Sevens Report Alpha Archive

Sevens Report Alpha Webinar #107 – Omicron Update (Identifying Facts and Any Potential Market Impact)

Sevens Report Alpha Webinar #107 – Recording

Sevens Report Alpha Webinar #107 – Slide Deck

In this Alpha webinar I spent the entire 30 minutes separating fact from fiction on the potential market impact of the Omicron variant because, if you’re like me, this has become a constant source of questions over the past week, and we want to arm you with clear, fact-based information about:

1. The current state of Omicron (not just cases, but hospitalizations) and
2. The potential impact of Omicron on markets into year-end and as we start 2022.

If you have any clients who are concerned about the threat of Omicron to their portfolios, I strongly encourage you to share this PowerPoint with them as it provides a fact-based deep dive into the metrics that will tell us if and when Omicron becomes a potential bearish gamechanger.

I wanted to focus today’s webinar on Omicron because I know it’s going to be a topic of conversation at holiday parties and gatherings, and I want to make sure you’ve got the clear, plain-English analysis to turn any Omicron questions or conversations into opportunities to impress clients and prospects.

Specifically, in this webinar I discussed:

• The two metrics that we need to watch that will tell us if Omicron becomes a bearish gamechanger.
• COVID leading indicators: South Africa, the UK, and New York City.
• The state of “high frequency” data and whether Omicron fears are causing changes in people’s behaviors
• Strategies to implement if Omicron is not a threat to the market (13 ETFs) or if Omicron does become a threat to the market (also 13 ETFs).

Bottom line, in today’s webinar we provided the analysis that tells you: 1) The clear, fact-based current state of Omicron, 2) The two specific metrics that will tell us if Omicron becomes a real threat or not, and 3) How to seize opportunities or protect portfolios depending on what happens with those two metrics over the next few weeks.

Sevens Report Alpha Issue – 12/14/21 – The Best Performing COVID Strategies

This issue focuses on strategies that have outperformed since the pandemic started in March of 2020 and should continue to outperform as the market realizes it’s got to “live” with COVID. More specifically, the Omicron variant has again reminded people and markets that COVID is not going away and that we will have flare-ups from variants for the foreseeable future.

So, our goal with this issue is to review our COVID playbook and refine it with the benefit of hindsight to determine what worked best, so when inevitable future flare-ups do occur, you will have a singular reference to identify and implement strategies that have outperformed the S&P 500 when COVID is on the rise.

More practically, we want to make sure that you have a list of COVID-related strategies, ETFs, stocks, and sectors that you can reference and suggest to clients if and when you’re asked by clients or prospects what can outperform during a COVID resurgence.

Specifically, we identified four strategies that have produced substantial returns since the pandemic started, yet still have supportive fundamentals that should continue to drive outperformance during COVID flareups.

• Strategy One: Mega-Cap Tech. XLK/VGT/FDN.
  • While a lot of the stay-at-home plays initially surged in the pandemic, the largest and most well-known tech companies have outperformed as the pandemic evolved. Large-cap tech ETFs have handily outperformed the S&P 500 since the pandemic started.

• Strategy Two: Online Spending. SHOP/IBUY.
  • In our initial pandemic Alpha issue, we highlighted online spending as a major beneficiary and since then SHOP has gained more than 280% while IBUY has risen more than 140%.

• Strategy Three: Blockchain. BLOK (Amplify Transformational Data Sharing ETF).
  • The pandemic accelerated the adoption of numerous technologies, and cryptocurrencies and blockchain technology are no exception. BLOK is up more than 260% since the March 2020 lows.

• Strategy Four: Smart-Beta Industrials. PAVE (Global X U.S. Infrastructure Development ETF).
  • Government spending and materials inflation has surged in the pandemic, and U.S. infrastructure companies are poised to capitalize on that reality. PAVE is up more than 180% since the March 2020 lows.

Bottom line, as much as we all wish COVID will just go “away,” that’s very unlikely. So, having a clear menu of the best performing COVID-related strategies since the pandemic began can help us turn any client-related COVID anxiety into an opportunity to build stronger relationships.

Sevens Report Alpha Webinar #109 – Fed Update

Sevens Report Alpha Webinar #109 – Recording

Sevens Report Alpha Webinar #109 – Slide Deck

During this webinar, I spent the entire 30 minutes on the outlook for Fed policy, specifically what is expected at next week’s Fed meeting (and what would make it hawkish or dovish) as well as what we can expect from markets once the Fed embarks on a new rate hiking cycle sometime in 2022.

If you have any clients who are concerned about rising interest rates or Fed rate hikes, I highly encourage you to share this presentation and PowerPoint with them it provides a fact-based explanation of why the past two rate hike cycles were positive for virtually all assets (but especially stocks) and identified the singular indicator that will help tell us when a rate hike cycle has gone too far (which is a signal to get defensive).

As we covered in Monday’s Sevens Report, we think there’s been an important paradigm shift at the Fed that, frankly, changes the way we need to look at markets going forward, so I spent today’s Alpha webinar providing more analysis and insight into what the shift means for all markets.

It’s not an exaggeration to say this potential paradigm shift, where the Fed is no longer automatically dovish to any threat to growth, is the biggest shift in some years, so we went in-depth on what to expect from the Fed in both the short and longer-term.

Specifically, we discussed:

• An early FOMC Preview. I explained the three unknowns entering next week’s FOMC meeting and specifically identified what would make the decision a hawkish surprise that could cause another pullback.

• How the 10’s-2’s spread helped to accurately predict when a rate raising cycle had gone too far. We show how, during the last two rate hiking cycles, the 10’s-2’s provided quasi-real time insight into how much Fed rate hikes were impacting the economy, so investors had a clear signal when the Fed had gone “Too Far.” Importantly, it took years for the 10’s-2’s spread to invert once rate hikes began, and it shouldn’t be any different this time.
• Sector and asset performance during the last two rate hike cycles. We examined S&P 500 sector performance and the performance of gold, bonds, foreign markets, and other assets during the last two rate hike cycles so we can see what outperformed, and why.
• Finally, we explained why we think this rate hike cycle looks a lot more than the ’04-’07 rate hike cycle than the ’15-’19 rate hike cycle (and that’s an important distinction from a positioning standpoint.

Bottom line, the Fed is clearly exiting pandemic era policies and attempting to transition to a more “normal” monetary policy given still high inflation.

In the immediate term, that means an acceleration of tapering of QE announced next week and sooner than expected rate hikes, and depending on the outcome of that meeting, we could see some more year-end volatility.

But, beyond next week that Fed policy transition increase certain risks, and present opportunities, and I think today’s webinar will help provide an understanding of what we can expect over the next several quarters, based on the last two rate hike cycles.

Sevens Report Alpha Issue – 11/16/21 – Metaverse Primer (What It Is and How to Get Exposure)

This Alpha issue is dedicated to profiling what will perhaps be the next evolution of the internet:

The Metaverse.

The internet has undergone several game-changing stages of evolution. The first major evolution of the internet since it was widely introduced came via faster speeds (Ethernet connections). Then, wireless internet in the early 2000s proved to be the next evolution of the internet. That was followed by social media, which became widespread in the late ‘00’s and early ‘10’s. Finally, the “Internet of Things” was the latest evolution of the internet, as everyday devices like lamps, TVs, and door locks became connected to the internet.

Each of these evolutions created massive, multi-year investment opportunities for companies that were on the leading edge of those evolutions.

Now, many analysts believe the “Metaverse” is the next evolution of the internet, and if that’s true the long-term return potential is significant.

So, we want to make sure you have the information you need to 1) Discuss the metaverse with any clients or prospects and 2) Identify the stocks and ETFs that stand to benefit from the continued growth of the Metaverse:

• Investment Idea 1: Virtual Platforms & Content.
  • Meta Platforms Inc (FB). The parent company of Facebook, Instagram, WhatsApp, and Oculus devices reportedly has one-fifth of Facebook employees working on virtual reality and augmented reality devices.
  • Roblox Corp (RBLX). The digital gaming platform is one of the most widely used Metaverse platforms.

• Investment Idea 2: Computing Power.
  • The development of graphics and processing power will be the modern day “picks and shovels” of the Metaverse gold rush.
  • Two of the best positioned names are NVIDIA Corp (NVDA) for graphics processing, chipsets, and multimedia software and Advanced Micro Devices (AMD) for processing power.

• Investment Idea 3: Metaverse Infrastructure.
  • Server power and cloud-based computing solutions will be key to the growth of the Metaverse.
  • Amazon’s (AMZN) AWS business and Microsoft’s (MSFT) Azure cloud computing platform will be in high demand.

• Investment Idea 4: The ETF Roundhill Ball Metaverse ETF (META).
  • The only dedicated Metaverse ETF has over $200 million in AUM after launching in June.

Bottom line, the internet, and technology are always evolving, and the Metaverse is potentially the next major stage of the evolution of the internet. If that’s the case, it will present attractive investment opportunities and we believe this primer will provide with 1) The analysis you need to not only confidently discuss the Metaverse with any clients or prospects, but also 2) Provide well researched, actionable investment ideas to provide Metaverse exposure in client portfolios.

Sevens Report Alpha Webinar #105 – Are the Four Pillars of the Rally Still Intact?

Sevens Report Alpha Webinar #105 – Recording

Sevens Report Alpha Webinar #105 – Slide Deck

I spent the entire 30 minutes during this webinar providing an important update on the “Four Pillars” of the rally and explained that, while the pillars have been weakened, when taken in context with surging inflation and growth, they remain supportive of stocks broadly speaking.

Since the start of 2021, we have consistently referenced the “Four Pillars of the Rally” and stated that, as long as they were intact, it was the right stance to be fully long stocks. That strategy has paid off as continued focus on the Four Pillars helped us look past the GameStop volatility, COVID Delta variant pullback, Evergrande debt-related market decline, and other short-term pullbacks.

Now, however, we are seeing substantial changes to those “Four Pillars of the Rally” and I wanted to spend the entire 30 minutes today reviewing the state of each one of them and determining whether they remain intact enough to maintain this “fully long” strategy.

I went in-depth on each of the “Four Pillars”:

• Pillar One: Historic Government Stimulus. Stimulus has certainly been reduced from earlier in the pandemic, but there are still extraordinary payments going to many people, and the infrastructure bill and looming spending bill will add to that tally.

• Pillar Two: Historic Fed Support. The Fed is now tapering QE but it is still ongoing, and as long as that’s the case and rates aren’t rising, then the Fed is still providing extraordinary support for an economy with 30-year highs in inflation and surging economic growth.

• Pillar Three: COVID Vaccine Optimism. COVID has subsided in the U.S. once again and between high vaccination rates and the recent release of therapeutic drugs that drastically reduce the chances of COVID related hospitalizations, the market is increasingly viewing COVID as “over.”

• Pillar Four: Strong Economic Recovery. The economic recovery remains very strong, but the question is whether the economy will remain so strong it further stokes inflation and causes the Fed to get more hawkish.

Bottom line, focusing on the Four Pillars of the Rally has helped us look past short-term volatility and market noise throughout 2021, and as we focus on finishing 2021 and starting 2022 strong, we think it’s important to fully update the outlook for each of these pillars of the rally because if and when they crack and collapse, it will be time to get more defensive.

Knowing how far we are from that point will be helpful over the coming months and quarters.

Sevens Report Alpha Issue 11.02.21: Capitalizing on A New Era of Energy Investment

This Alpha issue is essentially a “follow up” to our recent Alpha webinar, where we focused on the energy industry and explained, in part because of environmental concerns, that energy prices could be sustainably higher for the foreseeable future.

Specifically, because of the desire to reduce their carbon footprint, major integrated oil companies like Exxon Mobil, Chevron, and others aren’t investing in oil production the way they normally would have in the past, given higher prices.

That could lead to sustainably lower supply and higher prices, and we think that will create an opportunity for smaller energy companies that are not restrained by boards focused on their longer-term carbon footprint.

Additionally, Natural Gas remains the best short-term “bridge” between fossil fuels and renewables, and as such we expect demand to remain strong for Natural Gas.

So, in this issue, we profile several energy ETFs that we believe have the most targeted exposure and stand to outperform in this new era of energy, one where a lack of increased production should keep prices high, and where Natural Gas sees sustained increases in demand due to the desire to burn the most “clean” fossil fuel while the world moves further towards renewables.

Specifically, we discuss:

• SPDR S&P Oil & Gas Exploration & Production ETF (XOP).
  • This is a more diversified, natural gas focused energy stock ETF and it has massively outperformed XLE over the past year, rising 167% vs. 110%.

• Invesco S&P Small Cap Energy ETF (PSCE).
  • Due to potentially restrained production increases from the major oil companies, small caps have a unique opportunity to benefit from high product prices. PSCE selects small-cap energy stocks already included in the S&P 600 and it has risen more than 160% over the past year.

• First Trust Natural Gas ETF (FCG).
  • Natural gas is the “cleanest” of the fossil fuels and given the vast majority of global power generation comes from fossil fuels, and it will take decades to change that, natural gas is in a “sweet spot” for longer lasting demand. FCG is comprised of 40 high-quality U.S. stocks and master limited partnerships that are laser focused on the natural gas industry. FCG is up more than 180% YTD.
• Global X MLP ETF (MLPA).
  • This is the largest MLP ETF with more than $1 billion in AUM, it sports a yield of more than 7% and has risen more than 70% YTD.

Bottom line, the energy industry is facing a generational shift, one that will present attractive opportunities for those companies that are focused on increasing production, especially natural gas production as demand there should be sustainably high given it’s the “most clean” fossil fuel.

And, while all the ETFs mentioned are sharply higher over the past year, many energy sector ETFs remain well off the highs of several years ago and if energy prices stay high, these ETFs could see further substantial gains.

Sevens Report Alpha Webinar #104 – How Can We Get Long Carbon

Sevens Report Alpha Webinar #104 – Recording

Sevens Report Alpha Webinar #104 – Slide Deck

This Alpha webinar was held an hour earlier than usual to accommodate our guest, Luke Oliver, who is the Managing Director and Head of Strategy at KraneShares.

