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VOL. XCVII NO. 49 DECEMBER 4, 2017 $5.00

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Bitcoin Storms Wall Street


The cryptocurrency has been on a wild ride, as many investors seek


quick riches while others fear a crash. Established financial players

are now moving in and that will change the market.
2 BARRONS December 4, 2017


3 Month Support/Resistance (40 Day) Trade Alert ABI Arbine Industries

B 80.42 x 10
84.65 80.4399 A 80.44 x 3
0.3199 (0.40%)
V 1.655.125

82.11 0 1 3 7.1

Social Sentiment for ABI 80.84

BCO 81
As of 09/24/
View Details Provided by StarMin
S-Score 79.56

BPO 79
Q1 Expected Report Date 09/25/2017
Neutral 0.840 78.29 Consensus Estimate EPS
Estimate Low/High Range 0.85/0.92


Extreme 75.74 Ex. Dividend Date 08/28/2017

Trade Confirmation:

Neutral 1,250 shares of ABI

Images are for illustrative

purposes only.

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Table of Contents

s 2017 Dow Jones & Company, Inc. All Rights Reserved. December 4, 2017
Pullout Section Begins After Page 20

Tax Reforms Winners and Losers John Kimelman 17 Columns

Tech giants and domestically focused companies could enjoy a windfall
Up & Down Wall Street

under the GOPs plan. Why an exodus from high-tax states is unlikely. Randall W. Forsyth
The Trader Inflation could be triggered by
Ben Levisohn tax reform. A dubious plan for

This bull market takes a An MLP Worth Piping Up About Andrew Bary 18 correcting wealth inequality. 5
licking and keeps on kicking, Long-suffering investors in Energy Transfer Partners stand to be
amid a rotation into value. M3 Streetwise
rewardedeven if the pipeline operator trims its 13.5% payout.

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European Trader Alex Eule
Victor Reklaitis The market shrugs off North

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Six Swiss stocks that are
geared up to climb. M6
Champing at the Bitcoin 20 Koreas rising nuclear threat. 9

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Avi Salzman Review & Preview
Asian Trader COVER STORY: The introduction of Bitcoin futures Companies buddy up to Bitcoin
Assif Shameen to achieve instant popularity.
will make it easier to trade the cryptocurrency
Chinas Ping An Insurance What Disney can learn from
could enjoy 25% upside after but the most noticeable impact could be to the
WWEs streaming strategy. 12
this years remarkable run. M7
Emerging Markets
Dimitra DeFotis er rs downside. How to navigate this potential minefield.

Mutual Funds: Best of Both Strategies Lewis Braham 27

Johnson & Johnson. 14
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Stocks and ETFs to help
smooth out potential bumps Chiron Capital Allocation integrates quantitative and
PROFILE: Tech Trader
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ahead. A farewell column. M7 fundamental research for a quantamental approach. PLUS: Scoreboard. Tiernan Ray
Tech giants cast a wide shadow
Charting the Market M8
over promising start-ups. 25
Current Yield
Ben Levisohn Salesforce Has Many Great Leads Jack Hough 31 Fund of Information
The software-as-a-service pioneer is tapping into faster growth with
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Fears that junk bonds are Lewis Braham

predicting a selloff in stocks new business lines and by getting existing customers to spend more. Feeling charitable? Consider
are misplaced. M9 a donor-advised fund. 29
Striking Price
Steven M. Sears Artificial Intelligence for Investors Bill Alpert 32 ETF Focus
Crystal Kim
Hedging strategies for locking Q&A WITH KEN SENA: The Wells Fargo analyst behind an AI stock-picking
in stock gains. M10 Vanguard launches factor
assistant says machine learning will transform nearly every industry. exchange-traded fundsbut
Winners & Losers M12 dont call them smart beta. 30
Commodities Corner
Myra P. Saefong Above All, Know What You Own Steve Garmhausen 34 Speaking of Dividends
The natural-gas rally could be In his quest for quality and yield, Wells Fargo Advisors
BEST ADVICE: Lawrence C. Strauss

running on fumes. M13 Michael Moeller favors dividend growers and municipal bonds. Payouts surge across a wide
swath of sectors and regions. 37
13D Filings M14

Research Reports M15

Checking Out Regional Banks Lawrence C. Strauss 36 Other Voices
Anatole Kaletsky
Insider Transactions M15 A rollback of certain Dodd-Frank regulations could help regional banks Four reasons to stay optimistic
Market View M16 such as CIT Group, Comerica, and Zions Bancorp vault higher. about the bull market. 39

Cover Illustration Index to Companies . . . . . . . 10

Harry Campbell for Barrons A Kiss for the Koch Brothers Andrew Bary 37 Mailbag Emerging markets.
BARRONS (USPS 044-700) (ISSN 1077-8039) Published every
Magazine publisher Meredith gave a bonus valued around $100 million Low rates. Bitcoin futures. . . 38
Monday. Editorial and Publication Headquarters: 1211 Avenue
of the Americas, New York, N.Y. 10036. Periodicals postage paid to Koch Equity Development for investing in its Time Inc. acquisition.
at Chicopee, MA and other mailing offices. Postmaster: Send ad-
dress changes to Barrons, 200 Burnett Rd., Chicopee, MA 01020
4 BARRONS December 4, 2017

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Hint: Its not actually stocks or bonds. What people really invest in is what they hope to get out of
life. To help them get there, you cant just approach investing from one point of view. We prefer to

cross-pollinate and aggregate many points of view, to form our best point of view. So our clients
might just get what they want out of life. Or they could get even more.

December 4, 2017 BARRONS 5

Up & Down Wall Street

The Specter of Inflation

by Randall W. Forsyth

IKE TRAFFIC CRAWLING PAST A WRECK ON THE his Senate confirmation hearing last week, which would
shoulder of the highway, Wall Street cant avert its imply three hikes next year.

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eyes from Washington, D.C. The outlook for Fed rate hikes was evidenced in a flat-
Between the ongoing Sturm und Drang over tax tening Treasury yield curve, with the difference between

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reform and the twists and turns in the Robert Mueller in- short- and longer-term interest rates narrowing further.
vestigation, the stock markets attention again was diverted Typically, that is a negative portent for the economy and

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last week. Even news that North Korea had fired a new, stocks, but the prevailing opinion is that its different this
more powerful missile passed with only transitory impact. time because of various special factorswhich is an echo of
After all, the chance to slash the U.S. corpo- 2007, when the same was said about the flat
rate tax rate to 20% from 35% seems more yield curve ahead of the great financial crisis.
pleasant to contemplate than nuclear war. Cutting the corporate One certain impact of tax reform will be a

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The prospect of getting tax-reform legisla-
tion through the Senate was enough to send
stocks soaring to a record on Thursday, with
the Dow Jones Industrial Average vaulting past
tax rate to 20%
would result in
huge week for municipal-bond sales, with over
$17 billion on tap, according to the Bond Buyer,
as states and localities rush to issue bonds that
would be curbed under the proposed legisla-
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the 24,000 mark, an event mainly relevant to $10 per share higher tion. With the probability of cheaper prices and
headline writers. News on Friday of Michael higher yields, which are needed to clear the
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Flynns guilty plea to lying to federal investiga- S&P 500 earnings. market, maybe you should consider stuffing
tors about his communications with Russia and, munis in your familys holiday stockings.
more important to the market, that he is cooperating with

Muellers probe into possible links between the Trump cam- HERE WAS A TIME WHEN THE RICH WERE DEPICTED
paign and Russia, sent stocks sprawling at midday, although as the Monopoly guy with the top hat and a walking
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they recouped most of their losses by the close. stick. Ironically, when the board game came out in
Even assuming the tax bill makes it through the Senate, the 1930s, that was the last time inequality was as
as seemed likely at press time, the final legislation that extreme as it now, with the richest 0.1% owning virtually the
would emerge from the conference with the House of Rep- same share of the nations wealth as the bottom 90%.
resentatives is uncertain. All that seems to matter on Capi- The 1930s also were a time when populist and even
tol Hill is to get something Republicans can call tax radical politics were on the rise. One narrative holds that
reform over the goal line, no matter how ugly the play. President Franklin D. Roosevelts New Deal staved off
Cutting the corporate tax rate to 20% would result in even more extreme attacks on capitalism, although that
earnings for Standard & Poors 500 companies some $10 per debate is better left to historians. But today, even with the
share higher, to $151 instead of $141, in 2018, according to White House and Congress controlled by Republicans, rad-
UBS Wealth Management estimates. But a major risk for ical, redistributionist ideas are stirring on the left, includ-
the market is the potential rise in U.S. inflation, says Mark ing what might be dubbed a Peoples Investment Fund.

Haefele, the giant Swiss banks global chief investment offi- The undeniable disparity in wealth has been the focus
cer. That concern, which could push the Federal Reserve to recently of Bridgewater Associates founder Ray Dalio. In
tighten more aggressively, is shared by Deutsche Banks a think piece he posted on LinkedIn, Our Biggest

strategists, along with the impact of the European Central Economic, Social, and Political Issuesubtitled The Two
Banks tapering of its massive bond purchases. Economies: The Top 40% and the Bottom 60%he argued
Deutsche last week joined the small but growing list of that the widening gap in wealth and income should be
major banks that think the Fed could raise its interest-rate recognized by policy makers, even though they typically
target four times in 2018, in addition to the quarter-point rely on aggregate numbers, which look pretty good.
hike that seems to be a lock at the Dec. 12-13 meeting of the But this awareness also extends beyond hedge fund
Federal Open Market Committee. Fed Gov. Jerome Powell, billionaires to the merely well-off. In a media presentation
nominated to succeed Janet Yellen as the central banks last week, Jrg Zeltner, UBS Groups president of wealth
head, gave no indication of departing from present policy in management, commented that the banks clients around the
6 BARRONS December 4, 2017

Up & Down Wall Street continued

Are you overpaying globe increasingly are voicing concerns be-

yond their financial returns. Even Asian bil-
would increase taxes on capital that affect
mostly the wealthy, such as estate, dividend,

for your MLP ETF?

lionaires wonder where to put their money in and financial-transaction taxes, and the
this time of uncertainty. But, he added, the creation of a new type of corporate tax that
clients also are worried about wealth distri- requires companies to directly issue new
bution and those who are left out of the shares to the social wealth fund on an

MLPAs expense ratio growth from globalization.

Closer to home, other observers of the
investment scene who typically concentrate
annual basis and during certain corporate
moves, such as initial public offerings,
mergers and acquisitions.

is 49% less than the

on earnings, price/earnings ratios, and One can readily see the shrinkage of the
interest rates also have taken notice of number of public companies accelerate even

anecdotal evidence around them. more to escape this confiscation. Private
Jason DeSena Trennert, who heads equity then would become the dominant kind,

industry average* Strategas Research Partners, recently wrote leaving still fewer stocks for investors to buy.

in a client note of going back to a carwash But wait, theres more. He would also
near where he grew up in a solidly middle- have the Fed purchase stocks, which would
class town on New Yorks Long Island. Un- be deposited in the social wealth fund, in-

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*vs. industry average net expense ratio, as of 10/6/17, as per ETF.coms ETF screener like years past, the place was empty like a stead of Treasury securities. These pur-
(Niche = MLPs, Active per SEC = No, ETNs = Exclude ETNs) ghost pirate ship. It had five workers per chases could be ramped up during reces-

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shift, compared with 12 a year ago. Automa- sions to acquire significant portions of the

tion had replaced car cleaners, clerks, and national wealth relatively cheaply while also

