China Technology ETF and Stocks (NSYE & NASDAQ)

By: Soh YJ

 

There are 3 china focused technology ETF that is traded in NSYE and NASDAQ. (1) BCNA, (2) CQQQ, (3) KWEB and the sector weighting are as below:

ETF Summary

KWEB is the better long term investment for china technology ETF. Due to relatively lower expense ratio, higher average volume. However, the expense ratio is still considered very high when compared with US Technology ETF, XLK (0.13%).

 

 

Top 10 Holdings of the ETFs

 

 

Performance of Individual Stocks VS KWEB

The below shows the growth of KWEB and its top 5 holdings. For china technology sector it would be better to focus on individual potential stock for higher growth and avoid unnecessary expenses. Buying individual Chinese stock will have a higher growth rate compared to ETF.

Top 3 Holdings of KWEB

The intrinsic value is calculated using 2 stage DCF model- 10yrs

[1 CNY = 1.16 HKD = 0.15 USD]

Cross Profit, Operation Cashflow and Net income of Top 3 KWEB Holding

NASDAQ Composite Index [^IXIC] (28 Dec 2018)

By: Soh YJ

 

Overall the ^IXIC continue a downward pressure. As the moving averages and MACD remain bearish.

 

Performance as at YTD 1 WK 1 MTH 3 MTH 6 MTH 1 YR 2 YR 5 YR
28 Dec 2018 0.08 4.19 -9.47 -18.08 -12.33 4.62 19.26 59.36

*Performance in %

 

 

After continuous of red candles over the month of December, ^IXIC gain a strong rebound on 26 Dec 2018 and ended the week with a doji candlestick, indicating the market is not certain the direction of the prices.

 

 

Events happen between 24 Dec – 28 Dec 2018

 

 

Annual Changes in NASDAQ 100 Index (24 December 2018)

NASDAQ-100, NDX, index is composed of the annual 100 largest non-financial companies listed on the Nasdaq. Nasdaq-100 is re-ranked annually.

 

Inclusion Exclusion
AMD, LULU, NTAP, UAL, VRSN, WLTL ESRX, HOLX, QRTEA, SHPG, STX, VOD

 

How it affects me?

ETFs are designed to track the index, the rebalancing means the stocks in the basket would be sold or added, potentially changes the component’s position size. Meaning, individual stocks will increase it volatility during the rebalancing period.

 

 

Most Positive Movement (24 Dec – 28 Dec)

 

Criteria for screening:

 

  • Market capital (Over 300 million)
    • Small to Mid-cap ($3m to $2b) stocks may not fall into most investor radar yet, potential to grow. Too small may have higher risk

 

  • IPO more than 10 years
    • Have a history, less risk of the business failing

 

  • Current volume (over 200k)
    • Typical stocks have at least 100k trade volume per day

 

  • Price (Over $10)
    • Stock less than $5 are risky and prone to speculation

 

  • Institutional ownership (Over 40%)
    • Institute have more information than retail investors. If institute don’t own any of the stock, you should not too.

 

  • The price changes should be < index movement
    • Should be more volatile than index, else buying an Index ETF will be more efficient.

 

AMAT and ENTG is more suitable for Mid to long term investment as the gross profit, net income and cash flow is more stable.

 

ENTG AMAT ACLS PAR
Price (28 Dec 2018) 27.47 32.38 17.76 22.14
Performance Week[7] 8.11% 4.79% 7.05% 24.66%
Zack Ranking[9] Hold Hold Strong Sell Not available
Consistent increase in Gross profit  4Yrs [6] Yes Yes No Yes
Consistent increase in Net Income 4Yrs [6] No No No No
Consistent increase in Operation cash flow  4Yrs [6] Yes No No No
Mean projected growth rate[8] 18.03% 16.98% 20.00% Not available
Outstanding shares (Millions) [8] 141.79 982.99 31.22 15.91
Net Profit margin compare to industries 5Yrs [8] Lower Higher Lower Lower
ROE >12%[7] 12.7% 45.40% 34.20% -35.90%
Current ratio >1[7] 3.9 2.6 5.5 1.5
Debt/Equity ratio <1[7] 0.6 0.78 0.12 0.14
Calculated Debt servicing ratio <30% 11.02% 14.70% 0.89% 5.76%
Calculated Intrinsic Value 27.45 46.01 31.51 0.65
Current Trend Down Down Down Down

*The intrinsic value is calculated using 2 stage DCF model- 10yrs

 

News

PAR [17 Dec 2018]- PAR Technology SureCheck Food safety solution named to food logistics’ 2018 FL100 + Top software and Technology Providers [11]

 

 

 

Reference

[1]https://www.bloomberg.com/news/articles/2018-12-22/trump-said-to-discuss-firing-fed-s-powell-after-latest-rate-hike

[2] https://sg.finance.yahoo.com/news/stocks-wall-street-falls-mnuchin-163300626.html

[3] https://sg.finance.yahoo.com/news/trump-just-told-buy-stocks-141420498.html

[4] https://sg.finance.yahoo.com/news/faang-kicks-losing-streak-post-210800875.html

[5] https://sg.finance.yahoo.com/news/us-stocks-resume-retreat-huge-153326611.html

[6] https://finance.yahoo.com/

[7] https://finviz.com/

[8] https://www.reuters.com/

[9] https://www.zacks.com/stocks/zacks-rank

[10] https://business.nasdaq.com/mediacenter/pressreleases/1862596/annual-changes-to-the-nasdaq-100-index

[11] https://www.partech.com/news/par-technologys-surecheck-food-safety-solution-named-to-food-logistics-2018-fl100-top-software-and-technology-providers/

Overview of Technology Sector (Dec 2018)

By: Soh YJ

 

NASDAQ Composite (^IXIC) is a stock market index of all domestic and international based common stock and similar securities (ADRs, tracking stocks, REITs, limited partnership interests) listed on NASDAQ stock market. NASDAQ Composite is heavily weighted toward technology companies.

 

 

The top 10 companies, in term of market capital, in the NASDAQ are listed below table. As we can see most of the big players are mostly technology companies.

 

 

 

The NASDAQ Composite Index Trend

The chart represent the NASDAQ Composite Index. From the chart, we can notice 3 things:

  • The trend is always up through disaster after disaster
  • The market don’t go straight up, it fluctuate up and down when trending upward.
  • There are big ugly events

 

 

Why is market trend up in the long run? This is because market is not stagnant and is self-cleansing, companies routinely fade away and is replace by new blood. In the worst, scenario a stock can loss 100% of its value, disappeared and never be heard again. On the other hand, as new company grow, prosper and go public, they replace the dead and dying companies. When you own a stock, you own a piece of business fill with people working to expand and serve the customer base, competing in an unforgiving environment that reward those who can make it happen and discard those who cannot. Thus create an upward bias trend, however this only applicable for Index Fund.

 

Why most traders lose money? The market don’t go straight up. The price fluctuate while trending up. Nobody can time the market

 

DON’T

(1) Buy breakout and sell breakdown. Chasing the stock price around.

(2) Cut losses short and let the winner run.

(3) Size the position too big.

(4) Never cap their profit potential.

 

DO

(1) Buy into weakness, Sell into strength.

(2) Set a profit target & patient with losing trade

(3) Size the position correctly. So you would make decision based on logic rather than emotion

(4) Reduce cost basis. Making small profit over and over again is more sustainable.

 

Big ugly events in market, or is it? During certain timeline, certain event occurred and it causes high volatility in the stock market and people get emotional and start selling-off.

 

Long term Investor– Should not be too worry as you know market always trend upward.

 

  • You could continue to make your timely investment contribution. As a long term investor, you should have a diversified portfolio. This can be achieved easily by ETFs or unit trust without huge capital. Never invest in a single company as you never know if the company could survived 10 – 30 years down the road.
  • You can contribute more to your investment as the price will be cheaper than before. But do not overdo it as bear market normally last 2 – 3 years. Good to have some spare cash.

 

Trader– A perfect opportunity to earn some cash as the market may down more than 50%.

 

  • You could increase your position size (but don’t overdo it) either by shorting the Index fund or purchasing inverse ETF, while waiting for the market to recover.

 

 

Current Market Situation (21 Dec 2018)

 

The US-China Trade war had finally taken its toll on the US market. On September 2018, an evening star pattern mark the reversal of the NSADAQ Composite up trend. On December 2018, a bearish engulfment candlestick appeared.

 

FED announced raising the interest rate on 20 Dec 2018 and possible of 2[1] more raises in 2019, caused the stock to fall sharply as Nasdaq closes. Currently there is no clear support on the medium term, but looking at the whole timeline the nearest possible support should be around 4732 (down 40%).

Monthly candlestick pattern of NASDAQ Composite (18 Dec 2018)

 

Possible support for NASDAQ Composite @ long term

 

Top 3 Technology ETF for Investors

For long term investor, when selecting the ETF there is some considerations:

  • Expense ratio
    • Fees you have to pay annually, the lower the better
  • Market capitalization
    • Avoid closure/delist from the exchange [Big Cap- more $10B, Mid Cap- $10B to $2B, Small Cap- Less than $2B
  • Correlate to the index
    • You want the ETF as close as the index, market always go up in long term.

 

ETF TICKER Expense ratio[2]

[%]

Market Cap [Billion] [2] Beta[2]
Fidelity MSCI Information Technology Index FTEC 0.08 2.22 1.08
Vanguard Information Technology Index VGT 0.1 21.69 1.08
Technology Select Sector SPDR XLK 0.13 19.12 0.99

 

 

 

Top 3 Technology ETF for Trader

For short to medium traders, different consideration to be considered.

  • Liquidity
    • Trader want to get in and out quick. The liquidity of ETFs is affected by the composition and trading volume of the holding securities.
  • Volatility
    • With higher volatility the % of price changes will be greater, while the trending is still following the index.

 

ETF TICKER Market Cap [Billion] [2] Beta[2]
SPDR S&P Biotech XBI 4.38 2.12
iShare Nasdaq Biotechnology IBB 8.35 1.63
Invesco Dynamic Biotechnology & Genome

 

PBE 0.29 1.7

 

 

 

Reference

[1] https://www.cnbc.com/2018/12/19/fed-hikes-rates-by-a-quarter-point-.html

[2] https://sg.finance.yahoo.com/