Six Facts About DAX

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Germany’s benchmark DAX Index has been swinging wildly in the past few weeks like an emerging market index such as the Bovespa or Sensex. I haven’t seen DAX so volatile in the past. However times have changed. The DAX has become highly volatile among major global developed indices since China’s economy is in a slowdown and many of the DAX constituents generate a substantial portion of their revenue from the communist country.

The DAX is up by 2.4% year-to-date. Currently it is at 10,038. In the past few 52-week it reached as high as 12374. From being one of the best performers this year the index has given up most of the gains and is up marginally now.

The DAX 1-year return chart is shown below:

Click to enlarge

DAX 1 year-return

The DAX long-term return chart is shown below:

DAX Long-tem-returns

Source: ComDirect

Though the short-term chart shows high volatility in the long-term DAX has grown nicely.

Here are a few interesting facts about DAX:

  1. The Base Date for DAX is 30 December 1987 and the base level is 1,000 points.
  2. The index represents the largest blue-chip German firms.
  3. DAX is weighted by market capitalization, i.e. the weighting of a single stock relates to its share in the overall capitalization of the stocks contained in the index. The return reported is the total-return which means it includes price appreciation and dividends. This is a BIG difference between DAX and other indices such as the S&P 500, FTSE 100, CAC-40, etc. which do not include dividends in their calculations.
  4. The components of the DAX has changed over the years as a reflection of the development of major German companies in the economy. When it was launched in 1988, the original constituents were: Allianz, BASF, Bayer, Bayerische Hypotheken- und Wechselbank, Bayerische Vereinsbank, BMW, Commerzbank, Continental, Daimler-Benz, Degussa, Deutsche Bank, Deutsche Babcock, Deutsche Lufthansa, Dresdner Bank, Feldmühle Nobel, Henkel, Hoechst, Karstadt, Kaufhof, Linde, MAN, Mannesmann, Nixdorf, RWE, Schering, Siemens, Thyssen, Veba, Viag, Volkswagen.
  5. Today’s DAX does not include firms like MAN, Mannesmann, Veba, Viag, etc. due to mergers, takeovers, bankruptcies, etc. The current components of the index can be found here.
  6. Reflecting the composition of the German economy, the top sectors represented in the index are Chemicals, Automobiles & Parts, Industrials and Pharma & Healthcare.

Source: 25 YEARS OF THE DAX® – THE FACTS, Deutsche Boerse

Related ETF:

  • iShares MSCI Germany (EWG)

Disclosure: No Positions

The Top Five Biotech Companies By Market Capitalization

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Biotech stocks have been red hot in the past few years and they continue to attract investors’ attention this year as well. So far this year the NYSE Arca Biotech index is up by 9.2 compared to the 6.7% fall of S&P 500.

Many of the biotechs currently trading on the markets do not have proven drugs but rather are working on cures for many diseases including cancer. Only a handful of biotechs succeed and the rest usually disappear after a few years. Hence investing in this sector is not for all investors. In fact, investing in most of these companies can be considered speculative investments since nobody knows what which company will succeed and which ones will fail. Investors are simply betting that their company will discover the next big thing.

Currently over 150 biotechs trade on the NASDAQ. New companies including European firms went public in the past few months though the pace has declined due to the current market conditions.

The largest biotech ETF iShares Trust – iShares Nasdaq Biotechnology ETF (IBB) has shot up by over 298% in the past five years. A hypotectical growth of $10,000 (with reinvestment of dividends and capital gains) is shown in the chart below:

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IBB Return 5 Years

Source: iShares

The five largest biotechs by market value are listed below with their current market cap and dividend yields. These are also in top 10 holdings of the above ETF and these account for over 40% of the portfolio weight:

1.Company: Celgene Corp (CELG)
Current Dividend Yield: No dividends paid
Market Cap: $92.8 Billion

2.Company: Amgen Inc (AMGN)
Current Dividend Yield: 2.15%
Market Cap: $111.5 Billion

3.Company: Gilead Sciences Inc (GILD)
Current Dividend Yield: 1.69%
Market Cap: $149.8 Billion

4.Company: Biogen Inc (BIIB)
Current Dividend Yield: No dividends paid
Market Cap: $71.1 Billion

5.Company: Regeneron Pharmaceuticals Inc (REGN)
Current Dividend Yield: No dividends paid
Market Cap: $51.8 Billion

Note: Dividend yields noted above are as of Sept 4, 2015. Data is known to be accurate from sources used.Please use your own due diligence before making any investment decisions.

Disclosure: No Positions

British Stocks Are Cheaper Than US Stocks

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The FTSE 100 is down by early 8% year-to-date compared to S&P 500’s decline of about 7.0% YTD. However according to a report by JPMorgan UK, British equities have brighter prospects ahead than US stocks. From an article quoting the report:

In a wide-ranging note, they looked at UK shares valuations and prospects and came out positive.

Looking at long-term valuation using the Shiller cyclically adjusted price-to-earnings ratio, or CAPE as it is known, the analysts pointed to the current stand point below the average level.

They said: ‘Valuations in the UK, much like the rest of the developed world, are not as cheap as they once were but are still some way off “extreme” valuation territory.

As Exhibit 5 illustrates, the Shiller cyclically adjusted price/earnings (P/E) ratio in the UK remains below its long-run average, suggesting that UK equities still have more room to run.

‘This chart also includes the Shiller P/E ratio for the US index to show the relative undervaluation of the UK compared with the world’s largest developed market. Furthermore, earnings forecasts for 2015 suggest that UK equity earnings are improving and this should help keep these valuations in check going forward.’

Click to enlarge

US and UK Stocks CAPE ratio

Source: Is it time to buy the dip? The stock market is suffering but now could be a good time to buy UK shares, say analysts, This is Money

Three points to remember for US investors:

  • British companies have substantially higher dividend yields than their US peers.
  • The British dividend withholding tax is 0% for UK equities (excluding REITs).
  • Many of the large British firms in the FTSE 100 derive a high portion of their revenues from overseas markets than the domestic market. So their earnings will be adversely impacted due to ongoing volatility in emerging markets. But they also have substantial exposure to the US and other developed markets. So opportunities can be found with careful selection.

Eleven British stocks to consider for further research are listed below with their current dividend yields:

1.Company:Diageo PLC (DEO)
Current Dividend Yield: 3.35%
Sector: Beverages

2.Company: AstraZeneca PLC (AZN)
Current Dividend Yield: 4.42%
Sector: Pharmaceuticals

3.Company: Vodafone Group PLC (VOD)
Current Dividend Yield: 5.12%
Sector: Wireless Telecom

4.Company: British American Tobacco PLC (BTI)
Current Dividend Yield: 4.48%
Sector:Tobacco

5.Company: Royal Dutch Shell PLC (RDS.A)
Current Dividend Yield: 7.59%
Sector:Energy

6.Company: Imperial Tobacco PLC (ITYBY)
Current Dividend Yield: 1.40% 3.90%
Sector:Tobacco

7.Company: Aviva PLC (AV)
Current Dividend Yield: 4.03%
Sector: Insurance

8.Company: Legal & General PLC (LGGNY)
Current Dividend Yield: 4.80%
Sector: Insurance

9.Company: Reckitt Benckiser Group plc (RBGLY)
Current Dividend Yield: 2.27%
Sector: Household goods

10.Company: National Grid plc (NGG)
Current Dividend Yield: 5.21%
Sector: Electric Utilities

11.Company: Unilever PLC (UL)
Current Dividend Yield: 3.42%
Sector: Consumer Staples

Note: Dividend yields noted above are as of Sept 4, 2015. Data is known to be accurate from sources used.Please use your own due diligence before making any investment decisions.

Disclosure: Long LGGNY and RBGLY

Real Income Of Upper Middle-Class Americans Is Growing Strongly

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Income growth is highly uneven between poor, middle and rich Americans. Technological advances and increases in productivity have not helped the working and poor sections of the population. Instead much of the wealth created have largely gone to the upper middle-class and the top 1% of the society due to state policies, laws and tax structures that are favorable to this group of the US population.

According to an article in The Brookings Institution, the average real household incomes of upper middle-class Americans has grown strongly in the past few decades as shown in the chart below:

US Average Real Household Income 1967-2013

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US Average Real Household Income 167-2013

Source: The dangerous separation of the American upper middle class, The Brookings Institution

Meanwhile millions of working and poor Americans live a had-to-mouth existence. From an 2014 article in CNN 2014:

About one-third of American households live “hand-to-mouth,” meaning that they spend all their paychecks. But what surprised the study authors is that 66% of these families are middle class, with amedian income of $41,000. While they don’t have liquid assets, such as savings accounts or mutual fund holdings, they do have homes and retirement accounts, with a median net worth of $41,000.

“We don’t expect them to be living paycheck to paycheck,” said Greg Kaplan, study co-author and assistant professor of economics at Princeton University.

Poor hand-to-mouth households, by contrast, typically have incomes of $21,000 and no assets. Families that don’t live paycheck to paycheck have incomes of $51,000 and assets of $116,000.

Those living paycheck to paycheck have a tougher time weathering income shocks, such as illnesses or bouts of unemployment. The study found that they have to cut back their spending far more than those with a reserve they can tap more readily.

Click to enlarge

chart-paycheck-to-paycheck

Source: The New American Dream, Middle class & living paycheck to paycheck, CNN

A few years ago I posted the following cartoon on the gap between rich and poor countries. The guy sitting on the top can be considered as representing the top 1% and the upper middle-class and the rest of the population is the thin guy in the bottom.

rich-poor-cartton-new

Credit: http://www.nicholsoncartoons.com.au