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the coffee shop. stabilizing the economy.
Midstream MLPs Trennert was left wondering whether a Truth to tell, we already went partway
developed country with a service economy down this slippery slope with the bank and

can maintain a vibrant middle class, and automobile company bailouts during the
MLP what the political impact will be if it cant. financial crisis, on which the taxpayers at

er rs ETF
I feel the political tsunami that started
last year may just be the beginning, he
wrote. How it plays out will have a great
influence on the performance of financial
least made a tidy profit. The Feds quantita-
tive-easing purchases also involved agency
mortgage-backed securities, which were
aimed at propping up the housing market.
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assets, he concluded. Both of these crisis-driven actions effectively
Carefully consider the Funds investment objectives, Based on this years stock market ad- put Uncle Sam into the business of capital
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vance, the GOP can argue that its policies allocation.
risk factors, charges, and expenses before investing. are on the right track. But some see the Other central banks have gone even
This and additional information can be found in the markets gains accruing only to those who further down the road of owning stocks. The
Funds prospectus or summary prospectus, which hold the assets. Their solution: confiscation
and redistribution of some of that wealth.
Swiss National Bank holds $88 billion of U.S.
shares, which account for more than 10% of
may be obtained by visiting
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In a New York Times op-ed piece titled its total assets. That central bank prints
Read the prospectus carefully before investing. What if Everyone Benefited When Stocks francs, in order to keep its exchange rate
Investing involves risk, including the possible loss of principal. In addition to the normal risks associated with investing, Soared? Matt Bruenig, a controversial left- from rising out of sight as the rest of the
international investments may involve risk of capital loss from unfavorable fluctuation in currency values, from differ- leaning lawyer and blogger, suggested a world clamors for the Swiss currency, and
ences in generally accepted accounting principles or from economic or political instability in other nations.
tried and tested way of giving everyone uses the dollars, euros, etc., it acquires to
MLP investments involve risks related to limited control and limited rights to vote on matters affecting the MLP. a share of the investment returns now purchase stocks. Similarly, the Bank of Japan
MLP common units can be affected by macro-economic and other factors affecting the stock market in general,
expectations of interest rates, investor sentiment towards MLPs or the energy sector, changes in a particular issuers hoarded by the wealthy. owns 20.3 trillion yen ($180 billion) worth of
financial condition, or unfavorable or unanticipated poor performance of a particular issuer (in the case of MLPs,
generally measured in terms of distributable cash flow). Investments in the energy industry entail significant risk and The federal government would create an exchange-traded funds, which it purchases
volatility. MLPA is non-diversified. investment fund and issue every adult with yen that it prints. At least the central
The Fund invests in smaller companies, which pose greater risks than large companies. MLPA has a different citizen one share. The fund would gradu- banks pay for the shares they acquire.
and more complex tax structure than traditional ETFs and investors should consider carefully the significant tax ally come to own a substantial and diverse Bruenig acknowledges that his scheme
implications of an investment in the Fund. MLPA is taxed as a regular corporation for federal income tax purposes so
its income will be subject to federal taxation at the entity level, reducing the amount of cash available for distribution portfolio of stocks, bonds, and real estate. isnt the only way to correct wealth inequality,

which could result in a reduction of the Funds value. Due to its investment in MLPs, the Fund will be obligated to Investment returns that the fund generates but argues that it is one of the few ways that
pay applicable federal and state corporate income taxes on its taxable income. MLPA expects that a portion of the
distributions it receives from MLPs may be treated as tax-deferred return of capital. The amount of taxes currently would be paid out to each citizen in the form we know works well and is able to work
paid by the Fund will vary depending on the amount of income and gains derived from MLP interests and such
taxes will reduce an investors return from an investment in MLPA. The Fund will accrue deferred income taxes for of a universal basic dividend, he writes. within the system we now have. That, to say

any future tax liability associated certain MLP interests. Upon the sale of an MLP security, MLPA may be liable for Bruenig compares this to Norways sover- the least, is debatable. Expropriation of
previously deferred taxes which may increase expenses and lower the Funds NAV. Buying and selling shares will
result in brokerage commissions and tax consequences. Shares are only available through brokerage accounts. eign wealth fund or Alaskas Permanent assets for a peoples investment fund would
Shares are bought and sold at market price (not NAV) and are not individually redeemed from the Fund. The Funds Fund, both of which began with public oil only spur efforts to avoid such a levy, whether
are distributed by SEI Investments Distribution Co., which is not affiliated with Global X Management Company or
any of its affiliates. revenue. The little problem with his utopian by going private or exiting the country.
The information provided is not intended for trading purposes and should not be considered investment advice. dream is where to get the money. Simple, he While capitalists are voicing concern
declares, just tap the enormous wealth about wealth inequality and its effects, ex-
which now flows into just a few pockets. propriating their wealth would probably
1 (888) GX-FUND-1 Existing federal assets like land, buildings, mean lower investment returns and less
GLOBALXFUNDS.COM and parts of the wireless spectrum could be wealth for all.
transferred to the new fund.
Then comes the real mischief. Bruenig email:
December 4, 2017 BARRONS 7

You could fly

by the seat of your
trading pants.

But you

know better.

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8 BARRONS December 4, 2017

Are MLPs part of your starting lineup?

You're not likely to nd MLPs in your large cap equity fund.
Diversify and add income potential to your portfolio.

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Investors should carefully consider the investment objectives, risk, charges and expenses of any exchange traded fund
(ETF) prior to investing. For a prospectus containing this and other information, please visit or call
1-877-398-8461. Please read the prospectus carefully before investing.
The Fund seeks investment results that correspond (before fees and expenses) generally to the price and yield performance of its underlying index, the Alerian MLP Infrastructure

Index. An investment in the Fund involves risk, including loss of principal. Infrastructure master limited partnerships (MLPs) are subject to risks specic to the industry they serve
including, but not limited to: reduced volumes of commodities for transporting; changes in regulation; and extreme weather. The ETF is not required to make distributions or
make distributions that are equal to the distribution rate of the underlying partnership programs. The Fund is taxed as a regular corporation for federal income purposes. The
Fund will accrue deferred income taxes for any future tax liability associated with (i) that portion of MLP distributions considered to be a tax-deferred return of capital as well

as (ii) capital appreciation of its investments, based on the federal income tax rate applicable to corporations currently 35% and an assumed rate attributable to state taxes. This
differs from most investment companies, which elect to be treated as regulated investment companies to avoid paying entity level income taxes. The NAV of Fund Shares will
also be reduced by the accrual of any deferred tax liabilities. The Funds after tax performance could differ signicantly from the underlying assets even if the pre-tax performance
is closely tracked. Depending on the taxes paid by the fund as a result of income and/or gains from investments and/or the sale of MLP interests, the return on an investment in
the Fund will be reduced. A portion of the Funds distributions are expected to be treated as a return of capital for tax purposes. Returns of capital distribution are not taxable
income to you but reduce your tax basis in your Fund Shares. If any MLPs owned by the Fund were treated as corporations for US federal income tax purposes, it could result in
lower income and a reduction in the value of your investment in the Fund.
AMLP Shares are not individually redeemable. Investors buy and sell shares of the AMLP on a secondary market. Only market makers or authorized participants may trade
directly with the Fund, typically in blocks of 50,000 shares.
Fund distributed by ALPS Portfolio Solutions Distributors, Inc.
December 4, 2017 BARRONS 9


North Korea vs. the Market

by Alex Eule

DURING A NEWS MEETING A FEW MONTHS AGO, ONE OF MY Eurasia Group, a geopolitical consultancy, said this week that the
colleagues brought up a story idea: how to protect risk of military conflict in North Korea hadnt actually changed follow-

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investment portfolios from the threat of North Korea ing the latest test. This latest provocation does not increase the prob-
and the potential for nuclear war. ability of military conflictwhich we still assess is 20%but we expect

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The room fell silentnot a common occurrence at more ICBM [intercontinental ballistic missile] tests and a call for more
our weekly meetings. Then folks jumped in with a mix sanctions, the firm wrote in a note to clients.

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of bewilderment and shame that we were actually hav- Knowing theres a one in five chance of war with an emerging
ing the conversation. At Barrons, were good at finding the investing nuclear power wont help my sleep. But investors, faced with an
angle in news events. But this one was different. How do unknown threat, have shown a willingness to hit the
you talk stocks when millions of lives are at stake? If someone fires off snooze button. During the 13 days of the Cuban missile
Corporate America has been at its own loss for crisis in 1962, the Dow fell a total of just 3.5%. Nuclear

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words. Even as the nuclear threat was building over the
summer, management teams remained relatively mum.
Just three companies in the Standard & Poors 500 index
mentioned North Korea on their third-quarter confer-
a nuclear bomb,
what were doing
in our portfolios
war may be the one thing investors cant discount.
This is the worst type of risk to prepare for, says
Rodger Baker, vice president of strategic analysis at
Stratfor, a geopolitical intelligence firm. Its low proba-
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ence callsand even then, only in passing, according to bility with extremely high implications.
a search I ran in Sentieo, a financial-data platform. is going to be way Stratfor is advising corporate clients about potential
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But the risk hasnt gone away, and it re-emerged risks to their employees overseas and how to prepare for
uncomfortably last week, after North Korea tested a down my list. supply-chain disruptionsshipping routes could be
ballistic missile with the capability of striking Washing- blocked, for instance, without any actual conflict. Baker
ton, D.C., or anywhere else on the planet. It would seem to mark a notes that South Korea is responsible for 17% of global semiconductor
turning point, at least psychologically, when we can accurately say that sales, 64% of memory chips, and about 10% of automotive parts.
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no part of the world is safe from North Korean aggression. Youre basically talking about undermining the entire global supply
chain in tech, he says.
So how did the market react? The Dow Jones Industrial Average Paul Bracken, a Yale School of Management professor and author
soared to a new high the day after the test. Japans Nikkei rose 0.5%, of The Second Nuclear Age, says the world is coming to grips with the
and South Koreas market was essentially flat. Two days after the test, permanence of our nuclear threat. The reality is weve moved into a
the Dow crossed 24,000 for the first time, as the U.S. Senate prepared world of nine nuclear-weapons states, he told Barrons, including
to pass tax reform. North Korea.
Jim Paulsen, chief investment strategist at the Leuthold Group, In his view, the likelihood of military action in North Korea remains
views the weeks price action as a revealing moment for the aging quite low. But Bracken, who teaches the rare business-school class
bull market. It tells you something about sentiment and how much about defense issues, says growing tension on the Korean peninsula
greed is in prices versus fear, Paulsen says. What stands out to me is likely to spur a high-tech arms race between the U.S. and China,
is how much credence were willing to give a tax policy that no one leading to even more investment in artificial intelligence, robotics, and

really even understands. And then, on the other side of the equation, cyberwarfare.
we have the second coming of the Cuban missile crisis, and no one
cares. I wondered after our news meeting whether hedging the nuclear

Paulsen says the sentiment check makes him more cautious on the risk could have the perverse effect of enabling a tragedy. If the worlds
margins when it comes to stocks. But he sums up the same view most money is positioned for the risk, does the damage somehow become
of us had during our news meeting over the summer: If someone fires more manageable and thus less feared?
off a nuclear bomb, what were doing in our portfolios is going to be Stratfors Baker downplays the moral hazard angle, given that inves-
way down my list. tors have little impact on North Koreas actions. This really is trying
Generally, investors seem assuaged that North Korea is a rational to figure out how you act in a situation when you have near-zero
actor that wont undertake a suicide mission. But what if theyre control, he says.
wrong? Should there be a risk trade on a North Korean missile
launch? email:
10 BARRONS December 4, 2017

Index To Companies
Our index lists significant references to companies mentioned in stories and columns, plus Research Reports, and
Corrections & Amplifications. The references are to the first page of the item in which the company is mentioned.

