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Logos LP: Crystal Balls and Bottom Calling

Logos LP: Crystal Balls and Bottom Calling

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Logos LP

Logos LP’s monthly commentary  for the month of April 2020, titled, “Crystal Balls and Bottom Calling,” discussing the accelerated technological adoption, jobless claims and their take on the market.

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Q1 2020 hedge fund letters, conferences and more

Stocks surged on Friday after a report said a Gilead Sciences drug showed some effectiveness in treating the coronavirus, giving investors some hope there could be a treatment solution that helps the country reopen faster from the widespread shutdowns that have plunged the economy into a recession.

Stocks tumbled from record highs in February into a bear market a month later as the spread of the coronavirus roiled market sentiment and the economic outlook.  More than 2 million cases have been confirmed worldwide, including over 650,000 in the U.S., according to Johns Hopkins University. Governments urged people to stay home, effectively shutting down the global economy.

But the stock market has rallied since March 23 as new coronavirus cases in the U.S. and globally showed signs of plateauing. President Donald Trump said Thursday that “our experts say the curve has flattened and the peak … is behind us.”

He also issued guidelines to open up parts of the U.S. Thursday night, which identify the circumstances necessary for areas of the country to allow employees to start returning to work. The decision to lift restrictions will ultimately be made by state governors.

To be sure, the outbreak has already dealt a huge blow to the economy. In four weeks, about 22 million Americans have lost their jobs as the US economy has erased nearly all the job gains since the Great Recession (a 35 sigma event). The human suffering (physical, psychological, economic)  brought on by the outbreak is tragic.

Our Take

It is no secret that markets rolled over this past quarter with the outbreak creating what looks to be the deepest recession since 2008-09. As a result, Q1 was by far the most active period in the history of our fund as we experienced what we believe to be one of the greatest buying opportunities for the patient long-term investor since the Great Recession of 2008-2009 and perhaps one of the greatest buying opportunities in the history of the capital markets. 

Although it is an impossible task to time markets, understanding the temperature of the market and thereby making informed inferences as to the market’s probability of swinging from one extreme of the pendulum to the other is possible. It is during these times of great short-term pricing dislocations brought on by sudden economic shocks that high quality stocks trading at what we believe to be below their intrinsic value can be identified. While we have found several data points suggesting a possible near-term bottom, the following represent a list of those we found of most interest (courtesy of our friends at Sentiment Trader and Tom Lee from Fundstrat) during the Q1 selloff:

  1. Over 23 days in the past 7 weeks we have seen the S&P 500 move more than +/- 3%. The previous records were Oct. 1932 and Nov. 2008. In those 2 cases, the S&P 500 staged rallies of +40% and +27%, respectively, over the next 12 months.
  2. MSCI Emerging Market Index price-to-book ratio hit under 1 on April 2nd, 2020. The only other times the index hit those levels were bottoms in 2002 and 2008.
  3. March 2020 saw the 2nd largest one month change in aggregate cash holdings in AAII survey history.
  4. On March 31st, 89% of S&P 500 stocks have triggered a MACD buy signal, which at the time was the highest in recorded history. This has only occurred 10 times in the last 30 years and every time this happened, the Nasdaq Composite has rallied 6 months later by a median of +18%.
  5. As of March 20th, the average 5-week percentage change of 21 developed markets was -31.3%. This was the worst 5 weeks ever for global stock investors, beating 2008-09 Great Recession.
  6. On March 25th, more than 90% of NYSE issues were positive. The S&P 500 is up 100% of the time over the next year by a median of +29% every time this happened.
  7. The S&P 500 is at 2,845 (which is well above 50% retracement loss level). In the 1987, 2003 and 2008 crashes, “bear market rallies” fail at 33% retracement decline. For all three previous bear markets, the bottom was confirmed with a 50% retracement.

Does this mean that we have hit a bottom and things go straight up from here? Unlikely, as we have to consider the current situation in the context of unprecedented uncertainty and the weakness of analogies to the past.

Furthermore, the answer to this question of whether we have hit a bottom should not overly pre-occupy the patient long-term investor. Why?

We never know when we have hit a bottom as a bottom can only be recognized in retrospect. As Howard Marks has recently written:

The old saying goes, “The perfect is the enemy of the good.” Likewise, waiting for the bottom can keep investors from making good purchases. The investor’s goal should be to make a large number of good buys, not just a few perfect ones.”

So it’s my view that waiting for the bottom is folly. What, then, should be the investor’s criteria? The answer is simple: if something’s cheap – based on the relationship between price and intrinsic value – you should buy, and if it cheapens further, you should buy more.”

Successful long-term investing isn’t about buying only at bottoms and selling only at tops. It is instead about the gradual re-adjustment of one’s portfolio as a function of the significant price movements of individual stocks.

This is precisely the approach we have tried our best to stick with during these unprecedented times. We were able to re-position the fund into stocks that we have been monitoring for some time at what we believe to be good prices. The future is uncertain, the economic shutdown remains a very fluid situation and the amount of unprecedented fiscal and monetary action that has occurred in such a short period of time is unlike anything we have ever seen in human history (balance sheets of G4 central banks – the Bank of England (BOE), the Bank of Japan (BOJ), the Federal Reserve (FED), and the European Central Bank (ECB) – have expanded to 40% of gross domestic product). We don’t know what the precise long-term implications of this shutdown will be past 2020, but one thing we can predict with a degree of certainty is that certain businesses will continue to thrive long after the dust has settled. Ultimately investors who stay with their plan will be rewarded. 

Stock Ideas

Currently, there are 22 names in the portfolio with our top 10 making up 65.17% of the fund’s net asset value and software now makes up over 85% of the fund’s industry exposure. Our portfolio has become more concentrated and we have now been able to take a shot at some of the highest potential growth stocks that have been on our watchlist for over 2 years. Below you will find the top 5 names in the portfolio:

  1. ALTERYX INC. (AYX)
  2. SERVICENOW INC. (NOW)
  3. TRADE DESK INC. (TTD)
  4. JOYY INC. (YY)
  5. ZSCALER INC. (ZS)

Musings On Technological Adoption

Over the past few weeks we have seen the typical torrent of crystal ball forecasting with predictions flying around on just about everything from personal consumption habits to global supply chains. It reminded us of a great quote:

He who lives by the crystal ball will eat shattered glass.” - Ray Dalio.

Looking back at all the predictions that were made during and after the crisis of 2008 that things would “never be the same” and that “things would change forever” it is important to recall one of the great lessons of this current crisis: humility has been in short supply for a while now.

Who could have predicted much of what has occurred? Just like who can predict much of what will occur?

Instead, we will be modest with our outlook and focus only on one high-conviction trend we believe will have a large impact on the post COVID business climate: the accelerated adoption of new technologies. The planet is currently having a crash course in remote working, digital productivity and automation, e-commerce, digital payments and online social interaction. Technological adoption in such areas is still quite low and thus the growth in these areas which were fueling the bull market pre COVID still has plenty of room to run.

As mentioned in our COVID-19 update on March 19th, 2020 we are thinking of this accelerated technological adoption through the following 3 key themes:

  1. The rise of the emerging market Millenial/Gen Z -- ie. Joyy Inc, Baozun, MasterCard, Baidu etc.;
  2. The continued expansion of the ‘virtual’ economy as certain transformative digital workflows are likely to stick (fintech, video, e-commerce, virtual purchasing, cloud networking, IT management) – ie. Atlassian, Adobe, Paycom, Zscaler, Trade Desk etc.;
  3. Mission critical cloud computing and related applications as well as advanced artificial intelligence (and quantum computing) for the enterprise – ie. Alteryx, Anaplan, ServiceNow, F5 Networks etc.

After this period of “forced” adoption or large-scale “testing” of such technologies, individuals from managers, shareholders, employees to citizens will realize that they had much more to offer than previously thought. Restrictions put in place during the SARS outbreak of 2003 helped accelerate China’s embrace of e-commerce and COVID is having a similar effect globally. The pandemic will highlight the convenience and ease of online life and will expose opportunities for cost savings through increased technological adoption that will be too difficult for managers and shareholders to ignore.

Charts of the Month

Jobless claims have been a 35 sigma event.

Logos LP Technological Adoption

BoFA stats suggesting that pessimism is still the consensus view along with a U-shaped recovery

Logos LP Technological Adoption

Thought of the Month

"Nature does not hurry, yet everything is accomplished.” — Lao Tzu

Articles and Ideas of Interest

  • The Coronavirus in America: The Year Ahead. There will be no quick return to our previous lives, according to nearly two dozen experts. But there is hope for managing the scourge now and in the long term. One of the more interesting predictions is “Goodbye America First” as global collaboration will be more of a must. Seems a bit contrarian…
  • An artificial intelligence arms race is coming. It is unlikely to play out in the way that the mainstream media suggest, however: as a faceoff between the United States and China. That’s because AI differs from the technologies, such as nuclear weapons and battleships, that have been the subject of arms races in the past. After all, AI is software—not hardware. Because AI is a general purpose technology—more like the combustion engine or electricity than a weapon—the competition to develop it will be broad, and the line between its civilian and military uses will be blurry.
  • Software stocks emerge as downturn winners. Share in cloud groups prove more resilient then overall market - and some have risen to new records. Investors accustomed to looking to history as a guide have had to think again. In the meltdown that followed the 2008 financial crisis, the revenue multiples on software stocks contracted by 75 per cent. This time, according to Goldman Sachs, they had fallen back only about 30 per cent by the time the market bottomed in the middle of March — before a rebound over the next three weeks that saw them expand again by 18 per cent.
  • Once safer than gold, Canadian real estate braces for reckoning. Canadian housing once seemed so infallible that the head of the world’s biggest asset manager in 2015 described Vancouver condos as a better store of wealth than gold. The coronavirus is putting that theory to the test. While lockdowns, job losses and uncertainty are roiling property markets from the U.K. to Australia to Hong Kong, Canada’s situation is more precarious than most. As its oil sector shriveled in recent years, Canada’s economy became ever more driven by real estate, an industry now in a state of paralysis. Nearly one in three workers have applied for income support. What’s more, its households are among the world’s most indebted, poorly placed to weather the storm. Bloomberg digs in with a well researched piece.
  • The price of the Coronavirus pandemic. When COVID-19 recedes, it will leave behind a severe economic crisis. But, as always, some people will profit. Interesting piece from the New Yorker outlining the stories of those who are profiting handsomely from the chaos.
  • WeWork’s lessons for US real estate in a post-Covid-19 world. The company’s troubles hint of what is to come - a long period of falling property prices in global cities. The Financial Times digs into the broader lessons WeWork’s travails provide — especially for a post-Covid-19 world. Among them: debt matters; corporate valuations were unsustainable even before the crisis; nobody is going to be rushing to lease office space anytime soon; and real estate in many parts of both the residential and commercial sectors has far, far further to fall.
  • Time alone (chosen or not) can be a chance to hit the reset button. Steadily, slowly, research interest in solitude has been increasing. Note, solitude – time alone – is not synonymous with loneliness, which is a subjective sense of unwanted social isolation that’s known to be harmful to mental and physical health. In contrast, in recent years, many observational studies have documented a correlation between greater wellbeing and a healthy motivation for solitude – that is, seeing solitude as something enjoyable and valuable.
  • The woman who lives 200,000 years in the past. As we confront the reality of COVID-19, the idea of living self-sufficiently in the woods, far from crowds and grocery stores, doesn't sound so bad. Lynx Vilden has been doing just that for decades, while teaching others how to live primitively, too.
  • Cal Newport on surviving screens and social media in isolation. A computer scientist on why the quality of your quarantine may come down to how you use your technology. Right now, for so many people self-isolating in the face of the escalating coronavirus pandemic, technology is the main link to the outside world. It’s allowing us to maintain crucial contact with friends, family, and coworkers, and providing information and much-needed outlets for joy, amusement, and creativity in a rather bleak time. However, it can also be the source of deep anxiety and distraction: never has it been easier to stress-refresh your Twitter timeline looking for the latest Covid-19 numbers, or pick up your phone to text a friend only to fall into a mindless internet black hole.

We hope that you and your families are safe and healthy and that optimism and hope for the future remains strong. On our end this health crisis has reminded us that we all too often try to insulate ourselves against any discomfort before it even arrives. We seek to avoid pain by trying to control our external conditions to suit our comfort zones. This perception of control is alluring yet we risk losing the potential joy of discovery and the freedom of finding that we can learn and even be happy, within a much greater range of experiences than we thought. This period of pain has been challenging for us, but we are confident that we will look back upon it fondly as a period of exceptional personal growth.

All the best for a month filled with resilience, equanimity and gratitude,

Logos LP

Interdisciplinary Value Investing.

www.logoslp.com/

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Economics

Weekly investment update – Weaker economic outlook weighs on markets

Global equities have continued their sell-off over the last week. What is new is that markets are now reacting to risks of weaker economic data weighing…

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Global equities have continued their sell-off over the last week. What is new is that markets are now reacting to risks of weaker economic data weighing on earnings. Real bond yields, whose rise triggered the recent drop in equity markets, have fallen as investors price a higher probability of a recession.   

Yields of US Treasury bonds have slipped since reaching around 3.12% in early May (see Exhibit 1). The rally has been driven by fears of a global recession due to poor economic data, strong inflation numbers, aggressive talk from central bankers and concerns over the consequences of Covid in China.

Recent data that contributed to the bond market’s unease about the prospects for the US economy includes: 

  • The Richmond Federal Reserve Manufacturing survey, which fell to its lowest since 2020 at -9.
  • The monthly survey of manufacturers in New York State conducted by the Federal Reserve Bank of New York fell to -11.6, with the shipment measure falling at its fastest pace since the start of the pandemic two years ago.
  • The Federal Reserve Bank of Philadelphia’s May business index dropped 15 points to 2.6, with the six-month outlook falling to its lowest since December 2008 (though the underlying details were better than the headline number).
  • Existing and new home sales dropped for a third month, to its lowest since 2020, held back by lean inventory, rising prices and higher mortgage rates. 

Taken together, the various regional Federal Reserve surveys suggest that the ISM Report for Business may come in at around 53, above 50 so still clearly in expansion territory for the US economy, but down noticeably from the upper 50s/lows 60s readings to which markets have become accustomed.

US equities still weak

US equities have remained weak as the down move continues for its seventh week.

It has been apparent that, in contrast to the start of the year when rising real bond yields were undermining equity markets, it is now fears of falling earnings due to a weaker economy that are weighing on stocks.

The last week has seen, in accordance with the risk-off regime, more buying-the-dip and selling-the-rally. There has also been a rotation out of growth and cyclicals into value and defensives (healthcare, real estate, utilities and staples).

European markets under the cosh

Bearish sentiment is prevalent in Europe, too, with investors cutting exposures to European equities.

There was another outflow in the week to 18 May, taking the total to 14 weeks of outflows in a row. Cyclicals, in particular, saw strong outflows, led by the materials, financials and energy sectors.

Our multi-asset team are inclined to reduce exposure to equity markets given the deterioration in the outlook.

European economy resists

Economic activity indicators have fallen so far in May, but remain above 50. Activity edged up in the manufacturing sector despite the fallout from the Ukraine war and supply chain disruptions that have intensified with China’s coronavirus lockdowns.

Although factories continue to report widespread supply constraints and diminished demand for goods amid elevated price pressures, the eurozone economy is being boosted by pent-up demand for services as pandemic-related restrictions are wound down.

While purchasing manager indices are still pointing to growth, it may be that these surveys understate the shock to activity, while sentiment surveys likely overstate the shock. Markets are increasingly tilting towards anticipation of a contraction in the coming quarters.

Higher food prices

Restrictions on the export of Ukrainian cereals continue and risks increasing food insecurity as the UN World Food Programme has highlighted.

As much of Russian and Ukrainian wheat goes to poorer nations, hunger could be a critical risk, driving up political instability.

The risk of further rises in food prices will be a key driver of inflation, particularly in emerging markets, the worst-case scenario being that the situation worsens significantly.

Moreover, lower fertiliser supply will have a greater impact on the next few months’ harvests, while the pass-through of costlier logistics and input prices is likely to drive food prices even higher.

Coming up…

Minutes of the meeting of the US Federal Open Markets Committee on 3-4 May will be published later on Wednesday.

However, market conditions have soured appreciably since the Fed’s first 50bp rate rise, so some of the language in the minutes pertaining to financial risks and market conditions will be outdated.

Instead, the three major focus points for market participants will likely be: 

  • Policymakers’ views on the conditions which could lead to a shift down, back to a pace of raising rates by 25bp at each FOMC meeting;
  • Any hints as to how far and for how long policymakers intend to push policy rates into restrictive territory;
  • Guidance shaping expectations for the next Summary of Economic Projections — aka the dot plot — due to be released at the June meeting. 

Forthcoming economic data  

US personal income and spending data for April should give investors an insight into the US consumer’s behaviour: Are they tightening the purse strings? The report may also show the Fed’s preferred inflation gauge (core PCE deflator) starting to decelerate.

Perhaps equally important, the report should shed light on how consumers are responding to the current high inflation environment, indicating how wages are performing relative to inflation and how aggressively consumers are tapping into the USD 2.5 trillion of accumulated savings from the pandemic period.

Disclaimer

Any views expressed here are those of the author as of the date of publication, are based on available information, and are subject to change without notice. Individual portfolio management teams may hold different views and may take different investment decisions for different clients. The views expressed in this podcast do not in any way constitute investment advice.

