La vendita allo scoperto per First Trust Industrials AlphaDEX dà agli investitori un'idea del grado in cui gli investitori stanno scommettendo sul declino delle azioni di First Trust Industrials AlphaDEX. I dati relativi alle vendite allo scoperto vengono aggiornati ogni due settimane.

First Trust Industrials AlphaDEX (ARCA:FXR), Report sulle vendite allo scoperto

First Trust Industrials AlphaDEX

Industrials

Consumer Cyclical

Technology

Financial Services

Basic Materials

The fund will normally invest at least 90% of its net assets (including investment borrowings) in the common stocks that comprise the index. The index is a modified equal-dollar weighted index designed by IDI to objectively identify and select stocks from the Russell 1000 Index in the industrials and producer durables sectors that may generate positive alpha relative to traditional passive-style indices through the use of the AlphaDEX selection methodology.

Schneider National Inc.

Howmet Aerospace Inc.

Tetra  Tech  Inc  New 

Allison Transmission Holdings Inc.

Builders Firstsource Inc

Graphic Packaging Holding Co

Brunswick Corp

Snap-On Inc.

Gates Industrial Corpratin Plc Ord Shs

Heico Corp.

First Trust Industrials/Producer Durables AlphaDEX Fund

FIXER Inc

Fox River Resources Corp

Launched on 05/08/2007, the First Trust Industrials/Producer Durables AlphaDEX ETF (ARCA:FXR) is a smart beta exchange traded fund offering broad exposure to the Industrials ETFs category of the market.
What Are Smart Beta ETFs?
Products that are based on market cap weighted indexes, which are strategies designed to reflect a specific market segment or the market as a whole, have traditionally dominated the ETF industry.
A good option for investors who believe in market efficiency, market cap weighted indexes offer a low-cost, convenient, and transparent way of replicating market returns.
On the other hand, some investors who believe that it is possible to beat the market by superior stock selection opt to invest in another class of funds that track non-cap weighted strategies--popularly known as smart beta.
This kind of index follows this same mindset, as it attempts to pick stocks that have better chances of risk-return performance; non-cap weighted strategies base selection on certain fundamental characteristics, or a mix of such characteristics.
Methodologies like equal-weighting, one of the simplest options out there, fundamental weighting, and volatility/momentum based weighting are all choices offered to investors in this space, but not all of them can deliver superior returns.
Fund Sponsor &amp; Index
Managed by First Trust Advisors, FXR has amassed assets over $1.86 billion, making it one of the larger ETFs in the Industrials ETFs. Before fees and expenses, FXR seeks to match the performance of the StrataQuant Industrials Index.
The StrataQuant Industrials Index is a modified equal-dollar weighted index designed by the AMEX to objectively identify and select stocks from the Russell 1000 Index that may generate positive alpha relative to traditional passive style indices through the use of the AlphaDEX screening methodology.
Cost &amp; Other Expenses
Expense ratios are an important factor in the return of an ETF and in the long-term, cheaper funds can significantly outperform their more expensive cousins, other things remaining the same.
With one of the more expensive products in the space, this ETF has annual operating expenses of 0.61%.
The fund has a 12-month trailing dividend yield of 0.69%.
Sector Exposure and Top Holdings
Most ETFs are very transparent products, and disclose their holdings on a daily basis. ETFs also offer diversified exposure, which minimizes single stock risk, though it&#39;s still important for investors to research a fund&#39;s holdings.
Representing 70.60% of the portfolio, the fund has heaviest allocation to the Industrials sector; Materials and Financials round out the top three.
When you look at individual holdings, Allison Transmission Holdings, Inc. (NYSE: <a class="ticker" href="https://www.benzinga.com/stock/alsn#NYSE">ALSN</a>) accounts for about 1.54% of the fund&#39;s total assets, followed by Gates Industrial Corporation Plc (NYSE: <a class="ticker" href="https://www.benzinga.com/stock/gtes#NYSE">GTES</a>) and Armstrong World Industries, Inc. (NYSE: <a class="ticker" href="https://www.benzinga.com/stock/awi#NYSE">AWI</a>).
Its top 10 holdings account for approximately 14.36% of FXR&#39;s total assets under management.
Performance and Risk
Year-to-date, the First Trust Industrials/Producer Durables AlphaDEX ETF has gained about 5.75% so far, and is up about 18.43% over the last 12 months (as of 06/18/2024). FXR has traded between $53.31 and $72.96 in this past 52-week period.
The ETF has a beta of 1.20 and standard deviation of 20.04% for the trailing three-year period, making it a medium risk choice in the space. With about 134 holdings, it effectively diversifies company-specific risk.
Alternatives
First Trust Industrials/Producer Durables AlphaDEX ETF is a reasonable option for investors seeking to outperform the Industrials ETFs segment of the market. However, there are other ETFs in the space which investors could consider.
Vanguard Industrials ETF (ARCA:VIS) tracks MSCI US Investable Market Industrials 25/50 Index and the Industrial Select Sector SPDR ETF (ARCA:XLI) tracks Industrial Select Sector Index. Vanguard Industrials ETF has $5.20 billion in assets, Industrial Select Sector SPDR ETF has $18.35 billion. VIS has an expense ratio of 0.10% and XLI charges 0.09%.
Investors looking for cheaper and lower-risk options should consider traditional market cap weighted ETFs that aim to match the returns of the Industrials ETFs.
<a href="https://www.zacks.com/stock/news/2289564/is-first-trust-industrials-producer-durables-alphadex-etf-fxr-a-strong-etf-right-now?cid=CS-BENZ-FT-smart_beta_etf-2289564">To read this article on Zacks.com click here.</a>

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Is First Trust Industrials/Producer Durables AlphaDEX ETF a Strong ETF Right Now?

Editor&#8217;s Note: This article has been updated to accurately report the remaining funds as $350 billion.
In an exclusive interview with Benzinga, Michael Sayers, CFA and vice president and portfolio manager at Rockland Trust, shared valuable insights into <a href="http://benzinga.com/topic/economy">today&#8217;s investment opportunities.</a> 
Below, we explore the key questions and Sayers&#8217; insightful responses:
<h2 class="wp-block-heading">How The CHIPS Act, IRA Act &amp; Infrastructure Act Create Investment Opportunities</h2>
When asked about the anticipated influence of recent legislative developments like the CHIPS Act, IRA Act, and Infrastructure Act on investment opportunities, Sayers provided a comprehensive overview. 
Regarding the potential effects of the CHIPS Act on technology investments and the semiconductor industry, Sayers pointed out the significant earmarked funds for semiconductors. 
He highlighted the substantial infrastructure-related spending authorized by these acts, totaling approximately $1 trillion over the next decade.
<h2 class="wp-block-heading">A Significant Amount Of Money Still On The Table</h2>
Some quick back-of the napkin math by Sayers went as follows;
&#8220;Infrastructure-related spending across the Inflation Reduction Act (IRA), Infrastructure, and CHIPS acts totals ~$1 Trillion over a period of 10 years ending in 2031. About $650 billion has been authorized/committed so far.&#8221;
<ul>
<li>About $250 billion has been allocation to semiconductors.</li>
</ul>
This should benefit investments into the iShares Semiconductor ETF (NYSE:<a class="ticker" href="https://www.benzinga.com/stock/SOXX#NYSE">SOXX</a>) which provides exposure to the semiconductor equity sector in the U.S.
<ul>
<li>Another $250 billion to clean energy and power.</li>
</ul>
The iShares Global Clean Energy ETF (NYSE:<a class="ticker" href="https://www.benzinga.com/stock/ICLN#NYSE">ICLN</a>), along with the Invesco Solar ETF (NYSE:<a class="ticker" href="https://www.benzinga.com/stock/TAN#NYSE">TAN</a>) are among the two most popular ETFs that should benefit from this allocation.
<ul>
<li>$150 billion has been allocated for EV and EV batteries.</li>
</ul>
Investors in the Global X Autonomous &amp; Electric Vehicles ETF (NASDAQ:<a class="ticker" href="https://www.benzinga.com/stock/DRIV#NASDAQ">DRIV</a>), the iShares Self-Driving EV and Tech ETF (NYSE:<a class="ticker" href="https://www.benzinga.com/stock/IDRV#NYSE">IDRV</a>) and the KraneShares Electric Vehicles and Future Mobility Index ETF (NYSE:<a class="ticker" href="https://www.benzinga.com/stock/KARS#NYSE">KARS</a>) which invest in stocks of electric vehicle manufacturers, should see this benefit trickling down to them.
&#8220;That leaves a significant amount of money still on the table, particularly under the IRA &amp; CHIPS acts,&#8221; Sayer said pointing to $350 billion remaining from the total $1 trillion allocation.
<h2 class="wp-block-heading">Multi-Year Runway Of Annualized Double-Digit Growth Ahead</h2>
Backed by the $350 billion remaining, Sayers emphasized, &#8220;There is a multi-year runway of annualized double-digit growth in infrastructure-related construction &amp; manufacturing spending ahead of us through the end of the decade.&#8221;
Rockland Trust allocates to the Russell Global Infrastructure Fund (RGISX) to take advantage of this positive outlook but also to provide diversification to the high-quality stock &amp; bond portfolios that the firm manages for its clients
Investment Opportunities: Building upon Sayer&#8217;s insights into the potential growth in infrastructure and manufacturing sectors, let&#8217;s explore capital market instruments that investors could utilize to partake in this anticipated growth. Various Exchange-Traded Funds (ETFs) present attractive options for investors seeking exposure to these sectors.
ETFs for Infrastructure and Manufacturing Sectors: Infrastructure ETFs such as PAVE, IGF, and IFRA, as well as Manufacturing/Industrials ETFs like XLI and ITA, offer exposure to sectors poised for growth amid these legislative developments.
Let&#8217;s first look at the top infrastructure ETFs
These ETFs provide investors with diversified portfolios of companies operating in infrastructure development, manufacturing, and related industries, aligning with the anticipated growth trajectories highlighted by Sayers.
Some popular Infrastructure ETFs include:
<figure class="wp-block-table"> 
<table>
<tbody>
<tr>
<td>Symbol</td>
<td>ETF</td>
<td> Total Assets ($MM)</td>
<td> YTD% (as of April 15)</td>
</tr>
<tr>
<td>PAVE</td>
<td>Global X US Infrastructure Development ETF</td>
<td>$7,514.84 </td>
<td>+11.32%</td>
</tr>
<tr>
<td>IGF</td>
<td>iShares Global Infrastructure ETF</td>
<td>$3,503.42</td>
<td>-1.49%</td>
</tr>
<tr>
<td>IFRA</td>
<td>iShares U.S. Infrastructure ETF</td>
<td>$2,320.23</td>
<td>4.71%</td>
</tr>
<tr>
<td>NFRA</td>
<td>FlexShares STOXX Global Broad Infrastructure Index Fund</td>
<td>$2,215.70</td>
<td>-2.04%</td>
</tr>
</tbody>
</table>
</figure>
Now let&#8217;s look at the top Manufacturing/Industrial ETFs
<figure class="wp-block-table"> 
<table>
<tbody>
<tr>
<td> Symbol </td>
<td>ETF</td>
<td>Total Assets ($MM)</td>
<td>YTD% (as of April 15)</td>
</tr>
<tr>
<td>XLI</td>
<td>XLI Industrial Select Sector SPDR Fund</td>
<td>$18,253,700</td>
<td>8.15%</td>
</tr>
<tr>
<td>ITA</td>
<td>ITA iShares U.S. Aerospace &amp; Defense ETF</td>
<td>$5,998,910</td>
<td>1.09%</td>
</tr>
<tr>
<td>VIS</td>
<td>VIS Vanguard Industrials ETF</td>
<td>$5,328,240</td>
<td>7.99%</td>
</tr>
<tr>
<td>PPA</td>
<td>PPA Invesco Aerospace &amp; Defense ETF</td>
<td>$3,012,080</td>
<td>7.63%</td>
</tr>
<tr>
<td>FXR</td>
<td>FXR First Trust Industrials/Producer Durables AlphaDEX Fund</td>
<td>$1,942,100 </td>
<td>8.12%</td>
</tr>
</tbody>
</table>
</figure>
Investors can strategically navigate legislative developments and capitalize on emerging growth sectors by leveraging ETFs tailored to infrastructure and manufacturing industries. 
With the guidance of financial professionals and thorough research, investors can position themselves to benefit from the evolving economic landscape.
Now Read: <a href="https://www.benzinga.com/analyst-ratings/analyst-color/24/04/38265826/high-interest-rates-could-cause-more-things-to-break-in-us-economy-by-2025-warns-st">High-Interest Rates Could Cause &#8216;More Things To Break&#8217; In US Economy By 2025, Warns Strategist </a>
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Regulations

Specialty ETFs

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Interview

DRIV

iShares S&P Global Clean Energy Index Fund

ICLN

IDRV

IFRA

iShares S&P Global Infrastructure Index Fund

iShares Dow Jones US Aerospace & Defense Index Fund

KARS

NFRA

PAVE

iShares PHLX SOX Semiconductor Sector Index Fund

SOXX

EXCLUSIVE: Expert Predicts 'Double-Digit Growth' In 2 Sectors Thanks To Major Federal Investments (CORRECTED)

Since coming to market just over three years ago, the First Trust Dorsey Wright Focus 5 ETF (NASDAQ: <a class="ticker" href="/stock/fv#NASDAQ">FV</a>) has proven popular with advisors and investors that follow Dorsey Wright&#39;s relative strength-based strategies.
That sentiment is confirmed by FV&#39;s more than $2.4 billion in assets under management. FV follows the Dorsey Wright Focus Five Index, which &ldquo;is designed to provide targeted exposure to five First Trust sector and industry based ETFs that Dorsey, Wright &amp; Associates (DWA) believes offer the greatest potential to outperform the other ETFs in the selection universe and that satisfy trading volume and liquidity requirements,&rdquo; according to <a href="http://www.ftportfolios.com/Retail/Etf/EtfSummary.aspx?Ticker=FV">First Trust</a>.
FV has a counterpart that is proving popular as well. The First Trust Dorsey Wright Dynamic Focus 5 ETF (NASDAQ: <a class="ticker" href="/stock/fvc#NASDAQ">FVC</a>) adds a cash component to the ETF of ETFs strategy found in FV.
<h3>More About FVC</h3>
Like FV, the First Trust Dorsey Wright Dynamic Focus 5 ETF holds five First Trust sector and industry that are displaying positive relative strength ETFs. FVC&#39;s linuep is as follows: The First Trust Dow Jones Internet Index Fund (NYSE: <a class="ticker" href="/stock/fdn#NYSE">FDN</a>), First Trust NASDAQ-100-Technology Sector Index Fund (NASDAQ: <a class="ticker" href="/stock/qtec#NASDAQ">QTEC</a>), First Trust Industrials/Producer Durables AlphaDEX Fund (NYSE: <a class="ticker" href="/stock/fxr#NYSE">FXR</a>), First Trust Nasdaq Bank ETF (NASDAQ: <a class="ticker" href="/stock/ftxo#NASDAQ">FTXO</a>) and the First Trust Utilities AlphaDEX Fund (NYSE: <a class="ticker" href="/stock/fxu#NYSE">FXU</a>).
&ldquo;While we are pitted firmly in corporate earnings season now as we have repeatedly documented in this daily piece, a fund such as FVC may be potentially very useful in monitoring how various sectors are reacting to earnings hits and misses around the markets and how these industries are trading relative to one another since they are constantly in motion,&rdquo; said <a href="http://streetonefinancial.com/">Street One Financial</a> Vice President Paul Weisbruch in a recent note.
FVC&#39;s index &ldquo;is designed to provide targeted exposure to five First Trust sector and industry based ETFs and the Nasdaq US T-Bill Index,&rdquo; <a href="http://www.ftportfolios.com/Retail/Etf/EtfSummary.aspx?Ticker=FVC">according to First Trust</a>.
<h3>Slight Differences ... So Far</h3>
Year to date, FV is up 9.4 percent while FVC is higher by 9.1 percent, indicating that the latter&#39;s cash component is not restraining its ability to compete with the former&#39;s returns this year.
FVC debuted in March 2016 and has established a solid following as highlighted by $331.1 million in assets under management. Regarding FV and FVC, investors should stay up-to-date regarding possible changes in the ETFs&#39; rosters.
&ldquo;Of course, being a rules-based strategy it is helpful to look at these holdings a couple times per month to see if there have been any relative strength changes in the marketplace that warrant a reshuffling of the portfolio and perhaps this will lend clues to which names/sectors will be shorter and longer term leaders and laggards,&rdquo; added Weisbruch.
Related Links:
<a href="https://www.benzinga.com/analyst-ratings/analyst-color/17/08/9851427/revisiting-some-high-dividend-etfs">Revisiting High Dividend ETFs</a>
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QTEC

A Different Spin On A Popular ETF

Perhaps because it is not as glamorous as the technology or health care sector, the industrial sector does not often get the love it deserves. The same can be true of some of the exchange-traded funds dedicated to industrial stocks, but a sturdy industrial sector can be a positive sign for the broader market because of the group&#39;s cyclical nature.
So it could prove to be good news that the First Trust Ind/Prod AlphaDEX Fd (ETF) (NYSE: <a class="ticker" href="/stock/fxr#NYSE">FXR</a>) is on the move higher. Actually, FXR was one of just a handful of ETFs to hit record highs on Wednesday. With a modest Wednesday gain, FXR is higher by 8.7 percent year to date.
FXR holds 94 stocks, a deeper bench than some traditional industrial ETFs, such as The Industrial Select Sector SPDR (NYSE: <a class="ticker" href="/stock/xli#NYSE">XLI</a>). XLI is the largest industrial ETF by assets. FXR also features exposure to 10 sub-industry groups, again a comparatively large number relative to standard industrial ETFs.
<h3>A Different Approach</h3>
FXR is a departure from the standard industrial ETFs on multiple levels. In fact, the ETF is the epitome of a smart beta sector fund. The ETF tracks the StrataQuant Industrials Index, which culls industrial stocks from the Russell 1000 Index, ranking those names based on &ldquo;growth factors including three, six and 12-month price appreciation, sales to price and one year sales growth, and, separately, on value factors including book value to price, cash flow to price and return on assets,&rdquo; <a href="http://www.ftportfolios.com/Retail/Etf/EtfSummary.aspx?Ticker=FXR">according to First Trust</a>.
The result is a lineup that looks significantly different than those found in old guard industrial ETFs. While those funds are usually heavily allocated to just a few of the <a href="https://www.benzinga.com/news/17/06/9561091/these-sector-etfs-could-see-june-gloom">most venerable industrial stocks</a>, FXR does not allocate more than 2 percent to any of its holdings.&nbsp;
FXR offers more than adequate exposure to the hot aerospace and defense trade as that group accounts for 18 percent of the ETF&#39;s weight, making it the fund&#39;s second-largest industry allocation. Also notable is FXR&#39;s 12.3-percent weight to airline stocks at a time when that group is surging on the back of slumping oil prices.
<h3>Actually A Mid-Cap Fund</h3>
The $1.4 billion FXR favors smaller stocks, a strategy typical of many smart beta funds. FXR&#39;s 94 holdings have a median market value of $8.5 billion, well below the weighted average market value of $70.7 billion found on XLI&#39;s holdings. However, XLI is outpacing FXR year to date.
Related Links:
<a href="https://www.benzinga.com/trading-ideas/long-ideas/17/07/9736860/etfs-dominate-first-half-leaving-active-with-work-to-do">ETFs Dominate First Half Leaving Active With Work To Do</a>
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An Industrial ETF Hitting New Highs

The manufacturing sector has been blowing hot and cold in the current economic cycle. From the depths of recession, the sector sees resurgence, only to sink back into the red and then start all over again.
Manufacturing, the transformation of raw materials into finished goods to meet customers&#39; specifications and needs, is significantly huge for the United States. Statistically speaking, the U.S. manufacturing sector is the biggest globally, producing 18.2 percent of global goods. This compares to 17.6 percent for China. That said, manufacturing&#39;s share of the total U.S. GDP is 8 percent.
<h3>
	Significance Of Manufacturing To U.S. Economy</h3>
The latest survey by the <a href="https://www.bls.gov/news.release/empsit.t17.htm"> Labor Department </a> shows the manufacturing sector employed 12.4 million people in <a href="https://www.benzinga.com/analyst-ratings/analyst-color/17/05/9411610/jobs-jump-big-april-gains-put-march-memories-behind-inje"> April 2017, </a> accounting for roughly 8.5 percent of the people employed in the non-farm sector.
<h3>
	Manufacturing Trend Post Great Recession</h3>
After a sharp plunge during the <a href="https://www.benzinga.com/general/politics/17/01/8889240/president-obamas-economic-report-card"> 2007&ndash;2008 recession </a> and bottoming in the second quarter of 2009, the manufacturing sector staged a steady recovery until the fourth quarter of 2014.
Subsequently, manufacturing output flat lined till the third quarter of 2016. Since then, there has been a steady recovery.
<iframe allowtransparency="true" frameborder="0" scrolling="no" src="//fred.stlouisfed.org/graph/graph-landing.php?g=dPEd&amp;width=670&amp;height=475" style="overflow:hidden; width:670px; height:525px;"></iframe> 
Source: Bureau of Labor Statistics
However, the strong offtake seen since the third quarter of 2016 faces the risk of losing steam, if one is to go by the results of a recent regional manufacturing survey for May.
<h3>
	New York Manufacturing Survey &mdash; Regional But Leading Indicator</h3>
Though the New York Federal Reserve&#39;s manufacturing survey is regional in nature, it is considered to offer the first glimpse into the state of the manufacturing sector in a month. It precedes a few market-moving regional manufacturing surveys and the Institute for Supply Management&#39;s national manufacturing survey.
The <a href="https://www.newyorkfed.org/medialibrary/media/survey/empire/empire2017/esms_2017_5_survey.pdf?la=en"> survey, </a> also dubbed as the Empire State Manufacturing survey, showed manufacturing conditions deteriorated in May. The general business conditions index for May fell to -1 from 5.2 in April, suggesting the sector has moved into contraction territory. The index was previously in contraction territory in October 2016, when it was at -6.8, precisely before the U.S. presidential elections.
The index reflects the overall business conditions based on a survey of 200 top manufacturing executives.
<blockquote class="twitter-tweet" data-lang="en">Business activity for New York manufacturers flattened out after a 6-month run; May index fell 6 points to -1.0 &rarr; <a href="https://t.co/bg44TB8sw9">https://t.co/bg44TB8sw9</a> <a href="https://t.co/Fe2Jj78eed">pic.twitter.com/Fe2Jj78eed</a>
	&mdash; New York Fed (@NewYorkFed) <a href="https://twitter.com/NewYorkFed/status/864096558257754112">May 15, 2017</a></blockquote>
Among the sub-indexes of the survey, new orders, unfilled orders and inventories were in contraction territory, although all of the sub-indexes deteriorated from the month-ago levels.
<h3>
	Trump Lift For Manufacturing</h3>
President Donald Trump&#39;s election-infused optimism into the sector, partly due to the belief that the president&#39;s protectionist policies would give a new lease of life for the manufacturing sector. In a bid to &quot;make America great again,&quot; Trump threatened of punitive measures aimed at firms shifting jobs out of the U.S., lured by cheap overseas labor. Additionally, hopes of increased investment in the sector also augured well.
General Business Conditions Index (New York Fed)
<ul>
	Oct. 2016: (-6.8) Nov. 2016: 1.5 Dec. 2016: 7.6 Jan. 2017: 6.5 Feb. 2017: 18.6 March 2017: 16.4 April 2017: 5.2 May 2017: (-1)
</ul>
Source: New York Federal Reserve
However, the actual manufacturing output has not reflected the same optimism.
Industrial Output Growth (month over month)
<ul>
	Oct. 2016: 0.2 percent Nov. 2016: 0.2 percent Dec. 2016: 0.2 percent Jan. 2017: 0.4 percent Feb. 2017: 0.3 percent March 2017: (-0.4 percent) April 2017: 1 percent
</ul>
Source: Federal Reserve
Additionally, the <a href="https://www.philadelphiafed.org/research-and-data/regional-economy/business-outlook-survey/2017/bos0517"> Philadelphia Fed&#39;s manufacturing survey, </a> which is another regional survey, showed business conditions improving in May.
<h3>
	Since The Presidential Election</h3>
Notwithstanding Trump&#39;s promise of bringing manufacturing jobs back to the U.S. and threat to slap fine/tariffs on companies spending on offshore production, there has not been much of follow up actions. Additionally, moving jobs back to the U.S. would not necessarily create additional jobs, as companies are actively pursuing the option of automating jobs, wherever it makes sense.
The policy paralysis on this front is attributed to the fact that Congress, rather than the president, has the power to enact tariffs. The business-friendly Republicans are proponents of free trade and may not prefer tariffs.
The proposed tax reforms and huge infrastructure investment the president promised are yet to materialize.
<h3>
	May Be, May Be Not</h3>
Early indications of softening of manufacturing activity levels may not really signal a marked slowdown into the summer months, although activity, typically, see a small downtick amid summer maintenance-related shutdowns. On top of this, business conditions surveys were mixed, rather than all flashing red signals. Even if a slowdown occurs, it is only right to separate the seasonality factor and delve deep to find whether the slowdown is due to any fundamental reasons.
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Is Manufacturing Heading Toward A Summer Slowdown?

