January 2, 2019 - Sevens Report

Copyright 2018, Kinsale Trading LLC. All Rights Reserved. www.sevensreport.com

January 2, 2019

Contrarian Alert: The Blood In The Streets

Issue

Welcome to 2019! Or, maybe a better greeting is…

“2018, I’m glad you’re over!”

Yes, 2018 was a tough year for markets, especially

in the fourth quarter. In fact, to say that Q4 was a

much different type of market than most investors

expected is to strain the boundaries of understate-

ment.

After enduring a fair amount of volatility in late Jan-

uary and early February, then again in March, it was

somewhat reasonable to assume that the worst

was behind us.

Well, the phrase “you ain’t seen nothing yet,” is

what comes to mind first.

As you know from reading our daily Sevens Report,

there were all sorts of headwinds facing markets in

2018. A crack in the two pillars holding up the bull

market—strong earnings growth and good econom-

ic data, were two of the biggest headwinds that de-

veloped in the fourth quarter.

Yet there also was the monetary policy headwind,

with the Federal Reserve hiking rates and unwind-

ing its balance sheet in the face of negligible infla-

tion, a slowdown in U.S. economic data and a mar-

ket riddled with bearish tension.

Add to that mix of headwinds U.S.-China trade war

uncertainties and domestic political turmoil, and

you get an ominous cloud over markets that’s

caused some of the most raucous volatility we’ve

seen in nearly a decade.

All one need do is look at the numbers and a chart

of the major domestic averages from Sept. 28

through Dec. 28 to see the gravity of the pullback

and the accompanying volatility.

You know there’s virtual blood in the streets when

In Today’s Issue

• Contrarian Ideas for 2019.

• The start of a new year means new money needs to be

put to work, so we wanted to provide some unique

and interesting contrarian ideas that can outperform

in 2019.

• Contrarian Idea 1: Emerging markets (IEMG, EEMV). A

weaker dollar and U.S.-China trade deal are potential

positive catalysts for this space in 2019.

• Contrarian Idea 2: Homebuilders/Real Estate (ITB,

VNQ). Positively skewing demographics, increasing

affordability and a likely cap on future rate hikes are

potential positive catalysts in 2019.

• Contrarian Idea 3: European Small Caps (DFE). A

unique European small cap fund that weights via divi-

dend yield.


the Dow is down 12.8% over those three months—

and it’s the best-performing broad-based market

index!

The S&P 500 was down 14.7% in the period while

the NASDAQ Composite plunged some 18.2%. The

small-cap Russell 2000 index really took a pummel-

ing, down 21.5% over those three months.

These numbers are bad enough, but they would

have been much worse had there not been the big

5% melt-up day on Wednesday, Dec. 26.

Unfortunately for advisors and investors alike, it’s

not just stocks that came under a storm of selling

pressure.

Commodities also have come under heavy fire, and

the relative counterbalance of bonds has been mut-

ed by a reluctance to own interest-rate sensitive

assets. Furthermore, the steady uptrend in the U.S.

dollar has weighed on foreign investments that are

heavily influenced by currency patterns.

As we enter 2019, we hang on the precipice of what

may indeed become a full-blown bear market.

Yet, bear market or not, the new year brings with it

new money that simply must be put to work via

mandatory retirement contributions, cash from bo-

nuses, etc. So, with that fact in mind, we want to

focus on helping you with that task by identifying

some contrarian investments where there’s ram-

pant negativity, but also where that negativity may

be overdone.

Now more than ever, advisors and investors need

to keep a positive mindset that looks at this sell-off

as an opportunity to strengthen client relationships,

and to unearth areas of opportunity to invest in for

the year ahead.

As the 18th-century British nobleman and member

of the famous Rothschild banking family, Baron

Rothschild, once famously said, “The time to buy is

when there’s blood in the streets.”

Well, there’s certainly been a lot of blood spilled on

the trading floors in Q4, both domestically and in-

ternationally.

That means there are plenty of opportunities for

those with what can be described as a “contrarian”

mindset, meaning you are looking to own what has

otherwise been the most unloved sectors out there.

Moreover, you must approach this situation with

the idea that volatility and pullbacks, even bear

markets, are a feature of the markets that must be

exploited rather than a pernicious bug that should

be avoided.

Hey, we all know that preying on investor fear is a

great way to sell books or advertising slots on a

podcast, but no one ever made any money by

sitting on the sidelines when so many blood-in-the-

streets opportunities such as this develop.

The reality for most investors, and even most advi-

sors, is that by the time you figure out that the mar-

ket danger is over, much of the next profitable

move has already been made.

And with that frame of reference in mind, I have

identified several unpopular areas of the market

that have been pummeled, not just in Q4, but also

over the last twelve months.

In my opinion, these maligned investments have a

good shot at turning into solid long-term uptrends

as we head into 2019.

The risk/reward equation here is attractive, and as

advisors we want to begin the new year with a

strong allocation to sectors that will allow us to

help our clients outperform during the year, and

that will help cement lasting relationships with cli-

ents that can lead to great referrals, new clients

and more AUM.

The following are my three favorite “blood in the

streets” ideas for 2019.


Idea #1: Emerging Markets

When you look over the global landscape of invest-

ment returns, the one area that consistently stands

in the red for 2018 is emerging markets.

We already have several EM exposed ideas in Al-

pha, including the EM bonds strategy (EMB, EMLC,

EBND, AGEYX) and very targeted EM plays via

KWEB, KBA and EMQQ.

If the tide turns more positively for emerging mar-

kets in 2019 all of those ETFs should handily outper-

form. But, admittedly, those are very specific strat-

egies, and in this issue we wanted talk about

emerging market stocks more broadly.

The bellwether for this sector is the iShares MSCI

Emerging Market ETF (EEM), which fell more than

15% in 2019, and off some 25% from its January

highs. That’s a significant drop in a single year for

an asset class that many deemed to be significantly

undervalued relative to developed markets even at

the start of 2018.

When you break down the individual components,

you start to see a trend of ugly regional perfor-

mance. South Africa dropped approximately 28%

this year, the China A-Shares fell 30%, and Turkey

declined a stunning 41%.

On the surface, it appears like a cast of characters

you would want to avoid at all costs. Yet much of

those trends can be explained by two important

factors—a rising U.S. dollar and depreciating com-

modity prices.

Everyone knows that emerging market economies

are heavily tied to the commodity markets. Their

largest exports tend to be natural resources such as

gold, oil, rare earth minerals, copper and other in-

dustrial products that depend largely on inflation-

ary tailwinds.

When crude oil goes from $77/barrel to $45/barrel

in a span of two months, that’s going to adversely

affect emerging market economies and stocks tied

to them.

Furthermore, the rising trend in the U.S. dollar, and

by contrast a decline in EM currencies, acts as a

headwind for equity share prices in this space.

It stands to reason that if the United States can suc-

cessfully stave off a trade war with China and

workout some type of compromise on this issue,

we may just see a peak in the U.S. dollar in early

2019. Such an event would be a tremendous cata-

lyst for virtually all emerging market economies to

experience the type of growth that they did from

January 2016 to January 2018.

In a recent Sevens Report Alpha webinar, we fea-

tured Tim Seymour of Seymour Asset Management,

who told us that when it comes to emerging mar-

kets, it’s all about the dollar and China.

So, if we can get a pullback in the dollar and trade

war progress with China that leads to improved

economic data from that key region, then emerging

markets are likely to surge.

Another positive to note here is that emerging mar-

ket bonds have remained relatively solid despite

the decline in their equity counterparts. The Alpha

recommendation iShares J.P. Morgan USD Emerg-

ing Markets Bond ETF (EMB) has been trading in a

tight channel over the last six months as it contin-

ues to offer an above-average 6% yield.

This stability bodes well for the outlook of emerging

market nations and the potential for a rebound in

stock prices should the right combination of eco-

nomic factors develop next year.

So how do you play the rebound in emerging mar-

kets for 2019?

The answer for many may well be funds like EEM or

the venerable Vanguard FTSE Emerging Market ETF

(VWO). Both of these funds offer a diversified solu-

tion that can be easily integrated into the foreign


stock sleeve of any portfolio.

Yet our preferred vehicle is the iShares Core MSCI

Emerging Markets ETF (IEMG).

This fund is as inexpensive as VWO with an all-in

management fee of just 0.14%, but it has a much

broader portfolio

of 1,840 stocks.

What this means is

that you get expo-

sure to more than

just the large-cap

universe that

dominates tradi-

tional asset alloca-

tion methodolo-

gies.

The small- and mid

-cap mix that makes up a fair portion of IEMG can

provide a meaningful boost to your performance if

emerging markets take off next year.

Additionally, the fund is now one of the largest ETFs

in the EM sphere with more than $48 billion in total

assets. That means it has be-

come a veritable juggernaut in

just a relatively short time.

