The U.S. has warned China that treaties and other global negotiations could be in danger if negotiations fail regarding their high-tech product international trade agreement. The agreement includes an annual $2T in trade, and eliminates tariffs and other trade barriers on IT products.
China has recently excluded approximately 60 new product categories, including medical devices and next-generation silicon chips, from the trade agreement. American authorities are looking to use this week’s annual U.S.-China Strategic and Economic Dialogue to update the 1996 Information Technology Agreement.
U.S. officials warn that if an agreement is not reached, increased opposition will be taken in Congress toward other trade deals with China.
Three of ten sectors tracked by Bespoke have nearly fallen off the screen - trading more than three standard deviations below their 50-day moving averages. The three: Consumer Discretionary (XLY), Consumer Staples (XLP), and Energy (XLE). Telecom (XTL) is nearly in the same boat - 2.97 standard deviations below its 50-day.
Only one sector - the defensive utility group - is above its 50-day moving average.
"The Safety Bubble Deflates," goes the title of a new report from Bernstein's Seth Masters, adding his name to those voices suggesting "safe" assets have become otherwise.
Even though utilities, telecom, and consumer staples have underperformed of late, says Masters, their relative valuations are still well above the average over the last 50 years. "In periods of stress, investors tend to prize stability and safety too much. But in time, investors discover that every investment carries with it some degree of risk: if not risk of loss, then risk of inadequate growth."
Barron's Jack Hough says the "low beta" approach is a flawed one: First, volatility can change quickly as companies' or industries' fortunes shift; Second, beta tells one nothing about whether a stock's valuation is high or low. In a similar warning over low volatility stocks, BAML suggests looking for companies with smooth earnings rather than smooth stock prices. Screening for such, Hough finds CSX Corp (CSX -0.6%), DuPont (DD +0.6%), Cisco (CSCO -0.6%), and Halliburton (HAL -0.8%).
Dividend payers may be a good place to hide out from rising interest rates, but those stocks sporting the highest yields - telecoms and utilities - tend to have slow payment growth, making them less-attractive as rates rise. Checking back to the 1994 bond bear market, telecoms and utilities were among the market's worst performers.
Better to shop for modest payers, but above-average payment growth. Barron's screens for those characteristics combined with reasonable overall valuation and turns up three names: Boeing (BA), CVS Caremark (CVS), and GE.
Certain dividend ETFs employ this strategy as well, with Vanguard's Dividend Appreciation (VIG) - almost zero exposure to telecoms and utilities - and WisdomTree's U.S. Dividend Growth ETF (DGRW) coming to mind. Others include DGRS, DNL, EMDG, DGRE.
While service providers have been worrying about households ending their cable TV subscriptions, a bigger trend has been customers dropping wire-line Internet. With consumers being able to take advantage of faster cellular networks and the proliferation of WiFi, 1% of households ended their Internet subscription last year vs 0.4% for pay-TV.
Just before New Year's, Vanguard cut fees on more than a third of its U.S.-listed ETF lineup while raising fees on just 2 ETFs. Its sector ETFs saw the biggest price cuts (from 0.19% to 0.14%) while its 2 small cap funds (VIOO, VIOV) actually saw slight fee hikes.
Some areas of the dividend universe (telecom, utilities) may be pricey, but dividend stocks are not in a bubble, says ClearBridge's Mike Clarfeld. He suggests looking not just at the upfront yield, but instead at the ability of the company to increase the payout over time. "The sweet spot ... attractive dividends, but really dividend growers - we don't think they are overvalued at all."
Currently weighting U.S. telecoms and utilities at zero in his dividend stock portfolio, Pimco's Brad Kinkelaar notes both sectors are trading at near off-the-chart premiums to their average relative multiple. Dividend investors would do better to look overseas, he says, where one can find companies that are growing, paying good dividends, and trading at better value. An excellent presentation.
Among the major ETFs seeing redemptions last week were the Industrial SPDR (XLI), losing 9% of its AUM, the Retail Spider (XRT) losing 6%, and the Vanguard Telecommunication Services (VOX), losing 12%. Among the top ETF creations were Semiconductors (SMH), gaining 31% in AUM, and the Euro (FXE), +21%.
Liquidity in the telecom and cable sector remains strong, says Fitch, while margins are solid despite competition. These factors should provide a "sufficient buffer to material negative rating changes" in the face of economic headwinds. Of Fitch-rated issuers, 90% have a Stable Outlook, 5% are Positive, and 5% are Negative.
The real battle for smartphone combatants Apple (AAPL) and Google (GOOG) may not be against each other - it may be against dumbphones. While smartphones now account for a record 27% of phone shipments, that means the other 73% of the market has yet to be penetrated. Which means it may be less predictable (and less discountable) than expected.
Proper "earth shattering" news from CES could have a ripple effect on technology ETFs, says Tom Lydon. Given consumer hunger for advanced graphics capabilities, investors should pay special attention to semiconductor funds like SPDR S&P Semiconductor (XSD) and Semiconductor HOLDRs (SMH). And there's software and telecom potential, too.
Vanguard Telecommunication Services ETF seeks to track the performance of a benchmark index that measures the investment return of telecommunication services stocks.
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