Six More ETFs From Direxion
9:02 am CST
On Thursday (3/11/2010) Direxion added six new funds to its menu, giving investors leveraged and inverse opportunities in the BRIC countries, India, and the semiconductor sector. This was Direxion’s second batch of new ETFs this year. Back in February they launched two leveraged and inverse short-term Treasury ETFs.
The newest ETFs are
- Direxion Daily BRIC 2x Bull (BRIL) (summary)
- Direxion Daily BRIC 2x Bear (BRIS) (summary)
- Direxion Daily India 2x Bull (INDL) (summary)
- Direxion Daily India 2x Bear (INDS) (summary)
- Direxion Daily Semiconductor 3x Bull (SOXL) (summary)
- Direxion Daily Semiconductor 3x Bear (SOXS) (summary)
For those who haven’t heard the term, BRIC refers to the four largest emerging market nations: Brazil, Russia, India and China. BRIL and BRIS provide long and short coverage, respectively, to the BNY Mellon BRIC Select ADR Index with 200% daily leverage. INDL and INDZ do likewise for the Indus India Index.
These four will be the first Direxion ETFs to offer anything less than 300% daily leverage. Why they are doing so is unclear. As we’ve said before, people who want to use leverage typically can’t get enough of it, so we doubt they are doing it for marketing reasons. More likely some kind of legal or operational constraint prevents Direxion from achieving a 3X daily target in these particular indexes.
The remaining two new ETFs are domestically-focused, specifically on the PHLX Semiconductor Index, often called the SOX. This index has been a popular tool among options traders for many years, so we suspect SOXL and SOXS will gain a following fairly quickly. Both the long and inverse versions are leveraged at 3X.
As we always say, everyone should be aware that leverage is reset daily and results over longer periods can vary dramatically. These are trading vehicles, not long-term investments. Use with caution.
Disclosure covering writer, editor, and publisher: No positions in any of the securities mentioned. No positions in any of the companies or ETF sponsors mentioned. No income, revenue, or other compensation (either directly or indirectly) received from, or on behalf of, any of the companies or ETF sponsors mentioned.
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RBL: New Russia ETF from SPDR
2:00 am CST
Thursday (3/11/2010) was the first day of trading for SPDR S&P Russia ETF (RBL). The fund follows the S&P Russia Capped BMI Index, which seeks to reflect the performance of investable stocks domiciled in Russia.
RBL will compete mainly with Market Vectors Russia (RSX), which until now has been the only way for U.S. investors to get pure Russia exposure in an ETF. Launched in 2007, RSX has a big head start but SPDR is a formidable marketing machine. RBL anticipates an expense ratio of 0.59%, only a fraction better than 0.62% for RSX.
As we have pointed out before in regard to Eastern Europe/Russia ETFs, RBL is heavily weighted in energy and materials. Together those two sectors account for about two-thirds of the index. The breakdown looks like this, according to SPDR’s RBL Fact Sheet:
- Energy 49.2%
- Materials 17.9%
- Financials 11.7%
- Telecom 8.7%
- Utilities 8.3%
- Consumer Staples 2.7%
- Consumer Discretionary 0.9%
- Health Care 0.4%
- Industrials 0.3%
If this looks lopsided, it is because the Russian market is itself lopsided. Energy and natural resources dominate the nation’s economy. Other sectors simply orbit around those two. In time Russia may become more diversified, but for now it is mainly a bet on a profitable worldwide energy/materials sector.
Disclosure covering writer, editor, and publisher: No positions in any of the securities mentioned. No positions in any of the companies or ETF sponsors mentioned. No income, revenue, or other compensation (either directly or indirectly) received from, or on behalf of, any of the companies or ETF sponsors mentioned.
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Informatica (INFA): The Next Cloud Computing Winner?
6:25 am CST
With the Nasdaq poised to resume leadership among U.S. stock indexes, technology looks like a sector with bullish potential. Even so, smart investors know that picking the right stock will still be extremely important.
One niche we like is cloud computing. We’ve previously highlighted the cloud computing trend. We talked about several cloud computing stocks that may help investors profit from the group’s rapid growth. Today we add one more name to that list: Informatica Corp. (INFA). California-based Informatica boasts some strong fundamentals. In the most recent quarter, Informatica reported its profits rose 29% and revenue surged 21%.
