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Securities Lending

Price Jump Broadcasts to Shorts


Wecast Network (NASDAQ: WCST) provides broadcasting services. The Company offers television programming, video on demand, and content delivery services to mobile and television screens.  The company has a market cap of $67 Million and is based in New York.  The stock doubled from $1 to an intraday high of $2.40 in the beginning of February on news of Wecast’s acquisitions, which the company expects to be accretive to revenue.  It has since come in to $1.57 today.  Value on Loan increased by 20% with short interest at 6% of the float.  The borrow fee has held steady in the mid-80s.  The name is hard-to-borrow because of the small market cap, with a small number of holders, making it difficult to find rehypothecated shares.  As a result, Utilization is 93% across the street.

 

The analysis in this article is provided for information only and is not and should not be construed as an offer to sell or the solicitation of an offer to buy any security. To the extent that this material discusses general market activity, industry or sector trends or other broad-based economic or political conditions, it should not be construed as research or investment advice. To the extent that it includes references to specific securities, commodities, currencies, or other instruments, those references do not constitute a recommendation by IB to buy, sell or hold such investments. This material does not and is not intended to take into account the particular financial conditions, investment objectives or requirements of individual customers. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.


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Stocks

Utilities Sector 1Q17: Best and Worst


The Utilities sector ranks seventh out of the ten sectors as detailed in our 1Q17 Sector Ratings for ETFs and Mutual Funds report. Last quarter, the Utilities sector ranked eighth. It gets our Dangerous rating, which is based on an aggregation of ratings of nine ETFs and 29 mutual funds in the Utilities sector as of January 19, 2017. See a recap of our 4Q16 Sector Ratings here.

Figure 1 ranks from best to worst the eight Utilities ETFs that meet our liquidity standards and Figure 2 shows the five best and worst rated Utilities mutual funds. Not all Utilities sector ETFs and mutual funds are created the same. The number of holdings varies widely (from 17 to 78). This variation creates drastically different investment implications and, therefore, ratings.

Investors seeking exposure to the Utilities sector should buy one of the Attractive-or-better rated ETFs or mutual funds from Figures 1 and 2.

Here is our ETF and mutual fund rating methodology, which leverages our rigorous analysis of each fund’s holdings. We think advisors and investors focused on prudent investment decisions should include analysis of fund holdings in their research process for ETFs and mutual funds.

Figure 1: ETFs with the Best & Worst Ratings – Top 5

utilities1q17_figure1

Sources: New Constructs, LLC and company filings

* Best ETFs exclude ETFs with TNAs less than $100 million for inadequate liquidity.

PowerShares DWA Utilities Momentum Portfolio (PUI) is excluded from Figure 1 because its total net assets (TNA) are below $100 million and do not meet our liquidity minimums.

Figure 2: Mutual Funds with the Best & Worst Ratings – Top 5

utilities1q17_figure2

* Best mutual funds exclude funds with TNAs less than $100 million for inadequate liquidity.

Sources: New Constructs, LLC and company filings

Guggenheim S&P 500 Equal Weight Utilities ETF (RYU) is the top-rated Utilities ETF and Wells Fargo Utility & Telecommunications Fund (EVUCX) is the top-rated Utilities mutual fund. Both earn a Attractive rating.

PowerShares S&P SmallCap Utilities Portfolio (PSCU) is the worst rated Utilities ETF and Fidelity Advisor Utilities Fund (FAUFX) is the worst rated Utilities mutual fund. PSCU earns our Dangerous rating and FAUFX earns our Very Dangerous rating.

73 stocks of the 3000+ we cover are classified as Utilities stocks, but due to style drift, Utilities ETFs and mutual funds hold 78 stocks.

The Danger Within

Buying a fund without analyzing its holdings is like buying a stock without analyzing its business and finances. Put another way, research on fund holdings is necessary due diligence because a fund’s performance is only as good as its holdings’ performance. Don’t just take our word for it, see what Barron’s says on this matter.

PERFORMANCE OF HOLDINGs = PERFORMANCE OF FUND

Figures 3 and 4 show the rating landscape of all Utilities ETFs and mutual funds.