Those who may be excited

about the emerging market

theme but just don’t have the

stomach for the volatility

should still consider owning

the iShares Edge MSCI Min

Vol Emerging Markets ETF

(EEMV).

Like all minimum volatility

funds, it’s designed to select a

smaller group of stocks from

within the EM universe that have demonstrated

characteristics of muted price action. Think smaller

peaks and valleys, which equates to a much

smoother path of returns.

Case in point, the monthly “Value at Risk” (or VAR)

for EEMG is 9%, well below the 11% for IEMG and

12.2% for the SPY! So, we’ve got emerging market

growth/rebound

potential with a

monthly VAR than

the SPY. That

seems like an

attractive risk/

reward set up.

Finally, as Tim Sey-

mour told us in the

aforementioned

webinar, when it

comes to EM, you

don’t have to have

a bull market to make money.

In fact, as Tim puts, “You make the most money

when things go from ‘terrible’ to ‘just bad’ in EM.”

And given the “terrible” in EM over the past year,

the “just bad” upside here

could turn out to be out-

standing.

Idea #2: Home Construc-

tion Stocks/REITs

Another area of the market

that took a dive in 2018 was

home construction stocks. For

example, the iShares U.S.

Home Construction ETF (ITB),

which had well over $1 billion

in assets near the start of the

year has fallen 31% so far and just recently hit new

cycle lows.

The fund is made up of all the usual suspects in the

iShares Core MSCI Emerging Mar-

kets ETF (IEMG)

Inception Date: 10/18/2012

Assets: $49B

Avg Daily Volume: 13.4M

Expense Ratio: 0.14%

# of Holdings: 1900

YTD Return: -15.00%

3-Yr Return: 28.64%

Mstar Rating: 4 Star


housing category such as DR Horton Inc (DHI), Len-

nar Corp (LEN), and Toll Brothers Inc (TOL) in addi-

tion to discretionary stocks such as Home Depot

(HD) and Lowe’s (LOW).

It’s reasonable to

assume that much

of this recent anxie-

ty over homebuild-

ers relates back to

the idea that rising

interest rates will

stifle home pur-

chases by increas-

ing mortgage costs.

Additionally, there

are broader cyclical

concerns that the next generation of homeowners

(i.e. millennials) may not have the means or desire

to own real estate like their parents did.

Wall Street may also have some lingering PTSD over

the last housing crisis coming home to roost again

in the form of a new reces-

sion driven by the same fac-

tors.

My counter to those argu-

ments is the following:

1) Millennials have been

deferring homeownership

as affordability gaps have

previously been out of

reach. This is likely to con-

tract as student debt gets

paid off, low down payment

financing programs take

over, and marriage/

partnerships allow this group to leverage their in-

come into ownership.

2) There is a new demand component that many

people have forgotten about and that’s

“Generation Z” that is right behind millennials. This

driving force may help expand the pool of eligible

homeowners in the next several years.

3) The Fed has asserted that they will be easing off

the rising rate gas

pedal in 2019, and

that may help alle-

viate fears of a 6%

or 7% mortgages

pricing everyone

out of the market.

The reality is that a

steady interest rate

picture will help

alleviate a huge

barrier to entry for

many potential

homeowners.

Funds such as ITB are now priced at a much more

attractive valuation compared to where they were a

year ago for new capital.

The fund is currently trading at

a P/E ratio of 12.6 and has

worked off a significant premi-

um in its share price. Another

fund worth mentioning in this

group is the SPDR S&P Home-

builders ETF (XHB), which owns

many of the same stocks in a

modified equal-weighted

portfolio construction tech-

nique.

Speaking of a stable or even fall-

ing interest rate picture, there is

room in this conversation to in-

clude publicly traded REITs as well. The Vanguard

Real Estate ETF (VNQ) is an easy way to own a sig-

nificant slice of the office, residential and industrial

real estate complex. It sports an expense ratio of

iShares US Home Construction

ETF (ITB)


Assets: $793.5M

Avg Daily Volume: 3.1M


# of Holdings: 47

YTD Return: -31.7%

3-Yr Return: 10.00%



just 0.12%, a yield of 3.29% and is trading more

than 9% off its recent highs.

Pairing both a speculative position in home builders

with a more stalwart holding in income-producing

REITs can help offset volatility and add attractive

capital appreciation

potential within the

real estate sector.

Idea #3: Europe-

an Small-Cap

Stocks

Outside of emerg-

ing markets, the

other slice of for-

eign stock exposure

that has come under heavy fire this year is Europe-

an small-cap stocks. One of the leading funds in this

category is the WisdomTree

Europe Small Cap Dividend

ETF (DFE), which is down

some 21% this year.

This unique fund is part of a

tactical international strate-

gy from WisdomTree that

identifies small- and mid-cap

stocks in developed Europe-

an nations that pay divi-

dends.

The dividend-seeking qualifi-

er generally means that

these stocks are higher qual-

ity companies with track records of returning

profits to shareholders. It’s also far more diversified

than one would initially assume with over 400 hold-

ings spread amongst top countries such as the Unit-

ed Kingdom, Sweden, Italy, Germany, and many

others.

One of the distinctive qualities of this ETF is that

holdings are weighted according to their dividend

payouts rather than market cap or an equitable dis-

tribution of assets.

This provides greater emphasis on the stocks that

are returning the

greatest amount of

capital. That method-

ology skews the sec-

tor makeup of DFE

towards industrials,

consumer discretion-

ary, and financial

stocks.

The fund pays a dis-

tribution on a quar-

terly basis that cre-

ates an annual income stream in the 3.20-3.50%

range.

Bear in mind that the income

from DFE tends to be

“lumpier” than that of domes-

tic ETFs because of the quirky

dividend schedules of overseas

stocks. It currently has $700

million in total assets and

charges an expense ratio of

0.58% to manage the portfolio.

The thesis behind owning an

ETF like this is again to provide

targeted exposure to overseas

stocks that have experienced a

significant discount in their rel-

ative valuations.

Like emerging markets, this fund would certainly

benefit from a reversal of fortune in the U.S. dollar.

And, if the European economic environment also

improves on the settling of Brexit and other political

dust ups, look for DFE to deliver for contrarian

WisdomTree Europe Small-Cap

Dividend ETF (DFE)


Assets: $675.4M

Avg Daily Volume: 94k


# of Holdings: 445

YTD Return: -21.30%

3-Yr Return: 4.84%



blood-in-the-streets investors.

Conclusion

Money has to be put to work in the new year, it’s

just the way it is. As such, we wanted to provide

some contrarian ideas that 1) Offer substantial re-

turn potential if they rebound and 2) Offer expo-

sure to bombed-out sectors where the worst news

may already be priced in.

Clearly these aren’t going to be major allocations

for clients, but they are contrarian, outside-the-box

ideas that 1) Can rebound and outperform and 2)

Should interest some clients and prospects from an

opportunity standpoint.

More broadly, given the overwhelming volatile

footprint in December, it’s reasonable to assume

that the near-term market tumult is likely to remain

with us through much of the first quarter of 2019.

Yet, as we all know, with so much negativity out

there, this market is also ripe for a “positive” sur-

prise (from earnings, data, the Fed or U.S./China

trade) to cause a big rebound.

Given that, it’s markets like this where you want to

build and refine your watch list for areas of oppor-

tunity that can bolster your clients’ upside. Moreo-

ver, the opportunity to purchase stocks at attractive

discounts should be a top priority for new cash with

a long-term objective of capital appreciation.

So, now really is the time to consider getting a little

bloody.

Best,

Tom

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Sevens Report Alpha Fund & Stock Ideas Fund/Stock Strategy Date Total Re-

turn

Benchmark Perfor-mance Since Issue

Date

Index Rebal

KWEB (KraneShares CSI China Internet ETF)

KWEB is an index rebalance play based on major Chinese internet and ecommerce companies (China N-shares) being added to FTSE Emerging Market Indices between Sep 2017 and June 2018. KWEB is our conduit to front-run huge index funds that will be forced to buy its underlying holdings.

What to do now: We closed KWEB on June 15th (last leg of rebal). It’s still viable as a long-term holding.

Issue 1:

8/17/17

8/24/17

KWEB:

21.46%

(closed)

ACWX:

6.93%

(through KWEB close date)

Smart Beta Pioneer

RSP (Invesco S&P 500 Equal Weight ETF)

From an index standpoint, S&P 500 Equal Weight has mas-sively outperformed S&P 500 (cap weight) over the long term (392% vs. 158% over the last 18 years). RSP has lagged recent-ly due to tech sector outperformance. That presents a short-term dislocation and opportunity to buy RSP at a discount to SPY.

What to do now: Buy.

Issue 2:

9/7/17

RSP:

0.21%

SPY:

3.47%

Self-Driving Car Bas-ket

SNSR (Global X Inter-net of Things ETF)

ROBO (ROBO Global Robotics & Automa-tion Index ETF)

AMBA (Ambarella)

QCOM (Qualcomm)

Massive changes to the auto industry, including self-driving technology, are closer to the mainstream than most investors think. The foundational changes to the auto industry could be the next “Megatrend” in investing to provide outperformance for years to come.

There is no pure play “self-driving” ETF yet, but SNSR and ROBO offer exposure to many tech companies that are best-positioned in the space. AMBA and QCOM are two of the better stocks with unique exposure to the growing self-driving car industry.

What to do now: Buy the ETFs. We closed QCOM a month and a half after the Broadcom takeover announcement for a quick, sizable gain.

Issue 3:

9/21/17

SNSR:

-12.9%

ROBO:

-15.1%

AMBA:

-21.5%

QCOM:

23.20% (closed)

SPY:

2.01%

SPY:

3.72%

(through QCOM close date)

Electric Car Battery Plays

LIT (Global X Lithium & Battery Tech ETF)

ALB (Albemarle)

The trend towards the widespread adoption of electric cars is accelerating, with U.S. auto companies planning massive roll outs and several countries putting end dates on the internal combustion engine.

From an investment angle, the key here is better technology, specifically lithium. LIT is a lithium ETF. ALB is one of the lead-ing lithium plays in the market.

What to do now: Long-term investors can buy now. But, as we said in the issue, LIT and ALB ran up big following China’s electric car decision. Both have sold off since. The growth opportunity is years, if not decades, ahead.

Issue 3:

9/21/17

LIT:

-26.9%

ALB:

-41.7%

SPY:

2.01%

Dividend Growth

DIVY (Reality Shares DIVS ETF)

REGL (ProShares S&P MidCap 400 Dividend Aristocrats ETF)

SMDV (ProShares Russell 2000 Dividend Growers ETF)

Historically, dividends are responsible for half of the market’s total return. They are an essential component of long-term outperformance. While most investors choose high-yielding dividend stocks, our research shows dividend growth stocks can generate better long-term returns.

DIVY is the only ETF that isolates pure dividend growth. This ETF is a fixed income alternative that should provide steady single-digit returns with low volatility and true diversification. REGL and SMDV are ETFs that provide exposure to the “Dividend Aristocrats” of tomorrow.


Issue 4:

10/4/17

DIVY:

-1.35%

REGL:

-0.68%

SMDV:

-3.88%

AGG:

0.41%

MDY:

-7.37%

IWM:

-9.26%

Merger Arbitrage

GABCX (Gabelli ABC Fund)

MNA (IQ Merger Arbitrage ETF)

Merger arbitrage is a time-tested hedge fund strategy. It seeks to profit from the timely completion of mergers, takeo-vers and corporate re-orgs. The strategy has produced solid absolute returns with low correlations to stocks and bonds.

GABCX and MNA are the two best-performing—and cheap-est—options to invest in this space.


Issue 5:

10/17/17

GABCX:

0.63%

MNA:

2.73%

AGG:

0.21%


Sevens Report Alpha Fund & Stock Ideas Fund/Stock Strategy Date Total Re-

turn


Date

Special Dividends

List of 24 stocks

Screened 17,070 stocks to arrive at 24 stocks that have con-sistently paid large special dividends. Investors can’t see the true yields on these stocks because they’re missing from finan-cial websites. Our elite list has yields ranging from 50% to 600% higher than the S&P 500’s yield.

What to do now: Buy (multiple ways to implement in issue).

Issue 6:

10/31/17

Basket of stocks (avg.):

7.37%

50% SPY/50% AGG:

3.77%

Insider Sentiment

KNOW (Direxion All Cap Insider Senti-ment Shares ETF)

Numerous academic studies prove following corporate insider buying is a strategy that can outperform. KNOW—and its underlying index—have been consistent outperformers.


Issue 7:

11/14/17

KNOW:

-8.68%

SPY:

-1.05%

Global Value

GVAL (Cambria Glob-al Value ETF)

A fundamentally-focused deep value strategy that uses a cyclically-adjusted valuation composite to evaluate 45 global countries for investment. GVAL captures the cheapest coun-tries and the cheapest stocks in those specific countries, too.


Issue 9:

12/12/17

GVAL:

-11.50%

ACWX:

-12.60%

“Backdoor” Hedge Fund Investing

List of 10 stocks

It’s almost impossible for investors to access the world’s best hedge fund managers. Either their funds are closed, the mini-mums are too steep (in the millions), or the fees are outra-geously high (‘2 & 20’). We found 10 little-known ways to access ace managers who have produced Buffett-like returns.


Issue 10:

12/27/17

Basket of stocks (avg.):

-5.09%

50% SPY/50% AGG:

1.30%

EM & FM Bonds

EMB (iShares JPM USD Emerging Mar-kets Bond ETF)

EMLC (VanEck JPM EM Local Currency Bond ETF)

EBND (SPDR Bloom-berg Barclays Emerg-ing Markets Local Bond ETF)

AGEYX (American Beacon Global Evolu-tion Frontier Markets Income Fund)

Most investors have no allocation to fixed income outside the U.S., but we think it’s worth serious consideration. Emerging and frontier debt funds have yields 2X, 3X, and 4X the yields of traditional fixed income investments... low correlations to major asset classes... and healthier fundamentals (lower debt-to-GDP ratios, faster-growing economies, and better de-mographics) from a country perspective.

EMB (emerging market debt hard currency), EMLC/EBND (emerging market debt local currency), and AGEYX (actively-managed frontier market debt) are all attractive options.


Issue 11:

1/9/18

EMB:

-5.59%

EMLC:

-9.17%

EBND:

-7.81%

AGEYX:

-4.40%

AGG:

0.67%

“Blockchain” In-vesting

BLOK (Amplify Trans-formational Data Sharing ETF)

BLCN (Reality Shares Nasdaq NexGen Economy ETF)

Blockchain, the technology behind cryptos, has the potential to change many industries. Having the right exposure to com-panies using or pioneering the use of blockchain, offers sub-stantial long-term growth opportunities. Not only did we break the story on the first two blockchain ETFs (BLOK and BLCN) ahead of every financial media outlet, we also provided a sneak peek at their top holdings and a blockchain primer.


Issue 12:

1/16/18

BLOK:

-25.60%

BLCN:

-19.20%

SPY:

-8.39%

“Active” Bond ETFs

BOND (PIMCO Active Bond ETF)

TOTL (SPDR Dou-bleLine Total Return Tactical ETF)

FTSL (First Trust Sen-ior Loan Fund)

Studies show actively-managed fixed income funds have been much more successful at beating benchmarks than actively-managed equity funds.

In addition, the “Agg” has changed for the worse over time: higher duration, lower yield, and less diversification. These three active bond ETFs—with better statistics and all-star portfolio management teams—stand a good chance at beating the Agg going forward.


Issue 14:

2/20/18

BOND:

2.13%

TOTL:

1.49%

FTSL:

-2.16%

AGG:

2.34%


Sevens Report Alpha Fund & Stock Ideas

Fund/Stock Strategy Date Total Re-turn


Date

Cash Alpha

FPNIX (FPA New In-come)

FPNIX has generated positive returns for 33 straight years. No other non-government bond fund can boast of an equivalent track record. We also featured “MaxMyInterest,” which pro-duces 140 to 150 basis points of alpha versus traditional cash vehicles (MMAs, MMFs, and CDs). Max also increases FDIC insurance and can give advisors visibility to held-away cash.

What to do now: Buy (Max is also an excellent cash manage-ment solution).

Issue 15:

3/6/18

FPNIX:

1.99%

BIL:

1.32%

Index Rebal

KBA (KraneShares Bosera MSCI China A Share ETF)

KBA is an index rebalance play based on the inclusion of Main-land Chinese equities (A-shares) into MSCI Global Standard Indexes. The first two steps will take place on June 1st and September 1st. KBA is our gateway to front-run massive index funds that will be forced to buy its underlying holdings.


Issue 16:

3/20/18

KBA:

-30.30%

ACWX:

-14.70%

Anti-Trade War

QABA (First Trust Nasdaq ABA Commu-nity Bank Index Fund)

QABA is a play to protect against trade war ramifications (97% of its sales are U.S.-sourced). Additionally, it should also be a beneficiary of U.S. tax reform, in that, smaller U.S. com-panies should capture most of the 35% to 21% corporate tax cut. We also featured three more ETFs (AMCA, AIRR, KRE) and two exclusive stock screens—run through Cap IQ—for advisors to share with clients who have trade war concerns.


Issue 18:

4/17/18

QABA:

-17.20%

SPY:

-6.55%

Foreign Small Caps

VSS (Vanguard FTSE All-World ex-US Small-Cap ETF)

DLS (WisdomTree International Small-Cap Dividend Fund)

Most advisors don’t allocate to international small caps. But, we think they should reconsider. This hidden asset class holds several advantages over its U.S. equivalents: cheaper valua-tions, less volatility, lower correlations, higher dividend yields, and past outperformance. We highlight multiple individual ETFs, ETF combinations, and actively-managed mutual funds that do the trick.


Issue 19:

5/1/18

VSS:

-18.50%

DLS:

-19.0%

EFA:

-14.60%

Disruptive Innovation

ARKK (ARK Innova-tion ETF)

Investing in the “cornerstone themes of disruptive innovation” has resulted in huge profits over time (think Amazon, Apple, and Netflix). ARK sees current investment opportunities in innovation platforms, such as automation, energy storage, DNA sequencing, next generation internet, blockchain tech-nology, etc. ARK’s top innovation-based themes are all repre-sented in ARKK. In 2017, ARKK was the #1 performing ETF (excluding leveraged and inverse ETFs) with a return of 87%!


Issue 20:

5/15/18

ARKK:

-12.90%

SPY:

-6.89%

Buybacks

PKW (Invesco Buy-Back Achievers ETF)

Companies with meaningful share count reduction have out-performed over the long term with lower volatility. Currently, U.S. companies are flush with cash due to tax cuts and repatri-ation. In turn, share repurchases broke a new record in Q1 2018 and they’re on pace to set a new record for 2018. PKW is the premier ETF to profit from buybacks (largest asset base and longest history). We also featured four alternative ETFs (SPYB, TTFS, DIVB, SYLD) and some individual stock lists.


Issue 21:

5/29/18

PKW:

-6.59%

SPY:

-6.17%

“FANG and Friends” of Emerging Markets

EMQQ (Emerging Markets Internet & Ecommerce ETF)

“By 2025, annual consumption in emerging markets will reach $30 trillion—the biggest growth opportunity in the history of capitalism.”—McKinsey & Company. The combination of four major forces in emerging markets make this a great invest-ment setup: favorable demographics, increasing smartphone availability, surging wireless broadband and Wifi access, and the globalization of the capital formation process. EMQQ is the best ETF to invest in this great confluence. We also fea-tured three alternative ETFs (ECON, KWEB, KEMQ).


Issue 23:

6/26/18

EMQQ:

-27.50%

EEM:

-8.19%



Fund/Stock Strategy Date Total Return Benchmark Perfor-mance Since Issue

Date

Micro Caps

IWC (I-Shares Micro-Cap ETF)

Small caps outperformed until this most recent pullback, but while allocations to that sector of the market are rising, micro-caps, a sub-set of small caps, remain generally over-looked.

Micro caps remain an overlooked, under-researched, and under-allocated part of the small cap universe that can offer diversification and outperformance (micro caps are perenni-al takeover candidates).

7/10/18 IWC:

-23.50%

IWM:

-20.00%

The Future of Con-sumer Spending

IBUY (Amplify Online Retail ETF)

FINX (Global X FinTech ETF)

IPAY (ETFMG Prime Mobile Payments ETF)

The way U.S. consumers purchase goods is changing—rapidly. And, getting “pure play” exposure to the rise to on-line retailers and to the growth of mobile payments could be similar to investing in credit cards back in the mid-80’s. There are few other established corners of the market that offer this type of growth potential.

7/24/18

IBUY:

-22.70%

FINX:

-19.70%

IPAY:

-14.20%

SPY:

-10.70%

Floating Rate Funds

FLOT (I-Shares Floating Rate Bond ETF

USFR (Wisdom Tree Floating Rate Treas-ury Fund)

SRLN (SPDR Black-stone / GSO Senior Loan ETF

EFR (Eaton Vance Floating Rate Trust)

Despite stubbornly high bonds/low yields, bonds are still now in a longer term bear market, and there exist few non-inverse bond alternatives that can produce absolute gains in a falling bond environment.

Floating rate ETFs rise as bond yields fall and offer absolute return potential in bond portfolios, and are an important tool in constructing client bond portfolios in a rising rate environment.

8/6/18

FLOT:

-0.08%

USFR:

0.73%

SRLN:

-3.21%

EFR:

-8.41%

AGG:

1.58%

Content Is King

PBS (Invesco Dynam-ic Media ETF)

IEME (Ishares Evolved U.S. Media & Entertainment ETF)

XLC (Communications services SPDR)

DIS (Disney)

How generational changes in the cable TV industry are pre-senting massive long-term growth potential (think NFLX’s 4000% return since 2012).

Industry Primer: How the cable industry is changing from a service-based business, to a content-based business.

8/20/18

PBS:

-11.90%

IEME:

-12.40%

XLC:

-14.60%

DIS:

-2.27%

SPY:

-11.90%

Momentum & Value

PSCH (PowerShares S&P SmallCap Health Care Portfolio)

SBIO (ALPS Medical Breakthroughs ETF)

FXG (First Trust Con-sumer Staples Al-phaDex ETF)

In our first of a recurring series, each quarter we’ll profile some of the best ETFs from a momentum and value stand-point.

Most investors and prospects can be grouped into those two investing styles, and we want to provide consistent, value-add idea generation for each type of investor, so you’re always armed with compelling ideas and stories for clients and prospects, regardless of their investment style.

9/4/18

PSCH:

-26.30%

SBIO:

-24.60%

FXG:

-11.20%

SPY:

-13.10%




Date

Commodities

PDBC (Invesco Opti-mum Yield Diversi-fied Commodity Strategy No K-1)

GNR (SPDR S&P Global Natural Re-sources ETF)

RLY (SPDR SSGA Multi-Asset Real Return ETF)

Commodities have typically outperformed during late expansion and early recession phases of the economic cycle. Many economic indicators imply we are entering (or are already in) the late expansion phase of the eco-nomic cycle. As such, commodities have outperformed so far this year, and we expect that to continue.

9/18/18

PDBC:

-15.10%

GNR:

-14.80%

RLY:

-12.00%

DBC:

-14.50%

Short Duration Bond ETFs

MEAR (IShares Short Maturity Municipal Bond ETF)

LDUR (PIMCO En-hanced Low Dura-tion Active ETF)

MINT (PIMCO En-hanced Short Ma-turity Active ETF)

The downtrend in bonds accelerated in September and October of 2018, and it was a reminder that advisors face challenges in the fixed income markets over the coming years.

One of the best ways to protect investors in a bond bear market is by shortening duration of bond holdings, so we presented three short duration bond ETFs that have yields that are close to the 10 year Treasury, but that have much shorter average maturities.

10/16/18

MEAR:

0.14%

LDUR:

0.11%

MINT:

0.38%

BIL:

0.27%

Bear Market Strate-gies

USMV (I-Shares Edge MSCI Minimum Vol-atility USA ETF)

DYLS (Wisdom Tree Dynamic Long/Short US Equity ETF)

PTLC (Pacer Trendpi-lot US Large Cap ETF)

The October 2018 equity market decline sparked fears of an end to the multi-year bull market. So, we wanted to provide some suggestions on practical “bear market” strategies for advisors that wouldn’t involve market tim-ing or deviating from keeping clients in the markets over the longer term.

10/30/18

USMV:

-4.53%

DYLS:

-9.01%

PTLC:

0.30%

SH:

6.40%

Special Dividends

List of 19 stocks

Screened 17,070 stocks to arrive at 19 stocks that have consistently paid large special dividends. Investors can’t see the true yields on these stocks because they’re miss-ing from financial websites. Our elite list has yields rang-ing from 50% to 600% higher than the S&P 500’s yield.


11/6/18

Momentum & Value 4th Quarter Edition

WTMF (Wisdom Tree Managed Futures ETF)

MLPA (Global X MLP ETF)

DCP (DCP Midstream LP)

SHLX (Shell Mid-stream Partners LP)

In our Q4 installment of our Momentum and Value series we focused on strategies for the volatile and difficult market.

Our momentum strategies were focused on non-correlated ETFs to provide diversification.

Our value strategy focused on the MLP space, which had compelling yields in an environment where the oil price should stabilize.

12/4/18

WTMF:

0.75%

MLPA:

-8.42%

DCP:

-20.20%

SHLX:

-10.70%

SPY:

-7.16%

AMLP:

-6.69%




Date

Growth into Value Rotation

RPV (Invesco S&P 500 Pure Value ETF)

DVP (Deep Value ETF)

Recognizing the switch in outperformance from value to growth in 2014 was one of the easiest ways to help cli-ents outperform.

Now, there are signs markets might be switching back, to an era where value outperforms growth. The ETFs in-cluded in this report serve as a “one stop shop” to add quality value exposure to client portfolios.

12/18/18

RPV:

-0.94%

DVP:

-0.66%

VTV:

-1.08%

January 2, 2019 - Sevens Report

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