Analysts are forecasting earnings growth of 11% in 2010 and 20% in 2011. Those are impressive statistics. According to Investor’s Business Daily, which features Informatica among its top 100 stocks, the number of mutual funds owning Informatica shares rose to 213 from 188 during the last quarter. That’s another positive sign that the smart money crowd is taking note of the stock.
Informatica is taking steps to enter new business segments, highlighted by the company’s January acquisition of Siperian, a master data management company. This was Informatica’s first foray into that space and the company’s biggest acquisition to date. The Siperian buy was greeted warmly by both investors and customers. It makes sense as master data management is one of the fastest growing sub-sectors in the tech space.
Given all of the news, it isn’t surprising to see analysts enthused about Informatica. Just this week Broadpoint AmTech mentioned Informatica as one of its top cloud computing picks. The stock is up more than 15% in the past month and touched a new 52-week high Tuesday on heavy volume.
Whether you call Informatica a growth stock or a momentum stock, the signs are decidedly bullish at this point. Yet the company still has value relative to other tech stocks. For example, the stock trades for nearly five times book value and over 22 times forward earnings. Compare these numbers to Amazon (AMZN), which is trading around 11 times book value and 34 times forward earnings. Informatica looks cheap in comparison.
Regardless of comparisons, Informatica is a strong stock in a strong sector. This means more gains could lie ahead. To play the cloud computing angle with a strong company, go with INFA.
Disclosure covering writer, editor, publisher, and affiliates: No positions in any of the securities mentioned. No positions in any of the companies or ETF sponsors mentioned. No income, revenue, or other compensation (either directly or indirectly) received from, or on behalf of, any of the companies or ETF sponsors mentioned.
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My Own Private Island: Sensible Expectations for the Investment Dreamer
1:01 am CST
Have infomercials ruined us? Has the constant 24/7 media deluge of the global investment markets made us too mad for money? Are the salacious stories of the latest real estate bizillionaire buying their own private island too beguiling to ignore? Seeing everyday couples wave oversized checks in the air, boast about their recent purchases, or having them regale you with stories about their recent get-rich-quick schemes can often lead to expectations about your own portfolio.
All this has an unfortunate effect on some people: we’ve come to expect too much. We think it’s easy to make it big with questionable investment strategies. In fact, we’ve convinced ourselves to expect double-digit profits as the norm. Jason Zweig of the Wall Street Journal aptly summarized most investors’ belief in their market success:
“A nationwide survey last year found that investors expect the U.S. stock market to return an annual average of 13.7% over the next 10 years…in order to earn 6%…after inflation, fees and taxes… investments (must) generate 11% or 13% a year before costs. Since 1926, according to Ibbotson Associates, U.S. stocks have earned an annual average of 9.8%. Their long-term, net-net-net return is under 4%.”
According to this data, investor expectations not only far exceed historical market performance, but the perceived risk of those expectations is minimal. Most investors think they’ll get almost 14% before inflation, fees, and taxes. If you factor in those pesky return-killers, they expect to keep more like 6%.
History suggests otherwise. The stock market’s average long-term net is only around 4%, assuming you follow a very aggressive all-stock strategy. However, considering most investors keep a healthy portion in bonds and cash, the more realistic net return is closer to 2%. Yet people still think they can make double-digit returns more or less automatically.
Eventually investor optimism runs into market reality. Averaging a 14% yearly return is tough no matter how brilliant your strategy. The markets will humble everyone, given enough time. Furthermore, few people manage to stick with the same strategy for long. Whatever we resolve to do on January 1st is usually long forgotten by December 31st.
The problem isn’t with our intentions or cunning. The problem is with our expectations. Making a net return of 6% after inflation, fees, and taxes over a period of years is a massive task for any investor. This is especially true if you’re managing the money by yourself. Don’t fall into the trappings of common investor mistakes.
If you use an investment manager and expect these kind of results, you’re putting the manager in a tough position. Although they may be smart and well informed, it’s nearly impossible to meet such lofty expectations. Professional managers are not miracle-workers.
The best strategy: keep your expectations grounded in reality. Don’t fall prey to the dream of unsustainable or ridiculous returns. Private island or not, success in the market is achievable only if your head isn’t in the clouds.
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