Figure 3: Separating the Best ETFs From the Worst ETFs

utilities1q17_figure3

Sources: New Constructs, LLC and company filings

Figure 4: Separating the Best Mutual Funds From the Worst Mutual Funds

utilities1q17_figure4

Sources: New Constructs, LLC and company filings

This article originally published here on January 23, 2017.

 

Disclosure: David Trainer, Kyle Guske and Kyle Martone receive no compensation to write about any specific stock, sector or theme.

About New Constructs

Our stock rating methodology instantly informs you of the quality of the business and the fairness of the stock’s valuation. We do the diligence on earnings quality and valuation so you don’t have to.

In-depth risk/reward analysis underpins our stock rating. Our stock rating methodology grades every stock according to what we believe are the 5 most important criteria for assessing the quality of a stock. Each grade reflects the balance of potential risk and reward of buying that stock. Our analysis results in the 5 ratings described below. Very Attractive and Attractive correspond to a "Buy" rating, Very Dangerous and Dangerous correspond to a "Sell" rating, while Neutral corresponds to a "Hold" rating.

Cutting-edge technology enables us to scale our forensics accounting expertise so that we can cover enough stocks to cover the ETFs that hold them as well. Learn more about New Constructs. Get a free trial. See what Barron’s has to say about our research.

This article is from New Constructs, LLC and is being posted with New Constructs, LLC’s permission. The views expressed in this article are solely those of the author and/or New Constructs, LLC and IB is not endorsing or recommending any investment or trading discussed in the article. This material is for information only and is not and should not be construed as an offer to sell or the solicitation of an offer to buy any security. To the extent that this material discusses general market activity, industry or sector trends or other broad-based economic or political conditions, it should not be construed as research or investment advice. To the extent that it includes references to specific securities, commodities, currencies, or other instruments, those references do not constitute a recommendation by IB to buy, sell or hold such security. This material does not and is not intended to take into account the particular financial conditions, investment objectives or requirements of individual customers. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.


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Stocks

Nasdaq Market Intelligence Desk - Equity Market Insight February 17, 2017


As of 12:10PM:

NASDAQ Composite -0.01% Dow -0.3% S&P 500 -0.19% Russell 2000 -0.3%
NASDAQ Advancers: 1035 / Decliners: 1146
Today’s Volume (100day avg):  +0.6%

US stocks ended their recent winning streak yesterday, and they are ticking lower once again this morning.  Despite the pull back over the past two sessions all the major indices are on pace for the 4th consecutive day of gains.   Consumer staples are the lone sector in the green, while Energy, Telecom and Financials are all off by more the 0.5%. The Bloomberg Commodity Index is off by more than 1.5% this week (steepest weekly decline since early November).

  • Kraft Heinz(+8%) made a preliminary offer to acquire Unilever for $143b, which was quickly declined by Unilever. There was speculation that Kraft would attempt Mondelez back to its portfolio, but today’s announcement has investors believing the company might be heading towards a new objective. Unilever believes the initial offer undervalues its company and at this time, sees no need for further discussions.
  • We’ve been monitoring the probability of a rate hike at the March Fed meeting, which jumped to 44% on Wednesday and pushed the Dollar index (DXY) to its highest level in over a month. The lack clarity behind Trump tax/spending plans has injected some uncertainty in the market and added volatility to treasuries and currencies. Speaking of volatility, the CBOE VIX Index is going to post its largest weekly gain of 2017.
  • On the earnings front, Arista Networks (+18%), Sunpower (+11%) and Cognex (+10%) are the three best performers on the Russell 1000 after reporting strong results and outlook.

 

Technical Take:

Emerging markets have been as hot as US markets this year with the emerging markets etf (EEM) in the green in seven out of the last eight weeks for a YTD gain of 9.3%.  In the beginning of this week the EEM broke out to new 52-week highs, made previously in September 2016, and peaked at $38.73.   The prior two sessions, however, have formed a bearish “dark could” topping pattern where yesterday’s gap higher marked the top of the session and then closed at the midpoint of the prior large green candlestick.  Today this bearish pattern is seeing strong confirmation with today’s gap lower.   Momentum is now coming off from extreme levels as the daily RSI reached a 4-year high 76 reading on Wednesday to 65 today.  On the weekly time frame the price action has formed a “gravestone doji” topping pattern which importantly has developed along the prior 52-week high at $38.32.   Although the longer term structure remains constructive since “emerging” from seven-year lows in Q1’16, near term the EEM may be in for a period of consolidation as it continues working off overbought technical readings. 

