Each week, I like to publish the past week's hottest ETFs to share some new trends and niche ETFs out there and give investors some new investing/diversification ideas. For this week, Financials picked up steam again and we saw an incredible move in the new Case-Shiller Home Price ETF that while completely disconnected from reality, earned a nice 42% move for investors savvy enough to pick the inflection point. This coincided with a rally in Treasuries, slamming the "Short Treasury ETF" play that was so prevalent early in the year.
UMM - MACROSHARES MAJOR METRO HOUSING UP - Up 42% - This is a rather unorthodox ETF that while imperfect, acts as the most representative measure of the US housing market. Basically, since the home price numbers looked good last week, the ETF rallied, but it tends to trade at premiums/discounts to the actual index, which adds some near term uncertainty and volatility to both the long and short ETFs. UMM has been on fire for a few weeks now, up 90% since July 10.
TMF - Direxion 3X Long 30 year Treasury Up 13% - A few months back, shorting Treasuries seemed like surefire way to capture the optimal risk-adjusted return - since Treasuries really couldn't run much higher with yields approaching zero - and some short dated maturities actually fetching negative yields! Well, that strategy has sputtered out and is reversing near term. From here, it's like volatility both ways and the easy money appears to have been made. Recall that leveraged ETFs pose risks that aren't immediately intuitive due to daily rebalancing and degradation of value over time - see this article on Leveraged ETF Risks to understand why these are only suitable for a near term trade (sometimes!) and never suitable for a long term hold.
FAS - Direxion Financial Bull 3X Shares - Up 12% - You can always count on having either FAS (triple long) or FAZ (triple short) Financials on the list given the volatility in the Financial sector. Financials have fared quite well recently given strong results from some of the major investment firms. FAS is up over 50% since mid-July. While near term, the prospects for financials appear to be improving, it is evident from the recent Top 10 Best Degrees survey that Wall Street simply isn't hiring right now. So, it remains to be seen as to whether the improvement continues and Wall Street can return to its prior business models, strength and clout, or whether the recent rally is simply a sigh of relief that the firms that comprise the index have simply survived.
DRN - Direxion Daily Real Estate 3x - Up 12% - Obviously, the Case-Shiller numbers looking like a possible inflection point for the majority of real estate markets, homebuilders rallied last week. This ETF has a relatively short history and is up close to 30% since launch in July.
PKOL - PowerShares Global Coal Portfolio - Up 10% -For another non-leveraged ETF, this coal-oriented ETF rallied double digits last week as well, now up 85% YTD vs. a gain of 9% for the S&P500. With oil showing some strength and other economic and political factors at play, coal is hot. It is not a straight coal commodity play, but rather, holds companies that are primarily engaged in the exploration and mining of coal, so it the best proxy for the underlying coal price.
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I've been watching some of the Swine Flu Stocks I initially covered right when the first cases were identified with a mixture of a) disbelief in the volatility and gains on little fundamental substance contrasted with b) envy that I didn't pick the right one(s) and let 'em ride.
Novavax: If we take Novavax as an example, I had highlighted here in this Novavax CEO interview article that while the stock had rallied coming off the breaking news, much of it seemed to be based on hype and I postulated that the large pharmas with the existing capacity and approved technologies would likely get the lionshare of the tenders for vaccines. Following my post on 4/30, shares dipped as much as 40% within weeks and unfortunately, I didn't play it right and make any money on the call. However, subsequently, shares are now up 34% vs. the S&P rally of 15% even inclusive of that dip. For a high Beta stock like this, perhaps not to be unexpected even in lieu of any Swine Flu news, but not too shabby either.
Some Other "Swine Flu Stocks" over the prior 3 month period:
- AVII is up 152%
- BCRX is up 157%
- VICL is up 59%
- DVAX is up 59%
- SVA is up 79%
My calls that still stand:
a) Most of these "swine flu stocks" will not be able to retain their gains once the dust has settled.
b) Some will continue to run due to a large tender award here and there (if there isn't enough capacity to go around from large pharma, some of these smaller players will inevitably get some tenders)
c) Anyone making predictions on just how virulent and contagious the swine flu will become this fall doesn't know what they're talking about - anything can happen.
d) The revenues derived by the large pharmas like GSK will likely not see a meaningful impact to their bottom line (above and beyond what is already baked in to committed orders) given the relative small impact to revenues - and vaccines in general are a low margin business compared to small molecule products sold in massive scale like typical blockbusters.