The value of investments and the income they generate may go down as well as up and it is possible that investors will not recover their initial outlay. Past performance is no guarantee for future returns.

Investing in emerging markets, or specialised or restricted sectors is likely to be subject to a higher-than-average volatility due to a high degree of concentration, greater uncertainty because less information is available, there is less liquidity or due to greater sensitivity to changes in market conditions (social, political and economic conditions).

Some emerging markets offer less security than the majority of international developed markets. For this reason, services for portfolio transactions, liquidation and conservation on behalf of funds invested in emerging markets may carry greater risk.

Writen by Andrew Craig. The post Weekly investment update – Weaker economic outlook weighs on markets appeared first on Investors' Corner - The official blog of BNP Paribas Asset Management, the sustainable investor for a changing world.

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Economics

5 Top Consumer Stocks To Watch Right Now

Are these consumer stocks a buy amid the earnings season?
The post 5 Top Consumer Stocks To Watch Right Now appeared first on Stock Market News, Quotes,…

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5 Trending Consumer Stocks To Watch In The Stock Market Now         

As we tread through the earnings season, consumer stocks could be worth watching in the stock market this week. This would be the case since a number of big consumer names such as Costco (NASDAQ: COST) and Macy’s (NYSE: M) will be posting their financials for the quarter. As such, investors will be keeping an eye on these reports for clues on the strength of consumer spending amid this period of high inflation.

However, despite the soaring prices across the economy, it seems that consumers are surprisingly showing resilience. According to the Commerce Department, retail sales in April outpaced inflation for a fourth straight month. This could suggest that consumers as a whole were not only sustaining their spending, but spending more even after adjusting for inflation. Ultimately, it could be a reassuring sign that consumers are still supporting the economy and helping to diminish the narrative of an incoming recession. With that being said, here are five consumer stocks to check out in the stock market today.

Consumer Stocks To Buy [Or Sell] Right Now

Nordstrom

retail stocks (JWN stock)

Starting off our list of consumer stocks today is Nordstrom. For the most part, it is a fashion retailer of full-line luxury apparel, footwear, accessories, and cosmetics among others. The company operates through multiple retail channels, boutiques, and online as well. As it stands, Nordstrom operates around 100 stores in 32 states in the U.S. and three Canadian provinces.

Yesterday, the company reported its financials for the first quarter of 2022. Starting with revenue, Nordstrom pulled in net sales worth $3.47 million for the quarter. This marks an increase of 18.7% from the same quarter last year. Its Nordstrom banner saw net sales rise by 23.5% year-over-year, exceeding pre-pandemic levels. Next to that, its Nordstrom Rack banner saw a 10.3% increase in net sales from last year. Besides, net earnings were $20 million, with earnings per share of $0.13 for the quarter. Considering Nordstrom’s solid quarter, should you invest in JWN stock?

[Read More] Best Stocks To Invest In Right Now? 5 Value Stocks To Watch This Week

The Wendy’s Company

best consumer stocks (WEN stock)

Next up, we have The Wendy’s Company. For the most part, it is the holding company for the major fast-food chain, Wendy’s. Being one of the world’s largest hamburger fast-food chains, the company boasts over 6,500 restaurants in the U.S. and 29 other countries. The chain is known for its square hamburgers, sea salt fries, and the Frosty, a form of soft-serve ice cream mixed with starches. WEN stock is rising by over 8% on today’s opening bell.

According to an SEC filing, Wendy’s largest shareholder, Trian Partners, is looking into making a potential deal with the company. Trian said that it is considering a deal to “enhance shareholder value.” Also, the firm adds that this could lead to an acquisition or business combination. In response, Wendy’s stated that it is constantly reviewing strategic priorities and opportunities. It added that the company’s board will carefully review any proposal from Trian. Given this piece of news, will you be watching WEN stock?

[Read More] 4 Semiconductor Stocks To Watch In The Stock Market Today

Foot Locker

FL stock

Another stock investors could be watching is the shoes and apparel company, Foot Locker. In brief, the company uses its omnichannel capabilities to bridge the digital world and physical stores. As such, it provides buy online and pickup-in-store services, order-in-store, as well as the growing trend of e-commerce. Some of its most notable brands include Eastbay, Footaction, Foot Locker, Champs Sports, and Sidestep. Last week, the company reported its results for the first quarter of the year.