Nasdaq's Market Intelligence Desk (MID) Team includes: 

Michael Sokoll, CFA is a Senior Managing Director on the Market Intelligence Desk (MID) at Nasdaq with over 25 years of equity market experience. In this role, he manages a team of professionals responsible for providing NASDAQ-listed companies with real-time trading analysis and objective market information.

Jeffrey LaRocque is a Director on the Market Intelligence Desk (MID) at Nasdaq, covering U.S. equities with over 10 years of experience having learned market structure while working on institutional trading desks and as a stock surveillance analyst. Jeff's diverse professional knowledge includes IPOs, Technical Analysis and Options Trading.

Steven Brown is a Managing Director on the Market Intelligence Desk (MID) at Nasdaq with over twenty years of experience in equities. With a focus on client retention he currently covers the Financial, Energy and Media sectors.

Christopher Dearborn is a Managing Director on the Market Intelligence Desk (MID) at Nasdaq. Chris has over two decades of equity market experience including floor and screen based trading, corporate access, IPOs and asset allocation. Chris is responsible for providing timely, accurate and objective market and trading-related information to Nasdaq-listed companies.

Brian Joyce, CMT has 16 years of trading desk experience. Prior to joining Nasdaq Brian executed equity orders and provided trading ideas to institutional clients. He also contributed technical analysis to a fundamental research offering. Brian focuses on helping Nasdaq’s Financial, Healthcare and Airline companies among others understand the trading in their stock. Brian is a Chartered Market Technician.

This article is from Nasdaq and is being posted with Nasdaq’s permission. The views expressed in this article are solely those of the author and/or Nasdaq and IB is not endorsing or recommending any investment or trading discussed in the article. This material is for information only and is not and should not be construed as an offer to sell or the solicitation of an offer to buy any security. To the extent that this material discusses general market activity, industry or sector trends or other broad-based economic or political conditions, it should not be construed as research or investment advice. To the extent that it includes references to specific securities, commodities, currencies, or other instruments, those references do not constitute a recommendation by IB to buy, sell or hold such security. This material does not and is not intended to take into account the particular financial conditions, investment objectives or requirements of individual customers. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.


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Macro

Why value is still a value


The rally in value stocks may have stalled, but Russ discusses why the trend still has further to go.
 

For much of the post-crisis period investors consistently craved growth stocks. They did so for the same reason they favored stocks with a healthy dividend: Both income and growth were scarce commodities for much of the past eight years. However, with yields rising and economic growth at least stabilizing, this began to change in the second half of 2016 when classic dividend plays stumbled while value started to come back into vogue. However, these trends stalled in January, raising the question of whether the recent preference for value has further to go. My view is that it does, primarily because value still appears cheap relative to growth.

The notion of the “value of value” seems a bit redundant, but it is important when assessing style preferences. While value stocks, by definition, will trade at a lower valuation than growth stocks, the valuation spread moves over time. Based on the price-to-book (P/B) metric, since 1995, value stocks, as defined by the Russell 1000 Value Index, have typically traded at around a 55% discount to growth stocks.

During the tech bubble growth stocks became more expensive, pushing the value discount to more than 70% at the market peak in 2000. Conversely, prior to the bursting of the housing bubble, it was value that looked expensive. The rally in financial shares, which typically command a higher weight in value indexes, drove the value discount down to around 45% in 2006. The chart below illustrates this, showing the ratio of the value P/B to growth P/B. A relative ratio of 0.55, for example, translates into a value discount of 45%.

 

Chart of value growth

As financials started to come under pressure and the extent of the housing bubble became clear, investors started to demonstrate a strong preference for companies that could grow their earnings regardless of the economic environment. This preference for growth manifested in the outperformance of both stable growers, like defensive consumer staple companies, as well as technology firms benefiting from secular trends. As a result, value has gone from a 45% discount to growth in late 2006 to a 65% discount today.

While value was even cheaper in early 2016, today’s discount still places the growth/value spread more than one standard deviation below the long-term average. In other words, value stocks still look attractive relative to growth.

To be sure relative cheapness is not a guarantee of relative outperformance, but to the extent that value stocks are cheap and the economic outlook is improving, value has a reasonable chance of continuing its run.