Sector exchange-traded funds are increasingly important parts of investors&#39; portfolios, and that sentiment includes both professional and retail investors. These ETFs can help investors steer clear of a familiar dilemma that confounds legions of investors: identifying the right stock in the <a href="http://www.benzinga.com/analyst-ratings/analyst-color/16/11/8732825/why-sector-etfs-may-be-better-than-individual-stocks">right sector at the right time</a>.
<h3>So Much More Than Timing</h3>
Many of the most popular sector ETFs on the market today are cap-weighted funds, but there are some credible smart beta alternatives, including First Trust&#39;s series of AlphaDEX sector ETFs. That group includes the First Trust Consumer Stapl Alpha Fd (ETF) (NYSE: <a class="ticker" href="/stock/fxg#NYSE">FXG</a>) and the First Trust Ind/Prod AlphaDEX Fd (ETF) (NYSE: <a class="ticker" href="/stock/fxr#NYSE">FXR</a>).
The AlphaDEX methodology includes ranking members of various Russell 1000 sectors on growth factors including three-, six- and 12-month price appreciation, sales to price and one year sales growth, and, separately, on value factors including book value to price, cash flow to price and return on assets, <a href="http://www.ftportfolios.com/Retail/Etf/EtfSummary.aspx?Ticker=FXN">as First Trust noted</a> on the AlphaDEX funds&#39; websites.
<h3>Recent AlphaDEX Performance</h3>
Likely the handiwork of ETF strategists or other institutional-type investors, cash has recently been pouring into FXR and FXG.
&ldquo;This week we have seen what looks like a sector rotation trade involving two First Trust sector funds, where more than $700 million entered <a href="http://etfdailynews.com/etf/FXR/">FXR</a> (Industrials/Producer Durables AlphaDEX) and the same dollar amount exited <a href="http://etfdailynews.com/etf/FXG/">FXG</a> (Consumer Staples AlphaDEX). Trading volume in each of the funds topped 20 million shares apiece on Monday of this week, which are huge multiples of the typical daily volumes in each product,&rdquo; said Street One Financial Vice President Paul Weisbruch <a href="http://streetonefinancial.com/">in a recent note</a>.
<h3>More About FXG</h3>
The $1.3 billion FXG is a departure from cap-weighted staples ETFs in that the First Trust offering&#39;s 42 holdings have a median market value of $15.2 billion, putting the ETF in mid-cap territory. In other words, this is not the ETF for investors looking for a staples ETF dominated by the likes of Procter &amp; Gamble Co (NYSE: <a class="ticker" href="/stock/pg#NYSE">PG</a>) or The Coca-Cola Co (NYSE: <a class="ticker" href="/stock/ko#NYSE">KO</a>).
While those two stocks may be staples of standard staples ETFs, they combine for just over 2.3 percent of FXG&#39;s weight.
<h3>More About FXR</h3>
A similar scenario is seen with FXR. That ETF, also home to $1.3 billion in assets, is not dominated by the most familiar industrial stocks. In fact, FXR is, arguably, a quasi-airline ETF as airline stocks represent seven of the <a href="http://www.ftportfolios.com/Retail/Etf/EtfSummary.aspx?Ticker=FXR">ETF&#39;s top 10 holdings</a>. While FXR has some perks in certain environments, it has lagged the S&amp;P 500 Industrial Index by about 150 basis points since inception.

2 Sector ETFs Drawing Renewed Attention

With rising interest a hot topic these days, investors looking to stay long stocks should consider the industrial sector.

	As was noted last week, the industrial sector has historically remained sturdy during rising interest rate environments. In terms of performance when rates rise, industrials are second only to consumer discretionary.

	Related: <a href="http://www.benzinga.com/markets/bonds/13/08/3856067/industrial-etfs-for-rising-interest-rates">Industrial ETFs For Rising Interest Rates</a>.

	Industrials have lived up to their billing as decent rising rates plays as the Industrial Select Sector SPDR (NYSE: <a class="ticker" href="/stock/xli#NYSE">XLI</a>), the Vanguard Industrial ETF (NYSE: <a class="ticker" href="/stock/vis#NYSE">VIS</a>) and the iShares U.S. Industrials ETF (NYSE: <a class="ticker" href="/stock/iyj#NYSE">IYJ</a>) have been solid since May 22, the day Federal Reserve tapering talk really became an everyday topic.

	Combined, those three ETFs have about $8 billion in assets under management with XLI controlling the bulk at $5.6 billion. They are large, liquid and, particularly in the case of VIS, cheap. However, when it comes to year-to-date performance, that trio is not the best of the industrial ETF lot.

	In fact, industrial ETFs stand as another example of the problems encountered when <a href="http://www.benzinga.com/trading-ideas/long-ideas/13/08/3865203/europe-funds-highlight-flaws-of-judging-etfs-on-size">investors judge ETFs by size</a>. The problem being returns usually get left on the table.

	Take the example of the PowerShares Dynamic Industrials Sector Portfolio (NYSE: <a class="ticker" href="/stock/prn#NYSE">PRN</a>). The $59.6 million fund has jumped 21.1 percent this year, easily outpacing XLI. PRN is home to many of the same stocks that are found in larger industrial ETFs, including companies that were supposedly <a href="http://www.benzinga.com/analyst-ratings/analyst-color/13/08/3865977/amid-sequestration-aerospace-etfs-gain-favorable-calls">going to be vulnerable to sequestration</a>.

	That includes Raytheon (NYSE: <a class="ticker" href="/stock/rtn#NYSE">RTN</a>), General Dynamics (NYSE: <a class="ticker" href="/stock/gd#NYSE">GD</a>) and Boeing (NYSE: <a class="ticker" href="/stock/ba#NYSE">BA</a>), all PRN top-10 holdings. PRN sets itself apart with larger exposure to small-caps then is generally found in standard industrial ETFs. Small-cap growth and value names combine for about 41 percent of PRN's weight. Liquidity nuts will cringe at PRN's averaged daily volume of 16,200 shares, but the reality is there has only been one day in the previous four quarters where this fund has seen the midpoint of its bid/ask spread fall more than one percent below its net asset value, <a href="http://www.invescopowershares.com/products/overview.aspx?ticker=PRN#hold">according to PowerShares data</a>.

	Speaking of small-cap industrials, the PowerShares S&amp;P SmallCap Industrials Portfolio (NASDAQ: <a class="ticker" href="/stock/psci#NASDAQ">PSCI</a>) is the pure-play option on that theme. PSCI is home to 84 stocks. It's top-10 holdings include AO Smith (NYSE: <a class="ticker" href="/stock/aos#NYSE">AOS</a>), Toro (NYSE: <a class="ticker" href="/stock/ttc#NYSE">TTC</a>) and Curtiss-Wright (NYSE: <a class="ticker" href="/stock/cw#NYSE">CW</a>).

	For the year ending June 30, the S&amp;P SmallCap 600 Capped Industrials Index outperformed the S&amp;P SmallCap 600 Index by 420 basis points, <a href="http://www.invescopowershares.com/products/overview.aspx?ticker=PSCI">according to PowerShares data</a>.

	Like PRN, PSCI is not heavily traded (average daily turnover of just over 9,500 shares). However, PSCI is like PRN in another way: It rarely, rarely meaning one day in the previous four quarters, sees the midpoint of its bid/ask spread rise to a one percent premium or discount to NAV.

	Not to be forgotten in the industrial ETF conversation is the First Trust Industrials/Producer Durables AlphaDEX Fund (NYSE: <a class="ticker" href="/stock/fxr#NYSE">FXR</a>). FXR follows <a href="http://www.benzinga.com/trading-ideas/long-ideas/12/12/3171652/alphadex-alternatives-to-cap-weighted-etfs-prove-their-mettle">the same AlphaDEX methodology</a> that has help an array of other First Trust sector and international ETFs deliver impressive returns.