Luke and I spent the entire 30 minutes discussing what is becoming an increasingly important topic not just in the financial markets, but also in general society: Carbon and Carbon emissions.

Specifically, we discussed how KraneShares has created an innovative ETF that allows investors to get long the price of carbon, and this ETF has produced fantastic returns since inception.

It’s undeniable that global governments and global corporations have become dedicated to reducing the amount of carbon produced throughout the world, and many governments and companies have made public pledges to become “carbon neutral” in the coming decades, including Apple by 2030 and Amazon and GM by 2040.

While renewable energy projects will help to reduce the amount of carbon produced around the globe, for most companies and governments being “Carbon Neutral” will essentially mean buying carbon offsets to counter the carbon produced. Those carbon offsets are projects that plant trees, restore wetlands, fund more renewable energy projects, etc. And those carbon offsets are valued in terms of “carbon credits” which is equal to one metric ton of carbon dioxide.

Last year, KraneShares introduced the KraneShares Global Carbon ETF (KRBN) which is benchmarked to the HIS Market’s Global Carbon Index, which tracks the most traded carbon credit futures contracts.

Since the ETF debuted in July 2020, it’s accumulated more than $1 billion in AUM, is up 68% YTD, and has returned 104% since inception!

So, today I invited Luke on to help inform and educate us about the carbon market and provide a deep dive into the KRBN ETF.

Specifically, we discussed:

• How the carbon credit market works, including the relationship between governments and private businesses, and the three main regions where carbon credits are traded (the EU, California, and Northeast U.S.).
• Why carbon credits are designed to have their price rise over time to encourage the broader adoption of clean energy.
• The outlook for carbon credits, which are trading around $40 now but could rise to more than $150 in the coming quarters.
• How governments are implementing price “floors” to keep carbon credit prices high.
• How KRBN is being used in investors’ portfolios, including correlations to existing asset classes.

Bottom line, limiting carbon is a trend that will only grow stronger in the years ahead, and understanding how the market values carbon and the trends in the industry is critical for all investors going forward.

If you have any clients or prospects who are especially focused on climate change, the environment more broadly, or ESG investments in general, I strongly encourage you to share this presentation and Power Point with them, as our discussion focused on the entire carbon economy as well as the KraneShares Carbon ETFs.

Sevens Report Alpha Issue 10.19.21: Tapping the Wisdom of Financial Celebrity

This Alpha issue came from numerous experiences that I’ve had talking to investors casually about the market. In proof that we do live in a “Celebrity Culture,” I’ve recently been asked a lot of questions about some of the most well-known “Market Mavens” on CNBC and Fox Business, and specifically what investment vehicles they have and how the performance has been.

The dual goal of Sevens Report Alpha is to 1) Furnish you with interesting investment ideas and strategies you can share with clients and prospects and 2) Identify funds and ETFs that can outperform, so with that dual goal in mind we analyzed the fund offerings of some of the most well-known “Market Mavens” that appear in the financial media so that you can turn any mention of these celebrities into an opportunity to impress clients with your knowledge, and possibly find an actionable investment idea.

After a thorough search, we found four of these “Mavens” that had funds or ETFs that:

1. Could be attractive to clients and
2. Consistently beat the market.

The four “Mavens” we profiled were: Jeffrey Gundlach (Doubleline Capital), Scott Minerd (Guggenheim Investments), Jeremy Siegel (WisdomTree), and Kevin O’Leary (O’Shares).

In today’s issue, profile two funds from each “Maven.”

The first is their most popular offering and the most likely to land in a client account.

The second is an “Out of the Box” offering that has unique exposure or great performance.

Bottom line, I was surprised to find these “mavens” had funds and/or ETFs with a very strong performance that are viable options for client accounts.

• Financial Celeb 1: Jeffery Gundlach, DoubleLine Capital.
  • DoubleLine Total Return Fund (DBLTX). DBLTX is a $49 bln bond/fixed income fund with a yield of 3.12% and an effective duration of just 3.12 years (both substantially better than AGG).
  • DoubleLine Shiller Enhanced CAPE (DSEEX) is a hybrid portfolio of bonds and stocks. DSEEX was named the Refinitiv Lipper Best Large-Cap Value Fund over a 3-Year Period for 2020, 2019, 2018, and 2017.

• Financial Celeb 2: Scott Minerd, Guggenheim.
  • Guggenheim Total Return Bond Fund Institutional Class (GIBIX). GIBIX contains a mix of corporate debt and CLOs, has a 30-day yield of 2.16%, and an effective duration of 7.4 years.

• • Guggenheim Strategic Opportunities Fund (GOF). GOF is a 5 Star closed-end fund with a credit-managed fixed-income portfolio. Via tactical use of leverage, GOF has a healthy distribution rate of 10.79% at current prices.

• Financial Celeb 3: Jeremy Siegel, Wharton, and WisdomTree.
  • WisdomTree U.S. Quality Dividend Growth Fund (DGRW). DGRW owns nearly 300 high-quality, large-cap, dividend-paying equities. This ETF employs a unique focus on dividends and earnings growth that has historically yielded strong total returns.

• • WisdomTree Emerging Markets ex-State-Owned Enterprises Fund (XSOE). XSOE is an emerging market ETF whose 3- and 5-year returns beat the MSCI Emerging Market Index. Over the past five years, XSOE has returned 75.88% vs. 54% for the Vanguard FTSE Emerging Markets ETF.

• Financial Celeb 4: Kevin O’Leary, O’Shares.
  • O’Shares U.S. Quality Dividend ETF (OUSA). OUSA is a dividend-focused large-cap stock ETF.

• • O’Shares Global Internet Giants ETF (OGIG). OGIG allocates to 90 of the largest growth-oriented, global internet companies and in doing so provides unique, global exposure to the highest growth areas for internet focused tech companies.

Bottom line, while not all the “Market Mavens” we see on CNBC and other financial media outlets have the performance to back up their financial celebrity status, these four “Mavens” do have that performance, and we think the funds offered here can spark interesting, memorable client and prospect conversations, and help them outperform.

Sevens Report Alpha Webinar #103 – What is Happening in the Energy Markets?

Sevens Report Alpha Webinar #103 – Recording

Sevens Report Alpha Webinar #103 – Slide Deck

In this webinar we discussed the state of the energy markets because they are going to have a significant and lasting impact on all assets over the coming months and quarters. If you have any clients who are interested in the energy markets, gas prices, etc. I strongly encourage you to share this recording and PowerPoint with them, as we always want you to derive maximum value from your subscription.

Right now, both the physical and financial energy markets are in turmoil:

• Oil, gasoline, and natural gas prices are all surging to multi-year highs.
• There is an energy shortage in China that’s resulting in rolling blackouts.
• There was a gas shortage in the UK and rationing of gasoline.
• Analysts are worried that if it’s a cold winter in Europe, they will have blackouts.
• Warnings are starting to emerge that an energy shortage could hit the U.S.

Given this current (and potentially increasing) turmoil in the energy markets, I spent today’s webinar examining:

• Why Is This Happening? It’s not just the pandemic and reopening. It has to do with a structural reduction in supply and the influence of the carbon reduction/green movement, and those represent structural factors that are altering the energy markets for the longer term.
• When Will This Get Better? Not anytime soon. Unlike in previous eras of high prices, energy producers are not spending big on exploration and production, while OPEC is happy to sit by and watch the focus on carbon reduction impede U.S. production gains.
• How Will It Impact Markets and What Strategies Can Profit from This Trend? Natural gas is one of the winners from this new energy reality, as it’s the “cleanest” fossil fuel and as such it’s trying to bridge the gap between fossil fuels, and renewables. Additionally, a specific type of energy equity is in a prime position to seize the opportunity presented by higher prices.

Bottom line, analysts who are blaming the current energy crunch on the pandemic and reopening don’t understand the full scope of the changes impacting the energy industry – changes that will have lasting investment implications.

The goal of this webinar was to make sure we all understand what’s happening in the energy world so as these headlines continue to roll out, we can explain the situation confidently to our clients and suggest strategies to protect portfolios and seize opportunities.

Sevens Report Alpha Issue 10.5.21 – Is There A Buying Opportunity in “New Tech?”

This issue is focused on identifying potential buying opportunities in “New Tech” industries.

In March of this year, we dedicated a unique issue of Sevens Report Alpha to a segment of the market we dubbed the “Old Technology” sector. This genre is primarily made up of well-established companies within the technology realm that sport healthy cash flow, return income to shareholders, and that have persisted admirably through bull and bear markets. That list includes names such as Apple, Microsoft, IBM, Oracle, Intel, Cisco, and Adobe to name a few.

Many of these stocks are known for their quality fundamentals and low volatility in comparison to high cash burn growth stocks in the “New Technology” realm.

We define this latter genre (New Technology) as companies operating in the fields of robotics, fintech, biotech, clean tech, electric vehicles, cryptocurrencies, and other burgeoning industries.

Back in March, Old Tech had fallen out of favor compared to New Tech and we thought that provided an opportunity – and it did as “Old Tech” has outperformed “New Tech” since then.

Now, however, the script has been flipped. Tech companies in the fields of robotics, fintech, biotech, clean tech, electric vehicles, cryptocurrencies, etc. have seen steep declines from the highs this year. With some of these stocks down more than 55% from the highs, they are now trading at far more attractive valuations than they have in years (and this is even more true following the weakness in the tech sector over the past week!)

As such, we wanted to produce an Alpha issue that identifies potential opportunities in this “New Tech” space, as given the declines and the growth potential of some of these firms, the risk is now worth the reward for longer-term focused investors:

Investment Idea 1: Winning the Streaming Wars.

• Roku Inc (ROKU), down 32% from the high.
• Spotify Technology SA (SPOT), down 36% from the high.
• Both companies are leaders in video and music streaming respectively. Despite 30%+ declines, neither stock’s growth story has changed materially.

Investment Idea 2: The Next Evolution in Genetics.

• Invitae Corp (NVTA), down 45% from its high.
• CRISPR Therapeutics AG (CRSP), down 45% from its high.
• Both companies are market leaders in the high-growth medical tech fields of genetic testing and gene editing, respectively. Despite the steep drop in both stocks, the growth outlook for both industries remains strong.

Investment Idea 3: The Future of Money (FinTech).

• Zillow Group Inc (Z), down 55% from its high.
• Coinbase Global Inc (COIN), down 32% from its high.
• Zillow is disrupting the real estate industry while COIN provides unique exposure to the surging crypto industry.

Investment Idea 4: Work from Anywhere.

• Zoom Video Communications (ZM), down 50% from its high.
• Zoom is the market leader in the video conferencing space.

Obviously, these are single stock ideas, so they aren’t going to be right for every client, but at a minimum, the broader investment ideas are worth investigating further, because even if tech struggles to rally materially into year-end, the bottom line is that the medium and longer-term potential from these “New Tech” industries is substantial.

So, for clients that can stomach volatility and have a longer-term focus, we think these strategies and stocks are worth further consideration, as they are trading at substantial discounts compared to the highs of just a few months ago.

Sevens Report Alpha Webinar #102 – What Happens to All the Debt?

Sevens Report Alpha Webinar #102 – Recording

Sevens Report Alpha Webinar #102 – Slide Deck

In this webinar I spent the entire 30 minutes discussing the market and economic implications of the explosion of debt in the U.S. and globally since the pandemic and addressing whether the Evergrande situation in China is a harbinger of more trouble to come for the Chinese economy.

This webinar was partly inspired by the Evergrande saga and some of the conversations that ensued with subscribers. While researching and discussing the implications of Evergrande’s indebtedness, the impact on the Chinese economy and the Chinese economic model in general, that led me to a broader thought:

What happens to all this global debt?

In response to the COVID pandemic, global governments have taken on massive amounts of debt and many countries’ respective Debt to GDP levels have exploded to 1) Never before seen levels or 2) Levels not seen since the last World War.

So, that begs a question:

“What Happens to All the Debt?” or, put a bit more directly, “What Does All This Debt Mean for Markets Going Forward?”

It’s naïve to think it won’t have an impact on asset prices for years to come, but while the most cited answer to those questions is “Inflation,” I believe the answer is more nuanced than that.

As such, in this webinar I discussed:

• Is Surging Debt and Deficits Are Problem for Stocks? (The Answer Might Surprise You)
• What is the Implication of All This New Debt? (Hint: Massive Asset Inflation)
• Is China’s Debt a Problem? (Again, the Answer Might Surprise You)
• What Do I View as the Two Biggest Risks to China and What’s the One Indicator We Can Watch to Monitor Both of Them?

Bottom line, the enormous accumulation of debt over the past two years will have far reaching financial implications over the coming years, and I wanted to spend today investigating what they might be.

Sevens Report Alpha Issue 09/21/21 – Hydrogen: – The Next Stage of the Green Energy Revolution

Inspiration from this issue came from a real encounter. Some time ago my wife and I were having drinks at a well-known restaurant here in the Palm Beaches. Behind us, chatting was an executive for a well-known, national utility and a Congressman. They were speaking freely, mostly about policy minutia that didn’t really interest me.

But one comment did catch my attention. During their chat about renewable energy, the energy executive said something that surprised me:

He said the utility was investing heavily in hydrogen, as were many others, and that was likely the green energy of the future.

Hydrogen has long been touted as a source of cleaner fuel for transportation and commercial uses. But it has always seemed like the decades-long play that just needs a little more technology or a breakthrough process to truly realize its untapped potential.

But, over the past several months I’ve been digging into this space, and it started to make more sense from an investment perspective. I quickly realized just how much opportunity is at stake and why this moment in time is pivotal to the hydrogen development cycle.

Specifically, I reference a Goldman report on hydrogen in the issue, but here are some of the snippets on the economic potential for hydrogen:

• € 2.2 trillion market opportunity throughout European Union by 2050.
• € 10.0 trillion global addressable market opportunity by 2050.
• Pivotal to the Utility and Energy Industry to double power demand.
• Allow for reconfiguration of natural gas grid to support cleaner energy output.
• Solve issues of seasonal power storage and provide a second life to conventional thermal power producers.

