NEW YORK (
) -- Don Dion posts his current insights on the stock, bond, commodity and currency markets in his
blog, anticipating which ETFs will be in play next.
In the following three blogs from the past week Don commented on Oracle's bullish comments about the software sector, an agriculture ETF with exposure to emerging markets and acquisitions, and a euro-dollar strategy.
Look to the Oracle
Posted 03/26/2010 10:49 a.m. EDT
moved markedly lower this morning following the release of earnings after yesterday's bell, but there's more to this earnings report than first meets the eye. ETF investors can gain exposure to the strong software industry over the longer term using either the
iShares S&P North American Technology-Software Index Fund
PowerShares Dynamic Software Portfolio
. ORCL is a top component in both ETFs.
While Oracle's profit fell 10.5% last quarter, most of the losses can be credited to the firm's absorption of struggling
. Months of wrangling over regulatory issues didn't help the software maker last quarter. In its earnings report, however, the company noted that it expects Sun to make a "significant contribution" to revenue in the current quarter.
Both IGV and PSJ count ORCL among their top holdings, with 9.04% and 4.96% allocations, respectively. Year to date, the funds are both higher -- IGV is up 4.42% while PSJ is 6.23% higher. The more significant numbers, however, are the returns for IGV and PSJ for the one-month period ended March 25. During that period, IGV and PSJ gained 6.97% and 5.69%, respectively -- the funds are picking up steam.
The primary difference between the two funds is that IGV employs a modified cap-weighted strategy while PSJ charges a bit more but screens for factors like fundamental growth, stock valuation, investment timeliness and risk factors. The practical impact of this difference is that IGV has a higher percentage of assets dedicated to top holdings like Oracle,
, while PSJ has a broader portfolio that is more equally balanced.
Both funds, however, will help investors capture the recent run in software. Reading the details of Oracle's report, the outlook looks positive. In its report, the company noted that revenue from new software licenses was higher for the second quarter in a row.
Software licenses are a good indicator of how the sector will perform in the months ahead. An increase in software licenses indicates that companies are increasing spending on new tech projects. More contracts can mean more growth years ahead of when they are signed.
Don't let ORCL's early-morning trading get you down on software. Inside the company's earnings report are plenty of reasons to be bullish on the sector in the months ahead.
An Agri-ETF for Harvesting Profit
Posted 03/25/2010 9:01 a.m. EDT
Fueled by top components like
Market Vectors Agribusiness ETF
continues to gain momentum.
MOO is a well-balanced, low-cost, tax-efficient way to gain exposure to 46 global agribusiness firms. Many of the companies in the portfolio are non-U.S. based, including some in Malaysia and Indonesia, offering investors access to rapidly growing markets that are not generally easy to tap into.
Lower costs for raw materials have also benefited many of MOO's top components - from POT to DE - as revenues have outpaced many analysts' expectations. Demand from developing countries like China and India should also continue benefit the high-quality agribusiness firms that line MOO's portfolio.
have also helped to fuel MOO's performance. Earlier this month, MOO benefited from a takeover tussle involving four of the fund's components: Yara International,
. Eventually, CF Industries came from behind to win the battle for Terra after fellow suitor Yara announced it would not increase its $4.1 billion bid.
MOS, which makes up nearly 8% of MOO's portfolio, has also been cited as a potential takeover target. Firms like Cargill,
have all been rumored to have the potash firm in their sights.
So, MOO continues to benefit from acquisitions, emerging-market demand and an improving global market. During the one-month period ending Mar. 24, MOO jumped 3.88%. Year to date, this agriculture ETF is up 2.67%. Perhaps most impressively, during the one-year period ending Mar. 24, MOO rallied more than 53%.
Opportunities still abound in MOO, and I think this ETF would make a good addition to a well-diversified portfolio. With exposure to agricultural chemicals, operations, equipment, livestock operations and biodiesel, as well booming emerging economies, MOO should continue to reap the rewards in the months ahead.
How to Play the Euro-Dollar From Here
Posted 03/24/2010 04:53 a.m. EDT
The International Monetary Fund meetings will commence tomorrow, and after a terrible day for the euro, it's certainly worth investigating where investors should go from here.
I have written a number of posts recently on which ETFs investors can use to
short the euro
and/or capitalize on the
strength of the dollar
This morning I urged readers to "
Short the Euro, but Carefully
" using the
ProShares UltraShort Euro ETF
. As the euro sunk to a 10-month low against the dollar today, EUO gained more than 2.6%. Another one of my favorite dollar bets, the
PowerShares DB US Dollar Index Bullish
, also rallied 1.29%.
But where should investors go from here? EUO was a good play for short-term traders, but I want to caution investors against holding it too long -- even if, like me, you're convinced the euro will weaken further against the dollar.
Website for EUO, ProShares explains it best: "This ETF seeks a return of -200% of the return of a benchmark (target) for a single day. Due to the compounding of daily returns, returns over periods other than one day will likely differ in amount and possibly direction from the target return for the same period."
Leveraged ETFs have a compounding error over time, so it is important for EUO traders to keep it short, while understanding the risks.
While I believe the euro will weaken further tomorrow, which would help boost EUO, unless you have a very strong conviction about a weaker euro and you aren't adverse to risk, I would caution against using EUO. Investors and the news media will be tuned to the IMF meetings over the next two days, and I believe that there could be volatility in the euro -- and consequently, EUO -- which could be uncomfortable.
A more conservative bet is UUP, which also added gains today due to the yen's weakness against the dollar. Even with a positive export report from Japan yesterday, the dollar gained against the yen -- a trend that is likely to continue for the rest of the week.
There's no use in betting against the strength of the dollar over the next two days, and investors would be wise to take advantage of its strength with UUP.
-- Written by Don Dion in Williamstown, Mass.
At the time of publication, Dion was long IGV, MOO, UUP
Don Dion is president and founder of
, a fee-based investment advisory firm to affluent individuals, families and nonprofit organizations, where he is responsible for setting investment policy, creating custom portfolios and overseeing the performance of client accounts. Founded in 1996 and based in Williamstown, Mass., Dion Money Management manages assets for clients in 49 states and 11 countries. Dion is a licensed attorney in Massachusetts and Maine and has more than 25 years' experience working in the financial markets, having founded and run two publicly traded companies before establishing Dion Money Management.
Dion also is publisher of the Fidelity Independent Adviser family of newsletters, which provides to a broad range of investors his commentary on the financial markets, with a specific emphasis on mutual funds and exchange-traded funds. With more than 100,000 subscribers in the U.S. and 29 other countries, Fidelity Independent Adviser publishes six monthly newsletters and three weekly newsletters. Its flagship publication, Fidelity Independent Adviser, has been published monthly for 11 years and reaches 40,000 subscribers.