	That includes evaluating potential holdings on factors like price appreciation, cash flow to price and return on assets. FXR, which has $229.1 million in AUM, is up nearly 19 percent year-to-date, a tidy out-performance of some of its larger rivals. No stock accounts for more than 1.9 percent of FXR's weight and the ETF has a median market value of $5.5 billion, indicating decent exposure to mid-cap names.

	Top holdings include R.R. Donnelley (NYSE: <a class="ticker" href="/stock/rrd#NYSE">RRD</a>), ITT Corp. (NYSE: <a class="ticker" href="/stock/itt#NYSE">ITT</a>), Trinity Industries (NYSE: <a class="ticker" href="/stock/trn#NYSE">TRN</a>) and Chicago Bridge &amp; Iron (NYSE: <a class="ticker" href="/stock/cbi#NYSE">CBI</a>).

	For more on ETFs, click <a href="http://www.benzinga.com/etfs">here</a>.

	Disclosure: Author does not own any of the securities mentioned here.

Short Ideas

Intraday Update

iShares Trust Dow Jones US Industrial Sector Index Fund

PSCI

Three Must-Know Industrial ETFs

Here is an interesting anecdote regarding U.S.-focused sector ETFs. Most economic data this year has been solid and the Dow Jones Industrial Average keeps climbing to new all-time highs. However, when looking at the nine sector SPDRs ETFs, investors will find the Industrial Select Sector SPDR (NYSE: <a class="ticker" href="/stock/xli#NYSE">XLI</a>) in fifth place year-to-date.

	XLI, which is home to $4.82 billion in assets under management, is the fifth-best SPDR ETF despite a year-to-date gain of 15.4 percent. The fund has narrowly outperformed its energy and utilities counterparts while sharply outpacing the Technology Select Sector SPDR (NYSE: <a class="ticker" href="/stock/xlk#NYSE">XLK</a>) and the Materials Select Sector SPDR (NYSE: <a class="ticker" href="/stock/xlb#NYSE">XLB</a>).

	It has been <a href="http://www.benzinga.com/trading-ideas/long-ideas/13/03/3447304/risk-on-rally-these-etfs-say-no">low beta sectors that have outperformed</a> over the past three years and maybe that means industrials are ready to take off. If that is the case, investors may want to consider these alternatives to XLI.

	First Trust Industrials/Producer Durables AlphaDEX Fund (NYSE: <a class="ticker" href="/stock/fxr#NYSE">FXR</a>) 
	The First Trust Industrials/Producer Durables AlphaDEX Fund stands as another example of <a href="http://www.benzinga.com/trading-ideas/long-ideas/13/05/3588442/a-financial-services-etf-buffett-would-love">an AlphaDEX ETF that is outperforming</a> some of its cap-weighted rivals. FXR,which has almost $166 million in assets, is up nearly 18 percent year-to-date.

	That is an impressive performance given FXR's almost 15.3 percent allocation to aerospace and defense names, a sub-sector that has performed admirably despite various obstacles provided by U.S. policymakers.

	Unlike XLI, which devotes 11.6 percent of its weight to just one stock, General Electric (NYSE: <a class="ticker" href="/stock/ge#NYSE">GE</a>), no holding in FXR receives an allocation above 1.81 percent. The rub with FXR is that its three-year standard deviation is 120 basis points higher than S&amp;P 500 Industrials Index and year-to-date FXR has been 200 basis points more volatile than XLI. The good news is that FXR's underlying index, the StrataQuant Industrials Index, has outperformed the Russell 1000 Producer Durables Index and the S&amp;P 500 Industrials Index over the past year, three years and five years, <a href="http://www.ftportfolios.com/Retail/Etf/EtfSummary.aspx?Ticker=FXR">according to First Trust data</a>.

	PowerShares Dynamic Industrials Sector Portfolio (NYSE: <a class="ticker" href="/stock/prn#NYSE">PRN</a>) 
	The PowerShares Dynamic Industrials Sector Portfolio is a prime example of industrials ETF that flies under the radar. Like FXR, PRN is a good example of an industrials ETF that eschews cap weighting to produce solid returns.

	PRN's 60 holdings are evaluated on criteria including price momentum, earnings momentum, quality, management action, and value. That has helped the $40.3 million ETF gain over 17 percent year-to-date. No holding accounts for more than three percent of PRN's weight, but the ETF's top-10 lineup underscores the notion that this ETF is one to own not only in a thriving economy, but when oil prices are falling as well.

	Four aerospace companies, including Dow component Boeing (NYSE: <a class="ticker" href="/stock/ba#NYSE">BA</a>) are found in PRN's top-10, and three of the other top-10 members are airline stocks. For now at least, it is hard to quibble with that mix as PRN's underlying index, the Dynamic Industrials Sector Intellidex Index, has outperformed the S&amp;P 500 Industrials Index and the Dow Jones U.S. Industrials Index over the past 12 and 36 months, <a href="http://www.invescopowershares.com/products/overview.aspx?ticker=PRN">according to PowerShares data</a>.

	For more on ETFs, click <a href="http://www.benzinga.com/etfs">here</a>.

Two Industrial ETFs Your Broker Forgot to Mention

<div>
	
		After S&amp;P’s recent upgrade to its outlook on Delta Airlines (NYSE: <a class="ticker" href="/stock/dal#NYSE">DAL</a>), I cannot help but to wonder how they do their analysis. My analysis of Delta’s financial position shows that the company’s financial position is getting worse not better.
	
		The difference in my analysis is usually the data I get from footnotes. When I read the footnotes of DAL’s latest 10-K report, I find that the growth of the company’s off-balance-sheet liabilities is larger than the reduction in the company’s on-balance-sheet debt.
	
		Most of the off-balance-sheet liabilities are related to employee benefits (pensions and postretirement plans), which have a senior claim to the company’s cash flows over any debt. Accordingly, I do not understand how S&amp;P would say the outlook for Delta’s debt ratings is getting better when senior claims are increasing as much as they are. Here are the details.
	
		At the end of 2011, my analysis shows DAL’s pensions and postretirement plans were under-funded by $14.1 billion (<a href="http://blog.newconstructs.com/wp-content/uploads/2012/05/NewConstructsModel_DAL_netFundedStatusPensionsAndPostretirementBenefits.pdf">per page 76 of the company’s 2011 10-K</a>), and DAL had $8.2 billion in off-balance sheet debt from <a href="http://blog.newconstructs.com/wp-content/uploads/2012/05/DAL_operatingLeasesNewConstructsModel.pdf">operating leases</a>. That is a total of $22.3 billion of off-balance-sheet liabilities, a $2.7 billion (14%) increase over the total in 2010. Figure 1 below plots the increase in off-balance-sheet liabilities since DAL emerged from bankruptcy.
	<div>
		
			Figure 1: Off-Balance-Sheet Liabilities Reached $22.3 Billion at end of 2011
	</div>
	<div>
		
			<a href="http://blog.newconstructs.com/wp-content/uploads/2012/06/DAL_Fig1.jpg"><img alt="" height="205" src="http://blog.newconstructs.com/wp-content/uploads/2012/06/DAL_Fig1.jpg" title="DAL_Fig1" width="358" /></a>
		
			Sources: New Constructs, LLC and company filing
		
			Delta’s underfunded pension and postretirement liabilities grew from $11.4 billion in 2010 to $14.1 billion in 2011. Their off-balance sheet debt grew as well though only by $69 million to $$8.2 billion. Together, underfunded pension and postretirement liabilities plus off-balance sheet debt grew by $2.7 billion, which is significantly greater than the $1.5 billion decrease in its on balance-sheet-debt in 2011.
		
			Figure 2 compares the trend in DAL’s off-balance-sheet liabilities to its on-balance-sheet debt. It highlights how the off-balance-sheet liabilities are growing faster than the reduction in the on-balance-sheet debt.
		