Ivy Asset Strategy . . . . . . . . . . . . . . . . . . . . . . . 27 Lands' End . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

A ABB . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . M6 I Inseego . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . M14 Ivy Small Cap Growth . . . . . . . . . . . . . . . . . . . 27 L Brands . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . M3
Agricultural Bank of China . . . . . . . . . . . . . . . 28 iShares Currency Hedged MSCI Switz . . M6 LendingClub . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Alibaba Group Holding . . . . . . . . . . . . 28,32,M7 iShares Emg Markets Infrastructure . . . . M7 J Johnson & Johnson . . . . . . . . . . . . . . . . . . . . 14,34 Lukoil . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Alphabet . . . . . . . . . . . . . . . . . . . . . . . . . 17,25,28,32 iShares Europe . . . . . . . . . . . . . . . . . . . . . . . . . M6 Johnson Outdoors . . . . . . . . . . . . . . . . . . . . . . . . 13 . . . . . . . . . . . . . . . . . . . . . . . . 25,28,32 iShares Global Clean Energy . . . . . . . . . . . . M7 JPMorgan Chase . . . . . . . . . . . . . . . . . . . . . . . . M5 M MainSource Financial Group . . . . . . . . . . . . . 13
American Airlines Group . . . . . . . . . . . . . . . . M5 iShares Global Timber & Forest . . . . . . . . . M7 JPMorgan U.S. Equity . . . . . . . . . . . . . . . . . . . 29 Marriott International . . . . . . . . . . . . . . . . . M15

American Eagle Outfitters . . . . . . . . . . . . . . . 13 iShares India 50 . . . . . . . . . . . . . . . . . . . . . . . . . M7 McCormick . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
American Express . . . . . . . . . . . . . . . . . . . . . . . 13 iShares MSCI Global Ag Producers . . . . . M7 K Kinder Morgan . . . . . . . . . . . . . . . . . . . . . . . . . . 18 Mellanox Technologies . . . . . . . . . . . . . . . . . M14

Anglo American . . . . . . . . . . . . . . . . . . . . . . . . . . 37 iShares MSCI Global Metals & Mining . . M7 KKR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . M14,M15 Merck . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Appian . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 iShares MSCI Switzerland Capped . . . . . . M6 Kroger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . M8 Meredith . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37,M8
Apple . . . . . . . . . . . . . . . . . . . . . . . . . . 17,25,37,M15 ITC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . M7 Michaels . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . M8
L Lam Research . . . . . . . . . . . . . . . . . . . . . . . . . . M8

Arsanis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . M14 IVA Worldwide . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 Micron Technology . . . . . . . . . . . . . . . . . . . . . . M3
Autodesk . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . M8 Microsoft . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,17
AutoZone . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 MongoDB . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Axalta Coating Systems . . . . . . . . . . . . . . . . . M8 MuleSoft . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
For Customer Service, call 1 (800) 544-0422, or go to For

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reprints of articles, call 1 (800) 843-0008, or go to
B Baker Hughes . . . . . . . . . . . . . . . . . . . . . . . . . M13 N Nestle . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . M6
Bank of America . . . . . . . . . . . . . . . . . . . . . . . . . 37 Netflix . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,M4

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Barnes & Noble Education . . . . . . . . . . . . . . . 13 New York Community Bancorp . . . . . . . . . . . 36
Berkshire Hathaway . . . . . . . . . . . . . . . . . . . . . 37
% Novartis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . M6

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Bitcoin Investment Trust . . . . . . . . . . . . . . . . . 22 Nutanix . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . M8
BlackRock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 EDITOR IN CHIEF Katherine Bell Nvidia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . M3
BlackRock Global Allocation . . . . . . . . . . . . . . 28 Phil Roosevelt DEPUTY MANAGING EDITOR Lauren R. Rublin
Bonanza Creek Energy . . . . . . . . . . . . . . . . M14 ASSISTANT MANAGING EDITORS David Schutt, Beverly Goodman NEWS AND FEATURES EDITOR Jeffrey Cane O On-Line . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Brown-Forman . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 ASSOCIATE EDITORS Randall W. Forsyth, Andrew Bary, Matthew Barthel, Jack Hough Oracle . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25,31
Buffalo Small Cap . . . . . . . . . . . . . . . . . . . . . . . . 27 . . . . . . . . . . . . . . . . . . . . . . . . . . . 24

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SENIOR EDITORS Jack Willoughby, Bill Alpert, Robin G. Blumenthal, Lawrence C. Strauss, Leslie P. Norton,
Vito J. Racanelli, Alex Eule, Avi Salzman, Reshma Kapadia, Steve Garmhausen, Robert Sabat
C Cheniere Energy . . . . . . . . . . . . . . . . . . . . . . M13 R Recro Pharma . . . . . . . . . . . . . . . . . . . . . . . . . M14
ECONOMICS EDITOR Gene Epstein REPORTERS Crystal Kim, Emily Bary
China Mobile . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 Riot Blockchain . . . . . . . . . . . . . . . . . . . . . . . . . . 12
COPY DESK Michael J. Burlingham (chief), Farran Nehme, Paul Farrell, Barbara Haislip, Robert Teitelman
China Shengmu Organic Milk . . . . . . . . . . . M7 Rio Tinto . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
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CONTRIBUTING EDITORS Richard Rescigno, Theresa W. Carey, Mike Hogan, Karen Hube, Michael Shari,
Chiron Capital Allocation . . . . . . . . . . . . . . . . . 27 Roche . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . M6
Erin E. Arvedlund, Dyan Machan, Sarah Max, Jim McTague, Jacqueline Doherty, Jonathan R. Laing
CIT Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 Roku . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25,M8
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Comcast . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 RusHydro . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . M7
ASSOCIATES Dan Lam, Gabriel Alpert, Mohammed Kabir
Comerica . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Compagnie Financiere Richemont . . . . . . . M6 n S . . . . . . . . . . . . . . . . . . . . . . . . 13,31
Consolidated-Tomoka Land . . . . . . . . . . . . . M14 DESIGN DIRECTOR Chris Mihal ART DIRECTOR Robert Connolly ASSOCIATE ART DIRECTOR Diane Sipprelle SAP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Coupa Software . . . . . . . . . . . . . . . . . . . . . . . . . . 13 PHOTO DIRECTOR Adrian DeLucca ASSISTANT PHOTO EDITOR Amber Sexton ART DEPARTMENT Meredith Lewin, Southwest Airlines . . . . . . . . . . . . . . . . . . . . . . . 17
Credit Suisse . . . . . . . . . . . . . . . . . . . . . . . . . . . M6 Jack Dee, Christine Silver STATISTICS Michael T. Kokoszka (manager), Darren Chima SPDR S&P 500 . . . . . . . . . . . . . . . . . . . . . M5,M6
co Fo

n SPDR S&P Regional Banking . . . . . . . . . . . . 36

D Delta Air Lines . . . . . . . . . . . . . . . . . . . . . . . . . M4 BARRONS.COM Square . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,M8
Discovery Communications . . . . . . . . . . . . . . M3 EXECUTIVE EDITOR John
D. Kimelman MANAGING EDITOR Ed Lin Swiss Re . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . M6
Dollar General . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 OPTIONS EDITOR Steven M. Sears DIGITAL PRODUCTION EDITOR Howard J. Godfrey
Dominion Energy . . . . . . . . . . . . . . . . . . . . . . M13 SENIOR EDITORS Tiernan Ray, Johanna Bennett, Dimitra DeFotis, Teresa Rivas T Tencent Holdings . . . . . . . . . . . . . . . . . . . . . . . . 33
STOCK MARKET EDITOR Ben Levisohn COPY EDITOR Teresa K. Gill Teva Pharmaceutical Industries . . . . . . . . . M8
E Emerson Electric . . . . . . . . . . . . . . . . . . . . . . M15 DIGITAL PRODUCER Robert Cushing Thor Industries . . . . . . . . . . . . . . . . . . . . . . . . . M8
Energy Transfer Equity . . . . . . . . . . . . . . . . . 18 n 360 Blockchain . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Energy Transfer Partners . . . . . . . . . . . . . . . 18 ASSOCIATE PUBLISHERS Bill Baldenko, Sterling T. Shea
Time Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Enterprise Products Partners . . . . . . . . . . . . 18 Tintri . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Exxon Mobil . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 MANAGER, ADVERTISING SERVICES James H. Balmer ASSOCIATE MANAGER: Ward S. McGuiness Toll Brothers . . . . . . . . . . . . . . . . . . . . . . . . . . 13,17
NEWS 212-416-2700, email: STATISTICS 609-520-4799, email: Twilio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
F Facebook . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,M4 CUSTOMER SERVICE 800-544-0422
Fibria Celulose . . . . . . . . . . . . . . . . . . . . . . . . . . M7 U UBS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . M6

Financial Select Sector SPDR . . . . . . . . . . . M5 United Continental Holdings . . . . . . . . . . . . M4

First Financial Bancorp . . . . . . . . . . . . . . . . . . 13
SENIOR VICE PRESIDENT, BARRON'S Daniel Bernard V Vail Resorts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
First Solar . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
First Trust Switzerland AlphaDEX . . . . . M6 Vera Bradley . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

Foundation Medicine . . . . . . . . . . . . . . . . . . . . M8
W Walt Disney . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,37
G Gamco Investors . . . . . . . . . . . . . . . . . . . . . . . M14 Watchmaker Swatch Group . . . . . . . . . . . . . . M6
GMO Benchmark-Free Allocation . . . . . . . . 28 Watts Water Technologies . . . . . . . . . . . . . . M14
GW Pharmaceuticals . . . . . . . . . . . . . . . . . . . . . 13 Rupert Murdoch Executive Chairman, News Corp Robert Thomson CEO, News Corp Wells Fargo . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
William Lewis CEO, Dow Jones Gerard Baker Editor in Chief, Dow Jones Williams Partners . . . . . . . . . . . . . . . . . . . . . . . . 18
H Halcon Resources . . . . . . . . . . . . . . . . . . . . . . M14 Workday . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . M15
Barrons is a trademark of Dow Jones and its affiliates. Barrons (USPS 044-700) (ISSN 1077-8039) Published every Monday. Editorial and Publication
Hartford International Opportunities . . . . . 29 Headquarters: 1211 Avenue of the Americas, New York, N.Y. 10036. Periodicals postage paid at Chicopee, MA and other mailing offices. Regular World Wrestling Entertainment . . . . . . . . . . 13
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in whole or in part without special permission. Unsolicited manuscripts should be accompanied by self-addressed envelope with proper postage. All
Hormel Foods . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 advertising published in Barrons is subject to the applicable rate card, copies of which are available from the Advertising Director, 1211 Avenue of the
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acceptance of the advertiser's order. Postmaster: Send address changes to Barrons, 200 Burnett Rd., Chicopee, MA 01020.
December 4, 2017 BARRONS 11

Managed by the portfolio team at

John Hancock Asset Management

Emory W. (Sandy) Sanders, Jr., CFA

Jonathan White, CFA

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Targeting top companies

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John Hancock Fundamental
Large Cap Core Fund

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at deep discounts
Class I: JLVIX Class A: TAGRX

Strong Morningstar ratings1

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The difference between a great company and a great investment is what you pay for
it. Thats why this funds portfolio team focuses on a short list of Americas best-run Overall Class I rating as of 10/31/17 out of
m e
businesses, but only invests when a stock is selling at a steep discount. The result is a 1,214 large blend funds. Based on 3-, 5-, and 10-year
Morningstar Risk-Adjusted Returns; accounting
portfolio with above-average earnings growth and below-average valuation. We think for variation in monthly performance.
m rp
its a better way to invest.
The fund targets growing companies
trading at attractive valuations2
Discover our multimanager approach at
Fund 19.6x
co Fo

Benchmark3 18.1x


Earnings growth rate Valuation

All funds may experience periods of negative performance.

1 For each managed product, including mutual funds, variable annuity and variable life subaccounts, exchange-traded funds, closed-end funds, and separate accounts, with at least a 3-year history, Morningstar calculates a

Morningstar RatingTM based on a Morningstar Risk-Adjusted Return that accounts for variation in a funds monthly excess performance, placing more emphasis on downward variations and rewarding consistent performance.
Exchange-traded funds and open-end mutual funds are considered a single population for comparative purposes. The top 10.0% of funds in each category, the next 22.5%, 35.0%, 22.5%, and bottom 10.0% receive 5, 4, 3,
2, or 1 star(s), respectively. The overall Morningstar Rating for a managed product is derived from a weighted average of the performance gures associated with its 3-, 5-, and 10-year (if applicable) Morningstar Rating metrics.
The rating formula most heavily weights the 3-year rating, using the following calculation: 100% 3-year rating for 36 to 59 months of total returns, 60% 5-year rating/40% 3-year rating for 60 to 119 months of total returns,
and 50% 10-year rating/30% 5-year rating/20% 3-year rating for 120 or more months of total returns. Star ratings do not reect the effect of any applicable sales load. As of 10/31/17, the fund was rated 5, 4, and 3 stars out of

1,214, 1,078, and 794 large blend funds for the 3-, 5-, and 10-year periods, respectively. Please note that Class I shares may not be available to all investors and that performance of other share classes may vary. Past performance
does not guarantee future results.
2 FactSet, as of 10/31/17. Earnings growth rate is measured by three-year earnings per share growth. Valuation is measured by the trailing price-to-earnings ratio, which is the ratio of a stocks price to its earnings per share.
3 The funds benchmark is the S&P 500 Index, which tracks the performance of 500 of the largest publicly traded companies in the United States. It is not possible to invest directly in an index.
Large company stocks could fall out of favor, and value stocks may decline in price. Foreign investing, especially in emerging markets, has additional risks, such as currency and market volatility and
political and social instability. The use of hedging and derivatives could produce disproportionate gains or losses and may increase costs. Please see the funds prospectus for additional risks.
Request a prospectus or summary prospectus from your nancial advisor, by visiting, or by calling us at 800-225-5291. The prospectus includes
investment objectives, risks, fees, expenses, and other information that you should consider carefully before investing.
John Hancock Funds, LLC, member FINRA, SIPC. 2017 John Hancock. All rights reserved.
12 BARRONS December 4, 2017


Last Week: Review

Dow Indicator

Dow Industrials 24231.59 + 673.60 Dow Global Index 389.60 + 0.12 10-Year Treasury Bonds 2.36 + 0.02

Twisting Arms for Tax Cuts roared past $11,000, before falling
He Said:

Memories of the Dot-Com Frenzy After a rush of optimism Thursday, back. The virtual currency is up
Its a challenging
Blockchain Means Money Republicans struggled to get 50
votes for the Senate tax bill. A Joint exercise. Think of
nearly 1,000% for the year. Nasdaq
said it was launching Bitcoin fu-

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tures, while broker Cantor Fitzger-
Committee on Taxation analysis sitting there with a ald has Bitcoin derivatives in the
said the plan would hike the deficit
Rubiks Cube, works.