Because of that return potential, I want to make sure we all know the ETFs and stocks with quality hydrogen exposure because if it does become the next big “green energy” investment, the returns over the coming years will likely be phenomenal.

In this Alpha Issue, we profile three different strategies to gain exposure to hydrogen which include two stocks and two hydrogen ETFs:

Investment Idea 1: Hydrogen Fuel Cells.

• Plug Power Inc (PLUG). This company creates hydrogen fuel cells for varying applications that range from transportation to materials handling and stationary power. Over the last three years, PLUG is up 1,220%, and it is still trading at a 93% gain over the last 52-weeks.

Investment Idea 2: Fueling Stations.

• Cummins Inc (CMI). CMI just commissioned a one-of-a-kind hydrogen fueling station at the Port of Antwerp and what makes CMI attractive is that, unlike many pure hydrogen startup stocks, this company is already well established in its footprint and has the capability to rapidly scale its production with a healthy balance sheet and positive cash flow.

Investment Idea 3: Diversified Hydrogen ETFs.

• Defiance Next Gen Hydrogen ETF (HDRO). HDRO includes companies that must generate at least 50% of their revenue from hydrogen or fuel cell projects. Hydrogen ETFs are new to the market and HDRO has the highest AUM and solid diversification in the hydrogen space.

Bottom line, green energy investments have produced substantial returns over the past several years as companies and countries increasingly adopt zero-emissions initiatives. Green hydrogen, or “e-Hydrogen,” has the potential to see demand explode as a clean power generation mechanism, and based on the multi-year performance of other green energy sectors the return potential is substantial.

Sevens Report Alpha Webinar #101 – Market Roadmap into Year-End

Sevens Report Alpha Webinar #101 – Recording

Sevens Report Alpha Webinar #101 – Slide Deck

In this Alpha webinar I spent the entire 30 minutes previewing the four key events that will likely decide whether we see a resumption of the rally into year-end, or we finally get a typical pullback. And, these events will likely be resolved within the next six weeks, meaning we’re approaching a pretty critical time for markets.

I’ve always viewed the day after Labor Day as the unofficial “start” of the sprint into year-end, a time to intensify the focus on markets, performance, and client relationships now that summer distractions are behind us, kids are mostly in school, and consistent routines re-emerge.

This year that is especially true because, as I’ve said in the Sevens Report over the past few weeks, I think the last four months of 2021 are going to be the busiest, and potentially most volatile, of the entire year!

That expectation is based on the calendar. Between now and New Year’s Eve, we’re going to get resolutions, one way or the other, on several major topics including:

1. Fed Policy: Timing of tapering and future rate hikes
2. Tax hikes: How many and how much?
3. Earnings: Will $220 for 2022 hold?
4. COVID: Another wave?

That’s a lot to cram into just four months, two of which will be punctuated by two of the biggest holidays of the entire year!

In preparation for these events, I spent the entire 30 minutes today making sure we all have a roadmap we can refer back to that will tell us:

• What’s currently priced into the markets for each event:

• • Fed Tapering and Rate hike expectations
  • Any potential tax hikes
  • The Q3 earnings season
  • COVID trends
• What specifically would make each event positive or negative for the markets (and how much of a move we can expect)
• A list of key dates for each event so we aren’t blindsided by any news

I created this document as a resource so that when headlines start flying, perhaps starting next week with the Fed, we have a singular resource that we can use to tell us whether the headline is positive or negative for markets (and whether the news requires any substantial positioning changes).

Bottom line, this has been a good year in the markets so far, but a lot can change quickly as we saw in 2018, and that’s especially true now given these lofty valuations. I want to make sure we do everything we can to help preserve these strong YTD gains.

Sevens Report Alpha Issue 09/08/21 – Sector Opportunities from Society Learning to Live with COVID

In this Alpha issue, we examine the strategies and sectors that will benefit from society learning to “live” with COVID over the medium and longer-term, and the inspiration for this issue came from real life.

I have two children, my son Thomas, a 4^th grader, and Abigail, who is in Kindergarten. Like many families, we spent most of the summer looking forward to a school year that would look much more like 2019 (with clubs, after school sports, social functions) than 2020.

Well, by the second week of school, two entire grades were quarantined for COVID exposure, including Thomas’s 4^th grade, and that was a very clear signal that school would not return to a pre-pandemic “normal” this year and that while someday the pandemic will end, in the meantime society will need to learn to “live with” COVID.

We believe that reality will cause more permanent adoption of some “temporary” pandemic era behaviors, and we believe that should lead to some attractive investment opportunities.

We examine four potential sector beneficiaries of the world learning to “live with” COVID below.

• Idea 1: mRNA Vaccine Exposure.
  • mRNA Vaccine Maker Stocks: BioNTech (BNTX) and Moderna (MRNA). Both stocks are up more than 400% over the past year, but with widespread COVID booster shots coming and the success of the mRNA vaccines, the outlook for these bio-tech companies remains strong.
  • Vaccine ETFs: VanEck Biotech ETF (BBH), ETFMG Treatments, Testing & Advancements ETF (GERM). BBH is the more established ETF with $600 million in AUM and exposure to 24 biotech stocks, of which MRNA and BNT/X are in the top three. BBH is up more than 40% YTD.

• Idea 2: Digital Medicine.
  • Global X Telemedicine & Digital Health ETF (EDOC). EDOC combines telemedicine, healthcare analytics, connected devices, and digital administrative exposure. It is based on a smart-beta index that selects 40 global companies and no single holding contains more than five percent of the total portfolio allocation. EDOC has gained more than 20% over the past year but is just flat YTD.

• Idea 3: The Online Economy.
  • Amplify Online Retail ETF (IBUY). The fund has notched a total return of 122% and 323% on three- and five-year time frames, respectively, but is essentially flat YTD.

• Idea 4: Consumer Staples & Dividends.
  • VanEck Vectors Morning Star Durable Dividend ETF (DURA). DURA has gained 14.3% over the past year vs. just 9% for pure consumer staples, and it sports a near 3% dividend yield, well above the yield for XLP.

Bottom line, the persistence of COVID cases means that a return to pre-pandemic normal will likely be substantially delayed, and while we all hope for the pandemic to “end” as soon as possible, the bottom line is that society is learning to “live” with COVID, and we think that will create some attractive investment opportunities.

Sevens Report Alpha Webinar #100 – China Update with KraneShares CIO Brendan Ahern

Sevens Report Alpha Webinar #100 – Recording

Sevens Report Alpha Webinar #100 – Slide Deck

This Alpha webinar is where I welcomed back a previous guest, Brendan Ahern, CIO of KraneShares. KraneShares is the firm behind the recent (and previous) recommendation KWEB, the Kraneshares CSI Internet ETF.

Long-time subscribers will remember Brendan as he has been a consistent guest on our Alpha webinars for one main reason: He’s one of the most knowledgeable people on the Street when it comes to China, and he demonstrated that yet again on this call.

With so much potential turmoil in the Chinese markets presenting potentially substantial longer-term investment opportunities, I wanted to invite Brendan on to discuss:

• What’s really happening in China with regulation (is it as bad as it looks?)
• What is he hearing from his numerous business contacts in China and,
• What’s the KraneShares outlook on China investment going forward?

And, I’m happy to say that Brendan did not disappoint. Specifically, Brendan did a great job:

• Highlighting the difference between the political and media narrative towards regulation in China and the actual business performance of large Chinese internet companies. Bottom line, business performance remains very strong despite the negative headlines.
• Articulating the regulatory risks facing Chinese tech companies and explaining that while some regulatory and political risk is real, it’s not nearly as much as the market is implying.
• Describing why we’ve seen such a collapse in the Chinese internet sector (it has a lot to do with hedge fund selling) and
• Showing just how much of a relative value large Chinese tech shares are today. KWEB is now at its cheapest valuation in the last several years!

If you have any clients or prospects who are either 1) Contrarian investors or 2) Interested in opportunities in China, I strongly encourage you to share this webinar and PowerPoint with them, as we always want you to derive maximum value from your subscription.

Bottom line, as we said in our issue, “Finding Value and Opportunity in the Beaten Down Chinese Tech Sector,” if the fears of regulation in the Chinese internet/tech space are overblown, then this decline in Chinese tech stocks has presented a major longer-term buying opportunity because the demographics and adoption of technology in China that caused KWEB to rise 30% in 2019 and 58% in 2020 are still very much in place (and that means we’re buying these good companies at a substantial discount.)

Sevens Report Alpha Issue 08/24/21 – Stagflation Playbook

This Alpha issue is focused on something we sincerely hope never happens: Stagflation.

That’s because a stagflationary environment is a very difficult one to successfully invest in as, broadly speaking, it’s negative for most stocks, most bonds, and idle cash (purchasing power is eroded through inflation).

Positively, stagflation is not the most likely macro-economic scenario going forward (a stock positive reflation scenario is the most likely future macro set-up). But, stagflation risks are still at multi-decade highs, so the risks can’t be totally ignored, either.

Bottom line, our job is to help you be successful in any market scenario, even stagflation. That’s why we are dedicating this Alpha issue to stagflation.

By the end of this issue, we want to make sure you have the resources you need to help you:

• Identify the indicators that will tell us if stagflation is becoming much more likely and
• The specific ETFs and strategies that should outperform if stagflation risks continue to rise.

First, in this Alpha issue, we are going to provide specific sectors and ETFs that shouldn’t just relatively outperform in stagflation, but also outperform on an absolute basis:

• Stagflation Strategy 1: Tech and consumer staples.
  • FDN: First Trust Dow Jones Internet Index Fund. Super-cap internet stocks have become technology staples for consumers that can outperform in slowdowns. Top holdings include Amazon.com, Facebook, Alphabet, PayPal Holdings, and Salesforce.com.
  • RHS: Invesco S&P 500 Equal Weight Consumer Staples ETF. In the aftermath of the last recession, this consumer staples fund beat the returns of the S&P 500 Index with lower volatility along the way.

• Stagflation Strategy 2: Floating rate debt.
  • FLTR: VanEck Vectors Investment Grade Floating Rate ETF. This ETF contains floating rate debt from over 230 top financial companies such as Morgan Stanley, Citigroup, Wells Fargo, JPMorgan, Goldman Sachs, and Verizon Communications.

• Stagflation Strategy 3: Commodities.
  • BCI: Aberdeen Standard Bloomberg All Commodity Strategy K-1 Free ETF. This commodity ETF is more diversified than PDBC. The BCI index takes a more balanced approach by weighting energy at 35%, agriculture 29%, precious metals 15%, industrial metals 15%, and livestock 6%. Gold futures are the number one holding in BCI with a total portfolio allocation of 11.5%.

Sevens Report Alpha Webinar #99 – Stagflation vs. Reflation

Sevens Report Alpha Webinar #99 – Recording

Sevens Report Alpha Webinar #99 – Slide Deck

In this Alpha webinar where I spent the entire 30 minutes discussing Reflation vs. Stagflation.

Specifically, I detailed the characteristics of each environment, how they would impact different markets, and what specific economic and inflation indicators would tell us, as soon as possible, which scenario is more likely to occur (a bullish reflation or a bearish stagflation).

And, because this is a topic with a lot of moving parts, in today’s webinar I produced two quick reference tables that cover what inflation and economic growth look like in a reflation vs. stagflation, and what we can expect from various asset classes in reflation vs. stagflation.

I encouraged those on the webinar to print these tables and use them as a reference in the future, and I’ll suggest the same to you.

We’ve been talking about this in the regular Sevens Report for two weeks now, but I wanted to take today’s webinar to go in-depth on what metrics I’m watching that I believe will tell us, before the competition, whether the economy is headed towards a stock positive economic reflation or a stock and bond negative stagflation.

Specifically, I discussed:

• The specific characteristics of reflation and stagflation, and what we can broadly expect for either scenario.
• How stocks, Treasuries, the yield curve, commodities, and the dollar will trade if they are forecasting reflation or stagflation.
• The economic indicators that will tell us whether reflation or stagflation is becoming more likely and
• The specific inflation indicators that will imply reflation or stagflation (this is different from inflation expectations, and it really focused on the Fed).
• What Alpha strategies would outperform in either reflation or stagflation

Finally, as mentioned, I produced two “quick reference” tables that I hope you can easily refer back to, so you will know if reflation or stagflation is occurring, and how to alter portfolios to deal with either scenario.

Bottom line, over the next six months, the macro-economic environment will be either 1) Reflation or 2) Stagflation, so I wanted today’s webinar to serve as a “Reflation vs. Stagflation” checklist that we all can keep (and that I will of course monitor for you) that will tell us, as early as possible, whether the future path of this economy is reflation or stagflation – because getting that call right will be the difference between outperforming and underperforming in the quarters (and potentially years) ahead.

Sevens Report Alpha 08/10/21 – Finding Value and Opportunity in the Beaten Down Chinese Tech Sector

This Alpha issue was inspired by our contrarian nature and focuses on what we believe is a longer-term opportunity in well run, profitable Chinese companies.

Put simply, the underperformance in Chinese shares since March has been extreme. Widely held China stock ETFs and more targeted Chinese sector ETFs have underperformed the S&P 500 by more than 40%, since March, and while there are legitimate reasons for these declines, we think that the risk/reward in large, well run Chinese companies is now attractive to longer-term focused investors.

So, our goal with this report is to provide you with the tools and resources to capitalize on this repricing to the greatest extent possible.

In today’s Alpha issue, we profile two ETFs and two stocks to capitalize on these declines:

• Investment Idea 1: Chinese Technology Stocks KWEB. KraneShares CSI China Internet ETF.
  • KWEB was the first of its kind to specifically target the growing internet, e-commerce, and communications sectors in China. KWEB has more than $5 bln in AUM and the portfolio contains exposure to more than 50 stocks listed in both the United States and Hong Kong including well-known names such as Alibaba Group, JD.com, Baidu, etc. KWEB, which handily outperforming the S&P 500 earlier this year, has dropped more than 50% from the highs, despite the vast majority of stocks in the index being unaffected by new regulatory policies.

