Tag Archive | Financials

Position Sizing: Key to Maximizing Returns

In a time when market volatility and equity preservation is of utmost importance, determining the correct number of shares to buy, or “position sizing”, is key to maximizing returns and minimizing risk.

The common investor generally doesn’t spend much time thinking about how many shares to buy or how significant of a position to take.  Instead, most investors use a common methodology of trading the same number of shares each time, which usually translates to a specific dollar amount.  Other, more sophisticated investors, opt to allocate a certain percentage of their portfolio value to a specific position. Following this train of thought, a new position in a portfolio of $100,000 would transcribe either a $10,000, or 10%, investment or a usual position of 50 shares.

Although these methods may work for some, using the volatility of a specific portfolio is likely to be the most effective decision tool.  Measuring a portfolio’s overall volatility enables an investor to decide on what percentage of that portfolio he is willing to risk losing on the new position.  This methodology is better explained through the following example. Read More…

Two ETFs To Reap Earnings Growth In Financials

Despite facing new and fresh stress tests, large-cap financial institutions appear to be positioned for earnings-per-share growth in 2011, making the Financial Select Sector SPDR (XLF) and the iShares Dow Jones US Regional Banks Index Fund (IAT) attractive.

According to an article in Barron’s magazine, Credit Suisse expects large-cap financial institutions like Bank of America (BAC), JP Morgan Chase (JPM), Wells Fargo (WFC), PNC Financial Services (PNC), US Bancorp (USB) and Citigroup (C), to witness earnings-per-share growth of 25 percent.  The true driver behind this profitability is expected to be improving credit costs and more active capital management.  Read More…

4 ETFs Impacted By China’s Bank Reserve Requirements

In an attempt to ease concerns and fears that rising inflation could damper economic growth, China raised bank reserve requirements for the third time in the last five weeks, influencing the Global X Financials ETF (CHIX), the iShares FTSE/Xinhua China 25 Index Fund (FXI), the SPDR S&P China ETF (GXC) and the Guggenheim China All-Cap ETF (YAO). 

The Chinese Central Bank raised the reserve requirement ratio by 50 basis points after earlier data showed a rise in property prices for a third straight month, an increase in both exports and imports, significant increases in M2 money supply and jumps in new lending by financial institutions despite government efforts to stem the flood of liquidity into the nation’s economy.  Read More…

4 New Financial ETFs To Be Launched By PowerShares

In an attempt to sustain a competitive advantage in the ever growing exchange traded fund (ETF) world, PowerShares plans to launch four new financial sector specific ETFs to its arsenal on December 2nd, 2010.

The first will be the PowerShares KBW Premium Yield Equity REIT Portfolio (KBWY) which is based on the KBW Premium Yield Equity REIT Index. The Fund will normally invest at least 90%of its total assets in securities that comprise the Underlying Index, which uses a dividend yield weighted methodology that seeks to reflect the performance of approximately 24 to 40 small- and mid-cap equity REITs in the United States. Read More…

Four ETFs To Watch As China Fights Inflation

As inflationary concerns continue to loom in China, the nation’s government is making moves to curb to fight this rise in prices, which could potentially influence the iShares FTSE/Xinhua China 25 Index Fund (FXI), the Global X China Financials ETF (CHIX), the SPDR S&P China ETF (GXC) and the Claymore/AlphaShares China All-Cap ETF (YAO).

In the month of October, the consumer price index in the world’s second largest economy rose to 4.4 percent year over year driven primarily by a 10.1 percent rise in food prices.  This increase in prices has resulted from an influx of money supply in the Chinese economy due to the nation’s expansionary monetary policies which enabled its banks to increase lending.  Read More…

Three ETFs Influenced By Fed’s Stress Tests

In an attempt to ensure that US financial institutions are financially stable, the Federal Reserve recently announced a new round of stress tests, influencing the Financial Select Sector SPDR Fund (XLF), the iShares Dow Jones US Financial Sector Index Fund (IYF) and the Vanguard Financials ETF (VFH).

These tests are expected to prove a financial institutions ability to withstand another economic recession, in that they would illustrate enough capital reserves to absorb potential losses over the next two years.  As a result of this, large financial institutions that are overseen by the Federal Reserve, like Bank of America (BAC), Wells Fargo (WFC), JP Morgan Chase & Co. (JPM) and Citigroup will likely have to forego significant increases in dividend payments to shareholders to keep cash on their balance sheets.     Read More…

Financial ETFs May Be Hit By Slim Bank Profits

Nearly two years after the unfolding of the global financial crisis, U.S. financial companies are struggling to grow revenue streams and are witnessing increased operating costs, resulting in slimmer profits which could lead to slimmer returns for the Financial Select Sector SPDR (XLF), the iShares Dow Jones US Financial Sector Index Fund (IYF), the Vanguard Financials ETF (VFH) and the KBW Bank ETF (KBE).

According to Bradley Keoun of Businessweek, first-half operating expenses at the six largest U.S. financial companies increased by $7.92 billion, or 5.9 percent over the same period last year, while revenues decreased by $5.6 billion or 2.2 percent.  It’s not hard to see that revenues are not keeping up with expenditures and this imbalance will eventually erode profit margins.  Read More…

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