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by a trillion dollars and the Senate

parliamentarian nixed a plan to trying to get [50] Oil Prices Edge Toward $60
include a tax-hike trigger. Senate votes.

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leadership continued to twist arms Oil prices closed near $60 a barrel
on Friday while debate on the Sen- Senate Majority Leader Mitch on Friday, with West Texas Interme-
ate floor resumed and details of the McConnell on getting enough diate up 36% from a June low to a
bill remained in flux. By early, eve- GOP votes for the tax bill. two-year high. Energy companies
ning the GOP appeared to have the appear more confident that they can

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Whats in a name? A lot, apparently, if that name includes any-
thing even remotely related to Bitcoin. There arent many ways
to invest in Bitcoin, so investors are seeking other plays on the
necessary votes for passage.

Next up: Funding Uncle Sam

retain higher prices, according to
The Wall Street Journal.

The Battle Over the CFPB

m e
Congress must pass legislation to
cryptocurrency, whose price has risen nearly 1,000% this year. fund the government or face a par- The White House won the first skir-
tial shutdown by Dec. 8. So far, with mish over the fate of the Consumer
m rp
Thats why shares of a company formerly known as Bioptix
the tax bill sucking up time and Financial Protection Bureau after a
have doubled since early October, despite a sharp drop last federal judge said President Trump
effort, little apparent progress has
week. Once a sleepy animal health-care company whose could appoint Office of Management
been made. House Republicans
shares would change hands as little as a couple thousand times have floated a plan to extend fund- and Budget chief Mick Mulvaney to
a day, the firm now calls itself Riot Blockchain, and it is in- ing for several weeks, but have run run the agency. Richard Cordray,
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vested in companies that deal with blockchain, the technology into resistance from some members. the CFPBs first chairman, had an-
behind Bitcoin and other cryptocurrencies. Daily volume has nounced he was leaving and named
Flynn Pleads Guilty his chief of staff, Leandra English,
recently spiked over 10 million. (For more on Bitcoin, see this
Former National Security Advisor as acting head, arguing she had a
weeks cover story.) right to remain until Congress con-
Michael Flynn pleaded guilty to
Riot joins other names that enjoyed sudden popularity once lying to the FBI about conversa- firmed a replacement. English said
they decided to dub themselves blockchain businesses. Can-
adas 360 Blockchain has seen its stock
tions with the Russian ambassador.
The charge suggests Flynn is coop-
The Numbers shell pursue the case further.

Powell: Rate Rise Ahead

Branded jump 150% since announcing it would be
taking on that new moniker. And shares
erating with the special counsel.
Throughout 33 quarters of the Jerome Powell, the Trump adminis-
Shares of former A Volatile Week in Stocks recovery that began in mid-2009, tration nominee to run the Federal
animal health-care
of Britains On-Line, which plans to add annualized growth in gross do-
Anticipating a tax cut, the Dow Reserve, told Senate Banking that
outfit Bioptix have blockchain to its name, are up 400%. In- mestic product has varied widely. he expected an interest-rate hike

Jones Industrials rose 256 points on

doubled since a vestors got caught up in a similar Tuesday, then 332 more on Thursday, in December. and defended Fed
3.3% third-quarter 2017,
From left: Elias Stein; Zach Trenholm for Barrons

name change to frenzy in the 1990s around tech compa- both highs, only to plunge on Friday independence.
seventh-fastest since 2009
Riot Blockchain. nies calling themselves dot-coms. on news of the Flynn plea, before
Lauer Out at NBC

The Bitcoin craze is seeping into rebounding. For the week, the Dow
more traditional stocks, too, including payment processor industrials finished at 24,231.59, up 5.2% third-quarter 2014, Matt Lauer, a host of morning TV
fastest powerhouse Today for 23 years,
Square. The company said in mid-November that it was letting 2.86% while the Standard & Poors
500 closed at 2642.22, up 1.53%. The was fired after allegations of sexual
some users of its Square Cash app buy and sell Bitcoin, an an-
Nasdaq Composite edged higher to 4.6% second-quarter 2014 misconduct. Shares of Comcast,
nouncement that boosted Squares stock by 20% in the following 6,847.59, up 0.6%. The 10-year Trea- and fourth-quarter 2011, tie for NBCs parent, rose 4% on Wednes-
week. Square gave those gains back last week after investors second-fastest day and were up 7% for the week.
sury closed on Friday at 2.363% and
were reminded that while Bitcoin might be hot now, it is risky gold finished at $1,278.8. Also fired for allegations of sexual
for a company to get tied up with a volatile currency. 4% fourth-quarter 2013, third- misconduct by Minnesota Public
EMILY BARY Booming Bitcoin fastest Radio: A Prairie Home Companion
Bitcoin soared over $10,000, then host Garrison Keillor.
December 4, 2017 BARRONS 13


This Week: Preview

For more

information about coming Friday 8: A partial government shutdown will
economic reportsand
occur if Congress fails to pass a bill funding the

what they meango to
Barrons.coms free
Economic Calendar. government.

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Monday 4

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pean Unions chief Brexit negotiator. icy interest rate.
Shareholders of First Financial Ban- Wells Fargo Tech Summit begins in European Commission President Mickey Makes Like WWE

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corp and MainSource Financial Park City, Utah. Facebook, Microsoft, Juncker presents a plan expected to
Group are expected to vote on their
proposed merger.
and, among others,
are expected at the three-day event.
contain details for transforming bailout
fund ESM into a European monetary
Streaming Slams Legacy
Coupa Software and GW Pharma- fund and creating a European finance Mickey Mouse might learn a thing or two from World
ceuticals report results. Tuesday 5 minister post. Wrestling Entertainment chief Vince McMahon. Con-
Census Bureau releases its full report
on durable goods orders for October.
er rs
HD Supply Holdings, Lands End, Au-
toZone, Toll Brothers, and Barnes &
Noble Education host earnings calls.
Investors gather at the inaugural Sohn
Brazil Investment Conference in So
Paulo to raise funds to fight pediatric
tent producers like Walt Disney realize they need more
direct viewer relationships, a problem WWE solved in
2014 when it disrupted its pay-per-view business model
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October factory orders are expected cancer. with a streaming product. WWE offered subscribers
to fall 0.4% on softness in civilian air- ISM Non-Manufacturing Index is re-
ADP employment survey is expected to the option of paying $10 a month for a library of WWE
craft orders, says MFRs Joshua Sha- leased. Consensus sees a November
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reading of 59, down from Octobers 60.1. show a 190,000 rise in nonfarm payrolls content, whereas a single PPV event costs $60. The
for November, down from 235,000. WWE Network now has 1.5 million subscribers.
British Prime Minister Theresa May Goldman Sachs U.S. Financial Services People at the time thought they were crazy be-
Thursday 7
meets in Brussels with European Com- Conference begins in New York. The cause pay-per-view was such a profit engine, but it
mission President Jean-Claude two-day event includes American Ex-
turns out they created a bigger and more profitable
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Juncker and Michel Barnier, the Euro- press, BlackRock, and Wells Fargo. Dell Technologies, Vail Resorts, Dol-
lar General report earnings.
business by switching to streaming, BTIG analyst
First Solar hosts its analyst day. Brandon Ross says.
LendingClub hosts an investor day. WWE shares are up 140% in the past three years,
Coming Earnings Wednesday 6 European Central Bank holds a news compared to 13% for Disney, which has announced
Day Consensus Year
Estimate Ago Hudsons Bay, American Eagle Out- conference on Basel banking reforms. plans to start its own streaming
Ascena Retail (1Q) $0.11 $0.18
fitters, Vera Bradley, H&R Block, SEC Investor Advisory Committee Targeted platforms.
Key to WWEs success has
and Brown-Forman announce re- meets. Topics include cybersecurity, WWE knows what
Bob Evans Farms (2Q) 0.35 0.56 sults. been its use of data. WWE
risk disclosure, and electronic delivery you watch on its
Autozone (1Q) 9.82 9.36 Home Depot hosts an investor and of information to retail investors. platform, so it can knows everything you watch on
Liquidity Services (4Q) 0.24 0.02 analyst conference. offer smarter its platform, so, like Netflix, it
More Earnings on Page M36.
Bank of Canada announces its key pol-
Friday 8 recommendations can offer smart viewing recom-

or promotions. mendations or target promotions

Employment report for November is
for relevant merchandise. Ahead
Consensus Estimate released. Consensus calls for 191,500
of its spring WrestleMania event, its best chance to
jobs from Octobers 261,000 and an
Day Time Consensus Est Last Period pick up members, WWE sent emails to lapsed sub-

unemployment rate holding at 4.1%,

M 10:00 October Factory Orders -0.4% 1.4%
scribers, taking into account how long since they left
reflecting an overall strong economy.
T 8:30 October International Trade $-45.8 bil $-43.5 bil
and what they used to watch. Consumers often disre-
W 8:30 Q3 Productivity - f 3.2% 3.0%
Deadline day. A partial government
shutdown will occur if Congress fails to gard irrelevant emails.

Elias Stein for Barrons

TH 3:00 October Consumer Credit $17.0 bil $20.8 bil Legacy media crave access to viewing data. NBC,
pass a bill funding the government.
F 8:30 November Nonfarm Payroll 186,500 261,000 for example, doesnt know when you last saw This Is
8:30 November Unemployment Rate 4.1% 4.1% University of Michigan announces pre-
10:00 November Michigan Sentiment - f 99.3 98.5
Us. That isnt a recipe for success in an era where you
liminary reading on December con-
10:00 October Wholesale Inventories N.A. 1.3% have deeply data-focused companies like Amazon and
sumer sentiment. Analysts look for the
Unless otherwise indicated, times are Eastern. a-Advanced; f-Final; p-Preliminary; r-Revised Source: FactSet level to remain flat at 98.5. Netflix to compete against, Ross says. EMILY BARY
FOR MORE INFORMATION about coming economic reports - and what they mean - go to Barrons
Onlines free Economic Calendar at
Johnson Outdoors reports results. Edited by Robert Teitelman and Teresa Vozzo
14 BARRONS December 4, 2017

A Return Visit to Earlier Stories

Johnson &
Johnson CEO
Alex Gorsky

Johnson & Johnson Can Rise Further

JOHNSON & JOHNSON SHARES HAVE HAD A ago, but still underestimates the pipeline, Johnson & Johnson
blockbuster year, as concerns about the com- says Micky Jagirdar, an analyst at Ariel (JNJ - NYSE) Daily close on Nov. 30

panys big rheumatoid-arthritis drug Remi- Global, which owns shares. For example, a $150
cade proved too pessimistic. While gains recent study suggests that clot-prevention

12/10/16 140

might not be as strong over the next year, drug Xarelto might have a safety advan-
shares could rise almost 20% as investors view tage over rivals, and strong clinical-test 130
the companys drug pipeline in a new light. data might expand use of multiple-myeloma

Shares of Johnson & Johnson (ticker: treatment Darzalex to more patients. 120
JNJ), recently $139, are up 21% this year, While the drug business will continue to
ahead of the Standard & Poors 500 indexs be the major catalyst for the stock, J&Js 2017 Source: Bloomberg

us l,
18% rise and the mid-$130s target we set medical-device business, which accounts for
late last year (J&J Deserves More Respect 34% of sales, should also help. Analysts J&Js drug pipeline is more robust than investors think, and will drive shares higher.

al a
From Wall Street, Dec. 10). At the time, expect J&J to exit some slower-growing

investors feared that competition would cut areas, as it is doing in neurosurgery, and see a pickup in growth next year as execu- 8%, to $7.87 a share, and revenue to rise 6%.