For investors, the challenge is that the latter condition, i.e. better growth, is somewhat dependent on whether Washington can conjure up a reasonable and timely stimulus package, including tax reform. A stumble in such efforts is likely to revive old concerns over secular stagnation and push investors back toward old habits, namely a preference for yield and stable growth. However, even a modest package that raises growth expectations stands to benefit the cheapest segments of the market.

Russ Koesterich, CFA, is Portfolio Manager for BlackRock’s Global Allocation team and is a regular contributor to The Blog.

Investing involves risks, including possible loss of principal. Past performance is no guarantee of future results.

This material is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. The opinions expressed are as of February 2017 and may change as subsequent conditions vary. The information and opinions contained in this post are derived from proprietary and nonproprietary sources deemed by BlackRock to be reliable, are not necessarily all-inclusive and are not guaranteed as to accuracy. As such, no warranty of accuracy or reliability is given and no responsibility arising in any other way for errors and omissions (including responsibility to any person by reason of negligence) is accepted by BlackRock, its officers, employees or agents. This post may contain “forward-looking” information that is not purely historical in nature. Such information may include, among other things, projections and forecasts. There is no guarantee that any forecasts made will come to pass. Reliance upon information in this post is at the sole discretion of the reader. Past performance is no guarantee of future results.

©2017 BlackRock, Inc. All rights reserved. BLACKROCK is a registered trademark of BlackRock, Inc., or its subsidiaries in the United States and elsewhere. All other marks are the property of their respective owners.

USR-11690

This article is from BlackRock and is being posted with BlackRock’s permission. The views expressed in this article are solely those of the author and/or BlackRock and IB is not endorsing or recommending any investment or trading discussed in the article. This material is not and should not be construed as an offer to sell or the solicitation of an offer to buy any security. To the extent that this material discusses general market activity, industry or sector trends or other broad based economic or political conditions, it should not be construed as research or investment advice. To the extent that it includes references to specific securities, commodities, currencies, or other instruments, those references do not constitute a recommendation to buy, sell or hold such security. This material does not and is not intended to take into account the particular financial conditions, investment objectives or requirements of individual customers. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.


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Macro

Necessary Regulation or Government Overkill?


A (very) short history of investment legislation.
 

Depression Babies 
Wednesday's column on the Department of Labor's fiduciary rule sparked complaints about government encroachment. A new and sterner investment regulation, several readers stated, would be yet another lamentable example of the nanny state. The last thing this country needs is a fatter rulebook.

Wait now. Regulations aren't intrinsically good or bad. If they were the former, then we'd never stop writing them. (And no, despite what it may seem, we're not always writing investment rules; major changes only come around every second decade or so.) If they were the latter, then we wouldn't have laws in the first place--starting with the Constitution. For investors, what matters is not the principle, but the outcome. Will the new legislation benefit them or hurt them?

Consider the Securities Exchange Act of 1934. The twin blows of the 1929 Crash and the revelations of the Pecora Commission, which uncovered various frauds perpetrated by banks and securities dealers, had squashed public confidence in the financial markets. Main Street didn't wish to invest, aside from government securities. The 1934 Act set the stage for investors' return by addressing the worst of the problems. Since its enactment, there have been plenty of new market crashes, but none accompanied by the same level of scandal and causing so much damage to investor trust.

(Strangely, to modern ears, the Pecora Commission was established by Senate Republicans and opposed by Democrats, who accused the GOP of pandering to the public by pummeling Wall Street. Apparently, history does not always repeat.)

It would be difficult to argue that the 1934 Act was one regulation too far. Indeed, it would be rather easy to argue that the Act was among the most important laws of the past century--that without it, U.S. stock market performance would not be what it has become. Wall Street, perhaps, might not be the world's leading financial center. (That second sentence, admittedly, is a stretch, thus the modifier "perhaps.") Not everybody saw it that way at time, though, as 81 House of Representatives members voted against the Act.

The Investment Company Act of 1940, which governs mutual funds (as well as other forms of registered funds, such as exchange-traded funds and closed-end funds), was also a hit. By mandating legal structures that severely restrict the opportunity for fraud, requiring various forms of public disclosure, and prohibiting various exotic investment techniques (such as high leverage), the Forty Act created the modern mutual fund--an investment that now controls more than $10 trillion in assets, and with very few instances of illegalities.