Swine Flu Investing Idea
Rather than throwing money after individual stocks which are subject to massive volatility, perhaps consider some speculative cash going toward several cheap way out of the money call options on multiple stocks. If just one or two of them hit, the gains of Thousands % on the couple options that hit will more than offset the inevitable declines/losses you'll see in expired options that didn't go anywhere. I wouldn't advise LEAPS or waiting until January expiry. I think it will be quite evident by the Nov time period both how severe the pandemic becomes and also, how effective/available the existing supplies of vaccines are. If things go well, expect options to expire worthless and your speculative play lost 100%. If things don't go so well on any of multiple fronts, at least some of these shares could continue to see triple digit rallies, sending options returns into the 4-digit realm easily given the leverage employed and low starting share/strike prices.
What are your favorite Swine Flu Stocks, Ideas and Forecasts?
Disclosure: No position in any of the aforementioned stocks.
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I received my property tax bill the other day and noticed the usual due date and amount owed, along with the option to pay 2 months early with a discounted price and a late payment penalty as well. While the net dollar amount may not seem like much on either end, it's the decisions around these little discounts and additional fees that people make everyday decisions on that dictate at the end of the year whether you've saved money (and potentially invested or utilized on something of value) or threw it away to the tune of thousands of dollars per year.
While tax bills may range from the low thousands in a low tax state like North Carolina or the midwest to $15,000 per year in New Jersey/New York or another coastal hotspot, in the states I've lived in, I've seen the same concept of discount/penalty arrangement on tax bills. Following my recent refinance (where I got an incredible 4.625% mortgage rate by the way), I opted to pay my own tax bill rather than have the banks earn money on my escrow account year over year.
Let's assume a $5,000 tax bill:
Due on 10/1/09: $5,000
Pay Early by 8/1/09: $$4900 (2% discount)
Penalty for Late Payment After 10/1/09: $5,500 (10% penalty)
While the $100 savings for paying by August may not seem like much, annualized, that's (roughly) a 12% return! I say roughly, because 2% saved over 2 months is more than 12% annualized, but the point is that
This transaction exceeds any risk-free investment like Treasuries or CDs over a 1 year period by 4-fold or more.
I'd venture a guess that a large portion of tax payers wait until the "actual due date" and forgo the 2% discount to defer payment for an extra 2 months. And of course, there are some that can't make that payment and pay the 10% late. If you know this is the deal each year, why not budget for it and just make the payment early to get the 2% discount each year and it's no longer "early" if it's planned.
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Each week, I like to publish the past week's hottest ETFs to share some new trends and niche ETFs out there and give investors some new ideas. For this week, Tech finally took a break (if you can call a 10% gain on TYH a "break") in comparison to some of the other leveraged ETFs. In order to share some other niche ETFs, I wanted to avoid leveraged ETFs this week, especially since they generally don't make for suitable "investments" but are rather, a trading/hedging tool as outlined here in this leveraged ETF risk article.
Here are 3 top performing ETFs from last week that do not employ leverage:
FBT - First Trust AMEX Biotechnology Index - Up 26% - While a non-leveraged ETF return of 26% in a week seems incredible, I want to highlight that this is a complete anomaly, unlikely to be repeated on any sort of routine basis. If you look at a competing Biotech ETF like BBH, it was up 4% for the week, just like the S&P500. What's the anomaly? As of Jun, the ETF held over 8% in Human Genome Sciences which jumped over 300% last week due to positive news related to its Lupus drug. Why did I include it in this week's list? So you don't buy into this ETF thinking it is likely to outperform any of the other myriad biotech ETFs out there due to last week's performance alone.
UMM - MACROSHARES MAJOR METRO HOUSING UP - Up 25% - This is a rather unorthodox ETF that while imperfect, acts as the most representative measure of the US housing market as outlined in more detail in this Case-Shiller Home Price ETF article. Basically, since the home price numbers looked good last week, the ETF rallied, but it tends to trade at premiums/discounts to the actual index, which adds some near term uncertainty and volatility to both the long and short ETFs.
TAN - Claymore/MAC Global Solar Energy - Up 17% - Solar stocks have been hot for varying reasons, including a recent note on subsidies from China for solar technologies which are expected to boost revenues for shares of underlying holdings. Top holdings inlcude the usual names you'd expect to see associated with solar plays, like First Solar, Sun Power, and a Chinese play Yingli Green. While many of these darlings doubled, tripled or more in 2007 and 2008, they crashed hard along with the rest of the market as oil tanked. YTD, TAN is up a healthy 20% vs. the S&P500 gain of 8%, but since launch in mid-2008, shares have lost double what the S&P500 did at -60% vs. -30%. So, it's really a levered play to oil and global markets. And with a ticker like that (TAN)...who could resist?