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Remicades market share and worried there improve operations in other areas. J&J also tion improves and new products launch, J&Js diverse mix of businesses has
wasnt enough in the pipeline to offset it. can tap its $16 billion in cash for acquisi- says Leerink Partners analyst Danielle made it a favored haven during periods of
Remicade not only held up better than tions in faster-growing markets. Antalffy in a research note. J&J should re- volatility. And that makes the stock all the
Brian Snyder/REUTERS

expected, but J&Js pipeline has delivered, Management expects medical devices turn to mid-single digit revenue growth, more appealing amid global political uncer-
too, and several major drugs have strong and the consumer businesshome to brands writes Antalffy, who has a 12-month stock- tainty. Also: Johnson & Johnson is cheaper
growth ahead. At 17.8 times next years
earnings, the stock is pricier than a year
er rs
like Aveeno, Neutrogena, and Band-Aid,
which contribute almost 20% to salesto
price target of $165, almost 20% higher.
Earnings next year are expected to increase
and growing faster than many other defen-
sive options. RESHMA KAPADIA
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VanEck Vectors Morningstar International Moat ETF (MOTI) seeks to replicate as closely as possible, before fees and expenses, the price and yield performance of the Morningstar Global ex-US Moat Focus IndexSM, which is intended to track the overall

performance of attractively priced companies, outside the U.S., with sustainable competitive advantages according to Morningstars equity research team. Indices are unmanaged and are not securities in which an investment can be made.
Index performance is not representative of Fund performance. For Fund performance current to the most recent month-end, visit
The Morningstar Global ex-US Moat Focus IndexSM was created and is maintained by Morningstar, Inc. Morningstar, Inc. does not sponsor, endorse, issue, sell, or promote the VanEck Vectors Morningstar International Moat ETF, and bears no liability
with respect to that ETF or any security. Morningstar is a registered trademark of Morningstar, Inc. Morningstar Global ex-US Moat Focus IndexSM is a service mark of Morningstar, Inc.
An investment in VanEck Vectors Morningstar International Moat ETF (MOTI) may be subject to risks, which include, among others, equity securities, investing in the financial services and consumer discretionary sectors, and medium-capitalization
companies, which may make these investments volatile in price or difficult to trade. Foreign investments are subject to risks, which include changes in economic and political conditions, foreign currency fluctuations, changes in foreign regulations, and
changes in currency exchange rates, which may negatively impact the Funds returns. The Funds assets may be concentrated in a particular sector and may be subject to more risk than investments in a diverse group of sectors.
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December 4, 2017 BARRONS 15

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consistent with their strategies, as frequently as daily.
Investing involves risk, including the possible loss of principal. This ProShares ETF is non-diversified and entails certain risks, which may include risks associated with the use of
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Carefully consider the investment objectives, risks, charges and expenses of ProShares before investing.
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16 BARRONS December 4, 2017

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December 4, 2017 BARRONS 17

Large U.S. multinationals could reap a windfall as the Republican effort to overhaul
the nations tax code enters its final stages on Capitol Hill.

Corporate Tax Cuts Remain the Heart of Senate Plan

by John Kimelman
AS SENATE REPUBLICANS MOVED CLOSER TO have mortgages in excess of $500,000.

an overhaul of the nations tax code, the While shares of Toll Brothers fell 6% af-

prospect of sharp cuts to corporate taxes ter the House Ways and Committee re-
loomed larger. leased its bill with a mortgage-interest cap
Investors appear to like that scenario, on Nov. 2, the stock has recovered strongly
and stocks have moved higher in recent in the following weeks. Its also not clear

months, helped in no small measure by ex- that final legislation will include such a cap
pectations of tax cuts. Yet much work and on mortgage-related deductions.
obstacles remain. (As Barrons went to The market overreacted when it

us l,
press on Friday, passage of a bill seemed knocked down Toll Brothers and other
likely, although a vote had not yet taken home builders, says Brian Bernard of

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place.) The Senate and House bills would Morningstar, who covers the sector. Even
need to be reconciled, for one. if they lose a few home buyers because of

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Still, as the tax reform effort enters its a possible cap on mortgages, their cash-
end game, its time for investors to assess flow profile will still be a net positive be-
the stock markets true winners and losers cause they will benefit from lower corpo-
and whether the legislation could even im- rate tax rates.
pact their lifestyle choices.

Investors in companies that ply their

trade mostly in the U.S.a list that in-
cludes small-cap companies, health-insur-
er rs
Senate Majority Leader Mitch McConnell predicted the Senate would pass tax reform.
Similarly, fears that the elimination of
most state and local tax deductions will
cause an exodus of the affluent in highly
taxed states like New York, New Jersey,
m e
ance providers, and even domestic airlines and California to low-tax states is proba-
like Southwest Airlines (ticker: LUV) of billions of dollars of overseas profits. Reconciling Tax Reform bly overstated.
m rp
should benefit greatly from what is argu- Most of that money, analysts say, will In the coming days, a House-Senate conference Carolyn Mazzenga, the national leader
ably the signature provision of the bill: a go to paying down debt and benefiting committee will work to come up with a unified of the family wealth services practice of
steep drop in the top federal corporate tax shareholders through additional stock buy- tax-reform bill for Congress to vote on. Marcum, an accounting firm, says that a
rate, which now stands at 35%. backs and increased dividends, rather than House Senate New York City dweller who earns $1 mil-
No wonder that small-caps and other hiring new workers and expanding their Bill Bill lion in ordinary income could end up paying
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domestic-focused companies gained value business. Corporate 20% an $35,000 to $40,000 more in taxes because
on Wednesday and Thursday as the odds of A number of executives have said as Tax Rate 20% (starting of the loss of deductions.
in 2019)
Senate passage of the measure grew. These much in recent months, undercutting the I have one client who has often talked
companies tend to have higher effective tax notion advanced by GOP politicians, in- Repatriation 14% 14% about moving down to Florida, but now hes
Tax Rate (for liquid (for liquid
rates than global companies that park earn- cluding President Donald Trump, that cor- on a rampage because of this tax bill, Maz-
assets) assets)
ings abroad. porate tax break would bolster the job zenga says. Still, she questions whether
State and Local Eliminated Eliminated
The final corporate tax rate, along with market and wages. Deductions except for except for
higher tax bills will necessarily cause a
other provisions of the legislation, will be An overwhelming majority of that $10,000 in $10,000 in flight to low-tax locales. They will rant and
determined by a conference committee of overseas cash will be repatriated if tax re- property property rave, she says, but she wonders how many
House and Senate lawmakers seeking to form is enacted, says Scott Kessler, direc- taxes taxes* who didnt have the intention of moving to
create a unified bill that could be voted out tor of equity research with CFRA, an in- Mortgage-Interest Only on Only on low-tax states in the first place would move
of Congress before Christmas. dependent research firm. The cash has to Deduction mortgages mortgages simply because of this bill.

for primary for primary

On Friday, the Senate was expected to be domestic if these companies want to do residence residence
Investors will be watching how the fi-
pass its version of tax reform on a largely stock buybacks and dividend increases. under and one nal legislation shapes up in the House-
party line vote, two weeks after the House Plus, he adds, corporate decision makers $500,000 other under Senate conference committee. Lawmakers

passed its measure. wont put off acting on this new low rate on $1,000,000* could either phase in the corporate tax
Though tech giants such as Apple repatriated profits because no one knows Estate Tax Exemption of Exemption of rate, as the Senate bill does, or set it
(AAPL), Microsoft (MSFT), and Google whether these tax cuts will be permanent. $11.2 million** $11.2 million* higher than the 20% rate that Trump has
*All individual tax cuts for Senate bill expire at the end of 2025.
parent Alphabet (GOOGL), and other mul- Tax reform is more of a mixed bag for **Estate tax is completely repealed by 2024. long championedperhaps at 23%.
tinationals currently enjoy relatively low ef- some sectors of the market. For example, Sources: News reports; Tax Foundation; Tax Policy Center In the end, says James Lucier, a man-

Alex Wong/Getty Images

fective tax rates, they will experience a shares of home-builder stocks, particularly aging director and tax-policy specialist at
huge windfall from the legislations provi- high-end builder Toll Brothers (TOL), ini- home loans of up to $500,000. The Senate Capital Alpha Partners, the legislation
sion that could set the rate on taxes of for- tially faced pressure from a provision in bill sets the limit at $1 million. But that will largely deliver what investors
eign earnings held in cash as low as 10%, the House legislation that limits the de- impact has been overstated since only a thought it would from a corporate tax
thus encouraging repatriation of hundreds ductibility of mortgage interest on new- small percentage of homes in the U.S. perspective.
18 BARRONS December 4, 2017

Energy Transfer Partners could create substantial value for unit holders
by cutting its distribution and getting rid of its general partner.

A Promising Game Plan for an Energy MLP

by Andrew Bary
MASTER LIMITED PARTNERSHIPS HAVE by dramatically reducing the IDR pay-

been dogged for the past several years ment to ETE.
by investor concerns about reduced He argues that a 13.5% dividend

returns on new pipelines and other yield is unsustainable, and that the
projects, a reliance on outside financ- units could double in price if the dis-
ing for those projects, and corporate- tribution is trimmed.

governance issues. The Alerian MLP Even with no change in the distri-
Index has fallen 15% this year and bution, Kaiser considers the units at-
50% since its 2014 high, with tax-loss tractive. Hes bearish on Energy

us l,
selling by retail investors likely adding Transfer Equity, however, and thinks
to the downward pressure. its shares could collapse to the single

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Energy Transfer Partners (ticker: digits if the distribution at Energy

ETP), which operates 71,000 miles of Transfer Partners is cut. The IDR

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pipelines carrying natural gas, natural- payments represent the bulk of En-
gas liquids, and crude oil, has been ergy Transfer Equitys profits.
one of the worst-performing large
MLPs. Its unitsan MLPs equivalent Energy Transfer Partners didnt
of common sharesare down 30%, to respond to Barrons requests for com-
around $16.50, since its merger with
Sunoco Logistics Partners in April.
Yet they look appealing, given the
companys strong business prospects
er rs ment, but company executives said on
the latest earnings conference call
that the current distribution is appro-
priate and supported by distributable
m e
and a possible change in governance cash flow, an MLP cash-flow metric.
that could result in reduced payouts to We feel its our responsibility to
m rp
unit holders but a stronger financial distribute a safe amount of cash flow
profile. Based on its distributiona A Bad Year for MLPs to our unit holders, and thats exactly
dividend, in MLP parlanceEnergy what we did this quarter and will con-
Corporate governance at master limited partnerships is a growing concern on Wall Street. Energy
Transfer Partners yields 13.5%. tinue to do, said Kelcy Warren, the
Transfer Partners has been one of the sectors worst performers this year.
Investors are worried about the billionaire co-founder and chairman of
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sustainability of Energy Transfers Recent YTD Estimated 2017 Distribution Market both companies and CEO of Energy
Company / Ticker Unit Price Change Earnings* P/E Yield Value (bil)
distribution, due chiefly to the stiff Transfer Partners.
fees called incentive distribution Energy Transfer Partners / ETP $16.61 31% $0.60 27.7 13.6% $19.2 The company pointed to a distri-
rights, or IDRs, that the partnership Energy Transfer Equity / ETE 16.20 16 1.24 13.1 7.3 17.5 bution coverage ratio of 1.1 times,
must pay to its sister company, En- Enterprise Products Partners / EPD 24.63 9 1.31 18.9 6.9 53.0 based on distributable cash flow.
ergy Transfer Equity (ETE), which The endgame probably will be a
owns the general partner that man- Magellan Midstream Partners / MMP 67.00 11 3.89 17.3 5.4 15.3 merger of the two companies, or an eq-
ages Energy Transfer Partners. Kinder Morgan / KMI 17.23 17 0.64 26.8 2.9 38.5 uity buyout of the IDRs by Energy
Those payments could total $1.7 bil- Plains All American Pipeline / PAA 19.50 40 1.11 17.5 6.2 14.1 Transfer Partners that would be eco-
lion next year, the highest in the *per unit Source: Bloomberg nomically similar to a merger. However,
MLP industry. Energy Transfer Eq- Energy Transfer Partners ruled out
uity units also have been hit this year, any internal restructuring before

dropping 14%, to around $16.50. They yield 7.1%. been ill-served by its general partner. The MLP has con- late 2019 at the earliest on its earnings conference call a
Energy Transfer Partners is out of step with some of siderable debt, at $34 billion. month ago. In any combination, Energy Transfer Partners
its larger peers, including Enterprise Products Partners Kaisers counterintuitive view is that investors would is apt to have a reduced distribution.