For starters, total sales came in at $2.175 billion, a slight uptick compared to sales of $2.153 billion in the year prior. Next to that, Foot Locker reported a net income of $133 million. Accordingly, adjusted earnings per share came in at $1.60, beating Wall Street’s expectations of $1.54. CEO Richard Johnson added, “Our progress in broadening and enriching our assortment continues to meet our customers’ demand for choice. These efforts helped drive our strong results in the first quarter, which will allow us to more fully participate in the robust growth of our category going forward.”  As such, is FL stock one to add to your watchlist? 

Tyson Foods 

TSN stock

Tyson Foods is a company that built its name on providing families with wholesome and great-tasting protein products. Its segments include Beef, Pork, Chicken, and Prepared Foods. With some of the fastest-growing portfolio of protein-centric brands, it should not be surprising that TSN stock often comes to mind when investors are looking for the best consumer stocks to buy. 

Earlier this month, Tyson Foods provided its fiscal second-quarter financial update. The company’s total sales for the quarter were $13.1 billion, representing an increase of 15.9% compared to the prior year’s quarter. Meanwhile, its GAAP earnings per share climbed to $2.28, up 75% year-over-year. According to Tyson, these financial figures are a reflection of the increasing consumer demand for its brands and products. To top it off, the company was also able to reduce its total debt by approximately $1 billion. Thus, does TSN stock have a spot on your watchlist?

[Read More] Stock Market Today: Dow Jones, S&P 500 Rise, Wendy’s Stock Gains On Potential Deal

DoorDash

food delivery stocks (DASH Stock)

DoorDash is a consumer company that operates an online food ordering and delivery platform. In fact, it is one of the largest delivery companies in the U.S. and enjoys a huge market share. The company connects hundreds of thousands of merchants to over 25 million consumers in the U.S., Canada, Australia, and Japan through its local logistics platform. Accordingly, its platform allows local businesses to thrive in today’s “convenience economy,” as the company puts it.

On May 5, the company reported its first-quarter financials for 2022. Diving in, it posted a revenue of $1.5 billion, growing by 35% year-over-year. This was driven by total orders that grew by 23% year-over-year to $404 million. Along with that, it reported a GAAP gross profit of $662 million, an increase of 34% year-over-year. The company said that it added more consumers than any quarter since Q1 2021, due in part to the growth of its DashPass members. The growth in Monthly Active Users and average order frequency has helped it gain share in the U.S. Food Delivery category this quarter as well. Given DoorDash’s performance for the quarter, should you watch DASH stock?

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Economics

Finding Shelter in an Inverse ETF

As the old saying goes, “What goes up must come down.” Indeed, up until the recent selling wave caused by Russia’s war against Ukraine and the continued…

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As the old saying goes, “What goes up must come down.”

Indeed, up until the recent selling wave caused by Russia’s war against Ukraine and the continued effects of supply chain disruptions amid the COVID-19 pandemic, tech stocks, including semiconductors, were the darlings of the investment world. That is, it seemed as if the sky-high valuations of some tech stocks were sustainable in an atmosphere of seemingly perpetual growth.

That, of course, was not the case, and the too-good-to-be-true valuations were quickly brought down to earth by the forces of inflation and tight monetary policy. As a result, the tech-heavy Nasdaq entered a free-fall that has not yet found a bottom.

At the same time, that does not mean that we should abandon the sector as a lost cause. One such way to play the sector during its downhill slide is the exchange-traded fund (ETF) Direxion Daily Semiconductor Bear 3X Shares (NYSEARCA: SOXS).

As its title suggests, this is an inverse ETF, meaning that it is built to go up in value when its parent index goes down. Specifically, SOXS provides three times leveraged inverse exposure to a modified market-cap-weighted index of semiconductor companies that trade in American markets by using swap agreements, futures contracts and short positions.

While the index’s holdings are weighted by market capitalization, the fund’s managers cap the weights of the top five securities in the portfolio at 8% each. The weight of the remaining securities is capped at 4% each.

As of May 24, SOXS has been up 0.37% over the past month and up 24.73% for the past three months. It is currently up 60.47% year to date.

Chart courtesy of www.stockcharts.com

The fund has amassed $258.15 million in assets under management and has an expense ratio of 1.01%.

In short, while SOXS does provide an investor with a way to invest in an inverse ETF, this kind of ETF may not be appropriate for all portfolios. Thus, interested investors always should conduct their due diligence and decide whether the fund is suitable for their investing goals.

As always, I am happy to answer any of your questions about ETFs, so do not hesitate to send me an email. You just may see your question answered in a future ETF Talk.

The post Finding Shelter in an Inverse ETF appeared first on Stock Investor.

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