Built By Advisors For Advisors GOT TO LOVE A SHARP KNIFE?
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Transcript of Built By Advisors For Advisors GOT TO LOVE A SHARP KNIFE?
Built By Advisors For Advisors
GOT TO LOVE A SHARP KNIFE?
Built By Advisors For Advisors
BIGFOOT INVESTMENTS OPEN FORUM
Mar 7th, 2013
WELCOME!
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AGENDA WELCOME! ADMIN NOTESQUOTE OF THE DAYOPTIMISM GAUGECHARTS OF INTEREST – ARE WE CORRELATED?SO WHAT’S UP WITH: ETF COSTSMARCH PORTFOLIO REVIEWA CLOSER LOOK AT: UTHR DAVID’S CORNERSWAPS AND SPREADSLEE’S COMMENTS QUESTIONS/COMMENTS
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“NOTES”
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QUOTE OF THE DAY:In poker, “if you don’t know who the patsy is after
30 minutes of playing……………………
Warren Buffett
…it’s YOU.”
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Optimism Gauge
As of: 3/7/2013
Indicator Current Value Prior/Metric Value Current Value
St Louis Fed Financial Stress Index -.587 -0.597(Revised) +1.0
Chicago Fed National Act Index (3 Mon Mov Av) 0.30 0.23(Revised) +.50
Unemployment 7.9 7.8 (Revised) -.50
Weekly Jobless Claims (4Wk Mov Av) 348,750 355,750(Revised) .50
ECRI Weekly Index 6.8 7.5 (Revised) +.50
Conf Board Leading Indicators (NEW) 94.1 93.9 +1.0
University of Michigan Sentiment - Final 77.6(Final – Feb 2013) 73.8(Final-Jan 2012) -.25
Monthly Retail Sales (Adjusted) 201.98 201.58 +.50
NFIB Small Business Sentiment 88.9 88.0 -.50
ISM Manufacturing 54.2(Expansion Line = 50) 53.1 +.50
Economic Capacity Utilization 79.1 79.3(Revised) +.50
Stock Market Moving Averages Weekly Data Points >50-day MA/>100-Day MA N/A
+.50
S&P Case-Shiller 20 City Comp Index 145.95 145.82 (Revised) .50
Total +4.75Last Update: 3/7/2013
Measuring Our Economy
NOTES/COMMENTS
CURRENT READING: 72.0%
PRIOR READING: 72.0%
BIAS: BULLISH
10 OF 13 INDICATORS POSITIVE
TREND - POSITIVE
EconomicOptimism
Index
15
25
35
45 65
75
85
95
72.0%
READING AS OF: 3/7/2013
POSITIVE AS OF: 8/17/2012
Current Reading Prior Reading
Measuring Our Economy
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Charts of Interest!
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ONE “DOWN” – ONE TO GO?
Stopgap Spending Bill Passed by HouseWASHINGTON—The House on Wednesday moved to put aside the threat of a partial government shutdown this spring, sending to the Senate a bill that funds government operations through Sept. 30, the end of the fiscal year.
The Senate is expected to take up the legislation next week. Senior Democratic aides said the Senate isn't likely to make changes to the bill that would derail its final approval in Congress.
Source: Wall Street Journal
NOW IT’S THE BUDGET CEILING
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IT’S EASY TO GET NEGATIVE!
Built By Advisors For AdvisorsCBOE White Paper: CBOE S&P 500 Implied Correlation Index
ARE WE CORRELATED?
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LET’S GET BACK TO CORRELATIONS & VOLATILITY
SOME INFORMATION FIRST: Option prices reflects the risk of a stock or index > implied volatility(IV) The data for a single stock indicates expectation of price movement IV of an index is the same However, index volatility is really driven by 2 factors
Individual VOLATILITIES plus….. The CORRELATION of individual component returns
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VOLATILITY AND CORRELATION (CONT)
You would expect that the IV of an index would rise with an increase in component IVs
Yet, there are times when index IV moves and there is no similar shift in the component IV
This is due to the market’s changing views on CORRELATION
BOTTOM LINE: INDEX VOLATILITY IS SENSITIVE TO
CORRELATION
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So, there is a “SLIP” between STOCK OPTION PRICES and INDEX OPTION PRICES The difference indicates the RISK FOR THE MARKET versus STOCKS
IT’S REALLY APPLES AND ORANGES UNLESS YOU FACTOR IN CORRELATION
VOLATILITY AND CORRELATION (CONT)
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OK….NOW WE GET A LITTLE “DEEP”
We take the VARIENCE of the INDEX and compare it to the VARIENCE of the STOCKS in the index*
The difference gives you an idea how much MARKET CORRELATION is implied in the stocks
Variance = squared differences from the mean
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Tracking symbols for CORRELATION are JCJ, KCJ and ICJ
1. JCJ (Bloomberg Symbol = JCJ:IND)
2. KCJ (Bloomberg Symbol = KCJ:IND)
3. ICJ (Bloomberg Symbol = ICJ:IND)
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When the market is under a higher state of fear, or when we see swift movement lower, CORRELATIONS START TO RUN HIGHER
as liquidations beget liquidations.
