AdvisorShares Weekly Market Review – Week Ending 6/13/2014
Highlights of the Prior Week
Last week, the S&P 500 fell 68 basis points, seemingly oblivious to the heightened tensions in Iraq. The short version is that fears of a civil war have broken out as violence (real and threatened) between Sunni and Shia has increased. As reported by CNN “Sunni tribal leaders have lined up in support of radical Islamists from the Islamic State in Iraq and Syria” also known as ISIS. They are intent on taking Baghdad which would likely mean an all-out civil war.
Iraq has upped its daily oil production to just shy of 4 million barrels per day (BPD), which, if cut off or meaningfully reduced, is enough to move markets and so, in anticipation of that outcome, oil markets have already moved with possibly more to come.
West Texas Intermediate Crude was up 3.88% on the week, and the more relevant Brent Crude (as Dennis Gartman told us in last week’s Alpha Call, oil from Iraq prices off of Brent) was up 4.03% on the week. As would be expected, gold also rallied rising 1.88% on the week perhaps evidencing concern without panic.
The yield on the US Ten Year Treasury Note participated on Thursday when the Iraq news hit, touching a low yield of 2.58% but it closed out the week at 2.60% having started the week at 2.61%.
There is, of course, nothing new about these sorts of headlines coming from the Middle East and, after this event, there will be others in the future. Markets can and often do have knee-jerk reactions to these events, but the Middle East has never altered bull/bear phases of the stock market cycle. Equities go up for a few years then they fall a lot and after they are done dropping they go back up again. That last sentence is intentionally simplistic.
And if that wasn’t enough the Republican Party appears to be in disarray after House Majority Leader Eric Cantor lost his primary election in his Congressional district in Virginia.
Just a short note here for this week as Barron’s had a little fun in noting that sovereign debt yields in France and Spain have not been as low as they are now since the 1700’s. This of course comes after the European Central Bank recently lowered rates to 0.15% and will charge commercial banks to park money with it as opposed to paying interest on those deposits.
Individual Stock News
There was an interesting IPO last Friday in Abengoa Yield PLC (NASDAQ: ABY). ABY is a spinoff from parent Abengoa SA which is a Spanish conglomerate whose commercials you may have seen on CNBC in recent months (perhaps as an effort to create name recognition for ABY). ABY will operate various types of energy producing assets for the parent company in the US and Latin America.
The estimated range for the IPO pricing was $25-$27 which would have given ABY an approximate 4% yield. The deal was over-subscribed so the offering priced above the range at $29, opened for trading at $35.16 and traded as high as $38.28 before closing at $37.00.
The intention here is not to weigh in on the merits of this or any IPO but it is curious to see a product intended to be a yield vehicle trade like a tech startup on its first day. At $37 per share, ABY’s intended $1.04 dividend would give the shares a yield of 2.8%, a long way from 4%.
ETF News & Data
Last week was very busy on the new fund front with 14 new ETPs hitting the market. SPDR launched six individual country funds all targeting developed markets that have the term “Quality Mix” in the name of the fund which refers to a factor process that populates the funds based on value, quality and low volatility.
iShares expanded its “core” suite of funds from 10 to 20 ETFs. The firm renamed six of its funds for the core platform and also launched four new funds to round out this offering.
There were also a couple of one-off products that debuted including the ETRACS Wells Fargo MLP Ex-Energy ETN (NYSEARCA: FMLP). This ETN is a truly unique idea as there are MLPs that are not involved in transporting oil or natural gas including materials companies, shipping container companies and at least one shipping company (as in it owns and leases out boats) but FMLP is almost 90% in financial companies which diminishes its uniqueness.
A few weeks ago in this space we looked at a concept known as Tiny Houses. The big idea is that these very small homes have a smaller ecological and financial footprint in an era of greater ecological awareness and post housing crisis.
Tiny Houses range in size from 70 square feet to 200 square feet, about the size a trailer or fifth wheel which many of them are. Part of the equation is that Tiny Houses are on wheels, which means there is no property tax on the Tiny House as a structure (there will be property tax on the land). Another dynamic at work in the layout of Tiny Houses is the need for maximum efficiency of how space is used.
There are two personal finance dynamics here. One is that Tiny Houses offer an inexpensive concept for people who believe a traditional home purchase is beyond their means with many Tiny Houses ranging in price from $20,000-$40,000. Tiny Houses also offer a cost effective form of downsizing for people in the early stages of retirement.
It’s not that Tiny Houses will hold universal appeal but will be a practical solution for some folks. Next month the Biography Channel will be rebranded into the FYI Channel and one of their new featured shows will be Tiny House Nation which if nothing else will be a fun look at some interesting homes. In the mean time you can learn more here and here.
Sports fans have almost too much to watch these days… almost. Over the weekend of course the Kings won the Stanley Cup, the San Antonio Spurs surprised many except for themselves in preventing the Miami Heat from three-peating, Martin Kaymer won the US Open Golf Championship, of course the World Cup started last Thursday with some controversy and practically forgotten in all that is the College Baseball World Series which started over the weekend.
For a viewer’s guide for the current week, group play games of the World Cup will air at 11:30 AM EDT, 2:30 PM EDT and 5:30 PM EDT all on ESPN.
The College Baseball World Series will have day games Monday and Tuesday at 3 pm EDT on ESPN2 and Friday at 3 PM on ESPNU. Night games will be on ESPN Tuesday-Friday at 8 PM EDT but Monday’s night game will be on ESPN2 also at 8 PM EDT.
Happy viewing from AdvisorShares!
Roger Nusbaum, AdvisorShares ETF StrategistSource: Google Finance, Yahoo Finance, ETF.com, Barron’s, XTF.com, Wall Street Journal, Yahoo Sports, Seeking Alpha
Weekly ETF Flows
For June 9, 2014 to June 13, 2014
Shares outstanding include totals as of current day NAV.Shares outstanding include totals as of current day NAV.
S&P Sector Analysis
As for the sectors of the S&P 500, three outperformed the broad benchmark – Energy, Technology, and Telecom. The remaining seven – Healthcare, Financials, Staples, Materials, Utilities, Industrials, and Discretionary – each underperformed. The dispersion between the top-performing and bottom-performing sectors was roughly 3.42% this week, with Energy outperforming all, and Discretionary coming in last.
For June 9, 2014 to June 13, 2014
Sector performances, as measured by the S&P 500 sector indices were: