Don Dion’s Weekly ETF Blog Wrap
Don Dion posts his current insights on the stock, bond, commodity and currency markets in his RealMoney blog, anticipating which ETFs will be in play next. Among his blogs this week were the following, in which he wrote about the decline in strength of a large media ETF, an investor opportunity to take advantage of a knock to Japan’s credit rating, and how consumer staples is a smart play to avoid Washington’s headwinds.
This Media ETF Looks Headed for a Fall
Posted 01/29/2010 11:30 a.m. EST
While the PowerShares Dynamic Media ETF(PBS Quote) has shown strong long-term momentum, its strength can largely be attributed to a bounce from a single player in the struggling newspaper industry: Gannett(GCI Quote). With the outlook uncertain for this company and the broad newspaper industry, PBS’ days of strength may be numbered.
In the past three months through Jan. 25, Gannett has gained 50% while the vast majority of PBS’ other top holdings have remained in the single digits or even dipped into the negative.
Currently, PBS has some of the heaviest exposure to the printed word in the entire ETF industry. This instrument has 4% of its assets exposed to Gannett, publisher of USA Today, another 5% of its portfolio allocated to Rupert Murdoch’s News Corp.(NWSA Quote), which owns The Wall Street Journal and the New York Post, and 3% in The Washington Post Co.(WPO Quote).
Other companies listed among PBS’ top holdings include Comcast(CMCSA Quote), CBS(CBS Quote), Direct TV(DTV Quote) and Viacom(VIA>B Quote). Together, the fund’s top 10 constituents account for nearly 45% of the fund.
Gannett is scheduled to report its fourth-quarter earnings on Monday, and according to recent comments by company executives, the outlook is not as dire as one would expect from reading headlines about the death of the industry. Rather, thanks to cost-cutting measures taken and slowing revenue decreases, executives predict that the fourth quarter could have been the strongest three-month period for the firm in 2009.
Despite the company’s optimism, the long term outlook for the industry is still questionable, and playing the newspapers may be best done from the sidelines.
Last week, The McClatchy Co.(MNI Quote) reported that cost-cutting measures and an increase in revenue from online advertising helped it swing to profit in the fourth quarter of 2009. Cost-cutting efforts were also cited in the strong fourth-quarter earnings report from another newspaper firm, Media General(MEG Quote).
Though cost-cutting measures helped beef up these companies’ most recent earnings reports, at some point the newspaper industry will have to find a way to make solid revenue. Recently, the New York Times announced that, come 2011, it would institute a pay-for-content strategy. No one knows whether the plan will prove effective or fail miserably.
For example, Cablevision(CVC Quote), which accounts for 2.6% of assets in PBS, instituted a $5-per-week paywall for Newsday, and three months later, it has gained fewer than 40 subscribers.
At this point, because of uncertainty facing the newspaper slice of PBS’ index, and the fact that it was that slice that contributed heavily to recent strong momentum, now is the time to take any profits and sell this ETF.