(HIGH CORRELATIONS ARE DANGEROUS)
On the other hand, if the correlations MOVE LOWER, stock picking is critical and markets are more positive
CONCLUSION:
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ETF CostsSO WHAT’S UP WITH:
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BID/ASK SpreadExpense RatioPremiums and DiscountsCommissionsTracking Error Leveraged “Costs”Currency Hedging (Intl Funds) Sampling Error (Intl Funds)Trading Expense Ratios
THE “COST” OF AN ETF
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BID/ASK Spread
Source: ETF Experts (xtf.com)
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BID/ASK Spread
Source: ETF Experts (xtf.com)
S&P Global 100 Index
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Expense Ratio
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Expense RatioiShares S&P Global 100 Index
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Premiums and DiscountsETFs trade at premiums and discounts to the underlying securities
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Premiums and Discounts
iShares S&P GLOBAL 100 INDEX FUND
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Commissions – Know thy cost
Tracking ErrorThe term relates to how closely a fund follows its benchmark. Since most ETFs are passively
run, the calculation is considered a key way for investors to perform proper due diligence.
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Tracking Error - iShares
Source: BlackRock iShares website
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Also:
Refer to sedar.com/FindMFDocuments.com(System for Electronic Delivery Analysis and Retrieval)
This will provide the Management Performance Report (MPR)
Source: SEDAR
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Leveraged “Costs”
Leveraged Funds maintain 2/3 times the exposure for each $1 in capital Leveraged Funds respond to share creation with derivatives As with all ETFs they are almost always fully invested Constant “resizing” has costs especially with derivatives LFs usually have a large amount of cash in short-term derivatives Maintaining the “perfect” leverage ratio is difficult Gains are good but losses are multiplied Tracking error makes it worse
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Leveraged “Costs”INCREASING MARKET:• Simple example – Fund value increases from $100 to $102 (2X Fund)• Now must take profits and leverage up from $200 to $204• Must keep exposure to index at leverage ratio
DECREASING MARKET:• Fund value decreases to $98 (2X 196)• Fund would sell depreciated securities to reduce exposure and lose
4% of actual value (4/100) along with increased derivative costs of rebalancing
LEVERAGE MATH AT 2X $10 buys $20 A $1 loss is 5% of portfolio (1/20) But a 10% decrease in my actual $ (1/10)
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Sampling Error (Intl Funds)Example: EAFE must track 952 companies in 21 countries Often use SAMPLING to achieve rather than buying all Can end up with sampling error and tracking error
Currency Hedging (Intl Funds) Form of DERIVATIVE COST
Trading Expense Ratios Total Expense Ratio is the MER + Trading Costs Found in SEDAR (Sample)
Actually3.19%
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March Portfolio Review
Investment Style of the Portfolio
As of February 28, 2013- Subject to change.