(EPD), Williams Partners (WPZ), and Kinder Morgan reward the company for a lower and more sustainable dis- The restructuring timetable might have to be acceler-
(KMI). All three have eliminated IDR payments and tribution. The savings would allow Energy Transfer Part- ated because equity financing now is costly for Energy
moved to fund all or a greater portion of capital spending ners to self-fund its $3 billion of projected annual capital Transfer Partners. The company has said it doesnt need
with internally generated funds. expenditures by 2019. And since its IDR payments are any new equity until the second half of 2018 at the earliest,
Doug Chayka for Barrons

Kevin Kaiser, a managing director at research firm based on the distribution rate, a reduction in the latter after an expensive $1 billion equity offering in August.
Hedgeye Risk Management in Stamford, Conn., is urging would let the company lower its payments to the GP. Any merger terms are apt to be based on the IDR
Energy Transfer Partners unit holders to get rid of the One thing needs to be hammered home, Kaiser says. payments, and that gives Energy Transfer Equity little
sister company as manager and cut the MLPs distribu- When retail investors think distribution cut, they assume incentive to cut the distributions at Energy Transfer
tion by 43%, to $1.30 per unit, from a current annualized its bad. However, a distribution reduction at Energy Partners.
rate of $2.26. He thinks Energy Transfer Partners has Transfer Partners would create enormous value for ETP Energy Transfer Partners has attractive pipeline as-
December 4, 2017 BARRONS 19

Earnings Transfer
Energy Transfer Partners unit price has tumbled since its merger with Sunoco Logistics in
April, even as the units of its sister company, Energy Transfer Equity have held steady.

Energy Transfer Partners (ETP - NYSE) Energy Transfer Equity (ETE - NYSE)
Weekly close on Nov. 30 Weekly close on Nov. 30
$50 $40

40 30

30 20

20 10

10 0
2015 2016 2017 2015 2016 2017
Source: Bloomberg

sets and good growth prospects, pending On Wall Street, there is growing ac-
completion of several projects next year, knowledgment that corporate governance

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including the Rover and Mariner East 2 at MLPs is a problem.
pipelines that service the Marcellus and We believe the time is now to elimi-

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other growing energy-producing regions of nate IDRs across the space, wrote JP-
Pennsylvania and Ohio. Those projects, Morgan analyst Jeremy Tonet in a recent

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however, have been dogged by spills and client note. While many had been willing
other environmental problems that have to accept GPs receiving an increasing por-
led to delays. tion of incremental distributions to incen-
Energy Transfer Partners has some of tivize maximizing growth, the perceived in-
the most strategic assets among all MLPs, centive misalignment, conflicts of interest,
says Brian Kessens, a portfolio manager at
Tortoise Capital Advisors, which holds both
Energy Transfer companies. He notes that
about 90% of Energy Transfer Partners rev-
er rs
and corporate governance concerns now
dominate the narrative. While these con-
cerns have long kept certain generalist in-
vestors away from the space, we see more
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enue, which is expected to total $29 billion infrastructure specialist investors pivoting
this year, is fee-based. The high percentage away from MLPs with IDRs.
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of fee incomeabove the industry average Sharply cutting the distribution proba- With one of the lowest-cost exposures to the high-yield
makes the company less sensitive to com- bly would involve removing Energy Trans- bond market, Xtrackers USD High Yield Corporate
modity price movements. fer Equity as the general partner. Energy Bond ETF is anything but plain. No wonder it was voted
While not overly sensitive to commodity Transfer Partners unit holders, however, Best New U.S. Fixed-Income ETF.
prices, master limited partnerships often are largely subservient to the GP. It likely
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have tracked oil quotes. But the rise in would take a two-thirds vote of Energy
crude in recent months hasnt lifted the sec- Transfer Partners unit holders to remove HYLB
tor, leaving MLP fans mystified. Energy Transfer Equity as general part-
ner. Thats a high bar, considering sizable
Kaiser says that many institutional inves- ownership by retail investors who often
tors consider Energy Transfer Partners to dont vote in proxy contests. Still, an activ-
be uninvestible because of its control by ist investor could take a stake in Energy Risks: Bond investments are subject to interest rate, credit, liquidity and market risks to varying
degrees. Credit risk refers to the ability of an issuer to make timely payments of principal and interest.
Energy Transfer Equity. He cites a situa- Transfer Partners and press for changes. Foreign investing involves greater risk, including currency fluctuations, less liquidity, less developed
tion in 2017 when Energy Transfer Partners If removed as general partner, Energy or less efficient trading markets, lack of comprehensive company information, political instability and
differing auditing and legal standards. Funds investing in a single industry (or group of industries),
gave up a 10% general-partnership interest Transfer Equity would need to be compen- country or in a limited geographic region generally are more volatile than more diversified funds.
in an acquired company to its sister com- sated, but the cost likely would be much less Investments in lower-quality (junk bonds) and non-rated securities present greater risk of loss than
pany for no compensation. than in a merger in two or three years. investments in higher-quality securities. This fund is non-diversified and can take larger positions in

fewer issues, increasing its potential risk.

Kaiser has been a vocal critic of several Kaiser says that even if Energy Transfer
other MLPs, including Kinder Morgan. He Partners is shortchanged in a merger with Prospectus: Carefully consider the funds investment objectives, risks, charges and expenses
before investing. This and other information can be found in the funds prospectus, which
was quoted in bearish articles in Barrons on its sister company, investors could profit be- may be obtained at Read the prospectuses carefully before you invest.

the sector in recent years. cause the units are so inexpensive. The award as of 3/30/17 for Best New U.S. Fixed-Income ETF. Ordinary brokerage
Kaisers scenario for Energy Transfer weak unit price and equity financing prob- commissions apply. Nothing contained herein is fiduciary or impartial investment advice that is
Partners could be a long shot. His sugges- lems could prompt Warren and other insid- individualized or directed to any plan, plan participant, or IRA owner regarding the advisability of
tion for a big distribution cut runs against ers to accelerate the merger or cut the dis- any investment transaction, including any IRA distribution or rollover. ETF Shares are not individually
redeemable, and owners of Shares may acquire those Shares from the Fund, or tender such Shares
the financial interest of key insiders, includ- tribution. Both scenarios likely would be for redemption to the Fund, in Creation Units only. Deutsche Asset Management represents the asset
ing Warren. Insiders own about $3.5 billion favorable for Energy Transfer Partners. management activities conducted by Deutsche Bank AG or any of its subsidiaries. Xtrackers ETFs
are managed by DBX Advisors LLC (the Adviser) and are distributed by
of Energy Transfer Equity, but just $70 mil- The complex situation involving Energy ALPS Distributors, Inc. The Adviser is a subsidiary of Deutsche Bank AG, and is not affiliated with
lion of Energy Transfer Partners, Transfer Partners is apt to be resolved one ALPS. No bank guarantee I Not FDIC insured I May lose value.
Bloomberg data show. Typically, MLP man- way or another by late 2019 or 2020. And 2017 Deutsche Bank AG. All rights reserved. CH179227 R-052958-1 (10/17) DBX003054 (11/18)
agement owns much more of the general the odds favor a decent outcome for long-
partner than the limited partner. suffering unit holders.
20 BARRONS December 4, 2017 BARRON'S 21


Bitcoin Storms

Wall Street

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With futures contracts set to start trading, the volatile

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cryptocurrency could be joining the financial establishment

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by Avi Salzman

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To reprint or license content, please contact Barron's reprints department at 800-843-0008 or

ITCOIN TRADERS HAVE NO TIME TO POP THE CHAMPAGNE two major investment banks holding Bitcoin on their balance sheet.
anymore. For all of the worries about a reprise of 17th century tulip mania,
The crypto-rocket shot past $11,000 last week just hours there are serious financial players who see a future in Bitcoin. Big

m e
after eclipsing $10,000, which itself was mere days after push- banks are cramming to figure out how to get involved, say executives
ing past $9,000. It then slid sharply before surging yet again. at Bitcoin companies.

m rp
Even as investors celebrate a banner year for stocks, the party next Their employees are, too. Traders who are paid to make markets in
door is so wild theres no longer any way of ignoring it. low-vol products sometimes have an extra window open on their moni-
Now Wall Street is about to join in the fun. On Friday, the Commod- tors so they can keep trading Bitcoin at work, says Arthur Hayes,
For personal non-commercial use only. Do not edit or alter. Reproductions not permitted.

ity Futures Trading Commission green-lighted plans by the CME and who himself leapt from the traditional trading world at Deutsche Bank
the Chicago Board Options Exchange to introduce Bitcoin futures, al- and Citigroup to start a Bitcoin derivatives exchange called BitMEX.

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lowing traders to bet on the price of the digital currency on a trusted Todays Bitcoin craze comes exactly 200 years after the formation of
exchange. Nasdaq is planning to offer its own futures next year, while the New York Stock Exchange, when a small group of brokers weary
Cantor Fitzgerald will introduce a Bitcoin options product. of fraud in their industry decided to draft a constitution and set up
Because the futures are cash-settledtraders will receive dollars on rules. A formal structure for the equity market took decades to build.
the settlement date instead of Bitcointhe Street technically wont be The crypto market is trying to build its own structure, without much
getting its hands dirty by buying the stuff directly. But make no mis- guidance from the government, in mere months. But the holes, particu-
take: getting listed on some of the largest exchanges in the country is larly in keeping the assets themselves safe, have created grave risks
a tectonic shift for Bitcoin, which has been associated with drug dealing for prospective investors.
and called a fraud by the chief executive of the nations largest bank. New money and talent have already flooded into the crypto market.
If it works, you are witnessing the early stages of the birth of a The cumulative value of cryptocurrencies like Bitcoin has skyrocketed
new asset class, says Bill Miller, the chairman of Miller Value Partners to more than $300 billion from $18 billion at the start of the year. Law-
and a longtime value investor who holds about $75 million worth of Bit- yers, hedge fund traders, and brokersand even some value investors
n- coin in his hedge fund.
Banks like Goldman Sachs are considering helping clients execute
Bitcoin trades. And once they dip their toes in, there may be no turning
have rushed in.
Ari Paul, for one, left his job as a portfolio manager at the Univer-
sity of Chicagos endowment to co-found a cryptocurrency hedge fund
back. Paul Chou, whose company LedgerX launched the first Bitcoin called BlockTower Capital this year.
derivatives in October, predicted that within a year well see at least Traditional asset classes feel very, very ossified, Paul says. Alpha

Illustration: Harry Campbell for Barrons

22 BBA
ONNSS December
December 4,
4, 2017
2017 December
December 4,
4, 2017
2017 BBA

Energy Transfer Partners could create substantial value for unit holders
TRADITIONAL EXCHANGES Bitcoins vaunted blockchain. Earnings Transfer
suddenly make it safe. The logistics of trading Bitcoin
by cutting its distribution and getting ridNasdaq
CME, Cboe, of its general partner. Bitcoin doesnt have to be a currency to be valuable, give it unique risks.
Energy Transfer Partners unit price has tumbled since its merger with Sunoco Logistics in
TRADING FIRMS however. Bitcoin bulls tend to argue that its more like gold Just finding an accurate price can be a challenge, for 9-10,000
CME, Cboe and April, even as the units of its sister company, Energy Transfer Equity have held steady. $10
a store of value that people hold for investment purposes, or starters. CME has been working with a London-based com-

A Promising Game Plan for an Energy MLP

2 Days thousand
Nasdaq are DRW
preparing to offer for doomsday protection. Like gold, its not correlated to pany called Crypto Facilities to determine the most accu-
High-speed traders
Bitcoin futures.
making markets in Bitcoin most other assets, and theres a limited supply: Only 21 mil- rateEnergy
Bitcoin Transfer Partners
price. Bitcoin trades on dozens ofEnergy
(ETP - NYSE) exchanges Transfer Equity (ETE - NYSE)
Weekly close on Nov. 30 Weekly close on Nov. 30
and Ethereum are greasing ion will be made. Thomas Lee, the managing partner of around the world, often at considerably different prices.
the industrys wheels. Fundstrat Global Advisors, estimates that Bitcoin could ac- Theres an active arbitrage trade that $50 helps narrow the $40
by Andrew Bary count for 5% of the $7.5 trillion alternative-currency market, gaps, but at any given time the price discrepancy 40 can be 1% 30 8-9,000 9
which is now mostly made up of gold. His 2022 price tar- or more. 5 Days
30 20
MASTER LIMITED PARTNERSHIPS HAVE get is $25,000. by dramatically reducing the IDR pay- Crypto Facilities uses four exchanges to create a Bitcoin

been dogged for the past several BITCOIN years WHALES EXCHANGES Skeptics ment like to Goldman
ETE. Sachs analyst Michael Reference Rate that will be used as the20official price to 10
by investor concerns about reduced He argues that
has aseveral
dividend settle trades. But those exchanges have sometimes proven