• Investment Idea 2: Ex-State-Owned Enterprises. CXSE: WisdomTree China ex-State-Owned Enterprises Fund.
  • CXSE provides exposure to 175 stocks spread across numerous sectors of the Chinese economy, but the $1 billion funds shun any public companies with “government ownership of more than 20%” and its smart-beta index targets companies that are focused on generating maximum possible returns for shareholders. CXSE is nearly 30% off the March highs.

• Investment Idea 3: Picking Individual Stocks.
  • BABA: Alibaba Holdings Group Ltd &
  • JD: JD.com Inc.
  • Both high-quality Chinese e-commerce giants are posed to grow substantially given rising disposable incomes in China, combined with more of the Chinese population accesses the internet. Both stocks are down more than 40% from the March highs.

To be clear, we’re not trying to downplay regulatory risks in the Chinese market. These risks are real, and they are substantial. But, given the extreme declines we’ve seen in very well run, profitable, large Chinese tech companies, we think the longer-term reward in stocks like BABA, BIDU, JD, etc. (and ETFs like KWEB and CXSE) is now worth that risk, especially in accounts with longer-term time horizons.

Sevens Report Alpha Webinar #98 – In-Depth COVID Update (Market Risks and Opportunities)

Sevens Report Alpha Webinar #98 – Recording

Sevens Report Alpha Webinar #98 – Slide Deck

In our latest Alpha webinar I spent the entire 30 minutes examining the current state of the pandemic, including rising COVID cases, specific Delta variant concerns, vaccination rates, what’s next, and specific investment strategies to implement for whether COVID cases rise or fall in the future.

The purpose of this webinar was two-fold.

First, I wanted to address, using clear and verifiable data, the current state of the pandemic and whether the Delta variant really poses a threat to the recovery (according to the statistics, it does not, at least not as it is now). Second, I wanted to create for you a presentation that had clear facts about this rise in COVID cases that you could use in any discussions with clients or prospects who were concerned about COVID again, because finding clear, reliable information on the state of the pandemic is very difficult in today’s media environment!

We always want you to derive maximum value from your subscription, so I strongly encourage you to share this presentation with any clients or prospects who are concerned about COVID, whether that concern is related to their investments, or to their family, lifestyle, etc.

Worrying about the potential impact of rising COVID cases on stocks is a reasonable fear, given the S&P 500 is just off all-time highs and has virtually no valuation support at these levels. If we see the return of lockdowns a 10% correction would likely just be the start, again given current valuations.

To be clear, that’s not what I think will happen based on the facts as I understand them. But in trading and investing it always pays to examine the “What If I’m Wrong” scenario, so we don’t end up blindsided and scrambling if the unlikely turns out to occur.

More broadly, the messaging around the recent COVID surge has become very muddled. Conflicting reports about vaccine effectiveness, changes in personal behavior, and transmission and hospitalization rates are rightly confusing many people, including clients. So, in today’s webinar, I provided a fact-based update on the pandemic in the U.S. and compares it to past periods, so we can view the current situation in the proper context.

More specifically, I covered:

• The current state of the pandemic from a COVID count and hospitalization standpoint.
• Two specific Delta Concerns: Breakthrough Infections and Infections in Children
• Vaccination Update in the U.S.
• Real-time measures of the recovery (more than just TSA Throughput)
• Six Alpha strategies and 20 ETFs that will outperform depending on whether the COVID wave peaks or if the recovery slows.

Bottom line, I believe today’s webinar will make sure you have the fact-based analysis and information you need to discuss current COVID trends and the potential implications of rising cases on markets with any clients or prospects, and in doing so show them you are on top of this situation, with a plan to outperform regardless of what happens with the pandemic.

Sevens Report Alpha Issue 07.27.21 – Five ETFs that Can Make Your Job Easier

The inspiration for this Alpha issue came from speaking with advisor subscribers who have described this problem to me:

They have a wealthy client with a seven-figure trust account that is also pushing you to manage his 22-year-old nephew’s Roth IRA with $12,000 in it. It is important to take those smaller accounts from the standpoint of strengthening the client relationship and providing value to the next generation of wealth accumulators. However, that tiny Roth doesn’t lend itself well to strategic account management with 8-12 holdings and a true alpha-generating focus.

The reality is that it creates a nightmare in trading, rebalancing, tracking, expenses, and reporting. Those types of accounts can reasonably only own a small number of positions until they reach an acceptable asset size that lends itself to more flexibility.

So how do you bridge the gap between that seven-figure trust and the tiny Roth IRA?

You start by syncing up some of the foundational core holdings that make up the bulk of your asset allocation.

Specifically, we identify foundational “own everything” ETFs you can use across account sizes to simplify smaller account administration and reduce variety among core ETF holdings, thereby making you more efficient:

• Investment Idea 1: Global Domination. VT: Vanguard Total World Stock ETF.
  • A single ETF that tracks more than 9,000 global stocks in a market-cap weighted index allocation strategy. It is a one-stop shop for portfolios that want to buy and hold the entire public investment universe.

• Investment Idea 2: Developed vs. Emerging Markets. ACWI: iShares MSCI ACWI ETF.
  • The ACWI acronym stands for “All Country World Index” and promises to access the entire global stock market in a single fund. URTH: iShares MSCI World ETF. URTH starts with the MSCI ACWI Index but removes all the emerging market country exposure leaving you a diversified basket of high-quality large-cap stocks from developed nations around the globe.

• Investment Idea 3: Low Volatility. ACWV: iShares MSCI Global Min Vol Factor ETF
  • A smart-beta index fund that selects 400 stocks from the broader All Country World Index that have demonstrated recent histories of lower price volatility.

• Investment Idea 4: Reducing Your Carbon Footprint. CRBN: iShares MSCI ACWI Low Carbon Target ETF.
  • This fund starts with the All-Country World Index of developed and emerging market nations and eliminates high carbon-producing stocks. And, this ETF has outperformed major benchmarks in addition to appealing to clients with a focus on the environment!

Bottom line, focusing on your best (and highest margin) clients is the most effective way to grow an advisor practice, and we believe these “Own Everything” ETFs can help you simplify smaller account administration and trading, and provide you more time to focus on servicing, finding and acquiring larger clients that can really grow your business.

Sevens Report Alpha Webinar #97 – What Could Go Right? What Could Go Wrong?

Sevens Report Alpha Webinar #97 – Recording

Sevens Report Alpha Webinar #97 – Slide Deck

This Alpha webinar is where I spent the entire 30 minutes providing a “Roadmap” of sorts for the rest of 2021 by:

1. Listing the key market variables that will impact stocks between now and year-end,
2. Identifying what would make these variables positive or negative and
3. Providing Alpha strategies and ETFs that will help us outperform in either environment (positive or negative).

If we step back, the market has largely been in a holding pattern since late April (so three months). On April 19^th, the S&P 500 was trading just below 4200 (around 4185). Today, the S&P 500 is trading at a bit above 4300, essentially 3% from the late April levels. Yes, I know that the S&P 500 was higher a few weeks ago, but that was largely a drift higher, not a powerful move that implied substantial gains ahead.

And, if we think about it, this “stall” in the rally makes sense.

As we and others have cautioned, the market entered a transition in Q2 from one that was being driven higher by historic government stimulus and rapid progress against the pandemic, to a market that will once again be judged by traditional fundamentals like interest rates, corporate earnings, valuation, and business outlook. We and others expected that transition to cause some volatility, and so far, that has been correct.

To that point, I chose the topic for today’s webinar before Monday’s sell-off, but the fact that stocks dropped on Monday only made today’s topic even more timely than it otherwise would have been.

Specifically, today I covered:

• The five variables that will determine whether the next big move in stocks is higher or lower (COVID cases, Treasury yields, Inflation, Fed Tapering, and Earnings).
• I explained the positive and negative outcomes for each variable, so we’ll easily be able to see whether trends are positive or negative for stocks.
• Defined what a “Positive” macro scenario looks like, along with a “Negative” macro scenario, again so we can easily recognize the macro-economic environment
• Identified three specific Alpha strategies and 11 ETFs for a “Positive” scenario, and four specific Alpha strategies and 14 ETFs for the “Negative” scenario, so you can not only recognize what’s happening in this market, but also have a plan in place to seize opportunities or protect portfolios.

As always, we encourage you to share this PowerPoint and the recording with any clients who are focused on the markets or who are nervous about the current situation, as we always want you to derive maximum value from your subscription.

Sevens Report Alpha Issue 07/13/21 – ETFs to Capitalize on mRNA and Other Cutting Edge Medical Tech (Pandemic Beneficiaries)

There’s always a silver lining to every tragedy and for the COVID 19 pandemic, that silver lining has been the faster than expected adoption and large-scale application of cutting-edge medical technologies.

So, in this Alpha issue, we wanted to highlight specific ETFs that have targeted exposure to medical technologies that have seen their adoption accelerate because of the pandemic, and that will see potentially substantial growth in the years ahead.

More specifically, because of the success of mRNA in producing an effective COVID-19 vaccine at a record pace, along with the demonstrated effectiveness of anti-viral treatments like Remdesivir, we’re likely to see a major acceleration in funding, research, and adoption of other cutting edge medical technologies and that means potentially substantial returns for companies with the right exposure.

So, we want to make sure you know the targeted ETFs that have the right exposure to benefit from this potential acceleration in growth.

• Investment Idea 1: Advanced Health Tech.
  • ARKG: ARK Genomic Revolution ETF. This ETF has an emphasis on biotechnology, next-generation therapies, and unique diagnostic companies. ARKG is up 207.4% on a three-year lookback as compared to a gain of 56.5% for the sector benchmark, the Health Care Select Sector SPDR (XLV).

• Investment Idea 2: Digital Health.
  • EDOC: Global X Telemedicine & Digital Health ETF. EDOC provides targeted exposure to companies engaged in telemedicine, healthcare analytics, connected devices, and digital administrative support.

• Investment Idea 3: Robotics and Healthcare.
  • HTEC: ROBO Global Healthcare Technology and Innovation ETF. This ETF was launched two years ago to seek out companies engaged in the robotics, automation, and artificial intelligence industries. HTEC has gained nearly 50% over the last year.

• Investment Idea 4: Genomics.
  • GNOM: The Genomic Revolution Global X Genomics & Biotechnology ETF. This ETF provides access to 40 global stocks that are creating efficiencies and unlocking new science in the field of genomics. GNOM is beating the benchmark XLV on a one-year lookback with a total return of 30.8%.

Put more plainly, the pandemic substantially cut traditional testing times for mRNA and other medical tech, and the results were very, very positive. It’s reasonable to think that those same results would have taken years to be achieved if it were not for the pandemic, and the net result of this acceleration in use is that we’re likely to see capital poured into similar medical technologies. That could create substantial opportunities for investors and we wanted to make sure you knew which ETFs were best positioned to give you exposure to the “bleeding edge” of medical tech.

Sevens Report Alpha Webinar #96 – Macro Discussion with Bill Housey

Sevens Report Alpha Webinar #96 – Recording

Sevens Report Alpha Webinar #96 – Slide Deck

In this Alpha webinar, we invited Bill Housey. As a refresher, Bill is currently the Managing Director for Fixed Income with First Trust Advisors L.P. He has been a consistent guest on our Alpha webinars because his insights and analysis of the fixed income and bond market are, in my opinion, at the top of the industry.

And, as mentioned, his analysis during our 30-minute call yesterday did not disappoint.

Specifically, Bill and I discussed:

• His bond market outlook: Why he is firmly in the camp that Treasury yields are going decidedly higher.
• Why he views the 10-year Treasury yield as currently in a 1.40% – 2.30% trading range (meaning we’re at the bottom of the range currently).
• His concerns the Fed is going to get behind the curve on inflation.
• Why duration risk is the key concern in the fixed income markets, and how investors can hedge that risk.
• Why the 10-year yield could rally as high as 3% (more than doubling the current yield).

Additionally, Bill always provides excellent slides that clearly illustrate the points he makes during the presentation, and he did so again yesterday. My two favorite slides showed the 40+ year trend in the 10-year yield (and again explained why 3% in the 10 year is reasonable) while the other clearly demonstrated why duration risk is the biggest concern across the fixed income markets.

As mentioned earlier, we have included a link to these slides so you can share them with any clients or prospects when discussing fixed income strategies.

Bottom line, while the bond market has been calm for the past three months, we remain very skeptical that will continue into year end, and ensuring clients are ready for an extended decline in bonds/rise in yields is still very important.

Sevens Report Alpha Issue 06/29/21 – Cybersecurity – ETFs to Capitalize on Growth and Strategies to Protect Your Business

This issue is focused on a topic that is on top of the mind for the markets, the business community, and global governments: Cybersecurity.

Punctuated by high-profile ransomware attacks on the Colonial Pipeline and global meat producer JBS, the threat of ransomware and other cyber-attacks has surged to the forefront of the business community in 2021.

But, while those higher-profile cases have garnered a lot of media attention, the truth is that a lot of smaller companies are being hacked as well. The number of organizations impacted by ransomware globally has more than doubled in the first half of 2021 compared to 2020! Point being, this is not just a “big company” problem.

So, in this Alpha issue, we wanted to accomplish two goals.

First, we want to give you an updated primer on the cybersecurity sector and make sure you know the best ETFs to gain exposure to the likely explosive growth cybersecurity companies will experience over the coming quarters, as companies of all sizes move to shore up their digital defenses.

Second, we wanted to identify strategies that you, the advisor, can use to minimize the chances your business is attacked and provide solutions if an attack does occur, so you know what to do, and what not to do.

To me, this issue is a great representation of the value we try and provide in each Alpha issue: First and foremost, it’s about identifying compelling investment strategies that can outperform. But, we also want to use this service to help your business as well, so you can become more efficient and effective as an advisor.