TOP 25 STOCKS March-13 ULTIMATE SCREEN-BASED LIST
RANK TICKER NAME Popular Value Growth Quality Sentiment SCORE1 MX Magnachip Semiconductor Corp YES #N/A #N/A #N/A #N/A 77.982 HFC HollyFrontier Corp YES #N/A #N/A #N/A #N/A 74.813 KORS Michael Kors Holdings Ltd YES #N/A #N/A #N/A #N/A 74.724 CELG Celgene Corporation YES #N/A #N/A #N/A YES 74.625 CVLT CommVault Systems, Inc. #N/A #N/A YES #N/A #N/A 74.476 MON Monsanto Company #N/A YES #N/A #N/A #N/A 73.437 ADS Alliance Data Systems Corporat YES #N/A YES #N/A YES 72.958 TSCO Tractor Supply Company YES YES #N/A #N/A #N/A 72.389 UTHR United Therapeutics Corporatio YES YES #N/A #N/A #N/A 72.92
10 MA Mastercard Inc YES #N/A #N/A #N/A #N/A 72.3711 PRGO Perrigo Company #N/A YES #N/A #N/A #N/A 71.8612 ALK Alaska Air Group, Inc. YES #N/A #N/A #N/A #N/A 71.7713 CAM Cameron International Corporat #N/A #N/A YES #N/A #N/A 71.6814 CTRX Catamaran Corp (USA) YES #N/A #N/A YES YES 71.3915 GILD Gilead Sciences, Inc. YES #N/A #N/A #N/A #N/A 71.0016 RMD ResMed Inc. YES YES #N/A #N/A YES 70.5717 CDNS Cadence Design Systems, Inc. #N/A #N/A #N/A YES YES 70.7218 DISCA Discovery Communications Inc. YES #N/A #N/A #N/A #N/A 70.7119 SBUX Starbucks Corporation #N/A YES #N/A #N/A #N/A 69.9620 FLS Flowserve Corporation YES #N/A #N/A #N/A #N/A 69.3121 EBAY eBay Inc YES #N/A #N/A #N/A #N/A 66.4922 URBN Urban Outfitters, Inc. YES #N/A #N/A #N/A #N/A 66.2123 FLR Fluor Corporation (NEW) #N/A YES #N/A #N/A #N/A 63.1924 BLK BlackRock, Inc. YES YES #N/A #N/A #N/A 61.3125 LUK Leucadia National Corp. #N/A #N/A YES #N/A YES 60.37
Beta of the Portfolio – March 2013
For a Portfolio with 100% invested in Equity – Beta of Portfolio= 1.2104
RANK TICKER NAME SECTOR INDUSTRY BETA WeightWeighted
Beta1 MX Magnachip Semiconductor Corp 10 - Technology 1033 - Semiconductors 2.39 0.04 0.09562 HFC HollyFrontier Corp 06 - Energy 0609 - Oil & Gas Operations 1.41 0.04 0.05643 KORS Michael Kors Holdings Ltd 04 - Consumer Cyclical 0403 - Apparel/Accessories 2.87 0.04 0.11484 CELG Celgene Corporation 08 - Health Care 0803 - Biotechnology & Drugs 0.64 0.04 0.02565 CVLT CommVault Systems, Inc. 10 - Technology 1036 - Software & Programming 0.73 0.04 0.02926 MON Monsanto Company 01 - Basic Materials 0103 - Chemical Manufacturing 0.93 0.04 0.03727 ADS Alliance Data Systems Corporat 07 - Financial 0703 - Consumer Financial Services 1.40 0.04 0.0568 TSCO Tractor Supply Company 09 - Services 0960 - Retail (Home Improvement) 0.87 0.04 0.03489 UTHR United Therapeutics Corporatio 08 - Health Care 0803 - Biotechnology & Drugs 0.91 0.04 0.0364
10 MA Mastercard Inc 07 - Financial 0703 - Consumer Financial Services 0.89 0.04 0.035611 PRGO Perrigo Company 08 - Health Care 0809 - Major Drugs 0.69 0.04 0.027612 ALK Alaska Air Group, Inc. 11 - Transportation 1106 - Airline 0.60 0.04 0.02413 CAM Cameron International Corporat 06 - Energy 0612 - Oil Well Services & Equipment 1.55 0.04 0.06214 CTRX Catamaran Corp (USA) 10 - Technology 1036 - Software & Programming 0.62 0.04 0.024815 GILD Gilead Sciences, Inc. 08 - Health Care 0803 - Biotechnology & Drugs 0.47 0.04 0.018816 RMD ResMed Inc. 08 - Health Care 0812 - Medical Equipment & Supplies 0.69 0.04 0.027617 CDNS Cadence Design Systems, Inc. 10 - Technology 1036 - Software & Programming 1.39 0.04 0.055618 DISCA Discovery Communications Inc. 09 - Services 0921 - Motion Pictures 0.95 0.04 0.03819 SBUX Starbucks Corporation 05 - Consumer Non-Cyclical 0515 - Food Processing 1.18 0.04 0.047220 FLS Flowserve Corporation 02 - Capital Goods 0218 - Misc. Capital Goods 1.76 0.04 0.070421 EBAY eBay Inc 09 - Services 0948 - Retail (Catalog & Mail Order) 1.43 0.04 0.057222 URBN Urban Outfitters, Inc. 09 - Services 0945 - Retail (Apparel) 1.08 0.04 0.043223 FLR Fluor Corporation (NEW) 02 - Capital Goods 0215 - Construction Services 1.43 0.04 0.057224 BLK BlackRock, Inc. 07 - Financial 0718 - Investment Services 1.54 0.04 0.061625 LUK Leucadia National Corp. 01 - Basic Materials 0115 - Forestry & Wood Products 1.84 0.04 0.0736
1.00 1.2104
CHANGE IN BETA
Feb-13 OLDCF 1.20RAX 1.46CSTR 0.86CTB 2.25INGR 1.26ULTA 1.37EOG 1.05COV 0.88MGA 1.42AAPL 1.04STI 1.55
AVG. BETA 1.30
Mar-13 NEWMX 2.39KORS 2.87CVLT 0.73MON 0.93TSCO 0.87UTHR 0.91PRGO 0.69ALK 0.6CAM 1.55CDNS 1.39SBUX 1.18
AVG. BETA 1.28
March 2013 Stock Picks
As of February 28, 2013 - Subject to change.
