Ticker Reports for December 25th
Top 3 Reasons to Invest in This Bond ETF for Stability and Growth
That means if asset classes like gold or currencies start to make a move, and their correlations swing from a positive to negative or vice versa, investors need to be aware of what’s causing this relationship so that they can play it accordingly and profit from the swing.
For that reason, today’s shifting market to benefit from a potential long trade in bonds is essential.
More specifically, there are three main reasons that investors should look into the iShares 20+ Year Treasury Bond ETF (NASDAQ: TLT) for the coming months and quarters, especially as price action in other inflation and interest rate-sensitive asset classes shows them how the future might look brighter for bond prices.
With this in mind, here’s the first reason investors can consider this bond exchange-traded fund (ETF) for their portfolio.
Inflation Slowdowns Call For Adjustments in Bonds
The way iShares 20+ Year Treasury Bond ETF has been selling down for the past couple of months is not completely connected to the current business environment. While some asset classes and stocks, like consumer discretionary names, have behaved in a way that might signal inflation, fears of rising prices and costs are just not there today.
The recent gauges of inflation that the Federal Reserve (the Fed) considers, like the PCE and PPI indexes, are the opposite of what these stocks call for. This is why the price of gold has just gone on a major pullback, along with other inflation-sensitive assets like crude oil and their respective pullbacks.
Why would inflation-driven commodities be coming off their highs if inflation is the driver behind the bond sell-off? As that doesn’t make much sense, that would build the foundation for the three reasons behind the bullish thesis behind a potential long in this bond ETF.
An adjustment in bond prices to the actual inflation situation would allow investors to take advantage of this ETF's risk-to-reward setup. The downside (meaning higher rates) is minimal compared to how high prices can go (and subsequently lower rates).
Small Cap Stocks Converge With Bonds, Divergence Next?
The correlations between small-cap stocks, as seen through the iShares Russell 2000 ETF (NYSEARCA: IWM) and iShares 20+ Year Treasury Bond ETF, have risen to a cyclical high. That means their price action is now converged, as the two asset classes have essentially declined over the past few weeks.
What follows naturally from this convergence is a correlation breakdown expressing itself as a divergence between small-cap stocks and bond prices. Fundamentally, as covered in the previous point, a bond rally is much more likely than a sell-off, making this divergence a likely setup that will benefit bonds the most.
It also makes fundamental sense, as small-cap stocks (made up of smaller domestic businesses) can’t diversify away costs or cycles as effectively as large-cap stocks can. Slowing inflation and business activity will likely keep small caps lower while bonds rally, consequently lowering yields.
Then, as correlations come back down to cycle lows and yields are down to reflect inflation easing and Fed cuts, the environment would be much friendlier to let small-cap stocks rally back and converge to the upside with bonds.
Energy Stocks Expected to Boom, Bullish for Bonds?
Warren Buffett took the lead in the energy sector when he recently bought up to 29% of Occidental Petroleum Co. (NYSE: OXY), as he knows what the bond bottoming could bring next. As inflation business slowdowns affect small caps, they also affect oil demand and prices.
However, once these rate cuts trickle down to the rest of the economy, bond rallies and lower yields could not only help small-caps but also boost overall business activity in the broader market. That is when oil demand could come back on the scene, boosting the price per barrel and related stocks.
Correlations between bonds and the Energy Select Sector SPDR Fund (NYSEARCA: XLE) show this theme at play. A convergence makes little sense, as these assets are typically negatively correlated. A natural divergence from here would favor a bond rally before an oil rally comes in, giving investors a third way to justify a buy in the ETF.
The gold trades I'm making right now
Back in November, gold made a tiny move of 1.6%.
But according to my backtesting by using a special type of gold trade, I would have seen a 141% gain in just a week.
It happened again in March. Gold nudged up 1.2%.
This time? A 104% overnight gain.
And in June? A 1% gold move turned into a 74% gain in two weeks.
Granted, there would have been smaller wins and those that did not work out, but you see, there's a reason I'm telling all my friends to hold off from buying gold or regular gold stocks right now.
There's a more lucrative way to play the gold market as we enter a new breakout period.
It's all about catching what I call "Acceleration Cycles."
Top 3 Emerging Market ETFs: Unlocking Global Growth Potential
Emerging markets represent a compelling investment opportunity because they invest in rapidly developing economies poised for substantial growth. These markets offer a unique blend of high-growth potential and increased risks. For investors seeking to diversify their portfolios, emerging market Exchange-Traded Funds (ETFs) provide an accessible avenue to tap into the economic expansion of these developing nations. However, navigating the complexities of emerging markets requires a thorough understanding of the inherent risks, including political instability, currency fluctuations, and variable regulatory environments. Let's take a few minutes and go over the basics you need to know in order to get started investing in emerging markets.