Pension Laws
ERISA (the Employment Retirement Income Security Act), passed in 1974, is a more qualified success. ERISA was established to ensure that those who ran traditional pension funds did so solely on behalf of plan participants, and it gave participants legal teeth to punish violations. So far, so good. It's not in this country's best interests--or that of investors--to have plan officials acting as Communist Party leaders, using their power to extract personal favors from suppliers.

However, ERISA translates imperfectly to defined-contribution plans. ERISA was drafted to address defined-benefit plans; 401(k)s were added along the way. The results have not been completely happy. Specifically, ERISA overburdens companies that sponsor 401(k) plans. They are required to do too much work, and they face too much legal liability. The existing laws fail. Defined-contribution plans differ significantly from defined-benefit plans, and the regulations should be different, too.

ERISA requires tinkering. However, that additional legislation would remove regulations.

The DOL Rule
After reading two ringing defenses of investment legislation, and a muted defense of the third, you probably expect me to support the fourth and newest example, the DOL fiduciary rule. Particularly as Wednesday's column mocked the argument made against that law by the National Economic Council's chief, Gary Cohn. Good guess--but not entirely right.

In principle, I'm delighted with the rule. It is the commonest of common sense to expect that financial professionals, as with healthcare or legal professionals, be required to work in their clients' best interests. Nobody complains that doctors are expected to care only for their patients, or that lawyers work solely on behalf of their clients. Surely, financial advisors should be held to similar standards. Indeed, they would benefit from higher expectations. Public trust would improve; the occupation would become more prestigious.

Also, the public debate is a wipeout. In favor of the law are the Certified Financial Planners Board, Harold Evensky, and Jack Bogle; against are the insurance and brokerage-firm trade organizations. When it comes to advancing investor interests, one side has a distinctly better track record than the other. Then, there's Cohn's complaint that the new fiduciary rule would prevent advisory firms from selling "unhealthy food." With friends like that, the campaign against the rule needs no enemies.

(Bogle's comment: "Honestly, it seems counterproductive to go to war against such a fundamental principle [that clients come first]. It simply doesn't seem like a good business practice for Wall Street to tell its client-investors, 'We put your interests second, after our firm's, but it's close.' "

Industry observer Knut Rostad was even more trenchant. With Cohn's argument, "the case for 'Buyer Beware' candidly returns front and center. No apologies, no excuses, no defensive, 'Of course our clients come first' claims. It is instead a candid and blunt and enthusiastic embrace of putting clients second.")

But … the financial-services industry is moving in this direction already. The managed accounts that alleviate the fiduciary issues that can arise from commission-based sales are a better business model. What's more, investors want them. Most buyers see asset-based fees as being cleaner than the traditional scheme of a front-end sales charge. Also, managed accounts can hold a wider variety of investments, such as ETFs or indexed mutual funds.

Thus, I am of a mixed mind about the fiduciary rule. On the one hand, it is hard to argue against the proposition. Those in opposition have not convinced. On the other, passing that legislation has cost significant political capital. Perhaps that capital could have been used on other investment topics, ones that would not be largely addressed by market trends.

John Rekenthaler has been researching the fund industry since 1988. He is now a columnist for Morningstar.com and a member of Morningstar's investment research department. John is quick to point out that while Morningstar typically agrees with the views of the Rekenthaler Report, his views are his own.

John Rekenthaler is Vice President of Research for Morningstar.

Morningstar provides a constant source for investment ideas with our comprehensive analyst reports on equities, ETFs, and credit ratings from more than 100 analysts. U.S. Interactive Brokers clients can sign up for a free trial of these reports in Account Management.

This article is from Morningstar and is being posted with Morningstar's permission. The information provided in this article is from Morningstar and IB is not endorsing or recommending any investment or trading discussed in the article. This material is not and should not be construed as an offer to sell or the solicitation of an offer to buy any security. To the extent that this material discusses general market activity, industry or sector trends or other broad based economic or political conditions, it should not be construed as research or investment advice. To the extent that it includes references to specific securities, commodities, currencies, or other instruments, those references do not constitute a recommendation to buy, sell or hold such security. This material does not and is not intended to take into account the particular financial conditions, investment objectives or requirements of individual customers. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.

 

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