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A CLOSER LOOK AT: UTHR
United Therapeutics Corporation (UTHR)United Therapeutics Corporation, a biotechnology company, engages in the development and
commercialization of therapeutic products for patients with chronic and life-threatening diseases in the United States and internationally. It offers Remodulin, Tyvaso, and Adcirca for the treatment of
pulmonary arterial hypertension (PAH). The company also develops Oral Treprostinil (UT-15C), a new drug application filed with the United States Food and Drug Administration for the treatment of PAH. Its development products under Phase III clinical trials include Oral Treprostinil (UT-15C) Combination
Therapy for PAH; Ch14.18 monoclonal antibody (MAb) targeting Neuroblastoma; and Remodulin for the treatment of PAH in the United States, the United Kingdom, France, Germany, Italy, and Japan. The
company's development products under Phase I clinical trials comprise Beraprost-MR for PAH in North America, Europe, Mexico, South America, Egypt, India, South Africa, and Australia; 8H9 MAb targeting
Metastatic brain cancer; and IW001 for the treatment of Idiopathic pulmonary fibrosis and primary graft dysfunction. Its pre-clinical stage products consist of Glycobiology Antiviral Agents for viral
infectious diseases; PLacental eXpanded cells targeting PAH; and pulmonary tissue replacement and remodeling products for the treatment of end-stage lung disease. The company serves pharmaceutical wholesalers through specialty pharmaceutical distributors and other distributors. United Therapeutics
Corporation was founded in 1996 and is headquartered in Silver Spring, Maryland.
Source: FinViz.com, March 2013
Sources: Zacks, February 2013
POSITIVES: With the approval of Adcirca and Tyvaso, United Therapeutics has a varied range of therapies available for the treatment of pulmonary arterial hypertension. Analysts believe the company’s pulmonary arterial hypertension product portfolio will drive strong top-and bottom-line growth.
Possible concerns: United Therapeutics is facing a patent challenge for Remodulin (treprostinil) injection. Sandoz is seeking approval for its generic version of Remodulin (10 mg/mL).
United Therapeutics Corporation (UTHR)
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Enters Portfolio
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ENTERS PORTFOLIO 3/1/2013 – BUY SIGNAL
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March 2013 Stock Picks
As of February 28, 2013 - Subject to change.
3
Drug ManufacturersBiotechnology
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Earnings beat$1.60 v. $1.25
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Dow Healthcare Index
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Nasdaq Biotech Index
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VALUE LINE
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THE CHARTS PLEASE!
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DAVID’S CORNER
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SWAPS & “SPREADS”
IGNORE AT YOUR PERIL
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SWAPS AND SPREADSRATE PRIOR CURRENT STATUS
Libor/OIS 14.71 13.86
Euribor/Eonia .153 .130
DTCC RepoIndex
Agency .127 .200
MBS .136 .222Treas .121 .189
High Yield 4.98 4.88
Federal ReserveCurrency Swaps
(ECB)USD million
7 Day 1000 0
Open 4,192 4,192
Note: Status = No impact Status = Negative Impact
As Of: 3/6/2013
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QUESTIONS & COMMENTS
THANKS FOR JOINING US!
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