Understanding the Allure of Emerging Markets
Emerging markets are nations experiencing rapid economic growth and industrialization. These economies often exhibit common characteristics, such as developing financial markets, higher economic growth rates than developed markets, a burgeoning middle class, and increasing foreign investment.
Countries typically classified as emerging markets include Brazil, Russia, India, China, and South Africa (collectively known as the BRICS nations), along with many countries in Southeast Asia, Latin America, and Eastern Europe. These markets offer significant potential due to their expanding consumer bases and increasing integration into the global economy. Investing in these markets, however, is often accompanied by higher volatility and risk compared to developed markets.
Exchange-Traded Funds: A Gateway to Emerging Markets
ETFs have become popular vehicles for investors to gain exposure to various asset classes, including emerging markets. These investment funds hold a basket of securities, such as stocks or bonds, and typically track a specific index. They trade on stock exchanges like individual stocks, offering investors intraday liquidity and ease of trading.
Most emerging market ETFs are passively managed, meaning they replicate the performance of a chosen index rather than actively selecting individual stocks. This passive approach generally results in lower expense ratios compared to actively managed mutual funds. ETFs also offer diversification benefits by providing exposure to a wide range of companies within a single investment, reducing the risk associated with investing in individual stocks.
Several ETFs offer exposure to emerging markets, each with unique characteristics that cater to different investor profiles. When considering investing in emerging market ETFs, it's crucial to understand the differences between the funds available. Let's examine three of the most prominent ETFs, each offering a unique approach to tapping into these markets' potential.
iShares MSCI: A Classic Choice With High Liquidity
For investors seeking a well-established and highly liquid option, the iShares MSCI Emerging Markets ETF (NYSEARCA: EEM) is a strong contender. This fund, managed by BlackRock, is one of the oldest emerging market ETFs, boasting a track record that dates back to its inception in 2003. EEM aims to mirror the performance of the MSCI Emerging Markets Index, a widely recognized benchmark comprising large and mid-cap companies across a multitude of emerging market nations.
With $17.80 billion in assets under management as of December 20, 2024, EEM offers unparalleled liquidity, trading an average of nearly 28 million shares daily. This high trading volume makes it an excellent choice for investors who prioritize the ability to enter and exit positions quickly and efficiently. It is important to note that EEM does not include South Korea in its holdings. EEM has an expense ratio of 0.70%. While this is higher than some of its peers, the fund's liquidity and established presence may justify the cost for confident investors.
Vanguard FTSE: Broad Diversification at a Bargain Price
If broad diversification and cost-effectiveness are your primary concerns, the Vanguard FTSE Emerging Markets ETF (NYSEARCA: VWO) is an exceptional choice. This ETF tracks the FTSE Emerging Markets All Cap China A Inclusion Index, which encompasses a vast basket of over 4,500 stocks, including large, mid, and small-cap companies across emerging markets, including South Korea.
This extensive coverage provides investors with exposure to a broader array of companies and sectors compared to more narrowly focused funds. VWO's standout feature is its remarkably low expense ratio of just 0.08%, making it one of the most cost-efficient options in the emerging markets space. This low cost, combined with the fund's comprehensive diversification, has attracted substantial assets, with AUM reaching $81.16 billion as of December 20, 2024.
Furthermore, Vanguard recently revised VWO's diversification policy. This change allows the fund to maintain its investment objective of tracking its target index even if it becomes "non-diversified" due to index rebalances or market movements. For long-term investors seeking broad exposure to emerging markets at an unbeatable price, VWO presents a compelling proposition. The fund also boasts a 3.59% dividend yield as of December 20, 2024, which is the highest dividend yield out of the three funds reviewed.
iShares Core MSCI: A Comprehensive Core Holding
For investors seeking a balanced approach that combines broad diversification with cost efficiency, the iShares Core MSCI Emerging Markets ETF (NYSEARCA: IEMG) is an attractive option. This fund, also managed by BlackRock, tracks the MSCI Emerging Markets Investable Market Index (IMI), which includes large, mid, and small-cap companies, providing a comprehensive representation of the emerging markets universe, including South Korea.
