Posts filed under “ETFs”

Biotech ETFs

Biotech ETFs
May 1, 2014
David R. Kotok

 

 

We have been getting emails with questions regarding the biotech sector. The primary question is, “Is this a bubble?”

Here is our view.

First, we do not know that a bubble is a bubble until after the fact – after the bubble pops. What we can do is estimate levels of risk; and a high level of risk often, though not always, coincides with a bubble. But the confirmation of a bubble can come only after the fact.

One can look back at the “dot.com” bubble in 1999 and 2000 and say in retrospect that the excess market value was measurable in the trillions when that sector exploded. It was trading at all-time high levels of price/earnings, price/sales, price/book, and other metrics we use to value stocks. During that time, we at Cumberland created a hypothetical model in which we merged Microsoft and Cisco into one company. We then valued that combined company at current market prices. At the peak, the combined company had a market value of $1 trillion and earnings of $10 billion. Thus it was trading at 100 times earnings. At the same time, the output of the entire world – think of it as a world summation of GDP – was approximately $30 trillion. There was nothing wrong at the time with companies like Microsoft and Cisco. Instead, the problem was the stock prices. They were too high.

Let’s turn to the biotech sector now. We had a position in the biotech sector for an extended period of time. It was a profitable trade. It did well. We exited it several months ago and have not reentered the group. Why?

The issue again is valuation. How much is a biotech company worth? How much is an ETF worth if it is holding a basket of biotech companies? The answer is not clear.

The biotech industry has very long-term growth characteristics. However, it became extended due to substantial momentum-driven inflows into the stocks themselves and into the funds and ETF baskets that owned them. Our management focus in the equity market is on ETFs, and we held two of them that specialized in the biotech sector. It was incumbent on us to do deep-enough valuation to come to a conclusion.

In our judgment, biotechs have reached a level too high relative to the valuation metrics. Just as in the tech stock bubble of yesteryear, there is not necessarily anything wrong with this biotech company or that one; but the price of the stock has risen too high for the characteristics and metrics being applied.

Cumberland Advisors is presently underweight in this sector. We are not holding any special large cap biotech ETFs.

~~~

David R. Kotok, Chairman and Chief Investment Officer

Category: ETFs, Investing, Think Tank

Key Trends in a Milestone Year for ETFs

Source: WSJ

Category: ETFs, Markets

Complete Histories – The South Seas Company – The Forgotten ETF

Click to enlarge Most people in the stock market have heard about the South Sea Bubble, the first stock market bubble, which took place in 1720, but few people realize that the South Sea Co. was also one of the first ETFs in market history.  Many people have seen a chart of the stock rising…Read More

Category: ETFs, Think Tank

Short Looks Beautiful to Bond Investors

Nice chart from WSJ looking at various ways to express Bond trades; note the average duration is very short, and is in green at the far right:   Click to enlarge Source: WSJ

Category: ETFs, Fixed Income/Interest Rates

Nikkei Downtrend (1982-Present)

click for ginormous chart Source: Kimble Charting   Awesome chart from Chris Kimble showing the Nikkei going back to 1982 — in particular, the downtrend that began in 1989 and still persists to this day. Chris notes that Declines of 32% to 60% taken place at this level for the past 20 years! One would…Read More

Category: ETFs, Investing, Technical Analysis

Cheapest ETFs for Any Investment Objective

Very cool tool from ETF Database that allows you to select the least expensive way to express nearly any sector or style investment, with both lowest internal expense ratio and the median cost in that particular space. (Let me know if they missed any and I will inform ETF Database of the omission)   Cheapest…Read More

Category: ETFs, Investing, Valuation

Red Light Green Light: Equity Sector ETF Daily Performance

Binary market action as in a daily game of red light green light.  Take a look at this week’s daily action in the sectors.   What will tomorrow bring? (click here if charts are not observable)

Category: ETFs, Markets, Think Tank

Grant: Gold Prices May Be Falling on Momentum

James Grant, publisher of Grant’s Interest Rate Observer, talks about gold prices, inflation and credit markets. He speaks with Deirdre Bolton on Bloomberg Television’s “Money Moves.” Bloomberg’s Michael McKee also speaks.


Source: Bloomberg, April 15 2013

Category: ETFs, Gold & Precious Metals, Video

World’s Biggest ETF/Contrarian Indicator: GLD > SPY

GLD was briefly the world’s biggest exchange-traded fund. In August 2011, GLD had assets of more than $77 billion, surpassing SPY (SPDR S&P 500 ETF) for a short time. The SPDR Gold Trust’s market capitalization rose to $76.7 billion  — gold briefly topped $1,880/ounce. At the same time, SPY’s “capitalization” was ~$74.4 billion. I missed…Read More

Category: Contrary Indicators, ETFs, Gold & Precious Metals, Technical Analysis

World's Biggest ETF/Contrarian Indicator: GLD > SPY

GLD was briefly the world’s biggest exchange-traded fund. In August 2011, GLD had assets of more than $77 billion, surpassing SPY (SPDR S&P 500 ETF) for a short time. The SPDR Gold Trust’s market capitalization rose to $76.7 billion  — gold briefly topped $1,880/ounce. At the same time, SPY’s “capitalization” was ~$74.4 billion. I missed…Read More

Category: Contrary Indicators, ETFs, Gold & Precious Metals, Technical Analysis