AdvisorShares Weekly Market Review – Week Ending 6/27/2014
Highlights of the Prior Week
Domestic capital markets are revealing very divergent indicators that make both the bull and the bear arguments very compelling. On the bull side of the ledger is that equities keep going up. So far in 2014 the Philadelphia Semiconductor Index, commonly known as SOX, is up 17% versus just under 6% for the S&P 500 which is significant because historically semiconductors tend to outperform early in the cycle–spending on semiconductors increases early, ahead of most other forms of capital expenditures is the history there. The wildly successful IPO of GoPro (NASDAQ:GPRO) is evidence of a willingness, or perhaps more correctly an eagerness to speculate. GPRO was up 50% in its first two days of trading.
In last week’s AdvisorShares Alpha Call, portfolio manager Brad Lamensdorf succinctly put forward the current and compelling bear case. Bond yields have moved lower, with the ten year closing out the week with a 2.53% yield. The final Q1 GDP number surprised many with a contraction of 2.9%. Spreads between high yield and investment grade debt have narrowed which shows an element of yield chasing. Investor sentiment polls show bulls in the 60% range is which high and a sign of complacency. To Brad’s list we would add that it has been almost three years since the last 10% correction and the current bull market is 63 months old versus an historical norm of 38-39 months.
With just one day left until the halfway mark we wanted to look at how foreign equity markets have performed year to date versus domestic markets. After many years of foreign markets that outperformed the US the tables have turned in the last few years with domestic leading the way.
As of June 27th the S&P 500 is up 7.04% on a price basis, ahead of all of the major foreign markets we report on in this update;FTSE 100 up 0.26% CAC 40 up 4.96% DAX up 4.31% Nikkei 225 down 7.34% Hang Seng Index down 0.51% Shanghai Composite down 4.03% ASX 200 (Australia) up 1.44%
Of course some markets have had outstanding 2014s so far including the Philippines, India and Thailand all having notched mid-teen’s gains thus far.
ETF News & Data
This week we wanted to take a different turn in this portion of the update to consider an article from the Wall Street Journal quoting Robert Whaley who “invented” the VIX Index and is now a professor at Vanderbilt University. He warned extensively about the flaws in using exchange traded products that track the VIX.
It is generally accepted, even if not universally correct, that as stocks go down the VIX will rise which potentially makes the VIX, or proxies for it, an attractive tool for portfolio protection and so many VIX related ETPs were put into the marketplace in the hopes of offering that in the face of a large equity market decline. The problem is that the ETPs track VIX futures of varying expirations which are far less sensitive to the VIX spot price that is so widely quoted and followed. Additionally the VIX futures market is often in contango which means that the cost to buy new futures contracts are greater than the proceeds from the just expired contract which takes a further bite out of the NAV of a VIX fund.
This week we found two interesting reads related to the fire service. One is a very upbeat story about a new firefighter in New York City who took a very round about path to becoming a firefighter and who remarkably found a baby known to be inside while fighting his first serious structure fire.
At the other end of the spectrum is a look back at the Yarnell Hill Fire in 2013 where 19 of 20 members of the Granite Mountain Hotshot crew were killed. This story has rightfully received a lot of attention and while these articles are difficult to read they are powerful and changes are already underway to improve firefighter safety in the wildland setting.
With all the excitement around the World Cup people may have forgotten about the Tour de France which starts this Saturday and will run almost every day for the next three weeks with most of the coverage being on the NBC Sports Network.
Without any knowledge of any planned format changes the best viewing will be from recording the early morning live broadcast which is just racing with commentary from Phil Liggett and Paul Sherwen. The prime time broadcast has a lot more “features” and commentary from other people.
While there is no defense of the doping that has (and perhaps still does) gone on, the great scenery, Phil and Paul and exciting finishes all still make for compelling viewing.
Roger Nusbaum, AdvisorShares ETF StrategistSource:Google Finance, ETF.com, Barron’s, Yahoo Finance, Wall Street Journal, NY Times, The Atlantic
Weekly ETF Flows
For June 23, 2014 to June 27, 2014
Shares outstanding include totals as of current day NAV.
S&P Sector Analysis
As for the sectors of the S&P 500, four outperformed the broad benchmark – Utilities, Discretionary, Technology, and Healthcare. The remaining six – Telecom, Financials, Materials, Energy, Staples, and Industrials – each underperformed. The dispersion between the top-performing and bottom-performing sectors was roughly 2.40% this week, with Utilities outperforming all, and Industrials coming in last.
For June 23, 2014 to June 27, 2014
Sector performances, as measured by the S&P 500 sector indices were: