Invesco S&P 500 BuyWrite ETF (BATS:PBP), Trade Ideas

Invesco S&P 500 BuyWrite ETF

PowerShares S&P 500 BuyWrite Portfolio

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A Covered Call ETF Gets Its Time To Shine

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Income and Appreciation with Covered Calls 

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PowerShares: No Long-Term Cap Gains on 120 of 123 ETFs

Potbelly Corp

By design, exchange traded funds adhering to buy-write or covered call strategies will be laggards in strong bull markets.

	That is the price investors pay for reduced volatility and added income. The PowerShares S&amp;P 500 BuyWrite Portfolio (NYSE: <a class="ticker" href="/stock/pbp#NYSE">PBP</a>) is a case study in this phenomenon. Over the past three years, the PowerShares S&amp;P 500 BuyWrite Portfolio is up 15.8 percent, less than a third of the 48.5 percent returned by the SPDR S&amp;P 500 ETF (NYSE: <a class="ticker" href="/stock/spy#NYSE">SPY</a>) over the same period.

	However, choppy, sideways and even turbulent market environments, such as the one investors are currently contending with, provide opportunity with covered call ETFs, including PBP.

	&ldquo;If such sideways conditions persist, we are likely to experience higher levels of equity volatility and higher sustained risk premiums. I believe this will make call-writing strategies more important than ever as an option for sourcing income and supplementing dwindling equity market returns. Remember, as equity market volatility increases, option risk premiums increase, which in turn can increase the amount of income call writers are able to generate,&rdquo; <a href="http://www.blog.invesco.us.com/covered-call-strategy-in-volatile-markets">according to a new note</a> from PowerShares. &ldquo;If one expects the US equity market to continue along in the same choppy fashion &mdash; failing to break out strongly to the upside or downside, a covered call strategy could be especially attractive.&rdquo;

	Although writing covered calls implies an element of active management, PBP is a passive, index-based ETF. The $322.1 million fund tracks the CBOE S&amp;P 500 BuyWrite Index, a benchmark &ldquo;designed to track the performance of a hypothetical &#39;buy-write&#39; strategy on the S&amp;P 500,&rdquo; <a href="https://www.invesco.com/portal/site/us/financial-professional/etfs/product-detail?productId=PBP">according to PowerShares</a>, the fourth-largest U.S. ETF sponsor.

	Looking at the equity portion of PBP&#39;s lineup, investors will see an ETF that looks just like a traditional S&amp;P 500 Index fund. However, PBP&#39;s perks come with some cost as the fund charges 0.75 percent per year, well above the expense ratios found on standard S&amp;P 500 ETFs.

	What PBP offers investors is a long S&amp;P 500 with covered calls written at strikes that are at and above the index&#39;s current trading price. Premiums received from the sold options are reinvested. PBP&#39;s yield advantage over the S&amp;P 500 is significant. The trailing 12-month dividend yield on the benchmark U.S. index is 1.92 percent, well below the 3.3 percent found on PBP.

	&ldquo;In bull markets, covered calls give away a portion of the market&rsquo;s appreciation in return for the income generated by the option premium. However, recent equity markets have struggled to move higher as they digest declining global growth expectations &mdash; which could benefit covered call strategies. Year to date, the S&amp;P 500 Index is up only 0.73%, including dividends &mdash; held in check by the headwinds of China&rsquo;s recent currency devaluation, sputtering economic activity in emerging markets and Europe, and the effect of the strong dollar on US corporate earnings,&rdquo; said PowerShares.

	What is important is that PBP does its job when market environment dictates the time could be right for such a fund. Sometimes that means being less bad than a regular S&amp;P 500 ETF and that is exactly what PBP has been this year. Year-to-date, the covered call fund is down 2.9 percent compared to a 6.1 percent decline for the S&amp;P 500.

A strategy that involves exposure to the stock market, as well as generating monthly income, sounds like a great option in the current market environment. The covered call strategy, also referred to as a buy-write strategy, involves buying shares of a stock and selling a call option against the position.

	It can be used to lower volatility and generate income while at the same time keeping exposure to the stock market. There is a downside risk to the strategy, that involves a strong bull market. If the stock moves above the strike price on the call option that was sold against the stock, it will limit the upside potential of the stock. In essence, an investor is putting a limit on the gains in exchange for monthly income from the option premiums.

	In the situation where the strategy takes too much time or is too complex for the individual investor, there are ETFs that focus on the covered call strategy:

	PowerShares S&amp;P 500 BuyWrite (NYSE: <a class="ticker" href="/stock/pbp#NYSE">PBP</a>). This ETF is based on the CBOE S&amp;P 500 BuyWrite Index that holds a portfolio of stocks that tracks the S&amp;P 500 and sells call options at or above the prevailing price of the index. The current yield on the ETF is 6.5 percent and it is up 5.9 percent this year. A recent rally has the ETF trading at the best level since June, as interest rates have once again started to increase. As interest rates rise it makes the income generated by the covered calls more attractive. The expense ratio is 0.75 percent.

	iPath CBOE S&amp;P 500 BuyWrite Index ETN (NYSE: <a class="ticker" href="/stock/bwv#NYSE" style="font-size:13px;">BWV</a>). This ETN tracks the same index as PBP with one major difference -- being how they achieve their objective. With an ETN, the product will use various financial vehicles to track an index, versus actually owning the stocks that make up the index. Therefore the risk lies on the issuer of the ETN, in this case Barclays (NYSE: <a class="ticker" href="/stock/bcs#NYSE">BCS</a>). The expense ratio is 0.75 percent and the ETN is up 11.3 percent in 2013. There are no distributions made by the ETN.

	Horizons S&amp;P 500 Covered Call ETF (NYSE: <a class="ticker" href="/stock/hspx#NYSE" style="font-size:13px;">HSPX</a>). Introduced in late June of this year, HSPX will track the same index as the first two covered call ETFs. The expense ratio will be slightly lower at 0.65 percent. The dividends are paid on a monthly basis, versus quarterly for PBP. Based on the erratic first four months of dividends the ETF is yield just under 4 percent. This yield is expected to vary greatly from month to month.

	AdvisorShares STAR Global Buy-Write ETF (NYSE: <a class="ticker" href="/stock/vega#NYSE" style="font-size:13px;">VEGA</a>). The actively managed ETF uses a proprietary strategy, that invests in a global allocation strategy and simultaneously sells call options against them. So far this year the ETF has been lagging the market as it is currently unchanged in 2013. Based on last year's one distribution the ETF is yielding less than one percent -- and on top of the 2.1 percent net expense ratio there is no reason to look any further into this vehicle.

	Of the four options, three are tracking the same index -- and the two that appear to be the best options for investors are PBP and the newly introduced HSPX.

Invesco's (NYSE: <a class="ticker" href="/stock/ivz#NYSE">IVZ</a>) PowerShares unit, the fourth-largest U.S. ETF sponsor, said today that it expects 120 of its 123 ETFs will not be subject to long-term capital gains distributions this year. PowerShares joins an array of rival ETF issuers that have already made similar announcements, <a href="http://www.benzinga.com/markets/bonds/12/11/3095644/most-ishares-etfs-wont-have-2012-capital-gains-distributions">including iShares, the world's largest ETF issuer</a>.

Distributions are paid to investors from the capital gains of the firm's investment portfolio. For example, when a mutual fund manager turns a profit on a trade and closes the position, the fund's shareholders, not the sponsor, are saddled with the tax liability.

Most ETFs do not distribute capital gains to investors, which makes the asset class typically more tax efficient than mutual funds.

The three PowerShares ETFs expected to make long-term capital gains distributions to investors are the PowerShares S&amp;P 500 BuyWrite Portfolio (NYSE: <a class="ticker" href="/stock/pbp#NYSE">PBP</a>), the PowerShares Active Low Duration Fund (NYSE: <a class="ticker" href="/stock/plk#NYSE">PLK</a>) and the PowerShares 1-30 Laddered Treasury Portfolio (NYSE: <a class="ticker" href="/stock/plw#NYSE">PLW</a>).

"At Invesco PowerShares we are proud of our product line's tax efficient track record," said Ben Fulton, Invesco PowerShares managing director of global ETFs, in a statement. "For the tenth consecutive year, we are pleased that the vast majority of PowerShares ETFs did not deliver capital gains distributions. This accomplishment highlights one of the many advantages ETFs can potentially provide shareholders seeking to maximize real returns."

Other ETF issuers to announce positive news regarding limited or no capital gains distributions include IndexIQ, Market Vectors, WisdomTree (NASDAQ: <a class="ticker" href="/stock/wetf#NASDAQ">WETF</a>) and <a href="http://www.benzinga.com/news/12/11/3132193/proshares-says-no-cap-gains-for-its-etfs">ProShares</a>.

Some of the most popular PowerShares ETFs are the PowerShares QQQ (NASDAQ: <a class="ticker" href="/stock/qqq#NASDAQ">QQQ</a>), the PowerShares S&amp;P 500 Low Volatility Portfolio (NYSE: <a class="ticker" href="/stock/splv#NYSE">SPLV</a>) and the PowerShares DWA Emerging Markets Technical Leaders Portfolio (NYSE: <a class="ticker" href="/stock/pie#NYSE">PIE</a>). 

For more on ETFs, click <a href="http://www.benzinga.com/etfs">here</a>.

There is still some debate as to what assets under management watermarks an ETF needs to reach to ensure profitability for the fund's sponsor. As has been noted, <a href="http://www.benzinga.com/trading-ideas/long-ideas/12/04/2465525/etf-opinion-the-100m-watermark-is-asinine">impressive size is nothing more than impressive size when it comes to ETFs</a>.

Size is not a guarantee of a fund's ability to generate alpha. Still, the investment community loves numbers. When it comes to exchange-traded products, conventional (though not necessarily correct) wisdom seems to stipulate an ETF with $50 million in AUM will be profitable for the fund's sponsor while an ETF with $100 million or more in AUM is assured survival. 

There are some cold realities regarding the ETF landscape. One of those realities includes the fact that <a href="http://blogs.barrons.com/focusonfunds/2012/07/02/harder-for-new-etf-entrants-to-gain-traction-citi-says/?mod=google_news_blog">new funds are finding it harder to standout, as Barron's recently noted</a>. Another is that all U.S.-listed ETFs and ETNs combined had $1.17 trillion in AUM at the end of June, but $220.1 billion of that total belonged to just three funds – the SPDR S&amp;P 500 (NYSE: <a class="ticker" href="/stock/spy#NYSE">SPY</a>), the SPDR Gold Shares (NYSE: <a class="ticker" href="/stock/gld#NYSE">GLD</a>) and the Vanguard Emerging Markets ETF (NYSE: <a class="ticker" href="/stock/vwo#NYSE">VWO</a>).

It is hard for plenty of ETFs with over $100 million in AUM to standout, but there are some anonymous $100 million (or more) ETFs that are worth considering even if the so-called exports have not discovered these funds yet.

PowerShares Dynamic Energy Sector Portfolio (NYSE: <a class="ticker" href="/stock/pxi#NYSE">PXI</a>)
The PowerShares Dynamic Energy Sector Portfolio is not quite the competitor to the Energy Select SPDR (NYSE: <a class="ticker" href="/stock/xle#NYSE">XLE</a>) it would appear to be. Nor is PXI a direct rival to ETFs such as the SPDR S&amp;P Oil &amp; Gas Exploration &amp; Production ETF (NYSE: <a class="ticker" href="/stock/xop#NYSE">XOP</a>) or the iShares Dow Jones US Oil &amp; Gas Exploration Index Fund (NYSE: <a class="ticker" href="/stock/ieo#NYSE">IEO</a>).

PXI features a little a bit of everything from the energy sector, meaning integrated oil producer as well as independent names are found in this ETF along with MLPs, coal producers and refiners. More importantly, PXI has outperformed IEO, XLE and XOP year-to-date. As of July 3, PXI had almost $113 million in AUM.

First Trust Morningstar Dividend Leaders Index Fund (NYSE: <a class="ticker" href="/stock/fdl#NYSE">FDL</a>)
With almost $587 million in AUM, the First Trust Morningstar Dividend Leaders Index Fund is by no means small. Despite FDL's heft, it is somewhat ignored in the conversation about dividend ETFs. That should not be the case. FDL has a 30-day SEC yield north of four percent and in the past 90 days, the fund has outperformed larger, more popular dividend ETFs such as the Vanguard Dividend Appreciation ETF (NYSE: <a class="ticker" href="/stock/vig#NYSE">VIG</a>), the SPDR S&amp;P Dividend ETF (NYSE: SDV) and the iShares High Dividend Equity Fund (NYSE: <a class="ticker" href="/stock/hdv#NYSE">HDV</a>).

FlexShares Morningstar Global Upstream Natural Resources ETF (NYSE: <a class="ticker" href="/stock/gunr#NYSE">GUNR</a>)
It can be argued that the universe of materials and energy ETFs is saturated. There simply does not need to be more new ETFs tracking these sectors. It can also be said that the FlexShares Morningstar Global Upstream Natural Resources ETF could have fallen victim to bad timing. The ETF debuted in September 2011 and with energy names struggling over the past several months, it would have been fair to assume GUNR would struggle to accumulate assets.

That has not been the case. In just 10 months on the market, GUNR has raked in over $379.1 million in AUM. GUNR does offer one-stop shopping for investors looking for resources exposure as the fund's 121 holdings include fertilizer producers, integrated oil names and gold miners among others. The fund is a rival to the older Market Vectors RVE Hard Assets Producers ETF (NYSE: <a class="ticker" href="/stock/hap#NYSE">HAP</a>).

PowerShares S&amp;P 500 BuyWrite Portfolio (NYSE: <a class="ticker" href="/stock/pbp#NYSE">PBP</a>)
The PowerShares S&amp;P 500 BuyWrite Portfolio is worth a look for investors searching for income in form of covered call writing. PBP's benchmark is the CBOE S&amp;P 500 BuyWrite Index, which measures the rate of return on an S&amp;P 500 covered call strategy, according to PowerShares. Not surprisingly, the consistent use of options contracts does leave PBP with an expense ratio that is much higher than a typical S&amp;P 500 index fund (PBP charges 0.75 percent).

PBP, which has almost $208 million in AUM, reinvests dividends and the options premiums generated from the covered calls. The red flag: PBP has trailed the SPDR S&amp;P 500 (NYSE: <a class="ticker" href="/stock/spy#NYSE">SPY</a>) by a wide margin this year.

Commodities

First Trust Morningstar Dividend Leaders Index Fund

GUNR

Market Vectors RVE Hard Assets Producers ETF

iShares Dow Jones US Oil & Gas Exploration & Production Index Fund

PowerShares Dynamic Energy Sector Portfolio

Anonymous ETFs With $100M+ in AUM (FDL, GUNR, PBP)

Even with the S&amp;P 500's recent five-day losing streak, the universe of exchange-traded products with dividend yields resting in the double digits is sparsely populated. Running a simple screen for ETFs and ETNs with yields of over 9% turns up less than 15 names.

Since yield plays are often used by investors that plan to hold those securities for extended time horizons, we pulled the UBS E-TRACS 2x Long Alerian MLP Infrastructure ETN (NYSE: <a class="ticker" href="/stock/mlpl#NYSE">MLPL</a>) from the group since holding high-fee leveraged ETFs for months or years is punitive on the cost front.

That leaves us with an even smaller pool of double-digit ETF/ETN yields to draw from. Some members of the pool are worth a look. Others have high yields for a reason and the reason isn't good, so they should be avoided.

Market Vectors Mortgage REIT Income ETF (NYSE: MORT)
The Market Vectors Mortgage REIT Income ETF, which debuted in August 2011, has tumbled almost 4% in the past month due in part to some less-than-impressive housing data and the year-to-date performance is middling. That said, MORT does feature a juicy 10.4% yield with a fair expense ratio of just 0.4%, according to the Market Vectors Web site, meaning long-term investors can cozy up to this ETF without having to worry about high fees.

Annaly Capital (NYSE: <a class="ticker" href="/stock/nly#NYSE">NLY</a>) and American Capital Agency (Nadsaq: AGNC) represent almost a third of MORT's weight. MORT is a direct rival to the iShares FTSE NAREIT Mortgage Plus Capped Index Fund (NYSE: <a class="ticker" href="/stock/rem#NYSE">REM</a>), though the Market Vectors offering features a lower expense ratio.

iShares MSCI Spain Index Fund (NYSE: <a class="ticker" href="/stock/ewp#NYSE">EWP</a>)
Today's jump of over 3% for the iShares MSCI Spain Index Fund is helping suppress the ETF's yield somewhat, keeping it just below 10%. The cold, harsh reality with EWP is that despite what looks like an attractive yield, this ETF is now more useful for traders than investors. EWP's yield has <a href="http://www.benzinga.com/trading-ideas/long-ideas/11/12/2223305/the-dark-side-of-yield-hunting-forget-these-etfs">nearly doubled</a> since we warned about the fund being a yield trap.

Now there are valid concerns that Spain might be the next of the PIIGS to be bailed out. EWP's chart is a disaster and the yield is a trap.

PowerShares KBW High Dividend Yield Financial Portfolio (NYSE: <a class="ticker" href="/stock/kbwd#NYSE">KBWD</a>)
As is the case with many ETFs tracking bank stocks, KBWD got off to a fine start this year, but has retreated a bit in recent days. The pullback has sent this fund's ETF over 10%, but KBWD is designed to sport an elevated yield because its index is calculated using a dividend yield methodology, according to PowerShares.

Currently home to 36 stocks, KBWD isn't heavy on bank stocks, though the ETF is home to several regional names. Rather, KBWD focuses primarily on mortgage REITs such as American Agency and Inveco Mortgage Capital (NYSE: <a class="ticker" href="/stock/ivr#NYSE">IVR</a>). Avoid KBWD if REITs don't jibe with your investment objectives or if the ETF violates support at $22.75.

PowerShares S&amp;P 500 BuyWrite ETF (NYSE: <a class="ticker" href="/stock/pbp#NYSE">PBP</a>)
PBP was yielding a hair over 10% at the start of trading today. The fund currently holds 501 stocks and writes covered calls on those positions to generate returns. The ETF reinvests dividends from the underlying stocks as well as the premiums from the call options, according to <a href="http://news.investors.com/Article.aspx?id=607091&amp;ibdbot=1&amp;p=2">Investor's Business Daily</a>. The options activity leaves PBP with an expense ratio of 0.75%, which is something to be aware of.

To find out more about high-yield ETFs, please click <a href="http://www.benzinga.com/trading-ideas/long-ideas/12/04/2489113/checking-in-the-other-em-consumer-etf-emdi-econ-coh">HERE</a>.

Bonds

Technicals

KBWD

MLPL

iShares FTSE NAREIT Mortgage PLUS Capped Index Fund

ETFs With Double-Digit Yields: Some Good, Some Bad (MORT, EWP, PBP)

Invesco's (NYSE: <a class="ticker" href="/stock/ivz#NYSE">IVZ</a>) PowerShares unit, the fourth-largest U.S. ETF issuer, said today that 114 of its 116 ETFs will not be subject to long-term capital gains distributions in 2011. The two funds that will be are the PowerShares Active US Real Estate ETF (NYSE: <a class="ticker" href="/stock/psr#NYSE">PSR</a>) and the PowerShares S&amp;P 500 Buy Write ETF (NYSE: <a class="ticker" href="/stock/pbp#NYSE">PBP</a>).

The PowerShares S&amp;P 500 Buy Write ETF is expected to have a distribution of eight cents to 13 cents per share based on current estimates, while the estimated distribution on the PowerShares Active US Real Estate ETF six cents to 12 cents.

The ex-date for the 2011 capital gains distributions is anticipated to be Tuesday, December 27, 2011. The record date is anticipated to be Thursday, December 29, 2011, and the pay date is anticipated to be Friday, December 30, 2011. 

The two PowerShares ETFs expected to make capital gains distributions this year represent less than 0.2% of franchise assets. Both of these funds are expected to see long-term capital gains distributions under 1% of NAV per share, PowerShares said in a statement.

"We strive to minimize the amount of capital gains incurred by our ETF portfolios. For the ninth consecutive year, we are pleased that the process has prevented capital gains distributions for the vast majority of PowerShares ETFs," said Ben Fulton, Invesco PowerShares managing director of global ETFs, in the statement. "This highlights one of the many advantages ETFs can potentially provide shareholders seeking to maximize real returns." 

PowerShares had $43.3 billion in assets under management at the end of November, according to data from the National Stock Exchange.

No Long-Term Cap Gains Distributions For Most PowerShares ETFs

If Wednesday's market action reminds investors of two things it is this pair of ominous notes: Europe is still an epic problem for global financial markets and as a result, it's still a fine idea to establish a few defensive positions.

Playing defense at the sector level often boils down to investing in consumer staples, health care, telecom or utilities stocks and ETFs. All fine choices as returns this year have indicated, but all are known quantities.

Have a look at these ETFs that aren't exactly high-beta that have been holding up nicely in 2011.

PowerShares S&amp;P 500 BuyWrite ETF (NYSE: <a class="ticker" href="/stock/pbp#NYSE">PBP</a>):
The premise here is quite simple: PBP invests about 80% of its assets, sometimes more, in S&amp;P 500 stocks and then writes covered calls on those positions. That leads to an expense ratio that's kind of high at 0.75% and PBP hasn't exactly throttled the S&amp;P 500, but it's a decent conservative play that doesn't grab a ton of press.

PowerShares Buyback Achievers ETF (NYSE: <a class="ticker" href="/stock/pkw#NYSE">PKW</a>):
Another fund with a niche focus, the PowerShares Buyback Achievers ETF tells us there's something to companies that repurchase their own stock. The ETF was up almost 10% year-to-date heading into Wednesday and that's a lot better than what the S&amp;P 500 offers. Top holdings include Dow components Wal-Mart (NYSE: <a class="ticker" href="/stock/wmt#NYSE">WMT</a>), Hewlett-Packard (NYSE: <a class="ticker" href="/stock/hpq#NYSE">HPQ</a>) and IBM (NYSE: <a class="ticker" href="/stock/ibm#NYSE">IBM</a>).

Russell 1000 Low Volatility ETF (NYSE: <a class="ticker" href="/stock/lvol#NYSE">LVOL</a>):
The Russell 1000 Low Volatility ETF made its debut in May and has used its low volatility approach to beat the S&amp;P 500 by a couple of percentage points. Investors have noticed as LVOL has hauled in more than $29.1 million in assets under management. Top-10 holdings in the 107-stock ETF include Wal-Mart, IBM, Apple (Nasdaq: <a class="ticker" href="/stock/aapl#Nasdaq">AAPL</a>) and Johnson &amp; Johnson (NYSE: <a class="ticker" href="/stock/jnj#NYSE">JNJ</a>).

First Trust Value Line Dividend Index Fund (NYSE: <a class="ticker" href="/stock/fvd#NYSE">FVD</a>):
No surprise that a dividend ETF would make the list, but even though it has over $348 million in AUM, FVD is nowhere close to being the most popular dividend ETF on the market. Someone ought to take note because FVD, which is home to 163 stocks, has easily outpaced the S&amp;P 500 this year with a 5% gain. Utilities and consumer staples account for almost 42% of FVD's sector weight.

Bull case:
Believe it or not, this environment isn't all that bad for these ETFs. It's certainly less bad for them than high-beta fare.

Bear case:
The bear case for these ETFs might mean a bull case for the rest of the market, though PKW and LVOL should be durable regardless of circumstances.

AAPL

First Trust Value Line Dividend Index Fund ETF

LVOL

Four Defensive ETFs You're Not Considering, But Should

Here is my list of aggressive ways to play eight of these anti-consensus expectations.

How to Play Doug Kass's Surprises for 2011 With ETFs

We are maintaining our ‘Neutral' recommendation on American Oriental Bioengineering Inc. (<a href="http://www.zacks.com/stock/quote/AOB">AOB</a>) with a target price of $2.25.

	American Oriental Bioengineering, based in Beijing, China, together with its wholly owned subsidiaries, is a pharmaceutical company which develops, manufactures and commercializes both plant-based pharmaceutical (<a class="ticker" href="/stock/pbp#">PBP</a>) and plant-based nutraceutical (<a class="ticker" href="/stock/pbn#">PBN</a>) products.

	American Oriental Bioengineering recently reported third quarter 2010 earnings per share of $0.07, which fell short of  year-ago earnings by $0.06 despite a 16.1% increase in revenues. Revenues were driven by the strong sales of the company's prescription products. The earnings decline was attributable to higher operating expenses.

	We are encouraged by the strong showing of American Oriental's prescription products. We believe prescription drug sales will continue their growth as China aims at reforming its health care sector to incorporate unaddressed rural markets.
	Moreover, the growth-by-acquisition strategy of the company is encouraging, and has helped expand its product portfolio and drive growth. For example, the acquisition of Nuo Hua Investment Company Ltd. in 2008 caused the distribution of pharmaceutical products to become part of the company's operations. We believe that such profitable acquisitions in future will aid the company's growth. Furthermore, the rapidly growing Chinese pharma market provides a lucrative opportunity to American Oriental to boost its top-line.
	However, the dependence of the company on a few products to generate the bulk of its revenues is a risk. Furthermore, the excessive competition confronting the company's products is also a concern. Additionally, the steadily declining operating margin at American Oriental due to rising operating expenses is another concern. If this declining trend continues in the forthcoming quarters, the company's bottom-line will be severely affected.
	These headwinds, reflecting near-term pressure on the stock, justify the Zacks #4 Rank (short-term ‘Sell' recommendation) carried by American Oriental. However, the stable outlook in the long term driven by the rapidly growing Chinese pharma market leads us to believe that the risk/reward profile at American Oriental is balanced in the long run. Consequently, we have a ‘Neutral' stance on the stock.
   <a href="http://www.zacks.com/registration/pfp?ALERT=ZER_LINK&amp;d_alert=ZER_LINK&amp;t=AOB&amp;ADID=BENZ_CONTENT_ZER">AMER ORIENT BIO (<a class="ticker" href="/stock/aob#">AOB</a>): Free Stock Analysis Report</a>   <a href="http://www.zacks.com/">Zacks Investment Research</a>

Risk, Reward Balanced at AOB - Analyst Blog

We are maintaining our Neutral recommendation on American Oriental Bioengineering (<a href="http://www.zacks.com/stock/quote/AOB">AOB</a>) with a target price of $2.50.
	American Oriental Bioengineering, based in Beijing, China, together with its wholly-owned subsidiaries, is a pharmaceutical company which develops, manufactures and commercializes both plant-based pharmaceutical (<a class="ticker" href="/stock/pbp#">PBP</a>) and plant-based nutraceutical (<a class="ticker" href="/stock/pbn#">PBN</a>) products.
	American Oriental Bioengineering recently delivered second quarter 2010 earnings per share of $0.07, which fell short of the year-ago earnings by $0.09 despite an 8.5% increase in revenues. Revenues were driven by the strong sales of the company's prescription products. The earnings decline was attributable to higher operating expenses.
	(Read our full coverage on this earnings report: <a href="http://www.zacks.com/stock/news/38562/AOB+Misses+on+EPS++and+Revs">AOB Misses on EPS and Revs</a>.)
	We are encouraged by the strong showing of American Oriental's prescription products. We believe prescription drug sales will continue their growth as China aims at reforming its health care sector to incorporate unaddressed rural markets.
	Moreover, the growth-by-acquisition strategy of the company is encouraging, and has helped expand its product portfolio and drive growth. For example, the acquisition of Nuo Hua Investment Company Ltd. in 2008 caused the distribution of pharmaceutical products to become part of the company's operations. We believe that such profitable acquisitions in future will aid the company's growth. Furthermore, the rapidly growing Chinese pharma market provides a lucrative opportunity to American Oriental to boost its top-line.
	However, the dependence of the company on a few products to generate the bulk of its revenues is a risk. Furthermore, the excessive competition confronting the company's products is also a concern. Additionally, the steadily declining operating margin at American Oriental due to rising operating expenses is another concern. If this declining trend continues in the forthcoming quarters, the company's bottom-line will be severely affected.
	These headwinds, reflecting near-term pressure on the stock, justify our Zacks #4 Rank (short-term Sell recommendation) on American Oriental's shares. However, the stable outlook in the long-term driven by the rapidly growing Chinese pharma market causes us to have a Neutral stance on the stock in the long-term.
   <a href="http://www.zacks.com/registration/pfp?ALERT=ZER_LINK&amp;d_alert=ZER_LINK&amp;t=AOB&amp;ADID=BENZ_CONTENT_ZER">AMER ORIENT BIO (<a class="ticker" href="/stock/aob#">AOB</a>): Free Stock Analysis Report</a>   <a href="http://www.zacks.com/">Zacks Investment Research</a>

American Oriental Bio Neutral - Analyst Blog

Yesterday there was an article on Seeking Alpha with a fantastic title; <a href="http://seekingalpha.com/article/213663-with-3-5-and-10-year-stock-returns-negative-why-are-pension-funds-assuming-8-returns">With 3, 5, and 10 Year Stock Returns Negative, Why Are Pension Funds Assuming 8% Returns</a>? I tweeted because they have to.
A chart of the US stock market for last 100 years shows that for big chunks of time the market goes up a lot and then there are big chunks of time where it takes a very bumpy ride to nowhere.
For people who don't want to be very active with their investing but who take the time to develop a basic understanding of this the task can be made a little easier. Some people like to hone in on these cycles lasting 18 years and while that might be a little simplistic going forward the nature of the past cycles combined with the current fundamental backdrop argues for more bumpy round trip to nowhere trading for a few years.
<a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="http://2.bp.blogspot.com/_7ZckZ-8naz0/TDZxfMeBWNI/AAAAAAAADWQ/3oX3Vy3N76s/s1600/DJIA+from+1900.JPG"><img style="float: left; margin: 0pt 10px 10px 0pt; cursor: pointer; width: 320px; height: 242px;" src="http://2.bp.blogspot.com/_7ZckZ-8naz0/TDZxfMeBWNI/AAAAAAAADWQ/3oX3Vy3N76s/s320/DJIA+from+1900.JPG" alt="" id="BLOGGER_PHOTO_ID_5491701576361924818" border="0" /></a>The chart comes from Cam Hui who writes the <a href="http://humblestudentofthemarkets.blogspot.com/">Humble Student of the Market</a> blog. I have unyielding faith there will be some sort of repeat of what the market did from 1944 until 1962 and then again from 1982 until 2000. Maybe it will start in 2018 and maybe it won't be as much is those two other periods but something similar will come.
The ideal way to navigate this would be some sort of strategy that deemphasizes equities in a period like 1966-1982. This could mean relatively heavy doses of ETFs like iShares COMEX Gold Trust (IAU), inflation protected products like the SPDR Barclays TIPS ETF (IPE) if things look inflationary or regular bond funds like the iShares Barclays 10-20 Year Treasury Bond Fund (TLH) in an environment that appears to be deflationary, like now. In addition to that some sort of absolute return product like the IndexIQ Hedge Macro Tracker ETF (MCRO). The big idea is to protect assets in an environment where equities do not do well.
Then after 18 years one would ideally rotate into some sort of aggressive equity exposure to capture a likely five-bagger, or more, in the market.
I use the word "ideal" because perfect execution would require perfect information and that is of course unlikely. This could be partially mitigated by simply reducing equity exposure after 15-20 years of raging bull market as opposed to eliminating it. Something like the PowerShares Buy Write Portfolio (PBP) which some clients own could be one way to do this. I would also add that after 15-20 years of bumpy round trip to nowhere anyone on this sort of path should start increasing equity exposure.
This is a vague but evolving thought but I believe it is best suited to people who are willing to spend only some time on their investments as opposed to no time or a lot of time. As I have pointed out numerous times despite the fact that the S&amp;P 500 was down 24% price-wise in the recently ended decade many easily accessible countries thrived. Mexico was up 345%, Brazil up 301%, India up 243%, Norway up 121% and Israel up 109% as some examples.
This is not to say that those countries will continue to perform like that if the cycle continues in the US until 2018 but some countries will (maybe those, maybe others) and for people willing to do a lot of work the notion of hiding as outlined above becomes less relevant.
The relevance of the first line of the post is that as a do it yourselfer, if you save properly make the access a lot easier. , you are better positioned to take what the market gives. Many pensions obviously were not able to average 8% per year in the last decade and some did far worse by chasing heat or putting too much in private investments that blew up. If markets can recover from the Great Depression it can recover from the current event. The only variable will be time. You can hide out, which is perfectly valid, or you can take the time to find healthier countries to own and obviously ETFs. 
<div class="blogger-post-footer"><img width='1' height='1' src='https://blogger.googleusercontent.com/tracker/8532070-5938233647462885187?l=randomroger.blogspot.com' alt='' /></div>

MCRO

Is There Anything to the 18 Year Theory?

...but I'm not sure how.
Quite a while back I wrote a post or two about the S&amp;P 500 Put Write Index which has symbol PUT. It is a fairly new index that is based on selling naked index puts along the lines of the S&amp;P 500 Buy Write Index which has symbol BXM. If you look at a <a href="http://finance.yahoo.com/echarts?s=%5EBXM+Interactive#chart2:symbol=%5Ebxm;range=my;compare=%5Egspc;indicator=split+volume;charttype=line;crosshair=on;ohlcvalues=0;logscale=on;source=undefined">long term chart</a> for BXM, these are easy to find, you will see that BXM has done a good job of smoothing out the ride. The link above only goes back a little over five years, if you can find a chart that goes back to the late 1990s you'll see it smoothed out the ride during the tech decline while lagging in the bubble build up.
<a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="http://3.bp.blogspot.com/_7ZckZ-8naz0/TAWZ5ivdb-I/AAAAAAAADQc/Ym3N4KdjCfI/s1600/put+v+indexes.gif"><img style="float: left; margin: 0pt 10px 10px 0pt; cursor: pointer; width: 320px; height: 263px;" src="http://3.bp.blogspot.com/_7ZckZ-8naz0/TAWZ5ivdb-I/AAAAAAAADQc/Ym3N4KdjCfI/s320/put+v+indexes.gif" alt="" id="BLOGGER_PHOTO_ID_5477953735623536610" border="0" /></a>You can go to the CBOE website for <a href="http://www.cboe.com/micro/put/pricecharts.aspx">more information</a> on PUT. You can see from the table that BXM outperformed the S&amp;P 500 but that PUT outperformed BXM. If you click through you will also see that PUT had a lower standard deviation than BXM which had a lower standard deviation than SPX. Below is a chart from the CBOE that captures a very long term backtest of PUT.
There is an ETF that tracks BXM; the PowerShares S&amp;P 500 Buy Write Portfolio (PBP) which a few clients own but there is no Put Write ETF. However IndexUniverse <a href="http://www.indexuniverse.com/sections/news/7628-alps-sets-fee-on-synthetic-reverse-convertible-etf.html">reports</a> that one might be on the way. Sort of.
The U.S. Equity Synthetic Reverse Convertible Index Fund (proposed symbol (RVCT) will sell cash secured puts on the 12 most volatile stocks in the S&amp;P 500. The IU article says 13 stocks but the <a href="http://www.sec.gov/Archives/edgar/data/1414040/000119312509240098/d485apos.htm">prospectus</a> says 12.
<a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="http://4.bp.blogspot.com/_7ZckZ-8naz0/TAWdASZre-I/AAAAAAAADQk/_wthVHqyl0E/s1600/put_idxs_since1986.gif"><img style="float: left; margin: 0pt 10px 10px 0pt; cursor: pointer; width: 320px; height: 216px;" src="http://4.bp.blogspot.com/_7ZckZ-8naz0/TAWdASZre-I/AAAAAAAADQk/_wthVHqyl0E/s320/put_idxs_since1986.gif" alt="" id="BLOGGER_PHOTO_ID_5477957150031182818" border="0" /></a>The fund will not sell exchange listed puts but special over the counter puts. The way they work is that a put struck at $50 can't be assigned unless the stock is below $40 in which case they will cash settle for the difference between $50 and whatever price below $40 that the common is trading for.
I would imagine that this buffer means the premium taken in for selling them would be less than selling a similar exchange listed put.
The term reverse convertible is defined in the article as "structured products offered by major banks to investors who are looking for high levels of income." It is not clear to me whether this will look similar to PUT (low probability) or look much different due to cherry picking only the most volatile stocks but it will be interesting to see if it turns out to be less volatile than I think (the 20% buffer could be a difference maker).
The strategy of selling puts is just fine most of the time especially in a market that is up a little or down a little. During up a lot the strategy lags the market and depending on the particulars of a down a lot market the strategy can be ruinous like being forced to buy something like Ariba nine years ago for $250 while it was trading at $40 on the way to single digits. The nature of the PUT index has been much different of course but anyone with the vaguest interest in a fund like this needs to understand the worst consequence of the strategy.
PBP has $148 million in it which seems decent to me so I am not sure why they have not offered an ETF that tracks PUT. The potential utility of these sorts of things, but of course they need to prove themselves, would be as bond fund substitutes should interest rates rise in a meaningful way. A situation where short term rates went to 6% and longer term rates were at 9% would blow up a lot of bond funds and hurt a lot of people.
<a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="http://4.bp.blogspot.com/_7ZckZ-8naz0/TAWlWhlOTLI/AAAAAAAADQs/DFSgNmE0eAE/s1600/guatemala+crater.jpg"><img style="float: left; margin: 0pt 10px 10px 0pt; cursor: pointer; width: 320px; height: 180px;" src="http://4.bp.blogspot.com/_7ZckZ-8naz0/TAWlWhlOTLI/AAAAAAAADQs/DFSgNmE0eAE/s320/guatemala+crater.jpg" alt="" id="BLOGGER_PHOTO_ID_5477966328156277938" border="0" /></a>If you look close enough I think you might find some shares of BP down there. 
<div class="blogger-post-footer"><img width='1' height='1' src='https://blogger.googleusercontent.com/tracker/8532070-3992453165106875706?l=randomroger.blogspot.com' alt='' /></div>

This Could Be Interesting...

You probably saw on CNBC that Bob Pisani asked Jim Lowell, <a href="http://www.indexuniverse.com/">Matt Hougan</a> and <a href="http://www.etftrends.com/">Tom Lydon</a> to construct a series of <a href="http://www.cnbc.com/id/34726386/">half a dozen ETF portfolios</a> with each of the six targeting a different expectaion like bull, bear, sideways and so on. For what its worth I consider both Matt and Tom to be blogging friends of mine.
This whole exercise strikes me as a real effort by MSM to produce some ETF 201 content which is unambiguously positive. I thought it would be fun and useful to deconstruct a couple of the portfolios to see what can be learned and whether there can be any improvements offered. Today I'll look at the Global Sideways Market Portfolio and maybe tackle the core portfolio next week for my regular Street.com article.
The reason to look at the sideways portfolio is that it seems almost like a continuation of <a href="http://randomroger.blogspot.com/2010/05/etf-permanent-portfolio.html">yesterday's discussion</a> about permanent portfolios. The target weights as follows;
PowerShares Buy Write Portfolio (PBP) 40% iShares iBoxx Investment Grade Corporate Bond Fund (LQD) 15% PowerShares G-10 Currency Harvest (DBV) 15% this is the carry trade ETF iShares iBoxx High Yield Corporate Bond Fund (HYG) 10% JP Morgan Alerian MLP Index ETN (AMJ) 10% iShares S&amp;P US Preferred Stock ETF (PFF) 5% SPDR Barclays Convertible Bond ETF (CWB) 5%
First a couple of bottoms up observations. A few clients own PBP and it is a tough hold for people who are not patient or who cannot think in terms of the entire stock market cycle. I have a lot of faith that over an entire cycle this will look like a very good choice but anyone thinking in three, six or even 12 month increments will be frustrated by this one.
About 1/3 of LDQ is in financial companies, the average maturity is 12 years and the 30 day SEC yield is 4.58%. I think there is something to be said for choosing a few individual corporates that are AA or A rated--obviously it would be prudent to assess the debt load for yourself and get familiar with cash flow numbers and not rely exclusively on the ratings.
The Carry Trade ETF was in the high $20s for a while and then hit a big air pocket to the low $20s and has been creeping up to the mid $20s for a while. One drawback here might be the tendency to overly rely on the back test to the point of not looking under the hood and being in touch with the dynamics of the various currencies.
The junk bond ETFs have of course done well in the rally but I want no part of the space. This might just be my hangup but I do not have faith that capital markets are all better which if true looms as a threat to any space that could be construed as aggressive yield chasing.
AMJ is an ETN and I am not a big fan of that wrapper when there are alternatives. I imagine the ETN wrapper bypasses some of the tax reporting issues with MLPs but if I wanted to go this heavy in MLPs I would rather pick a couple of individual names.
Looking at the top ten holdings of PFF I see Ford and then nine different issues from financial companies--of course it is mostly financial companies that issue preferreds. I have two preferreds stocks that are widely held by clients. I feel more comfortable with individual issues in this space than a fund.
For the convertible space a fund of some sort is going to be the best way to access the space for most people but in an equity market downturn, using 2008 as a proxy, I think the fund could get smacked pretty hard--of course the portfolio is for people who believe the market will be range bound.
From the top down the focus is obviously on yield which if you know the market will be range bound makes plenty of sense. The fund is obviously lacking for foreign exposure, the currency harvest product is billed more as an absolute return vehicle than a proxy for foreign assets, and there doesn't appear to be any counter strategy. I picked up the concept of counter strategies from my brief time at Fisher Investments.
Basically a counter strategy could be thought of something you own so that if your baseline assumptions are wrong you have something that can still go up. The assumption of the portfolio is a sideways market but what if it goes up a lot or down a lot? In an up market this will lag and depending on what would push the market down this portfolio could get hit very hard.
Despite the criticisms I think there is a lot of utility here. I think this type of mix could make for one tranche or bucket of a properly diversified portfolio. The segments chosen make sense and most of the risks isolated above would not be that bad in a normal cyclical downturn. During the 2008 event many of them were crushed beyond what many people would have thought was realistic and any concern that the event is not over and we incur a similar downturn or continuation might want to structure this type of tranche with less reliance of funds and instead favor individual issues for some of the fixed income components. 
<div class="blogger-post-footer"><img width='1' height='1' src='https://blogger.googleusercontent.com/tracker/8532070-5558585368580146456?l=randomroger.blogspot.com' alt='' /></div>

Spdr Barclays Capital Convertible Securities Etf

iShares S&P US Preferred Stock Index Fund

Model ETF Portfolios

Wall Street Journal reported that buy-write funds like PowerShares S&amp;P 500 Buy Write Portfol ETF (NYSE: <a href="/stock/pbp">PBP</a>)(<a href="/stock-trends/PBP/nyse" class="ino-url">FREE stock trend analysis</a>), which were touted in 2008 as one of the mutual fund industry’s best-performing funds have underperformed S&amp;P500 this year. 
PBP underperformed S&amp;P 500 by two percentage points this year compared to last year, when the fund outperformed S&amp;P 500 as it dropped only 30% compared to 37% drop of S&amp;P 500.

Wall Street Journal

Media

ETF: Buy-Write Funds Lag Market (PBP)

S&P 500 Looking To Gain Footing Near Record High

Invesco 500 BuyWrite ETF declares quarterly distribution of $0.1751

4 Years Later: The Portfolio Decision I'm Glad I Didn't Make

Universal Capitulation And No Margin Of Safety

Equities Ride The Magnificent Seven Wave - Time To Diversify?

Spring 2024 Snapshot Of The S&P 500's Market Cap

Q1 2024 Earnings Preview: Will Reports Be Good Enough To Turn Markets Positive

Sideways, With A Splash Of Uncertainty

Iran Attacks Israel - How Could Markets Be Impacted?

SPY: The Setup Looks Extremely Bearish

ACTV

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Mutual Funds

Press Releases

Invesco Announces Changes to Four ETFs

CQQQ