Satoshi & Friends Coinbase/GDAX, Hinds note that Bitcoin
returns on new pipelines and other Bitstamp, Gemini compared yield is
with unsustainable,
gold. Bitcoin and
is that the to
vulnerable unreliable. It previously used six exchanges to determine
A few early adopters, including Galaxy Investment Partners, 2015 2016 2017 2015 2016 2017 7-8,000
projects, a reliance on outside financ- hacking, unitsdisruptions
could doubletoin the priceinternet,
if the dis- and the rate but had to exclude two because they restrict U.S. 8
founder Satoshi Nakamoto, Exchanges allow people Miller Value Partners Source: Bloomberg 12 Days
ing for those projects, and corporate- tribution
competition from is other
trimmed. cryptocoins. dollar deposits and can throw the price out of line, says

own enough Bitcoin to to trade dollars and other
governance issues. The Alerian MLP currencies for Bitcoins. Michael Novogratz and Even with no change in the distri- Timo Schlaefer, a co-founder of Crypto Facilities.
swing markets.
Bill Miller are among the
Index has fallen 15% this year and investing heavyweights Investors
bution,can Kaiserbuy Bitcoin
considers thedirectly
units at-from setsCME is attempting
and good to use a standard
growth prospects, pendingframework On Walland Street, there is growing ac-
50% since its 2014 high, with tax-loss who own Bitcoin. exchanges tractive.
designed Hes forbearish
retail or on Energy in-
institutional impose
completionit on of a nascent
several digital
projects commodity
next year, thatknowledgment
is far from that corporate governance

us l,
selling by retail investors likely adding
to the downward pressure. rency directly
vestors. Those
its shares
Equity, however,
from a could
will let you
bank account
and trade
to credit
the single
card for
including the
built on that
clay feet.
the Marcellus
broader East
2 atecosystem
MLPs is a problem.
calls theWe systembelieve the time is now to elimi-
3 Days

Big in

al a
Energy Transfer Partners (ticker: digits
youifset theupdistribution at Energy manipulation-resistant.

MINERS INVESTMENT PRODUCTS Bitcoin and help a wallet to store the stuff. other growing energy-producing regions of nate IDRs across the space, wrote JP-
ETP), which operates 71,000 miles of Trading cash for BitcoinTransfer and Partners
vice versa is cut. The less
can cost IDRthan Pennsylvania and Ohio. Those projects, Morgan analyst Jeremy Tonet in a recent
AntPool, Bixin Grayscale, VanEck
Trading cash-settled futures

ci on
pipelines carrying natural gas, natural- 1% of the transaction payments
value. But represent the bulkhave
the exchanges of En-proved however, have been dogged by spills may andseemclient
safer note.
than While many had been willing
Pools of miners armed Traditional and crypto-focused
gas liquids, and crude oil, has been susceptible to ergy The
hacking. Transfer
safest Equitys
way to profits.
store Bitcoin is in holding Bitcoins, but itproblems
other environmental introduces its have
that own risks. For one
to accept GPs receiving an increasing por-
with high-powered computer firms are developing
one of the
Traditional worst-performing
financial players and large chips keep the books and Bitcoin ETFs and other cold storage on a hard drive that isnt connected to the in- thing,
led to futures
delays. trades are settled based on spot tion of prices.
incremental distributions to incen- 5-6,000 6
MLPs. Its
emerging unitsan
operators are MLPs
creatingequivalent create new Bitcoins. tradable products. ternet. Energy Transfer Partners didnt Youre at the
Energy whim ofPartners
Transfer the people has involved
some of intivize thosemaximizing
spot growth, the perceived in- 12 Days
a market
of common structure for Bitcoin
sharesare down 30%, to Of course, if you respond losetothe Barrons
hard requests
drive, you for com-
lose the transactions,
the most strategic says assets
LedgerX among CEO all Chou.
MLPs, centive misalignment, conflicts of interest,

er rs
and other
around digital
$16.50, sincetokens.
its merger with Bitcoin. This gap ment, but company executives
in custodianshipa safe way saidtoon store saysLedgerX, the firsta portfolio
Brian Kessens, to market with regulated
manager at and Bitcoin corporate governance concerns now

To reprint or license content, please contact Barron's reprints department at 800-843-0008 or

Sunoco Logistics Partners in April. Bitcoin and stillthe trade latest

the biggest conference
challengecall to get- derivatives,
Tortoise Capital settlesAdvisors,
trades inwhich Bitcoin itself.
holds bothIt now facilitates
dominate the narrative. While these con-
Yet they look appealing, given the that the current
ting more institutions involved. distribution is appro-
Most insurers wont $6 millionTransfer
Energy to $7 million in trades
companies. per week.
He notes that Chou cernstraded
have long kept certain generalist in-
companys strong business prospects touch the space.priate and supported by distributable conventional
about 90% offutures Energyproducts
Transfer at Goldman
Partners rev-Sachsvestors
beforeaway his from the space, we see more
Gold Rush TASTED SO GOOD. 4-5,000

m e
and a possible change in governance CODERS/DEVELOPERS CRYPTO VC & FUNDS TRADITIONAL VC cash flow, aninvestors
Many accredited MLP cash-flow
cant buy metric.
Bitcoin current
enue, which job, and his Goldman
is expected to total desk$29would
billionhedge the risk specialist investors pivoting
infrastructure 43 Days
that could result in reduced payouts to Labs,
Protocol Polychain Capital, Andreessen Horowitz, directly because We itfeel its ourassociated
remains responsibility with to unsa- from cash-settled
this year, is fee-based.futures Thebyhigh alsopercentage
trading the spot away market.
from MLPs with IDRs.

m rp
unit holders but a stronger financial The Zcash Company BlockTower Capital Union Square Ventures vory actors. distribute
Bitcoina is safe amount used
regularly of cash forflow
money But
of feewith Bitcoin, that the
incomeabove option isnt available
industry average institu- cutting the distributionOnproba-
for manySharply its way to $10,000, With one of the lowest-cost exposures to the high-yield
Bitcoin has leapt by
profile. Based on its distributiona Entrepreneurs haveA Bad created Year for MLPs Funds well-versed in the Venture capitalists laundering, toaccording
our unit holders,
to the Drug and Enforcement
thats exactly Ad- tional
the companyI think lesstheres
sensitivegoing to tocom-
be a point
bly wouldwhere involve removing Energy Trans-
$1,000 increments at an
bond market, Xtrackers USD High Yield Corporate
dividend, in MLP parlanceEnergy more than 1,200 coins crypto world often trade have been early investors ministration. what Some we did this quarter
exchanges dontand use will
know con-your cash-settled [Bitcoin]
modity price movements. futures make sense, he says, but for
fer Equity as the general partner. Energy accelerating pace. Bond ETF is anything but plain. No wonder it was voted
Corporate governance at master limited partnerships is a growing concern on Wall
andStreet. Energy
Transfer Partners yields 13.5%.similar to Bitcoin. directly in new tokens. in crypto exchanges
For personal non-commercial use only. Do not edit or alter. Reproductions not permitted.

customer tinue
rules to do,
that are said KelcyinWarren,
common any otherthekind nowWhile
theyre notincredibly
overly sensitive commodity Transfer Partners unit holders, however, Best 3-4,000
New U.S. Fixed-Income ETF. 4
Transfer Partners has been one of the sectors worst performers this year.funds.
hedge 5 Days
Investors are worried about the of banking or billionaire
investing. co-founder and chairman of And trading
prices, master futures
limitedentails using leverage,
partnerships often aare factor that subservient to the GP. It likely

co Fo
sustainability of Energy Transfers Recent YTD Estimated 2017 Distribution There
Marketare no both companies andfunds
exchange-traded CEOavailable
of Energy yet, ei- may
tracked oil Bitcoins
But the priceriseswings.
in Thomas
would take Pe- a two-thirds vote of Energy
Company / Ticker Unit Price Change Earnings* P/E Yield Value (bil)
distribution, due chiefly to the stiff
Energy Transfer Partners / ETP $16.61 31% $0.60 27.7 13.6%
ther. Investors could
buy aPartners.
security called the Bitcoin In- terffy,
crude chairman of Interactive
in recent months hasnt Brokers,
lifted thetook sec- outTransfer
a full-page Partners unit holders to remove HYLB
fees called incentive distribution LAW FIRMS vestment Trust (ticker:The GBTC),companybut pointed
it trades to aatdistri-
a signifi- ad
Nov. 15MLP in The fansWall Street Journal imploring
mystified. Energy CME Transfer Equity as general part-
rights, or IDRs, that the partnership EnergyDebevoise
Transfer&Equity /
Plimpton, ETE 16.20 16 1.24 13.1 cant
7.3 premium
17.5 to bution
the coverage
underlying ratio
Bitcoin of
that 1.1
it times,
holds, and to rethink its plans, because margining such aner. product
Thatsina high bar, considering sizable XTRACKERS.COM
2-3,000 3
must pay to its sister company, En- DLA Piper
Enterprise Products Partners / EPD 24.63 9 1.31 18.9 6.9that premium
53.0 based
rises and on distributable
falls in cash
unpredictable flow.
patterns. aKaiser
says manner
that many is impossible.
institutional inves- ownership by retail investors who often 55 Days
ergy Transfer Equity (ETE), which Lawyers are advising Large institutionalThe endgame
investors haveprobably
been waiting will for
be prod-
a In response, CME said that while there are issues
tors consider Energy Transfer Partners to dont vote in proxy contests. Still, an activ-to
owns the general partner Magellan Midstream Partners / MMP 67.00 11 3.89 17.3 5.4 15.3
is extremely hard to come by. that man-
Its almost entrepreneurs on how day before. ucts they can buymerger on theof exchanges
the two companies,
they alreadyor an eq- know. work through, added
be uninvestible security
because tools
of its will allow
control by the istexchange
investor could take a stake in Energy Risks: Bond investments are subject to interest rate, credit, liquidity and market risks to varying
degrees. Credit risk refers to the ability of an issuer to make timely payments of principal and interest.
about makingTransfer You have Kinder Morgan
mistakes.Partners. / KMI
to launch and 17.23 the17
Coinbase, 0.64
largest cryptocurrency 26.8 ex- 2.9 Theres38.5not a dayuity thatbuyoutgoes by of that
the aIDRs
a prospect to appropriately
Energy Transfer manageEquity. the risk.a situa- Transfer Partners and press for changes.
He cites Foreign investing involves greater risk, including currency fluctuations, less liquidity, less developed
Those payments could totala $1.7 bil- trade tokens. Transfer Partners that would be eco- Among 1,000-2,000
hedge funds fighting to earn 5% return Plains All American Pipeline / PAAchange 19.50 in the U.S., 40surpassed 1.1110 million17.5 ac- 6.2 doesnt bring
14.1 it up, said Dominic Marella, the head of busi- tion in 2017those
Energy Transfersafeguards are margin If
Partners require-
removed as general partner, Energy or less efficient trading markets, lack of comprehensive company information, political instability and
100 Trading Days differing auditing and legal standards. Funds investing in a single industry (or group of industries),
overlion next year,
whatever theirthe highest is,inand
benchmark thethats
*per unit counts this year, adding 100,000 new accounts nessSource: development
Bloomberg nomically similar to a merger.
at Icon Alternatives, a futuresHowever,broker. ments
gave up that will general-partnership
a 10% far exceed other products. interestForTransfer
now, CME Equity would need to be compen- country or in a limited geographic region generally are more volatile than more diversified funds. 2
MLP industry.
[considered] Energy Transfer
a phenomenal performance. Eq- Were in just three days over Thanksgiving week. (Unof- Enter the big EnergyChicago Transferexchanges. Partners ruled out isinlooking at making
an acquired traders
company to deposit
its sister 35%com- of their initial
sated, butin-the cost likely would be much less Investments in lower-quality (junk bonds) and non-rated securities present greater risk of loss than
uity units
seeing also have like
opportunities beenthat
hit this year,every other
almost ficial counts put the number at more than 13 million, Over the last any internalweve
few months, restructuring
gotten increasing before re- vestment,
pany for no compared with 5% for a Standard &than
compensation. Poors in a500
merger in two or three years. investments in higher-quality securities. This fund is non-diversified and can take larger positions in
was like
It feels14%,
a bittolike
30 years
ago or
what $16.50.