			To get a proper sense of the company’s financial position, one must assess both the on- and off-balance-sheet liabilities.
		<div>
			
				Figure 2: Analysis Must Assess On -AND- Off-Balance-Sheet Liabilities
		</div>
		<div>
			
				<a href="http://blog.newconstructs.com/wp-content/uploads/2012/06/DAL_Fig2.jpg"><img alt="" height="199" src="http://blog.newconstructs.com/wp-content/uploads/2012/06/DAL_Fig2.jpg" title="DAL_Fig2" width="347" /></a>
			
				Sources: New Constructs, LLC and company filings
		</div>
		
			Given the growth and trend in DAL’s off-balance sheet liabilities, I would not be comfortable as a debt or equity investor in the company.
		
			As detailed in last weekend’s Barron’s and in “<a href="http://blog.newconstructs.com/2012/05/18/bail-out-of-dal-before-the-stock-crashes/">Bail Out Of Delta</a>”, the company’s accounting practices allow it to report lower-than-normal expenses related to its pensions. As a result, I suggest investors look below the surface of DAL’s reported earnings.
	</div>
	
		Even if one takes DAL’s first quarter 2012 earnings at face value and trust that the company’s cash flow from operations is about $950 million, it would take about 38 quarters of equal or better performance for DAL to pay down the $36 billion in total debt and underfunded pension liabilities on its books now. Cash flow net of capex in the first quarter was about $600 million – which would have to be maintained for 60 quarters (15 years) to pay down the $36 billion in total debt and underfunded pension liabilities.
	
		True, the US economy and stock markets enjoyed a better-then-expected first quarter in 2012. I wonder how many investors are willing to bet that we will enjoy 38 to 60 more like it…consecutively. The recent announcement that Delta plans to cut capacity on its trans-Atlantic routes by 5% does not exactly inspire expectations for profit growth. Nor do recent economic reports on jobs. Few would argue that Europe will be anything but a formidable head wind.
	
		For those that say all of this information is already baked into the stock price, I suggest you look again. According to my <a href="http://blog.newconstructs.com/wp-content/uploads/2012/05/NewConstructsModel_DAL_DCF.pdf">discounted cash flow model</a>, to justify the stock valuation at $12/share, the company has to grow its after-tax cash flow (<a href="http://www.newconstructs.com/nc/help/glossary.htm#nopat">NOPAT</a>) by 15% compounded annually for nine years. If I lower the implied growth rate to 10%, the current valuation implies 10% growth in NOPAT compounded annually for 23 years. I underscore that those are the expectations baked into the current stock price. For investors to believe DAL deserves a higher valuation/stock price, they must believe that the company’s future profit growth will be even greater than that baked into the current stock price.
	
		I would say the odds are rather low that DAL can meet the current expectations baked into the stock price and the odds are rather high the company’s future profits will be much lower that what the market expects. I suggest investors take heed now before the stock falls further.
	
		I also recommend investors avoid the ETFs and mutual funds that allocate the most to DAL. Get free reports on these funds from my free <a href="http://bit.ly/K4gvlX">mutual fund and ETF screener</a>.
	
		Mutual funds to Avoid
	<ol><li>
			CGM Trust: CGM Focus Fund (CGMFX) – Dangerous Rating</li>
		<li>
			Professionally Managed Portfolios: Hodges Pure Contrarian Fund (HDPCX) – Dangerous Rating</li>
		<li>
			Natixis Funds Trust I: CGM Advisor Targeted Equity Fund (NEBGX) – Dangerous Rating</li>
		<li>
			John Hancock Funds III: Leveraged Companies Fund (JVCBX) – Very Dangerous Rating</li>
		<li>
			Fidelity Select Portfolios: Transportation Portfolio (FSAIX) – Dangerous Rating</li>
	</ol>
		ETFs to Avoid
	<ol><li>
			SPDR S&amp;P Transportation ETF (NYSE: <a class="ticker" href="/stock/xtn#NYSE">XTN</a>) – Dangerous Rating</li>
		<li>
			PowerShares XTF: Dynamic Market Portfolio (NYSE: <a class="ticker" href="/stock/pwc#NYSE">PWC</a>) – Neutral Rating</li>
		<li>
			PowerShares Dynamic Industrials (NYSE: <a class="ticker" href="/stock/prn#NYSE">PRN</a>) – Neutral Rating</li>
		<li>
			iShares Dow Jones Transportation Average Index Fund (NYSE: <a class="ticker" href="/stock/iyt#NYSE">IYT</a>) – Neutral Rating</li>
		<li>
			First Trust Industrials/Producer Durables AlphaDEX Fund (NYSE: <a class="ticker" href="/stock/fxr#NYSE">FXR</a>) – Neutral Rating</li>
	</ol>
		Disclosure: I am short DAL. I receive no compensation to write about any specific stock, sector or theme.
</div>

Topics

iShares Dow Jones Transportation Average Index Fund

Why is S&P Raising Its Outlook on Delta (DAL)?

Author’s notes: (1) this article is the first in a series on companies manipulating obscure accounting rules to prop their earnings. <a href="https://app.e2ma.net/app2/audience/signup/1709339/1393/?v=a">Join the priority alert</a> to follow this theme. (2) Delta’s IR department did not respond to my multiple requests, beginning 5/16, to discuss their pension accounting assumptions and this report.



	I Recommend Shorting Delta Airline

	Recent news of trans-Atlantic capacity reductions sent Delta Airlines’ stock (NYSE: <a href="http://www.benzinga.com/stock/dal">DAL</a>) down about 7%. I recommend investors sell DAL now because I think it could fall much further. As more investors realize how much the company is propping up its earnings with pension and postretirement plan (“pensions”) assumptions, the stock could plummet again.

	Delta’s abnormal accounting assumptions may provide a short-term boost to earnings, but they will likely lead to a long-term drag or possible bankruptcy. Eastman Kodak [s: EKDKQ.PK] used the same trick to prop up its 2010 earnings, and now it is bankrupt just as I predicted in my March 2011 article “<a href="http://blog.newconstructs.com/2011/03/22/dead-company-walking-sell-eastman-kodak-ek/">Dead Company Walking: Sell Eastman Kodak</a>”.

	Abnormal Pension Accounting Boosts EPS

	Here’s the scoop: DAL boosted its 2011 earnings by increasing its expected return on plan assets (“EROPA”) assumption for its pensions to 8.93%, up from 8.82% in 2010. <a href="http://blog.newconstructs.com/wp-content/uploads/2012/05/NewConstructsModel_DAL_PensionAssumptionsHighlight.jpg">Page 78 in DAL’s 2012 10-K filing</a> has the details.

	For readers who wonder whether 8.93% is abnormally high, the answer is yes. Out of the 1,021 companies with pensions that I cover, 98% of them have a lower EROPA. Only 96 of the 1,021 raised their EROPAs in 2012 while 525 lowered and 400 made no changes. In other words, DAL’s EROPA assumption is not only among the highest but it is also rising when the majority is falling.

	Raising its EROPA in 2012 looks worse when compared to my estimates of the company’s actual return on plan assets. I estimate 2011’s actual return on plan assets was -0.6%. I estimate the average return since the company emerged from bankruptcy is between 1.5% and 3.8%. These estimates are based on dividing the “Actual (loss) gain on plan assets” by the “Fair value of plan assets at the beginning of the period”. I get that data from the company’s annual reports as detailed in the model used to calculate the actual return on plan assets, which is based on data from the <a href="http://blog.newconstructs.com/wp-content/uploads/2012/05/DAL_actualReturnonPlanAssetsSourceData_2011.pdf">2011</a>, <a href="http://blog.newconstructs.com/wp-content/uploads/2012/05/DAL_actualReturnonPlanAssetsSourceData_2010.pdf">2010</a>, <a href="http://blog.newconstructs.com/wp-content/uploads/2012/05/DAL_actualReturnonPlanAssetsSourceData_2009.pdf">2009</a> and <a href="http://blog.newconstructs.com/wp-content/uploads/2012/05/DAL_actualReturnonPlanAssetsSourceData_2008_worstCase.pdf">2008</a> 10-Ks.

	Accounting Lowers Pension Expenses &amp; Has Big Impact On EPS

	Since DAL’s pensions are so large, its pension costs play a prominent role in earnings, much more so than most companies. As a percent of revenue, DAL’s net periodic benefit cost (with the current EROPA) ranks higher than 92% of the companies we cover.

	Assuming such a high EROPA lowers the amount of money that DAL has to pay into its pensions, which lowers the company’s overall expenses and increases accounting earnings.

