March 26, 2014 - Guide to Internet ETFs by Zacks Investment Research
Though technology stocks have shown a nice comeback with most stocks gaining strongly starting this year, the sector has been hit lately as investors are dumping stocks due to profit taking and concerns over the Ukraine crisis.
Further, the technology stocks look expensive at current levels and the prospect of faster-than-expected monetary tightening in the recent FOMC meeting has compelled investors to pull out capital from this high growth and high beta sector.
Currently, Internet is lagging the broad tech sector as most of the stocks, such as Facebook (FB), Twitter (TWTR), Netflix (NFLX), Yahoo (YHOO), Amazon (AMZN) and Linkedln (LNKD), have plummeted double digits from their recent record levels, primarily thanks to lofty valuation.
Further, five of the six Zacks Industries that are classified as being in the Internet have negative outlook at present, suggesting rough trading for this segment in the coming days. Though the near-term outlook is disappointing, long-term trends in the Internet space appear promising.
This is especially true, as this corner of the broad technology space has enjoyed a strong rally over the past five years, gaining more than 300%. This trend is likely to continue this year thanks to growing Internet usage, rising global IT spending, improving overseas demand, technology innovation and surging popularity of e-commerce that will likely drive this space to the new age.
Given this, risk tolerant long-term investors may want to consider this recent slump a buying opportunity, should they have the patience for extreme volatility. For those investors, we have highlighted two Internet ETFs that could be excellent picks given that the duo has a Zacks ETF Rank of 2 or ‘Buy’ rating, suggesting that it will likely outperform the broad market index over a one-year period.
First Trust Dow Jones Internet Index (FDN)
This is one of the most popular and liquid ETFs in the broad tech space with AUM of nearly $2.3 billion and average daily volume of more than 387,000 shares. The fund tracks the Dow Jones Internet Composite Index and charges 57 bps in fees per year.
In total, the fund holds a small basket of 41 securities with Google as the top firm with 10.04% of assets. Amazon and Facebook occupy the next two positions at 7.30% and 6.57%, respectively. The fund is tilted toward large caps at 62% while mid and small caps take the reminder. Also, the ETF puts more focus on growth stocks with 75% share.
From a sector look, Internet mobile applications account for more than half of the portfolio while Internet retail and software & programing receive double-digit exposure. The ETF lost nearly 6% over the past one month.
PowerShares Nasdaq Internet Portfolio (PNQI)
This fund follows the Nasdaq Internet Index, giving investors exposure to the largest and liquid stocks in the broad Internet industry. The ETF holds 99 stocks in its basket with AUM of $390.8 million while charging 60 bps in fees per year. PNQI trades in moderate volume of less than 80,000 shares a day.
In terms of holdings, Amazon (AMZN), eBay (EBAY) and Google (GOOG) occupy the top three holdings with 8% of assets each. The fund is titled toward large cap and growth stocks, as these make up for respectively three-fifths and three-fourths of the portfolio.
In terms of industrial exposure, Internet mobile applications make up for about 69% of assets, followed by Internet retail and software & programing. PNQI is down over 6% over the past one month.
China Internet Market is Also Booming
Though Internet penetration is very low in China compared to the U.S., awareness and importance of the Internet is spreading rapidly among the Chinese. This is primarily thanks to surging demand for e-retail, growing broadband usage and technological advancements. Further, people are embracing e-commerce activities and PC sales are increasing, thereby fueling growth in this space.
In order to tap this rapidly growing Chinese Internet market, investors have only one option at their disposal – KraneShares CSI China Internet Fund (KWEB). This ETF provides concentrated exposure to the Chinese Internet market by tracking the CSI China Overseas Internet Index.
The product has newly debuted in the China ETF space, having amassed an impressive $78.2 million in AUM in just eight months. Holding 28 stocks, the product allocates a combined 26.14% of assets to Tencet Holdings (TCEHY), QIHO 360 Technology (QIHU) and Baidu.com (BIDU).
The fund is slightly expensive, charging 68 bps in fees per year. Additionally, it trades in a moderate volume of over 58,000 shares a day, ensuring extra cost in the form of bid/ask spread. KWEB added just 0.6% in the past one month.
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