In this issue, we discuss:

Goal 1: Gain Exposure to Growth in the Cybersecurity Sector.

• The Established Cybersecurity ETFs. HACK: ETFMG Prime Cyber Security ETF and the CIBR: First Trust NASDAQ Cybersecurity ETF. Both funds offer relatively low-cost, diversified, and liquid ways to own multiple companies within the cybersecurity realm. These remain two of the largest funds by asset size as both have more than $2 billion AUM.

• Strategy Two: The New ETF. BUG: Global X Cybersecurity ETF. An ETF based on a smart-beta index, BUG has gained nearly 75% versus about 57% in CIBR over the last eighteen months.

• Strategy Three: The Tangential Approach. SKYY: First Trust Cloud Computing ETF. This cloud-focused ETF includes exposure to traditional heavyweights such as Amazon, Microsoft, and Google in addition to smaller holdings in cybersecurity-related names such as Splunk, CrowdStrike, and Zscaler.

Goal 2: Implement Strategies to Protect Your Business from Cyber Attacks.

Tactic 1: Cyber Liability Insurance. Cyber liability insurance can help cover a business from any financial impact of a hack, including paying any ransom associated with ransomware. And, cyber insurance is affordable (we pay about $1,000 per year for over $1 million in coverage).

Tactic 2: Authenticating Financial Requests. Implementing best practices to ensure that all requests for monies from clients are coming from those clients themselves (and not some hacker digitally impersonating a client).

Tactic 3: Securing Work from Home. The shift to work from home has created a lot of vulnerabilities in businesses’ cybersecurity. Using VPNs and other technologies when employees are working from home can help minimize the chances of a hack.

Tactic 4: Responding to a Cyber Attack. We cover what to do, and what not to do if you, unfortunately, suffer a cyber-attack.

Bottom line, cybersecurity is something that should be on our minds both as investors, and as business owners, and this Alpha issue helps to provide solutions to both capitalize on investment opportunities and protect our businesses.

Sevens Report Alpha Issue 06/15/21 – Playbook to Achieve Safety and Real Returns (Part 2: Equities)

This Alpha issue is part two of our two-part series on how elderly clients can achieve safety and modest real returns in an environment where yields and inflation are rising and most real bond returns over the coming years will be negative.

As a refresher, this issue was born out of real-world experience. A close relative recently sold a home and received a lot of cash. She is 80 and on a fixed income, and we were discussing how she was thinking about investing that cash. In more normal times, an investor in her position could just buy several bond funds and get the benefits of safety and modest real returns. But, things aren’t that easy anymore, especially in the fixed income space, as bond investors are taking on duration risk and, potentially, principal risk in the search for higher yield.

We want to tackle this problem and provide ETF solutions that can help clients achieve the dual goals of 1) Safety and 2) Real returns over the coming years.

Two weeks ago, in part one of this series, we detailed fixed income strategies including: 1) Inflation Protection (IVOL), 2) Variable Rate Preferreds (VRP), 3) Floating Rate Notes (FLTR/SRLN), and Shortening Duration (VCSH/IGSB/MINT/JPST).

Today’s issue provides ETF solutions for the equity portion of elderly clients’ portfolios – ideas that are designed to provide income and ensure positive correlation to rising inflation:

• Strategy 1: A “One-Stop Shop” Inflation Hedge.
  • INFL: Horizon Kinetics Inflation Beneficiaries ETF. INFL invests in domestic and foreign equity securities that are expected to benefit directly or indirectly from rising prices with a current makeup of 38 stocks in its underlying basket. INFL has nearly doubled the return of SPY since its debut.

• Strategy 2: Focus on Dividend Growth.
  • NOBL: ProShares S&P 500 Dividend Aristocrats ETF. NOBL tracks the S&P 500 Dividend Aristocrats Index, which identifies companies that have consistently grown their annual dividends for more than 25 years.
  • DGRO: iShares Core Dividend Growth ETF. DGRO has more broad exposure than NOBL, a 0.08% expense ratio, 2.05% yield, $19 billion in assets.

• Strategy 3: Commodities and Natural Resources.
  • MLPA: Global X MLP ETF. MLPA provides no K-1 exposure to MLPs and currently sports a yield of more than 8%!
  • RLY: SPDR SSGA Multi-Asset Real Return ETF. RLY owns other ETFs and that includes allocations to diversified commodity, natural resource stocks, infrastructure companies, real estate investment trusts, and even inflation-protected Treasury securities. RLY is up 19.8% YTD.

Bottom line, we remain skeptical that inflation will be as “temporary” as the Fed believes, and as such, we wanted to make sure that we provided solid fixed income and equity strategies and ETFs that can provide stable income while at the same time ensuring your clients are not losing to inflation.

Sevens Report Alpha Webinar #95 – Current Status of the Four Pillars of the Rally

Sevens Report Alpha Webinar #95 – Recording

Sevens Report Alpha Weninar #95 – Slide Deck

This Alpha webinar where I spent the entire 30 minutes providing an important update on the “Four Pillars of the Rally.”

For the past several months, I’ve cited important support for markets from the “Four Pillars of the Rally.” More directly, the fact that the “Four Pillars” remain intact essentially limits any material downside in the market, so from a risk/reward standpoint, it’s very important whether these pillars are intact or not.

Specifically, I examined the state of each pillar and identified what specific events or headlines that could result in the destruction of each pillar (and what that would mean for markets).

As the webinar shows, while all four pillars are still standing, two of them have sustained heavy “cracks” and one will likely crumble before October.

Specifically, I discussed:

• Pillar 1: Historic Federal Support: Has Federal stimulus peaked? And what is the state of the infrastructure talks and what would an infrastructure bill mean for markets?
• Pillar 2: Historic Federal Reserve Stimulus: Has Fed support peaked, and what is the outlook for the Fed tapering QE (i.e., what would cause a taper tantrum)?
• Pillar 3: Vaccine Optimism: What’s the current pace of vaccinations (it’s way down from April) and what about the “Delta” COVID variant, and is there a “reopening” opportunity in European stocks?
• Pillar 4: Economic Recovery: How strong is the current recovery, and do labor market constraints pose a threat to it?

Additionally, I identified five Alpha strategies and 19 ETFs that I believe can outperform given the current macro-economic set up, one that implies a long bias, but not one that embraces too much risk.

Put plainly, the Four Pillars have acted as a proverbial “safety net” on stocks for the past several months. But, times are changing, and we want to make sure we all know 1) The current state of the Pillars and 2) What would cause them to crumble, because if they fail, then the downside risk to this market will rise, sharply.

As always, we want you to derive maximum value from this subscription. So, if you have any clients or prospects who are nervous about the market or are looking for potential opportunities, I strongly encourage you to share this presentation and PowerPoint with them as we think it can help set the right expectation for the markets over the coming months.

Sevens Report Alpha 06/02/21: Fixed Income Playbook in Today’s Environment

This Alpha issue is focused on a specific problem in today’s markets:

How do clients, especially elderly clients, achieve safety and modest real returns in an environment where yields and inflation are rising and most real bond returns over the coming years will be negative?

This issue was born out of the real-world experience. A close relative recently sold a home and received a lot of cash. She is 80 and on a fixed income, and we were discussing how she was thinking about investing that cash. In more normal times, an investor in her position could just buy several bond funds and get the benefits of safety and modest real returns. But, things aren’t that easy anymore, especially in the fixed income space, as bond investors are taking on duration risk and, potentially, principal risk in the search for higher yield.

We want to tackle this problem and provide ETF solutions that can help clients achieve the dual goals of 1) Safety and 2) Real returns over the coming years.

To do that, we’ve divided this Alpha issue into two parts.

• Part One (today’s issue) is focused solely on solutions in the fixed income markets.
• Part Two (out in two weeks) will focus on solutions in the equity markets.

In today’s issue, we have provided a “fixed income playbook” of ETFs we think can outperform if we get a sustained rise in inflation and higher bond yields.

Inflation Protection. IVOL: Quadratic Interest Rate Volatility and Inflation Hedge ETF.

• • IVOL is a first-of-its-kind fund designed to capitalize on both inflation and interest rate moves, and we view it as an alternative to TIP. It’s returned 10.95% vs. 6.33% for TIP over the past year, sports a 3.5% yield, and has more than $2 billion in AUM.

Variable Rate Preferreds. VRP: Invesco Variable Rate Preferred ETF.

• • VRP owns nearly 300 underlying preferred stocks with 75% of its exposure to the financial sector. It has a duration of just over 3 years and a yield of 3.20%.

Floating Rate Notes

• • FLTR: VanEck Vectors Investment Grade Floating Rate ETF. FLTR contains floating rate debt from over 200 companies such as Morgan Stanley, Citigroup, Wells Fargo, JPMorgan, Goldman Sachs, and Verizon.
  • SRLN: SPDR Blackstone Senior Loan ETF. SRLN contains nearly 300 senior loan securities with floating rate components that achieve a current 30-day SEC yield of 3.81%.
• Shorten Duration.
  • VCSH: Vanguard Short-Term Corporate Bond ETF.
  • IGSB: iShares 1-5 Year Investment Grade Corporate Bond ETF.
  • MINT: PIMCO Enhanced Short Maturity Active and
  • JPST: JPMorgan Ultra-Short Income ETF.

Bottom line, advisors and investors need to plan for a prolonged period of higher rates and rising inflation, and that is a problem especially when allocating for elderly investors that need safety first, and a real return second.

We are committed to helping you find solutions to achieve those goals in this market, both in the fixed income portion of client portfolios and in equities as well (equity playbook coming in two weeks).

Sevens Report Alpha Webinar #94 – Valuation Update

Sevens Report Alpha Webinar #94 – Recording

Sevens Report Alpha Webinar #94 – Slide Deck

In this Sevens Report Alpha webinar, where we took a deeper look into the market’s valuation, not just from a macro-economic perspective, but also from a sector and style perspective. We did this because we wanted to answer the questions “Is the market expensive?” and “Are cyclical sectors and value styles still “cheap”?” The answers we found may surprise you.

I wanted to spend this webinar focused on valuation because a lot has changed in this market over the past several months:

• First, we have seen the S&P 500 surge to new all-time highs.
• Second, we have seen massive performance divergence between tech and more cyclical sectors, with the latter handily outperforming and the former underperforming – on a relative basis.
• Finally, we have seen value relatively outperform growth since Q3 2020.

Given all these changes over the past several months, I thought it’d be valuable to step back and get a comprehensive view of the current market and sector valuations, so we know, definitively, what sectors are cheap and what sectors are now more highly valued.

So, in today’s webinar we detailed:

• The current S&P 500 valuation and why it’s not as expensive as it seems.
• Forward earnings multiples of 10 S&P 500 sector SPDRs (we identified one sector we thought was cheap and one we found expensive).
• Current valuation of growth vs. value.
• Three conclusions on the valuation of this market.
• What would need to change for the market to become cheap or expensive.

Bottom line, I think that going forward value will still outperform growth, but that outperformance might become more nuanced among cyclical sectors, so I wanted to conduct a deeper dive into the valuations of all sectors, so we know what’s still cheap, and what’s not, and I believe we accomplished that goal.

Sevens Report Alpha Issue 05/18/21 – Updated Cryptocurrency Primer

This issue of Sevens Report Alpha is focused on an increasingly popular topic among all investors: Cryptocurrencies.

In December, we dedicated an Alpha issue to Bitcoin, and it was very well received. But a lot has changed in a short time in the cryptocurrency space.

New crypto currencies like Ethereum and Dogecoin have become sudden media darlings (with huge returns to boot), and there has been an explosion in “Non-Fungible Tokens” (NFTs). Also, more companies that are focused on facilitating the trading of cryptocurrencies have emerged, with the most prominent being Coinbase (COIN).

Bottom line, if you are like me, you have seen interest in the entire crypto space increase over the past several months. So, we wanted to take this Alpha issue to provide an updated primer on the crypto industry and ensure you have got the advisor-focused research you need to turn any crypto-related client or prospect conversations into opportunities to grow your business.

Specifically, we discuss:

• Understanding the Key Crypto Players. We provide a table of the top 10 crypto currencies by market cap, and we explain with Ethereum has surged and why many consider it more useful than Bitcoin.

• What Are Non-Fungible Tokens (NFTs)? We explain what they are (and provide an analogy that helps clients understand their value) and dive into why many think they are the future of the online collector marketplace.

• Conventional Investment Applications: Direct Crypto Exposure: GBTC (Greyscale Bitcoin Trust) and ETHE (Grayscale Ethereum Trust). These two ETFs are currently the best options for regular investors to get exposure to these crypto currencies.

• Conventional Investment Applications Part Two: The Crypto “Brokers”: COIN (Coinbase Global) and VYGVF (Voyager Digital). These are essentially the crypto version of a Fidelity, Charles Schwab, or TD Ameritrade. COIN is a profitable business while VYGVF offers more risk, but also more reward.

Bottom line, recently the number one question I receive when someone finds out I work in the investment world is whether they should buy Bitcoin, Ethereum, or Dogecoin. This Main Street curiosity is most likely a symptom of astronomical short-term gains. However, if I’m getting questioned about it several times a week, then you likely are as well.

So we want to make sure you are prepared to talk with clients about this asset class and offer responsible strategies for investment if it makes sense as part of their financial plan. That way you are armed with the tools and knowledge to make practical decisions in a collaborative manner.

Sevens Report Alpha Webinar #93: Is Inflation Different This Time?

Sevens Report Alpha Webinar #93 – Recording

Sevens Report Alpha Webinar #93 – Slide Deck

Our latest Sevens Report Alpha webinar, where I spent the entire 30 minutes explaining why a potential rise in inflation could be different (and much bigger) than what we saw over the past 10 years.

Inflation has become a hot topic in the markets over the past several weeks. The list of inflation indicators (both statistical and survey-based) hitting multi-year highs is growing longer and longer, and it is fair to say that markets are as focused on inflation as at any time since 2010 (when the economy was beginning to recover from the financial crisis).

But, in 2010, inflation (at least statistical inflation) never materialized. Fears of a spike in inflation that would send commodities and “hard” assets sharply higher never appeared, and the Fed spent from 2010 to 2014 providing more QE to ward off deflation – not inflation.

But, while recency bias (the inherent belief that what happened last time will happen this time) has many unconcerned about the current risk of sticky inflation, the truth of the matter is that today’s inflation setup is a lot different than in 2010 and many of the reasons that inflation never took off then don’t exist anymore.

We explained why that’s the case in today’s webinar, where we:

1. Identify the five reasons that we did not see big inflation despite QE from 2010 – 2014.
2. Compare then to now for each of those five reasons, and we explain why none of them are still valid.
3. Conclude that while a spike in inflation isn’t certain, the “runway” for higher inflation is a lot more “clear” than it was following the financial crisis.
4. List four Alpha strategies and 21 ETFs that we believe will protect client portfolios from a sustained uptick in inflation.

We always want you to derive maximum value from Alpha so If you have any clients or prospects who are concerned about rising inflation, then I strongly encourage you to share this PowerPoint and recording with them. It will demonstrate that you 1) Understand what is happening with inflation, 2) Know the metrics to watch for suddenly rising inflation and 3) Have a plan in place to protect portfolios against any inflation related volatility in stocks or bonds.

Sevens Report Alpha Issue 05/04/21: Generating Business Alpha in a Post Pandemic Environment

While the foremost goal of Alpha is to help your clients outperform, we also want to ensure you are utilizing best-of-breed solutions in other aspects of your business. That means looking at ways you are deploying technology and resources to maximize operational efficiency as a top-tier advisory firm, and that is what today’s “change of pace” issue is focused on.

To that point, our office neighbor is an advisor for a large, national advisory firm. He has been out of the office for well over a year. With the pandemic receding, I recently asked him when things would return to a pre-pandemic normal regarding client meetings and interactions and he said, “Not for a while still, if ever.” The more I thought about it, the more his response made sense.

Skittish clients may never want to come to your office again, which is fine if you have a plan to communicate and engage with them beyond a quarterly phone call or administrative birthday card. Similarly, you may have amazing employees that have been significantly impacted by their child or elder care situations and cannot return to the office for the foreseeable future.

These situations and challenges can be looked at as positive catalysts for business efficiency enhancements that allow for fulfilling engagement and possibly even reducing costs along the way.

The pandemic has sped up the adoption and use of technology by many financial professionals and their clients. So, with everyone moving to this new style of business operation, it’s imperative that you have the right tools and resources at your fingertips to execute it effectively.

That way you stay a step ahead of your competition, make yourself readily available to your clients and emphasize the value of your practice beyond simply picking investments.

• Advisor Alpha Practice 1: Client Communication & Engagement.
  • Prezi platform: It’s like Microsoft PowerPoint but in the cloud and on steroids. It can make online client presentations much more engaging.
  • Calendly, Acuity Scheduling, and 10to8: Scheduling apps that can ensure consistent client communication.
  • Absolute Engagement and Nexa Insights: Two financial advisory-focused survey programs that can drive client engagement.

• Advisor Alpha Practice 2: New Client Lead Generation.
  • Using lead generation platforms like Smart Asset, My Perfect Financial Advisor, Wealth Tender, or ZoeFin.
  • Utilizing virtual wine tastings to drive client and prospect interaction (we provide a link to highly ranked virtual wine tastings).

• Advisor Alpha Practice 3: Client & Employee Appreciation.
  • In lieu of in-person gifts or experiences, Olive & Cocoa and The Grommet offer unique and high-quality gifts that you can personalize to your clients’ tastes, hobbies, gender, or passion projects.

• Advisor Alpha Practice 4: Interoffice Communication.
  • Microsoft Teams and Slack are two programs that can dramatically increase interoffice communication and efficiency.

Bottom line, we want to ensure you are utilizing best-of-breed solutions in other aspects of your business, beyond just investment selection. That means looking at ways to better deploy technology and resources to maximize operational efficiency as a top-tier advisory firm.

Sevens Report Alpha Webinar #92 – Is the Economic Recovery Already Priced In?

Sevens Report Alpha Webinar #92 – Recording

Sevens Report Alpha Webinar #92 – Slide deck

In this Sevens Report Alpha webinar, I spent the entire 30 minutes focused on the state of the economic recovery.

Specifically, I attempted to answer this question:

Is the economic recovery already priced into this market? My answer: “Yes” (more on that below and what it means for markets).

That may seem like an odd question given the pandemic has not been declared “over” and the country has not fully returned to normal. But markets always anticipate what will happen next and, in that regard, a lot of the hardest-hit sectors from the pandemic have seen huge rallies over the past six months.

To that point, since October, every single one of the names in our “Get Out and Spend Basket” are up more than 50%, with several up more than (or close to) 100%!

Additionally, of the 20 ETFs and stocks, we listed in our “Get Out and Spend” Basket, 15 of the 20 are higher than they were pre-pandemic, despite major, historic business disruptions!

This all matters because many investors assume the looming economic reopening will provide an additional tailwind for the markets – but it’s also possible that the looming reopening is already fully priced in. If that is the case, it means that at best stocks don’t rally on the reopening and at worst, the reopening disappoints and creates a headwind on stocks.

So, I spent the entire 30 minutes today investigating whether the reopening is already priced in. I did that in two primary ways:

• First, we explored the valuations of the travel and leisure companies along with other hard-hit sectors by the pandemic.
  • We examined numerous financial metrics including share price return, Enterprise Value, and others – and the conclusions were clear!
• Second, we reviewed the current economic data, to see if the economy is “close enough” to a recovery that the continuation will not provide that much more of a boost.
  • Specifically, we looked at metrics tied to consumer and business spending, and we explained why the “effective” unemployment rate is likely much lower than it being reported (at least until September).

Bottom line, many on the Street expect the full economic “reopening” to push stocks higher still throughout the summer. But, if that is already priced in, then it will not be the positive catalyst it’s expected to be, and that could lead to investor disappointment.

Sevens Report Alpha Issue 04/20/21: Four Small Cap ETFs for the Economic Recovery

This Alpha issue was inspired by a conversation I had with a colleague, who is the CFO of a major catering company in the Los Angeles area. I asked him how business was, and his response shocked me.

He said they were busier than ever, the company’s finances were sound for the next several years, and that the outlook was great. That is a stark departure from when we spoke earlier in 2020 (at the depths of the pandemic).

He went on to explain that the PPP loans had helped them enormously and, because they were used properly, were all forgiven. The company secured capital from the Fed Main Street Lending Program to ensure adequate capital going forward, and that has in turn helped the company pay down higher interest debt. Finally, because the pandemic caused so many of their competitors to close, their business is one of the last ones standing and is absorbing a huge increase in demand as the economy reopens.

Taking this anecdotal story and applying it to the markets, much of the “economic reopening trade” has been focused on large travel and leisure companies, and many of those names have seen huge gains over the past year. But they are now saddled with massive debts and ballooning capital structures that could be headwinds on investor returns going forward.

Many smaller stocks, however, were able to utilize government programs (PPP and others) to recapitalize healthily over the past year and those that have survived to this point are now in an extremely favorable position to capture future opportunities as the economy reopens.

So, we want to make sure you know which ETFs can give you exposure to quality small-cap companies that are 1) Financially sound, 2) Exited the pandemic with their business intact, 3) Stand to benefit from an acceleration in the economy, and 4) Could see earnings surge as the economic reopening continues.

All of the ETFs below have handily outperformed the S&P 500 YTD, and we think that can continue as the economic reopening gains more momentum.

• PSCD (Invesco S&P Small Cap Consumer Discretionary ETF). This index-based ETF selects consumer discretionary stocks from the S&P SmallCap 600 Index. One excellent attribute of the S&P 600 Index is that every stock must be profitable (positive net income over trailing four quarters) to be eligible for inclusion.

• FXG (First Trust Consumer Staples AlphaDEX Fund). This ETF is a quantitatively constructed portfolio of high-quality stocks selected from the broad Russell 1000 Index and is a good alternative for investors skittish about equity exposure right now. Despite many consumer staples lagging YTD, this ETF is up more than 18% so far in 2021.

• RWJ (Invesco S&P SmallCap 600 Revenue ETF). This 5-star Morningstar-rated fund has over $500 million in assets and demonstrates a significant advantage in its revenue-weighted index construction methodology.

• ISCV (iShares Morningstar Small-Cap Value ETF). This ETF tracks more than 1,100 companies with value characteristics relative to their peers and is in the smallest 10% of total market capitalization.

Bottom line, the government response to the pandemic and the looming reopening of the economy will massively benefit some small-cap companies, and we want to make sure you know which ETFs can give you exposure to quality small-caps that could see earnings surge as the economic reopening continues.

Sevens Report Alpha Webinar #91 – Updated Fed Outlook

Sevens Report Alpha Webinar #91 – Recording

Sevens Report Alpha Webinar #91 – Slide Deck

In this Sevens Report Alpha webinar, where I spent the entire 30 minutes focused on the Fed, and specifically the outlook for Fed policy, and explained why I believe it is likely the Fed will taper QE later this year, which could cause market volatility.

If you have clients who are worried about inflation or other side effects of the Fed policies, I encourage you to share this recording and PowerPoint with them as it will demonstrate you are focused on the risks to this market. As always, we want you to derive maximum value from these materials.

In more typical markets, we would touch on the Fed outlook multiple times during a year, as shifting economic and inflation data regularly alters the Fed outlook. But, since March 2020, when the Fed unleashed its pandemic QE program and implicitly (or expressly) backstopped most financial assets, the outlook for the Fed has been consistent: Perma-dovish.

But, while that is not going to change in the next few weeks, it could change in the next few months, and that could introduce more volatility into this market.

So, I spent the entire 30 minutes today detailing:

• What’s Expected from the Fed by the Markets (No rate hikes till late 2022/early 2023).
• What’s Expected from the Fed by FOMC Members (No rate hikes till 2024)
• What Could Change those Expectations?
  • Labor Market Improvement (Why we aren’t far away from key levels in claims or jobs).
  • COVID Improvement (Why we aren’t far away in vaccinations)
  • Inflation (Specific levels and the difference between asset inflation and statistical inflation)
• What Happens if the Fed stays dovish
  • Five strategies and more than nine ETFs
• What Happens if the Fed gets less Dovish
  • Three strategies and 10 ETFs.

Bottom line, it has been well over a year (more like a year and a half) since Fed uncertainty caused market volatility, but we continue to think the market is complacent regarding the length of the current QE program and timing of Fed rate hikes, and as such we wanted to make sure you know exactly:

• What is expected from the Fed?
• What could change those expectations and
• How markets will likely react.

Sevens Report Alpha Issue 04/06/21 – Sector Winners and Losers from the Democratic Policy Agenda

This latest Alpha issue will dive back into the policy arena and look at sectors that stand to benefit or get hurt by the evolving Democrat agenda.

Throughout most of the first quarter, markets embraced Democrat control of the government because it meant massive stimulus, and that expectation has been met. However, now the focus is turning to less growth-friendly policies, including potentially higher taxes and increased regulation. While these policies will impact the markets broadly, they’ll also impact specific sectors even more than the broad markets.

So, we want to arm you with the tools for identifying and deploying to areas of the market that should experience positive effects during this political environment, and know which sectors stand to get hurt given potential policies from Washington.

Specifically, we discuss:

• Policy Beneficiary 1: Consumer Spending (MILN: Global X Millennials Thematic ETF). This fund is a powerhouse of attractive consumer, communications, and tech companies underneath the hood. Its portfolio is home to everything from Apple, eBay, Nike, and Lowe’s to Disney, PayPal, and Amazon.
• Policy Beneficiary 2: State and Local Governments. (VTEB: Vanguard Tax-Exempt Bond ETF). This ETF has an average duration of 5.3 years with the majority of its debt rated “A” or better, an expense ratio of 0.06% and offers a current 30-day SEC yield of 1.10%.
• Policy Beneficiary 3: Infrastructure. (PAVE: Global X U.S. Infrastructure Development ETF & QCLN: First Trust NASDAQ Clean Edge Green Energy Index Fund). At least part of the Build Back Better plan will pass and that will be a tailwind for infrastructure plays.
• Potential Policy Damage 1: Higher Corporate Taxes. The corporate tax rate will increase, so we identified the sectors with the most exposure to higher taxes.
• Potential Policy Damage 2: Break Up Conglomerates. “Big Tech” and “Big Banks” are the target of regulation in Congress.
• Potential Policy Damage 3: Regulate Big Pharma Profits. Regulators want to lower the cost of prescription drugs.

Bottom line, the government has played a huge role in markets since the start of the pandemic, and that’s only going to continue as we enter the next phase of the Democrat policy agenda. We want to make sure you know the specific sectors that present opportunities from this evolving policy agenda, and which sectors it could be better to avoid as policy evolves.

Sevens Report Alpha Webinar #90 – Five Markets Risks to Watch in Q2

Sevens Report Alpha Webinar #90 – Recording

Sevens Report Alpha Webinar #90 – Slide Deck

In this webinar I spent the entire 30 minutes identifying what I view as the five biggest risks to this market as we start a new quarter.

Please note: There was an audio problem at the beginning of the webinar. Please fast forward the recording to 07:42 marker where the audio issue was fixed and I re-started the webinar from the beginning.

In the webinar, I identified what I believe are the five most likely risks to the rally in Q2 and ranked them from most likely (Tax Hikes) to least likely (Delayed economic recovery).

I highly encourage you to share this webinar and PowerPoint with any clients or prospects that are nervous about the current market, because it will demonstrate you’re monitoring numerous potential risks to the rally, and are not about to be blindsided by volatility. As always, we want you to derive maximum value from your Alpha subscription.

Put simply, I feel like we all know the reasons why stocks can continue to grind higher: Stimulus expectations, perma-dovish Fed, “End” of the pandemic, and an economic rebound. We and others have covered those reasons (I refer to them as the “four pillars”) extensively over the past few months.

Now, I want to make sure we also know the current risks to this rally just as well. And I don’t mean risks that could cause a 5% pullback – that can happen any time for virtually any reason, given the way markets trade today.

Instead, I mean real macro risks that could either 1) Reduce the expected 2021 and 2022 S&P 500 EPS or 2) Cause a contraction in the market multiple, because those are two factors that can materially change the risk/reward for stocks over the medium term.

Specifically, I identified five potential risks to the rally and ranked them in order from most likely to least likely:

• Tax hikes – Why I think corporate taxes and taxes on high earners go up this year.
• The Fed hinting it will taper QE in late 2021 – This is more likely than the Fed makes it sound.
• Higher bond yields – What level of the 10-year yield can cause a problem?
• Earnings disappointment due to supply chain disruptions or higher input costs – What makes this a problem for markets.
• Disappointing economic rebound.

As we start a new quarter markets remain admittedly resilient, but the bottom line is that a lot of the “good” news in this market has been priced in so far in 2021. So, that makes this is a much more balanced market from a risk/reward standpoint than we have seen over the past two quarters (when the reward was substantially greater than the likely risk).

As we begin Q2, I want to make sure we all can 1) Identify the likely risks to this rally and 2) Understand when they can get bad enough to require action in portfolios.

Again, please fast forward the recording to 07:42 marker to skip over the audio issues.

Sevens Report Alpha Issue 03/23/21 – “What Should I Buy on this Tech Decline?”

The tech sector has underperformed so far in 2021, as the looming economic recovery has resulted in a capital rotation from tech and into cyclical sectors like financials, energy, commodities, and industrials.

So far, some of the hardest-hit parts of tech have been the 2020 “high-fliers,” those tech companies that have benefitted the most from the changes in behavior brought about by the pandemic.

But, while it is very difficult to tell when “New Tech” stars such as TSLA, ZM, PYPL, etc. will be good long-term values, using this rare, broader tech sector underperformance as an opportunity to buy “Old Tech” stalwarts at suddenly lower valuations is attractive over the longer term.

More directly, if a client comes to you and asks, “What Should I Buy on this Tech Decline?” we want to make sure you have a set of ETFs that provide exposure to solid, proven tech companies that aren’t trading at sky-high valuations because for the last several decades buying core, large-cap tech stocks on any sustained underperformance has been a very profitable long-term strategy.

In today’s Alpha issue, we provide three “Old Tech” focused ETFs that we think can provide sustainable longer-term outperformance.

• “Old Tech” Idea No. 1: Invesco S&P 500 Equal Weight Technology ETF (RYT). The dominance of a few companies in widely-held tech ETFs XLK and QQQ has become quasi-absurd. RYT solves this problem and takes the 75 large-cap tech stocks and equal weights the holdings. RYT has gained more than 80% since the March 2020 lows.
• “Old Tech” Idea No. 2: VanEck Vectors Semiconductor ETF (SMH). Semiconductors remain in a shortage and with the “Internet of Things” continues to expand, demand for semiconductors will only continue to grow. SMH has $5 billion dedicated to a group of 25 large-cap and globally diverse semiconductor companies and is up more than 130% over the past year.
• “Old Tech” Idea No. 3: First Trust NASDAQ Technology Dividend Index Fund (TDIV). This ETF is a smart-beta basket of dividend tech stocks that must meet strict index criteria in order to be considered for inclusion. This includes minimum trading volume, market-cap size, dividend history, and dividend stability to be eligible for inclusion. TDIV has outperformed SPY over the past five years and has a yield of 2.65%.

Put differently, while we think the outperformance of cyclicals and value shares will continue as the economy reopens, that does not mean that the tech sector can’t continue to produce stellar returns over the long-term and we want to make sure you have a “Shopping List” of solid, proven tech ETFs to present to clients or prospects.

Sevens Report Alpha Webinar #89 – A Deep Dive into the Growth to Value Rotation

Sevens Report Alpha Webinar #89 – Recording

Sevens Report Alpha Webinar #89 – Slide Deck

For this webinar, I spent the entire 30 minutes covering the rotation from growth/tech to value and cyclical shares, because this rotation is accelerating, and it is causing wide-spread gaps in performance and we think that’s going to continue.

In this Alpha webinar, I got a bit more tactical and took a deep dive into the ongoing rotation from the tech sector and growth styles to cyclical sectors and value styles, because how we navigate this rotation could mean the difference between outperforming for clients or underperforming.

As always, I encourage you to share the webinar and PowerPoint slides with any clients or prospects who you think might value this type of tactical analysis, because we always want you to derive maximum value from Alpha.

Specifically, I spent the entire 30 minutes today going deeper into “Growth” and “Value” because, in today’s market, those generic monikers are not detailed enough to describe what is actually happening in this market.

So, I broke down “Growth” and “Value” into three distinct tiers and provided tactical analysis on risk and reward for each tier.

Growth

• Growth Tier 1: Large Cap Tech – Great companies that are at elevated valuations, but that are still “best of breed” (Example: MSFT). I make a case for where investors should buy the dip.
• Growth Tier 2: Pandemic Beneficiaries – Solid Companies that have seen explosive growth from the pandemic but now trade at extreme valuations (Example: ZM). I explain why these stocks can still fall a lot and remain expensive.
• Growth Tier 3: Bubble-icous corners of the market (based on valuations): EV names, Crypto names, SPACS. The continued decline in these momentum names represent a downward risk to tech and the S&P 500.

Value

• Value Tier 1: Broad Value Exposure – I show how allocating to RSP or VTV has helped investors outperform YTD.
• Value Tier 2: Targeted Sector – Adding higher risk/higher return targeted exposure to “value” sectors that are correlated to a macro trend:
  • Financials (high rates?)
  • Energy (Rising inflation?)
  • Industrials (Infrastructure bill?)
• Value Tier 3: “Get Out and Spend Names” (Companies trading at valuation discounts but that also face serious business challenges). I explain why these stocks are not as cheap as they might seem, and while there’s likely still upside on an economic reopening, we view any opportunity as tactical and not long term in nature.

Bottom line, I think the rotation from growth to value is here to stay, so I wanted to go more in-depth into this rotation so we can all select the right level of exposure and risk/reward and have the best chance to outperform in 2021.

Sevens Report Alpha Issue 02/23/21 – Inflation Playbook

This Alpha issue is focused on inflation because suddenly accelerating inflation could be a game-changer for many investors and advisors, and we want to arm you with the best-in-class tools to combat inflationary effects in your portfolios.

While CPI was tame recently, inflation expectations are hitting multi-year highs, and now bond yields are following their lead, as the 10-year yield is near one-year highs.

Point being, higher inflation is almost certainly coming in the future, and I wanted to take this Alpha issue to provide a clear, decisive “Inflation Playbook” that we can keep and reference for when statistical inflation starts to accelerate.

Additionally, we are going to keep the focus of this inflation playbook on practical inflation hedges for advisors.

Yes, statistics might say that commodities, real estate, and other hard assets are highly correlated to inflation, but for the vast majority of clients, those types of assets can only make up a small portion of their portfolio.

Point being, we want to provide a playbook for the rest of a client’s portfolio as well (including bond segments). To do that, we broke up our “Inflation Playbook” into three sections:

Core Inflationary Plays – Core Portfolio Inflation Hedges that are liquid and low fee:

• SGOL (Aberdeen Physical Gold Trust)
• PDBC (Invesco Optimum Yield Diversified Commodity Strategy No K-1 ETF)
• GNR (SPDR S&P Global Natural Resources ETF)
• RLY (SPDR SSGA Multi-Asset Real Return ETF).

U.S. Sector Opportunities: Small caps have provided important alpha to portfolios in previous periods of rising inflation, and these two sector ETFs’ equal weighting provides more small/mid-cap exposure, and that’s resulted in massive outperformance vs. their peers.

• RTM (Invesco S&P 500 Equal Weight Materials ETF).
• RGI (Invesco S&P 500 Equal Weight Industrials ETF).

Income Opportunities. We believe there are three strategies to combat inflation in fixed income portfolios: Shorten Duration, Floating Rates, and TIPS, and these ETFs provide exposure to each one.

• BKLN (Invesco Senior Loan ETF)
• JAAA (Janus Henderson AAA CLO ETF)
• STIP (iShares 0-5 Year TIPS Bond ETF).

Bottom line, I want to make sure we are all prepared with practical, applicable solutions for higher inflation, because if the current Fed and fiscal policies continue, higher inflation is just a question of “if” and not “when.”

Sevens Report Alpha Webinar #88 – Hedging with SpiderRock Advisors

Sevens Report Alpha Webinar #88 – Recording

Sevens Report Alpha Webinar #88 – Slide Deck

In our latest Sevens Report Alpha webinar, I spent the entire 30 minutes covering unique and effective options hedging techniques that advisors can use to reduce volatility (both in individual positions and in broad portfolios).

We’ve made it well known in the regular Sevens Report that, while we acknowledge the strong market and powerful tailwinds, we think high levels of investor complacency make this market vulnerable to an “air pocket” or pullback of up to 20%. So, we wanted to spend today’s webinar detailing some unique options hedging strategies to help clients maintain long exposure (either in the broad market or concentrated equity positions) while at the same time, limiting downside risk.

To help explain these options strategies, I invited Dave Donnelly, a Partner and Managing Director with SpiderRock Advisors, an asset management firm that specializes in providing customized option overlay strategies to advisors and institutions.

Founded in 2013 and with more than $2billion in AUM, SpiderRock Advisors aims to be an advisor’s “outsourced derivates desk” and in my preliminary conversations with them, I have been impressed by their strategies and wanted to make sure you are aware of some of them, as they can help insulate clients from losses should there be a pullback in the market.

Specifically, Dave and I discussed some of SpiderRock’s most popular strategies for advisors including:

• Hedging Concentrated Equity Positions Without Causing a Tax Event
• Reducing the Market Risk of Diversified Portfolios via Index Call Writing, Index Put Spreads, and Index Collars

One of the main reasons that I wanted to bring on Dave and SpiderRock is because the service they provide is really “one-stop shopping” in that once a strategy is devised, SpiderRock handles the execution of the trades, saving the advisor the time and stress of implementing multi-step options trades.

Bottom line, if you have clients who have one (or a few) outsized single stock positions (with a low-cost basis) and they want to exchange single stock risk for more diversified portfolio risk (and not cause a tax event) then I highly encourage you to listen to today’s webinar.

Similarly, if you have clients who are nervous about the potential for a sharp pullback in the market and want some protection, we explain why the option market conditions are very good to get cost-less downside protection while simultaneously keeping larger upside exposure.

Sevens Report Alpha Issue 02/09/21 – Busting Popular Market Myths (To Help Clients Stay on Track)

This issue is focused on helping with client communication by providing you facts and talking points to help “myth bust” popular market myths that can lead clients to make short term decisions that negatively impact long term performance.

This issue was inspired by a series of questions I have received from investors since the start of the new year and many went like this:

“Should I get out of the market now that democrats are going to raise taxes?’ and “The debt and deficits are skyrocketing, should I get out of the market and buy gold?”

I have spoken to several advisors that have noted an increase in these types of questions from clients too, so we want to dedicate this entire Alpha issue to “myth-busting” some of the more popular concerns investors have right now and demonstrating why abandoning a well-designed financial plan based on macro fears is almost never the right thing to do.

Put more directly, we want to arm you with talking points, statistics, and solutions should clients come to you with these fears and want to “Get Out” of the market, because as we all know the evidence is overwhelming that over the medium and longer-term, a well-designed and executed financial plan overcomes all types of macro calamity – and sticking to that plan is usually the path to financial reward.

The market “myths” we cover include:

• Investment Myth 1: Investing and Politics Go Hand in Hand. Busted: Using historical return data to show that selling because of a new President hasn’t been a good idea.
• Investment Myth 2: Modern Monetary Theory Is A Reason to Get Out Now. Busted: Explaining the “What” and “Why” and “How” of MMT and clarifying why it’s not a near-term negative while identifying the indicators to watch for signs of future trouble.
• Investment Myth 3: Getting Out Because the Market is in a Bubble. Busted: Reinforcing that market timing with “all in/all out” decisions can create lost opportunities. Suggesting tactics to reduce beta.
• Investment Myth 4: Rising Rates Are Going to Wreck My Portfolio. Busted: Rising rates will influence this market, but the Fed remains very engaged, and especially in the near and medium-term they will try and help temper the rise in yields (although rising yields remains a longer-term risk to watch).
• Investment Myth 5: The Falling U.S. Dollar Is Eroding My Purchasing Power. Busted: Surging debt and deficits won’t cause a dollar collapse anytime soon, or a collapse in portfolios (although clearly it’s a risk to monitor in the future).

Finally, to be clear, we are not being dismissive of these issues. Many, if fully realized, could have significant deleterious effects on the markets and the economy. But fears of certain outcomes being imminent have cost many investors a lot of lost opportunity as they’ve acted on fear of what might come instead of the reality of what currently is.

So, we want this Alpha issue to be a resource that you can keep and refer back to, should any outside influence cause a client to want to make a short-term move that endangers their long-term future.

Sevens Report Alpha Webinar #88 – Inflation

Sevens Report Alpha Webinar #87 – Recording

Sevens Report Alpha Webinar #87 – Slide Deck

n this Alpha webinar, I covered what I think will be an increasingly important topic in 2021: Inflation.

One of the oldest (and most accurate) adages on Wall Street is: “Don’t Fight the Fed.”

So, what if the Fed wants higher inflation?

As we showed in today’s webinar, it appears that is exactly what the Federal Reserve and the Federal government want. That was reinforced by Fed Chair Powell last week at his press conference, where he totally dismissed any threat of rising inflation, and via the looming $1.9 trillion in the additional stimulus set to hit the economy in the next six weeks.

So, today’s webinar focused on inflation because we believe that it will become an increasingly important topic over the coming months and quarters and we want to make sure we are all aware of 1) How to monitor inflation and 2) How to position for higher inflation, when it appears.

Additionally, many older, more affluent clients are on a fixed income or have a lot of bond exposure. These clients 1) Can remember the last bout of real inflation (late 70’s/early 80s) and 2) Are keenly aware of the damage it can do to bond portfolios – and we think demonstrating to clients you’re on the lookout for inflation will help strengthen client relationships.

We highly encourage you to share this recording and PowerPoint with any clients who are nervous about inflation, as we always want you to derive maximum value from your subscription.

Over the past year, we have seen the Fed completely alter its policy towards inflation.

• First, the Fed adopted an “average inflation target” of 2%, which means that the Fed will no longer hike rates when inflation hits 2.0% (this is a material shift from the last several decades of policy).
• Second, numerous Fed officials have repeatedly downplayed the risk to inflation from 1) The current QE program (which is the largest ever for the Fed) and 2) The historic fiscal stimulus being unleashed by the government in response to the pandemic.

Bottom line, none of us have ever seen this combination of 1) Massive Fed stimulus and 2) Massive fiscal stimulus, and there’s evidence that the seeds of inflation have already been sowed in the economy (have you tried to buy wood for any home projects lately?)

So, I spent today’s Alpha webinar covering inflation, and specifically:

• The two important types of inflation (asset inflation vs. consumer price inflation) and why each matter to portfolios
• Current trends in inflation (there are signs of rising inflation already)
• The best ways to monitor asset inflation
• The best ways to monitor consumer price inflation
• The role of the U.S. Dollar (this is under-appreciated by a lot of analysts and the drop in 2020 is a tailwind on inflation)
• What outperformed and/or underperformed the last time we had an inflation scare (in 2010-2011 and 2016-2018)
• What Alpha strategies can outperform if we get into a rising inflation environment (I identified six specific strategies).

I understand that inflation isn’t on the immediate radar screens of a lot of analysts, but we’re always focused on making sure we identify

what could come next in these markets, so that we’re never blindsided. And, it’s in that spirit that we wanted to make sure you’re aware of the building risks for higher inflation in the coming quarters.

Sevens Report Alpha Issue 01/26/21 – How The “Old Economy” Can Help Us Outperform

Is Tesla (TSLA) joining the S&P 500 a similar signal to when AOL joined the S&P 500, a year before the top of the tech bubble?

One Wall Street analyst thinks so, and that analysis inspired the focus of this Alpha issue:

Investing in the “Old” Economy.

Investors are enamored with sectors that have exposure to the “New Economy” of electric vehicles, online payments, online shopping, video conferencing, cloud storage, etc. And investors have sent companies with exposure to those sectors to nose-bleed valuations, and the similarities between pockets of the tech sector now and the “Internet Bubble” of the late 1990s are becoming more numerous.

But, the “Old Economy” still matters too.

Sectors like telecommunications, insurance, banking, and industrials are still solid businesses, and many of them are trading at multi-decade valuation discounts to the “New Economy” (which is comprised mostly of tech).

Looking for value in “Old Economy” stocks is a strategy that prioritizes stocks that are still well off their all-time highs, have proven and sustainable business models, and many of which pay hefty dividends. Additionally, these industries are as familiar and comfortable as a warm blanket to your mature, high net worth client base and these investment ideas are perfect for the tech skeptics that prioritize value characteristics, low leverage, and high dividends.

In today’s Issue, we profile:

• Invesco Dow Jones Industrial Average Dividend ETF (DJD). This ETF allows investors to essentially own all or most of the historic 30 stocks in the DJIA in a more dividend-oriented fashion. DJD currently sports a 30-day SEC yield of 3.20% and charges a miserly 0.07% expense ratio.

• First Trust Morningstar Dividend Leaders Index Fund (FDL). This ETF screens the stocks on the NYSE and NASDAQ that have shown dividend cons istency and dividend sustainability and it also specifically excludes real estate investment trusts. FDL currently has a 4.25% yield, substantially above most fixed income alternatives.

• Invesco S&P 500 Pure Value ETF (RPV). RPV is an index-oriented fund that owns over 100 value stocks culled from the broader S&P 500 Index. What makes RPV unique is that it puts a more stringent valuation screen, and the result is a more concentrated portfolio of “pure” companies with characteristics embodying strong balance sheets and low-priced valuations. RPV’s blended P/E ratio is 14.81 and Price to Book is just 0.86, both of which are substantial discounts to the S&P 500.

So, in addition to potentially providing Alpha to client portfolios, we also think refocusing on these “Old Economy” type sectors will be endearing to older (and likely wealthier) clients that lived through the previous internet bubble, and who are skeptical that this run in “New Economy” market sectors can keep going.

Bottom line, we think this issue can help clients outperform, and demonstrate that you are staying focused on all the opportunities in the market, not just the most popular ones.

Sevens Report Alpha Webinar #86 – How Complacent Is This Market?

Sevens Report Alpha Webinar #86 – Recording

Sevens Report Alpha Webinar #86 – Slide Deck

Focus of this webinar was more technical in nature, as I spent the entire 30 minutes answering this question:

Is the market too complacent?

It’s an important question, because like other analysts, I’m worried that investor complacency might be the market’s biggest near-term risk.

If you have any clients who have been especially concerned about the market being stretched or overbought, I recommend you share this recording and PowerPoint with them, as I think it will give them important context for today’s market. As always, we want you to derive maximum value from Alpha.

To be clear, I think it’s important to acknowledge that investor complacency is understandable, because, despite the worst pandemic in a century and the deepest economic downturn since the Great Depression, stocks logged solid gains in 2020.

More recently, stocks have looked past numerous potentially negative surprises:

• Elevated political/policy risks with Democrats control of Washington
• Suddenly ugly economic data, which implies the recovery is losing momentum
• A slower than expected vaccine rollout and
• Extended economic lockdowns, some of which have no end in sight.

Yet, the S&P 500 remains just off all-time highs, so it is not surprising that investors are more focused on continued gains than they are looming risks (I know that is usually the way it is, but it is especially true right now).

But, despite the risks from investor complacency, I have not seen any comprehensive analysis on just how complacent markets are right now, and specifically what could happen to markets if that complacency is shattered. More directly, I took a hard look at whether or not investor complacency is bad enough to warrant a strategy change in client portfolios, and my conclusion may surprise you.

So, in today’s webinar, I wanted to take a hard, fact-based look at just how complacent the market is right now, and what that could mean for performance if there’s a legitimate negative surprise.

Specifically, I reviewed:

• Market Valuations. I looked at historical trailing and forward P/E ratios and analyzed them in context of bond yields to determine whether valuations are in bubble territory.
• Investor Sentiment. There are many ways to measure investor sentiment and I looked at numerous different types of sentiment (investor surveys, composite indicators, google search surveys) to determine if investors were irrationally bullish.
• Market Technicals. I reviewed multiple technical indicators, including little followed bond spreads as well as other more traditional measures of overbought/oversold.
• I explained why, according to these facts, the market was not complacent enough to warrant de-risking.
• Finally, I identified four different Alpha strategies that are appropriate for the current level of risk/reward in this market.

Bottom line, I wanted to perform a wide-ranging analysis across multiple indicators of complacency and sentiment, so that you can help clients set proper expectations for this market as we move farther into the New Year.

Looking forward, our next Alpha issue is a bit contrarian in nature. Markets are enamored with sectors that have exposure to the “New Economy” of electric vehicles, online payments, online shopping, video conferencing, cloud storage, etc.

And, investors have sent companies with exposure to those sectors to nose-bleed valuations, and the similarities between those sectors and the “Internet Bubble” of the late 1990s are becoming more numerous.

But, the “Old Economy” still matters too.

Sectors like telecommunications, insurance, banking, and industrials are still solid businesses, and many of them are trading at multi-decade valuation discounts to the “New Economy” (which is comprised mostly of tech).

Sevens Report Alpha Issue 01/12/21 – Setting Up for 2021

The focus of this Alpha issue is the energy transmission sector, and the inspiration for this issue came from a personal experience. A friend, who is an insurance executive, just started a new job and needs to commute, so he bought a Tesla. As soon as he did, he needed an electrician to come and wire the home charging station for the car, which drove home the point to me that as the world shifts from regular cars to EVs, energy transmission and power generation companies will be some of the biggest beneficiaries. Energy (and the transmission of energy) are the proverbial “picks and shovels” of this modern-day EV gold rush.

Additionally, now that Democrats will control the government, a large infrastructure bill that is focused on promoting “smart grids” and electric vehicles (that need more power) is likely this year. The point being, not only is there a market-based tailwind on energy transmission, but there is likely a policy-based tailwind as well.

Bottom line, electricity demand is likely going to skyrocket for households that will be transitioning to electric and hybrid vehicles in the next decade. More advanced battery systems constantly needing to be plugged in and recharged are going to tax the current electric utility network capacity while growth in EV sales will also propel a nationwide surge in charging stations, similar to the rollout of gas stations in the early 20th century.

I learned a lot about the infrastructure needed to power the growth in electric vehicles and smart grid technology in doing research for this issue, but what truly shocked me was how handily the names in this sector have outperformed over the past several years:

• Diversified Smart-Grid Play: GRID (First Trust NASDAQ Clean Edge Smart Grid Infrastructure Index Fund). GRID is the only targeted ETF that focuses on companies engaged in the electric grid, electric meters and devices, networks, energy storage and management, and enabling software. GRID has returned 161% over the past three years, nearly doubling the 99% return in the S&P 500.

• NEE (NextEra Energy). This best-of-breed utility is leading the industry in renewable energy production as well as EV mobility software, electricity transmission networks, and other smart technologies to maintain their competitive advantage well into this current decade. NEE also sports a dividend yield of 1.81% and has a three-year total return of 112% compared to just 69% for XLU

• EV Charging Station Stock Basket: TSLA (Tesla), ABB Ltd (ABB), Eaton Corp PLC (ETN), and Blink Charging (BLNK). Electric vehicle charging stations are expected to grow nearly 40% annually between 2020-2027.

Bottom line, the story on the expansion/modernization of the electric grid is an investment strategy with both a compelling story (the one clients can relate to personally) and outstanding returns, so while energy transmission might not be as exciting as 5G or a similar thematic strategy, the long-term potential of companies involved in energy transmission is substantial.

Sevens Report Alpha Webinar #85 – Setting Up for 2021

Sevens Report Alpha Webinar #85 – Recording

Sevens Report Alpha Webinar #86 – Slide Deck

I began this webinar by addressing the current earnings and multiple dynamics in the stock market (essentially a preview of the January Market Multiple Table, which will come out early next week).

But, beyond politics, I also went in-depth on just what the market has priced in as we begin a new year, because like any year there will be surprises, and I want to specifically cover what investors are expecting and where the vulnerabilities are in the indices.

I explained what’s allowing the S&P 500 to grind relentlessly higher, and why 4200 in the S&P 500 is an achievable target.

But, that level is not inevitable. I detailed the three risks to that positive outlook and explained exactly how they could each derail this rally (and how bad it could get).

I shifted my focus to alternative assets (Bitcoin and gold) and finally ended the webinar by comparing the current situation to the last time we had a totally Democrat-controlled government (from January ’09-January ’11). The results and implications for what sectors and assets could outperform over the next two years were surprising.

I covered six macro issues in the markets right now:

• Economic Growth – When Does the Market Expect a Return to Economic Normal?
• S&P 500 Earnings – What’s Priced in as We Start 2021?
• Market Multiples – Can They Stay This High (This Is Really the Key Issue as we begin 2021)
• Interest Rates – Where Does the 10 Year Yield End 2021?
• Bitcoin – Is it a Bubble?
• What Assets Outperformed the Last Time Markets Had a Democrat-controlled Government and
• What Alpha Strategies Can Outperform Based on That History

Understanding what is expected from investors and markets as we start a new year will be very important to understand how the market will react to headlines, and I wanted to take the entire 30 minutes to make sure I spell out for you, exactly what’s expected – so that we can all understand the risks and opportunities in the market as we start 2021 together.

Sevens Report Alpha Issue 12/29/20 – Two Playbooks for 2021

As our focus now turns from 2020 and towards 2021, I must say that in the three decades I’ve been in this business, I cannot remember a year when the outlook for stocks has been so universally positive.

I understand why the outlook is so positive: Historic stimulus, vaccine distribution, divided government in Washington (even if Democrats win both Georgia seats it’ll still be a de-facto divided government), and shockingly strong corporate earnings.

But, while I share in this fundamentally based optimism for the markets in 2021, I have been in this business long enough to know that when everyone on the street seems to be in agreement on an outcome, it pays to consider the contrarian alternative also.

Put differently, I believe we always must be prepared for two outcomes – the expected, and the unexpected.

So, in this Alpha issue, we wanted to provide two ETF playbooks: The expected “Return to Normal” trade, and the Contrarian Scenario.

• Playbook 1. What’s Expected: The “Return To Normal” Trade. The perfect storm being high economic confidence, vaccines rolling out to vulnerable groups, low-interest rates, and further government stimulus in the first quarter. That paints the perfect picture for capitalizing on beaten-down areas of the economy that are ripe for further expansion.
  • Strategies: Value over Growth (RSP/VTV), “Get Out and Spend” (PEJ/JETS), International Outperformance (IQLT/VIGI/GSIE/VGK/IEMG/XSOE)

• Playbook 2: The Unexpected: A Contrarian Scenario. A scenario where things just don’t work as planned. Perhaps inflation exceeds all norms, Treasury yields shoot up unexpectedly, geopolitical disruption intercedes, or the economic recovery just simply falls short of expectations.
  • Strategies: Higher Treasury Yields (IGSB/LQDH), Falling Stocks (DMRL), Investor Nervousness (SGOL/SIVR).

I am going to print out these two playbooks and put them on my bulletin board so that I can easily revisit them throughout the year because I believe there’s going to be a lot of “noise” in the markets in 2021, and these two macro-based playbooks will help me focus on two broad outcomes for the market, and on specific ETFs that can help us outperform, depending on which occurs.