	A 1% decrease in DAL’s EROPA would wipe away over 9% of the company’s 2011 net income ($78 million total, or $0.093 per basic shares outstanding). A 1% reduction to a 7.93% EROPA is still well above the median (7.5%) EROPA for the 1,021 pensions we analyzed.

	Given the evidence presented here, I think it is fair to say that DAL is stretching the limits of its EROPA, which props up earnings.

	Pensions Are Already Underfunded by $14.1 billion

	One could argue that stretching the limits of EROPA and minimizing the amount of money it pays into its pensions is a fair and good strategy for a company whose pensions were adequately funded. That argument does not hold water for Delta as its pensions were under-funded by $14.1 billion as of 12/31/2011 (<a href="http://blog.newconstructs.com/wp-content/uploads/2012/05/NewConstructsModel_DAL_netFundedStatusPensionsAndPostretirementBenefits.pdf">per page 76 of the company’s 2011 10-K</a>), about 1.5 times the company’s market cap. For comparison, American Airlines’ [s: AAMRQ.PK] pensions were underfunded by $8.1 billion coming out of 2010, and it filed bankruptcy about 11 months later with its pensions underfunded by about $10 billion, not a good precedent for DAL. It is hard to justify Delta’s decision to lower the reported costs of its pensions when they are already underfunded by so much.

	Doubtful That Delta Can Grow Its Way Out Of Its Problems

	If Delta were in a high growth industry with excellent prospects for future profits, one could argue that the company could eventually earn its way out of the underfunded pensions hole it has dug for itself. That is a tough argument to make for a company in such a competitive business. The recent announcement that Delta plan to cut capacity on its trans-Atlantic routes by 5% does not exactly inspire expectations for profit growth.

	Worse yet, despite reporting profitable GAAP accounting profits, my model suggests that Delta is an unprofitable business even if one assumes its EROPA is fair and accurate. Figure 1 compares DAL’s <a href="http://blog.newconstructs.com/2010/08/05/economic-versus-accounting-earnings/">economic earnings</a> to its accounting earnings. In 2011, DAL reported $854 million in accounting profit while I believe the company’s true cash flows were closer to -$2.2 billion.

	Figure 1: Accounting Profits Are a Mirage <img alt="dal_eeveps.jpg" height="203" src="/files/images/2012/May/22/dal_eeveps.jpg" width="337" />

	Sources: New Constructs, LLC and company filings

	The largest drivers of the differences in reported accounting and <a href="http://blog.newconstructs.com/2010/08/05/economic-versus-accounting-earnings/" style="color:rgb(0,123,184);font-family:arial, sans-serif;font-size:12px;line-height:normal;background-color:rgb(255,255,255);">economic earnings</a> for DAL are $8.2 billion in off-balance sheet debt from <a href="http://blog.newconstructs.com/wp-content/uploads/2012/05/DAL_operatingLeasesNewConstructsModel.pdf" style="color:rgb(0,123,184);font-family:arial, sans-serif;font-size:12px;line-height:normal;background-color:rgb(255,255,255);">operating leases</a> (about 86% of the company’s market cap) and $7.5 billion of accumulated <a href="http://blog.newconstructs.com/2011/01/20/red-flag-report-hidden-management-failures-asset-write-downs/" style="color:rgb(0,123,184);font-family:arial, sans-serif;font-size:12px;line-height:normal;background-color:rgb(255,255,255);">asset write-downs</a> we put back on the company’s balance sheet to calculate its true <a href="http://www.newconstructs.com/nc/help/glossary.htm#investedCapital" style="color:rgb(0,123,184);font-family:arial, sans-serif;font-size:12px;line-height:normal;background-color:rgb(255,255,255);">invested capital</a>. Here are <a href="http://blog.newconstructs.com/wp-content/uploads/2012/05/DAL_AdjustmentsPageNewConstructsModel.pdf" style="color:rgb(0,123,184);font-family:arial, sans-serif;font-size:12px;line-height:normal;background-color:rgb(255,255,255);">details on our asset-write-down adjustments</a>.From where I sit, the company is in an intractable situation. It is not making any money and its liabilities are formidable: pensions at $14.1 billion plus total debt of $11.9 billion equals $26 billion.

	Equity Value Depressed By Growing Pension &amp; Debt Liabilities

	Further, I expect DAL’s pensions are likely to become more underfunded and its liabilities are likely to grow as time progresses. Last year, despite a significant increase in EPS compared to the prior year, the underfunded status of DAL’s pensions grew from $11.4 billion at the end of 2010 to $14.1 billion at the end of 2011. Making matters worse, the unusually high EROPA could exacerbate the underfunded pensions problem as it reflects potentially unrealistic expectations about the company’s ability to fund its pensions through stock market gains rather than company and employee contributions.

	Even in the unlikely event that DAL’s liabilities do not increase, equity investors should be intimidated by the $26 billion in existing liabilities that have a senior claim on Delta’s future profits. If DAL does generate future profits, those profits have to be large enough to cover the $26 billion in senior claims plus the expectations baked into the current stock price before equity investors can make significant money in DAL.

	For those that say all of this information is already baked into the stock price, I suggest you look again. According to my <a href="http://blog.newconstructs.com/wp-content/uploads/2012/05/NewConstructsModel_DAL_DCF.pdf">discounted cash flow model</a>, to justify the stock valuation at $11.17/share, the company has to grow its after-tax cash flow (NOPAT) by 15% compounded annually for nine years. If I lower the implied growth rate to 10%, the current valuation implies 10% growth in NOPAT compounded annually for 21 years. I underscore that those are the expectations baked into the current stock price. For investors to believe DAL deserves a higher valuation/stock price, they must believe that the company’s future profit growth will be even greater than that baked into the current stock price.

	I would say the odds are rather low that DAL can meet the current expectations baked into the stock price and the odds are rather high the company’s future profits will be much lower that what the market expects.

	Delta Will Stop Trading Inversely With Price Of Oil

	Many investors have pointed out that DAL trades based on the movement of the price of oil. Certainly, looking at the ticker tape over the past couple years, it is hard to argue against that assertion. However, the same was true of American Airlines before it traded based on its inability to meet its financial obligations. History is only a guide to the future if the future is the same as the past.

	In my opinion, it is only a matter of time before Delta’s management will have to guide earnings expectations lower, perhaps much lower. At which point, the stock will trade more on the underlying economics of the business than oil, just as it did today after announcing the plans for capacity reduction. Oil is down and so is DAL.

	Delta Won’t Be Saved By Refinery Acquisition

	I think the acquisition of the Trainer (no relation) refinery is nothing more than a diversion from DAL’s underlying financial troubles. Here are my reasons:
<ol><li>Delta’s management did not get a crown jewel in the refinery business. They bought a cast off. Oil refiners have been selling off their east coast refineries because of the higher costs of running them compared to refineries closer to crude oil sources. East coast refineries are less profitable because of the higher costs related to importing oil.</li>
<li>The potential costs savings do not go far toward solving Delta’s financial problems. If Delta achieves the $300 million in annual cost savings for which it is aiming, that translates, in present value terms, into about $3.4 billion[1] or just 13% of the $26 billion in pensions and debt liabilities that the company currently faces. Note the $3.4 billion value is pure cost savings and does not account for any of the costs DAL must invest in the refinery to get it producing jet fuel.&gt;
</li><li>Vertical integration went out of style in the 1980’s for a reason. Outsourcing has been the driver of improved efficiency and cash flow growth for most of the last quarter century because it allows those with the pertinent expertise to focus on what they do best. I find it difficult to believe that running an airline equips Delta’s management to run a refinery better than a refining company.</li></ol>

Footnotes Diligence Pays

	In summary, using the footnotes to lift the accounting veil on DAL’s financial situation reveals some earnings and liabilities issues for a stock that is already expensive and could suffer downward pressure when investors become more aware of them.

	Avoid ETFs and Mutual Funds That Hold DAL

	Here is a list of the ETFs and mutual funds that allocate the most to DAL. Get free reports on these funds from my free mutual fund and ETF screener.

	Mutual funds

	 
<ol><li>
		CGM Trust: CGM Focus Fund (CGMFX) – Dangerous Rating</li>
	<li>
		Professionally Managed Portfolios: Hodges Pure Contrarian Fund (HDPCX) – Dangerous Rating</li>
	<li>
		Natixis Funds Trust I: CGM Advisor Targeted Equity Fund (NEBGX) – Dangerous Rating</li>
	<li>
		John Hancock Funds III: Leveraged Companies Fund (JVCBX) – Very Dangerous Rating</li>
	<li>
		Fidelity Select Portfolios: Transportation Portfolio (FSAIX) – Dangerous Rating</li>
</ol>



ETFs

	 
<ol><li>
		SPDR S&amp;P Transportation ETF (NYSE: <a class="ticker" href="/stock/xtn#NYSE">XTN</a>) – Dangerous Rating</li>
	<li>
		PowerShares XTF: Dynamic Market Portfolio (NYSE: <a class="ticker" href="/stock/pwc#NYSE">PWC</a>) – Neutral Rating</li>
	<li>
		PowerShares Dynamic Industrials (NYSE: <a class="ticker" href="/stock/prn#NYSE">PRN</a>) – Neutral Rating</li>
	<li>
		iShares Dow Jones Transportation Average Index Fund (NYSE: <a class="ticker" href="/stock/iyt#NYSE">IYT</a>) – Neutral Rating</li>
	<li>
		First Trust Industrials/Producer Durables AlphaDEX Fund (NYSE: <a class="ticker" href="/stock/fxr#NYSE">FXR</a>) – Neutral Rating</li>
</ol>


	Disclosure: I am short DAL. I receive no compensation to write about any specific stock, sector or theme.
 [1] $3.4 billion equals the perpetuity value of the cost savings goals stated by DAL management. The calculation is $300 million divided by DAL's <a href="http://www.newconstructs.com/nc/help/glossary.htm#helpWacc">weighted-average cost of capital</a> ("WACC") of 8.76%. Here is <a href="http://blog.newconstructs.com/wp-content/uploads/2012/05/DAL_CostOfCapital_NewConstructsModel.pdf">my model on DAL's WACC</a>. This entry was written by David Trainer, posted on May 18, 2012 at 12:03 pm, filed under Stock Picks and Pans

Movers

Bail Out of DAL Before the Stock Crashes

Global

iShares S&P Global Utilities Sector Index Fund

SPDR S&P International Industrial Sector ETF

PowerShares ETF Trust Aerospace & Defense Portfolio

Top 10 Industrial Sector ETFs

There is more to the world of industrials stocks than just Dow components Caterpillar (NYSE: <a class="ticker" href="/stock/cat#NYSE">CAT</a>) and General Electric (NYSE: <a class="ticker" href="/stock/ge#NYSE">GE</a>), though those are fine stocks in their own right. And there is more to world of industrials ETFs than just a Dow tracking ETF or the Industrial Select Sector SPDR (NYSE: <a class="ticker" href="/stock/xli#NYSE">XLI</a>), which is very Dow-centric in its composition.

These days, the industrials sector is way more volatile and far more sexy than your grandfather's industrials. ETF opportunities are abundant in this market segment, you just have to know where to look to find some of the hidden gems.

Here are five your broker probably forgot to tell you about.

1) PowerShares Dynamic Industrials Portfolio (NYSE: <a class="ticker" href="/stock/prn#NYSE">PRN</a>):
Caterpillar is PRN's largest holding, though that is the only Dow stock in the ETF's fray, meaning its performance can and will diverge from the Dow's in both directions. PRN's exposure to railroad stocks is noteworthy, but the ETF recently rebalanced and now features exposure of more than 7% to airlines and some exposure to car rental companies, neither of which is a compelling place to be in this environment. Nonetheless, PRN would be a buy above $32.

2) First Trust Industrials/Producer Durables AlphaDEX Fund (NYSE: <a class="ticker" href="/stock/fxr#NYSE">FXR</a>):
FXR definitely flies under the radar as far as industrials ETFs go, but it does $69.5 million in assets under management. This ETF, which is about four years old and home to 103 stocks, uses a near equal-weight approach as no holding receives an allocation of more than 1.8%. 

Like PRN, FXR features a large allocation to aerospace, which could prove problematic at a time when Congress is looking to pinch pennies. Unfortunately for industrials and aerospace ETFs, the defense budget will see some pruning.

Rydex S&amp;P 500 Equal Weight Industrials ETF (NYSE: <a class="ticker" href="/stock/rgi#NYSE">RGI</a>):
As we noted earlier this week, the equal-weight approach pioneered by Rydex often trumps traditional ETFs, both at the sector and broader market levels. We also noted tech was one sector where equal-weight fails. 

Add industrials to that list because XLI has slightly outpaced RGI on a year-to-date basis. In RGI's defense, Caterpillar and Joy Global (Nasdaq: <a class="ticker" href="/stock/joyg#Nasdaq">JOYG</a>) are pivotal components here and those aren't bad places to be these days.

4) EGShares Industrial GEMS ETF (NYSE: IGEM):
Give your broker a pass if he hasn't told you about IGEM because the ETF made its debut just a month ago as part of the new suite of GEMS ETFs courtesy of Emerging Global Shares. The firm is obviously known for its emerging markets offerings and IGEM is no different, though this more of Chindia play as India and China account for over 63% of the new ETF's weight. 

With IGEM, investors don't have to worry about U.S. economic growth or political policy. The ETF's 30 stocks have a weighted average market cap of $12.8 billion.

5) Global X China Industrials ETF (NYSE: CHII):
One of the pioneers of the emerging markets sector-specific concept, CHII came to market in November 2009 when Global X launched its suite of China-specific sector funds. Since then, the ETF has kind of gotten lost in the China shuffle. That should not be the case, especially with Chinese stocks looking poised for a second-half rally as Beijing nears the end of its monetary tightening crusade, a scenario that could help CHII pop up on the screens of more traders and investors.

If you got the stomach for the light trading, $15 could be an attractive entry point with CHII. If resistance at $15.50 is broken on decent turnover, another $3-$4 can be had from there.

Bonds

New ETFs

Emerging Market ETFs

Technicals

Stock Split

Pre-Market Outlook

JOYG

Five Industrial ETFs Your Broker Forgot To Mention

Former New York Mets and Philadelphia Phillies star Lenny Dykstra probably isn't having a good weekend. The former All-Star known as “Nails” was indicted on Friday on charges of bankruptcy fraud and selling stuff from his $18 million California mansion that had been foreclosed on.

Dykstra, 48, likely wasn't saying “thank goodness it's Friday” after learning that he had been charged with 13 counts of the following: Bankruptcy fraud, obstruction of justice, four counts of concealing property from the bankruptcy estate, three counts of embezzlement from the bankruptcy estate, and four counts of making false declarations to bankruptcy court, according to CNN.

Dykstra's trials and tribulations have been well-documented over the past few years and his money management skills, or lack thereof, are borderline humorous. So let's have a laugh of our own and take a look at some ETFs that “Nails” would love.

1) Consumer Staples Select Sector SPDR (NYSE: <a class="ticker" href="/stock/xlp#NYSE">XLP</a>):
Dykstra was once (and perhaps still is) a loyal user of chewing tobacco, so loading up on XLP, which features Altria (NYSE: <a class="ticker" href="/stock/mo#NYSE">MO</a>) among its top-10 holdings makes sense. Plus, Dykstra owned car washes and Clorox (NYSE: <a class="ticker" href="/stock/clx#NYSE">CLX</a>), another XLP constituent, owns the Armor All brand.

2) Financial Select Sector SPDR (NYSE: <a class="ticker" href="/stock/xlf#NYSE">XLF</a>):
Dykstra found himself in his own private mortgage meltdown, so why not cozy up to a bunch of companies that know what he's going through? Dykstra owes $12.9 million to JPMorgan Chase (NYSE: <a class="ticker" href="/stock/jpm#NYSE">JPM</a>), according to Bloomberg News. 

3) SPDR Gold Shares (NYSE: <a class="ticker" href="/stock/gld#NYSE">GLD</a>):
In a desperate grab for cash, Dykstra caught the ire of the feds by stripping his mansion of gold fixtures that he was presumably hoping to sell and pocket the proceeds. He should have invested in GLD instead.

4) First Trust Industrial/Producer Durables AlphaDEX Fund (NYSE: <a class="ticker" href="/stock/fxr#NYSE">FXR</a>):
Prison operators such as Corrections Corp. of America (NYSE: <a class="ticker" href="/stock/cxw#NYSE">CXW</a>) aren't heavily represented in ETFs, but FXR does offer a 1% allocation to Corrections Corp., which is fitting considering Dykstra could face a maximum of 80 years in the slammer if convicted of all charges, according to various press reports.

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