Disclosure: No position in any of the aforementioned ETFs.
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Here's a neat trading video on natural gas, which is at historic lows, especially when considering oil prices and prospects of an economic recovery. These videos are pretty good and free. Feel free to sign up for more.
Natural Gas ETF Trade.
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Each week, I like to publish the past week's hottest ETFs to share some new trends and niche ETFs out there and give investors some new ideas. For this week, and the past several for that matter, Tech has been completely outperforming the broader market and the while the triple leveraged ETF instrument lends itself to massive gains during such a run, there are many risks that aren't totally intuitive that investors need to consider as well given daily rebalancing.
Here are 4 top performing ETFs from last week:
TYH - Direxion Daily Technology Bull 3X Shares - Up 30% - This 3X Tech ETF has been a stalwart member of the hottest ETFs updates, as Tech has outperformed most other sectors in US equities. Year to date, the Nasdaq is up 16% vs. a 4% gain for the S&P500 and this ETF is now up 64% on the year and 200% since the March lows. The top 3 underlying holdings are Apple, Cisco and Google.
FAS - Direxion Financial Bull 3X Shares - Up 27% - You can always count on having either FAS (triple long) or FAZ (triple short) Financials on the list given the volatility in the Financial sector. Financials have fared quite well given strong results from some of the major investment firms and improved sentiment from influential analysts (Meredith Whitney's glowing review of Goldman Sachs' prospects).
EDC - Direxion 3X Emerging Markets - Up 26% - With equities rallying globally and the higher Beta that the emerging market bourses carry, not only did they take it on the chin last year on the way down, but during the recovery, they are rocketing back up at a much faster pace than US equities. EDC is up over 15 times the S&P500 during the 2009 YTD period at 74% vs. 4% for the S&P500.
ERX -Direxion Daily Energy Bull 3X - Up 26% - This ETF seeks to return 300% of the daily performance of the Russell 1000 Energy Index. While oil prices had retreated briefly, it appears as though they're headed back toward a natural pivot point of around $70 and in the near term, ERX could serve as a hedge for another summer runup in oil and of course, gas prices. However, given the longer term loss in value in leveraged ETFs I pointed out earlier, there are several lower risk/lower cost options out there to hedge energy prices for the retail investor/consumer.
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This is a reprint from my other blog Darwin's Finance for those of you that aren't on both feeds.
Incidentally, here's an article I published last night which I'm sure you'll enjoy:
Median vs. Mean: Know the Difference or Risk Being Manipulated
Original article: Another week of great reads. These are entries from blogs I frequent, and I hope you will too (just come back!). I’ve also included various finance/investing carnivals that published my material this week as well as my posts within my network since the last weekly links. With market pundits calling the next week a tipping point for whether this was a “Sucker’s Rally” and we’re going to retest the March lows or whether the market can maintain stability and head upwards, I don’t know that we’ll see any big moves, but that’s what the “pros” are saying. It is earnings season after all, so perhaps we’ll see some action in the coming weeks.
My Favorite Investing Reads
Stocks that are Raising Dividends
Watch for Fraud with this FTC video
Div Stocks with a 5 Star Rating
Taking on Roubini Dr. Doom
12 Div Stock Recommendations
Sovereign Wealth Fund Explained
Beware the Underwater Stock Option advice out there. And recall, I shared how to profit from your Employee Stock Options no matter what shares do.
Green Shoots are Yellow Weeds
My Favorite Personal Finance Reads
Here's some mortgage loan info
How to find a Virtual Assistant - I’ve thought about this since reading The 4-Hour Workweek(awesome book)
10 Purchases that can actually Harm Your Credit
Avoid Loan Modification Scams
Within my network at Darwin’s Finance and Everyday Finance:
How to Get a Mortgage Rate Under 4%
How Does Deferred Compensation Work?
15 High Yield Corporate Bonds Raising Eyebrows
I Hedged my Gas Prices Today
Who Here Steals Food from the Company Caf?
Is Goldman Sachs Responsible for Every Bubble?
While I didn’t include my own submission, I did host the Carnival of Personal Finance this week.
Carnivals that featured my content recently:
Festival of Stocks
Best of the Best in Money and Personal Finance
Carnival of Money Stories
Money Hacks Carnival
another Money Hacks Carnival
Festival of Frugality
The Carnival of Twenty Something Finances
Money Hacks Carnival
Festival of Frugality
another Festival of Frugality
One Mint Economy and Your Finances
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