Energy prices have crashed, taking energy stocks down with them. The Energy Select Sector SPDR ETF (XLE) suffered a 21.47% loss in 2015 and many analysts still see doom and gloom ahead. Is it time for financial advisors to nibble or stay away?
Research magazine visited with Jeremy Held, senior vice president and director of research at ALPS Funds Services. In addition to being a popular servicing platform for mutual funds, closed-end funds, ETFs and alternative funds, the Denver-based firm also manages a growing lineup of ALPS branded ETFs.
After posting three consecutive yearly losses, gold prices have rebounded and it’s lifted share prices in depressed mining stocks. Is this the bottom?
The gold market peaked in 2011 and since that time gold investors have experienced several mini rallies only to be disappointed as the price continued its secular downward decline. However, there are several reasons to believe that the current rally in gold may have some staying power.
For the first time in months, gold has started to react to the troubling interest rate and currency dynamics that affect a large portion of the world. Nearly a third of developed market equities are represented by countries that have adopted a negative interest rate policy (NIRP). Not only does this policy increase the potential for volatility and uncertainty for equity prices, it also signifies that gold, by comparison, is a higher-yielding asset.
Furthermore, after a multi-year bear market, gold stocks are among the least owned sector by both institutional and retail investors, providing a catalyst for further price increases as the rally in gold continues.
Gold mining companies are particularly well positioned for a recovery in the gold price due to higher operating leverage to the price of gold and an instant increase in the value of their reserves held in the ground.
Bond investors are once again in another quagmire with falling yields and less income. Are there any attractive alternatives?
As yields on traditional bonds continue to fall, several asset classes have emerged as a viable source of generating current income. It is critical for investors to recognize, however, that while many of these strategies produce a high level of income, they should be considered strictly as “income” alternatives rather than an “alternative to fixed income.” There are truly few substitutes for the volatility reducing benefits of a traditional fixed income allocation, particularly during times of equity market stress.
On the contrary, many alternative income strategies, such as MLPs, REITs and option-writing strategies have volatility and correlation that is more in line with equity markets than with bonds. As a result, these asset classes can be very effective in terms of generating income, but may be most appropriately used as a complement, rather than a replacement to a traditional bond portfolio.
When allocated properly and in conjunction with the risk tolerance of the investor, alternative income strategies can be a very effective way to replace the income previously generated by bonds without exposing the portfolio to significant risks should rates begin to rise.
Dividend cuts are the fear of every MLP investor. Are current payouts sustainable with oil prices under $50 per barrel?
MLPs are prized first and foremost for the consistency of their distributions. The most recent 18 months have tested the mettle of MLP investors, as limited access to capital and negative sentiment surrounding all segments of the energy value chain have sent MLP prices reeling. The market has punished MLP prices to nearly the same degree as exploration and oil service companies despite the fact that MLP cash flows often have very little direct exposure to commodity prices. In an environment where oil fell 75% from its peak and rig counts plummeted even more, MLPs have seen distributions actually rise.