With an expense ratio of 0.09%, IEMG is highly competitive in terms of cost. As of December 20, 2024, the fund's AUM stood at $81.80 billion, reflecting its popularity among investors. IEMG holds approximately 2,957 stocks, offering a level of diversification that surpasses EEM but doesn't quite reach VWO's breadth. IEMG provides ample liquidity to most investors. For those seeking a core emerging market holding that balances broad exposure with cost-effectiveness, IEMG is an excellent choice.
Investing in Tomorrow's Giants
Emerging market ETFs can be a valuable addition to a diversified investment portfolio, providing exposure to the growth potential of developing economies. The three funds we reviewed today each offer unique features and cater to different investment objectives.
However, investors must carefully consider the risks associated with emerging markets and conduct thorough due diligence before investing. Staying informed about global economic trends and consulting with a financial advisor can help investors make informed decisions about incorporating emerging market ETFs into their portfolios.
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Why Barron's Added Alibaba to Their 2025 Buy List
It’s the end of the 2024 trading year. Now that investor attention – and capital – is headed to 2025, a few resources might be useful for figuring out the best ideas and trends to invest in in the coming months. One of these resources is Barron’s top stocks list for 2025, released every end of the year and followed by many for their accuracy on average at picking good companies to hold over the next 12 months.
Today’s list included a name that has been the center of some controversy recently. As part of overseas stocks in China, it is not a company that has inspired a lot of comfort among investors. However, that is exactly where a true value investor finds his or her best ideas: when nobody else is willing to do the homework because everyone else just seems to be too against the idea.
That stock, or the opportunity for that matter, is found in technology sector giant Alibaba Group (NYSE: BABA), and it isn’t only Barron’s who liked the stock enough to express their optimistic view on it.
Several analysts on Wall Street are also boosting their ratings and valuations for Alibaba stock, not to mention the various institutional investors surrounding the stock near its lows.
Here are some reasons why Barron’s decided to pick Alibaba this year.
China’s Economy Calls for Stock Buyers
There is a major divergence in Asia’s bond market. Today, yields would make China’s economy the best risk-to-reward ratio in the region. Yields have fallen below Japan’s on a 30-year bond basis, meaning markets are now pricing in less risk and volatility in China than in Japan.
Then there is the fact that the iShares MSCI China ETF (NASDAQ: MCHI) offers a dividend yield of up to 2.5%, which is above the Chinese ten-year bond’s current yield of 1.7%. In any other market, when stocks offer a higher yield than the country’s ten-year bond, there is typically a buying spree.
Well, there hasn’t been one in China for the most part, and that should tell investors that this is a fear-driven market where they can follow Warren Buffett’s advice and “Be greedy when others are fearful.” On the other hand, a few mega investors have been quietly building massive positions in Alibaba before it becomes too popular.
Institutional Capital Flows to Alibaba Stock
Over the past few quarters, investors like Michael Burry and David Tepper, managing billions in capital for their hedge funds, have made Alibaba stock their largest position in their respective portfolios. Then, even George Soros, who was not too keen on taking foreign stock positions, initiated a multi-million dollar investment in Alibaba.
These investors were not alone, however, as allocators from Sanders Capital decided to boost their Alibaba stock holdings by 0.3% as of November 2024. This may not sound like much on a percentage basis, but it did bring their net position to a high of $1.9 billion today, placing them among the largest institutional shareholders in Alibaba.
What are these buyers seeing in the company that most of Main Street just seems to be missing out on? Well, that’s where retail investors can start to take analyst views and sentiment into account. Today’s price target on Alibaba stock, the Wall Street consensus, stands at $114.1 a share, calling for up to 35.3% upside from today’s prices.
However, some are willing to stand outside the pack and give Alibaba a more reasonable valuation based on its recent price action, like those from Barclays. These analysts kept an overweight rating on Alibaba stock as of November 2024, valuing the company at $130 per share to imply a much bigger rally of up to 54.2% from today’s price.
Even more aggressive are the targets set by Macquarie from October 2024, where their outperform rating came along with a $145 a share valuation. To prove these analysts right, Alibaba stock would have to stage a 72% rally to give investors a start to 2025.
As bullish as these targets are, they still don’t reflect the big picture. Analysts thought Alibaba stock was worth up to $246 a share in 2021, and judging by the company’s financials, that valuation should have never gone away in the first place.
Knowing that the stock is cheap today, especially as its price-to-earnings ratio (P/E) of 17.1x falls well below the retail sector’s average valuation of 108.9x, Alibaba’s management decided to allocate up to $25 billion to the company’s share buyback program. This is a vote of confidence in the company’s future valuation that investors should not ignore.
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