is a flip
I imagine
side: extreme
They yieldcommodities
of step
with some of changes
Partners tional
been ill-served
ahead of Charles
by its
at $34houses
too, from five to
partner. at


is thatlast
10 times

has con-
billion.are reporting soaring institu- month
Ex- late 2019from
quests at the
Tim McCourt,
would is similarly
years activity. apt to haveseen
earliest on
ago. In anyhead combination,
a reduced
foritsa earnings
of equityEnergy
product to
manage risk,
at CME.
interest from not only larger asset
call asaid
Cboe has
other trading
was New
has been

quoted in of
It will
after swings
MLPs, including
also critic
a vocal
coins, articles
have circuit
as small
of several
Morgan. as 7%.
breakers Kaiserthat will says that even if Energy
He Partners is shortchanged in a merger with
are increasingly
in Barrons on its sister stealing

company, investors could profit be-

OF BITCOIN fewer issues, increasing its potential risk.
Prospectus: Carefully consider the funds investment objectives, risks, charges and expenses
before investing. This and other information can be found in the funds prospectus, which
may be obtained at Read the prospectuses carefully before you invest.
risk, securityWilliams Partnersits
challengesso (WPZ),
not freeandmoney,
Kinder he Morgan
adds. Over reward thethe
50 days, fora adaily
lower and more
average sustainable
of more than $1dis- The restructuring
bil- managers timetable
or hedge funds but might
all the have to be acceler-
way down to the more Bitcoins
the sector thunder.
in recent While
years. Bitcoin accounted forcause 87% ofthe theunits are so inexpensive. The 1 award as of 3/30/17 for Best New U.S. Fixed-Income ETF. Ordinary brokerage
Yet BitcoinAll has
three have eliminated
certainly seemed likeIDR payments
getting free money and lion tribution. The has
in Bitcoin savingsbeenwould
traded allow Energy
globally, TransfertoPart-
according Chris ated becauseretail
traditional equity financing
folks. The CME now futures
is costlywillforstart
Energy trading totalKaisers
market scenario
cap of digital tokens atTransfer
for Energy the start ofweak the year,unit itprice and equity financing prob- commissions apply. Nothing contained herein is fiduciary or impartial investment advice that is
thismoved to fund all
year. Despite someor asharp
greater portionthe
reversals, of capital
price ofspending ners to self-fund
Bitcoin Burniske, co-author its $3 billion
of the of projected
book Cryptoassets. annual capital Transfer on Dec. Partners. The company
18. Cboe hasnt set a date has said
yet, butit says
doesntit isneed
opera- makes
Partners up about
could 55% be a now,
shot. His to
sugges- lems could prompt Warren and other insid- individualized or directed to any plan, plan participant, or IRA owner regarding the advisability of
been ongenerated
a one-way ride,funds. rising nearly 1,000% since expenditures The logic that by 2019.
underpinsAnd sincethe bull itscase
IDRfor payments are any
Bitcoin often new equity
tionally ready. until the second half of 2018 at the earliest, tionA for
dangera bigis distribution
that Bitcoin cut could runsendagainst
up being ers the to Friend-
accelerate the merger or cut the dis- any investment transaction, including any IRA distribution or rollover. ETF Shares are not individually
redeemable, and owners of Shares may acquire those Shares from the Fund, or tender such Shares
Doug Chayka for Barrons

the start Kaiser,
of the year to a managing
$10,500 on director at research
Friday. Along the way,firm based circular:
in- seems on the distribution
Its worth more rate,because
a reduction
people in want
the latter
it, and afterThe an expensive
introduction $1 ofbillion
futuresequity offering
products willinaddAugust.
liquidity to ster of the crypto
the financial world,
interest while
of key the Facebookthe
insiders, includ- tribution. real win-Both scenarios likely would be for redemption to the Fund, in Creation Units only. Deutsche Asset Management represents the asset
vestors have Risk
extra treats.inInStamford,
August, theConn., is urging
Bitcoin chain the would
more letthey
the want
company it, thelowermoreitsitspayments to the
worth. Thats notGP.
unlike the Any merger
system. Butterms
the mostare apt to be based
noticeable impacton the be
could IDR to the nermay
ing Warren. stillInsiders
be in development
own about $3.5 somewhere. Aside from
billion favorable for Energy Transfer Partners. management activities conducted by Deutsche Bank AG or any of its subsidiaries. Xtrackers ETFs
TransferoffPartners unit holders tocalled get ridBitcoin
of the traditional
One thing are managed by DBX Advisors LLC (the Adviser) and are distributed by
forked, a new cryptocurrency fiat needs to be such
currencies hammered
as thehome,
dollar. Kaiser
But forsays.
other payments,
downside.and Whatthatthe
gives Energyare
exchanges Transfer
creating Equity
here is little
a won- Bitcoin,
of Energy theTransfer
other tokensEquity, with
butajust recognizablethough
$70 mil- na-
The complex situation involving Energy ALPS Distributors, Inc. The Adviser is a subsidiary of Deutsche Bank AG, and is not affiliated with
thatcompany as manager
was designed and cut
as a faster the MLPs
payment system. distribu- When retail
Most reasons, Bitcoin investors think distribution
isnt particularly useful cut,
as athey assume incentive
currency. derful toolto cut the distributions
to fully be able to short at Energy
says Mark scentbusiness
lion of Energy case are Ethereum,Partners,
Transfer which can execute Transfer morePartners is aptJ to be resolved
F one
M A ALPS. NoMbank guarantee J J insuredAI May lose value.
tion by
Bitcoin 43%, automatically
owners to $1.30 per unit, from a current
got Bitcoin Cash tokens annualized
equal itsConducting
bad. However, a distribution
transactions has become reduction
only moreat Energy
difficult Partners.
Williams, a former trading floor executive who now teaches sophisticated
Bloomberg data operations like contracts,
show. Typically, MLP man- and Ripple,
way or which
another by late 2019 or 2020. And
2017 2017 Deutsche Bank AG. All rights reserved. CH179227 R-052958-1 (10/17) DBX003054 (11/18)
Source: Bloomberg
to the of $2.26. of He thinks
Bitcoin theyEnergy Transfer
had. Bitcoin Cash Partners
shot uphas to and Transfer
because would create enormous
of gridlock value for
on the network. ETP
Visa Energy
can finance at Transfer Partners has
Boston Universitys attractive
Questrom pipeline
School as-
of Business. banks
agement can owns
use tomuch speedmore money of transfers.
the general the odds favor a decent outcome for long-
$400 on the first day of trading, after not even existing the process 10,000 times as many transactions per second as Even if Bitcoin gets Wall Streets imprimatur, that wont Therethan
partner are more than 1,200
the limited partner. other tokens too, launched
suffering unit holders.
24 BARRONS December 4, 2017

through initial coin offerings or ICOs that have drawn in- the normal protection that securities receive. In other witz giving millions of dollars to investors like Carlson-Wee
creasing capital in recent months. Investors have plunged words, people are buying them mostly for their investment to invest in new tokens. And some public market partici-
$3.6 billion into them this year, up from $96 million in all of potential instead of their potential as crowdfunded projects. pants are making the crossover. Patrick Byrne, the chief
2016, according to There is little stopping ICO creators from taking their $10 executive of (OSTK), is developing a new
Even people who think that the token economy will one million in proceeds and buying a mansion in Hawaii. licensed token-trading platform. Overstocks stock price has
day be as important as the internet itself say its a mine- tripled since SEC guidance eased the way in July.
field. Ninety-nine percent of it is junk, says Olaf Carlson- With that in mind, the Securities and Exchange Com- Other tokens could soon be available to more investors.
Wee, the 28-year-old founder of crypto hedge fund Poly- mission released guidelines in July on how to distinguish a Grayscale Investments, which started the Bitcoin Invest-
chain Capital, which has more than $400 million in assets. security, which needs to be registered as such, from a ment Trust, is getting ready to introduce a basket of the
These coins are similar to Bitcoin in that they are built crowdfunded project. Despite the regulators report, there largest cryptocurrencies by market value in the coming
on blockchain or similar distributed ledger technology remains minimal specific guidance on these products. months.

that is powered by multiple computers. But unlike Bitcoin, In the interim, some private players are trying to help At a CoinDesk conference last week, there was a mix of

which is at least accepted at some businesses and can be investors and entrepreneurs. GDAX, the institutional arm exuberance and caution. While many attendees may have
traded for fiat currency, most new tokens dont operate like of Coinbase, created a digital asset framework, explaining become millionaires off their Bitcoin stakes, the panelists
stand-alone currencies and have little to no usefulness out- how it will evaluate digital tokens to determine whether warned that investors need to know the party could come
side of the cloud. They raise money by crowdfunding on they will trade on its platform. to an end at any moment. That risk, however, may not be

dedicated websites, allowing people to trade Bitcoin or Traditional law firms like Debevoise & Plimpton are also enough to drive interest away from Bitcoin.
Ethereum for the new coins they create. getting involved, helping new token creators prepare offer- A really important concept in portfolio management is
To understand ICOs and the new tokens they spawn, ings and guiding exchanges toward legitimacy. New kinds the idea that you dont care about the risk of an asset

us l,
think of the digital coins that you can buy (with real of investment banks are popping up too, often staffed by because its idiosyncratic risk and it gets diversified away,
money) in some smartphone games. You use those coins to people whose background is in raising money for more tra- says Paul, the former endowment manager. If you put 1%

al a
gain access to new levels or weapons. Most new ICO- ditional public companies. It can be quite a culture shock. of an endowment in crypto, it actually reduces the risk
launched tokens also operate as currencies within self-con- The investment banking industry has been around for because its uncorrelated to the rest of the portfolio.

ci on
tained digital worlds. But they promise bigger rewards than more than 100 years, theres a book of rules, and everyone That argument is getting harder to ignore, particularly
a new digital sword to slay a digital dragon. Protocol Labs, plays the same game, says Irina Dimena, who formerly as old-school investors get tired of watching the party next
for instance, introduced an ICO in August for something worked at Morgan Stanley but is now head of corporate de- door.
called Filecoin. People can use Filecoins to buy cloud-com- velopment of Argon Group, which helps new token creators Eighteen months ago, the typical hedge fund or macro
puting storage offered by other people on the network. It raise money. We try to apply our previous experience and fund would never even dream of writing about Bitcoin or
raised $257 million, the largest such fund raising ever.
Filecoin may be among the 1% that succeeds. But many
are almost invariably pipe dreams. More important from a
er rs
regulatory perspective, theyre essentially securities without
best practices, but we are building a new industry. We want
to shape this industry in the right direction.
Venture capitalists and hedge funds have warmed to the
space, with Union Square Ventures and Andreessen Horo-
digital currencies in a quarterly letter, says Michael
Sonnenshein, director of sales and business development at
Grayscale. Now their investors are calling them up and ask-
ing, Why dont you have exposure to this asset class?
m e
m rp

The Value Case for Bitcoin in 2016 and started Miller Value Partners, eventually amassed a 5% Bitcoin position
in his hedge fund MVP 1, buying in at an average price of $350. Bitcoin now makes
up 30% of the fund. He acknowledges it may very well be a bubble.
co Fo

BITCOIN IS AMONG THE MOST VOLATILE INVESTMENTS IN THE WORLD, SOMETIMES JUMPING I consider it an experiment, and it is an experiment that might or might not
or plunging more than 10% in a single day. Its price can fluctuate based on actions work, he says. There is a nontrivial chance it goes to zero. Miller sees Bitcoin as
by far-off actors, be they miners in China or coders in California. a store of value rather than as a currency. Yes, Bitcoin doesnt have any intrinsic
Still, its gaining favor among a group that normally would shun this kind of value, and it is not backed by anybody, he says. But whats the intrinsic value of the
momentum-fueled crazevalue investors. painting The Scream that Leon
Murray Stahl, 63, is one of them. Stahl has run the New Yorkbased hedge fund Black bought for $120 million?
Horizon Kinetics for 23 years, investing in more traditional value investments, like It is just paint and canvas.
beaten-down stocks. Horizon now manages $5.5 billion in assets, including $100 million For now, Miller isnt looking
in Bitcoin. To Stahl, Bitcoin is the ultimate value investment, he says. to buy any more, given that it
For Stahl, the appeal of the investment is that there are a limited number of makes up such a huge portion
Bitcoins. There will be only 21 million created, and no central banker can change that. of his hedge fund. Im thinking
Plain-vanilla investments that depend on the strength of fiat currency for their value more about whats the proper

invariably become worth less as inflation rises. That makes them questionable value way to size it, given that it has
investments, he argues. If your money is being debased, what good is buying a bond gone up so much, he says. But
that yields 2%? he asks. Lets say it has very high creditworthiness. You are going if I didnt own it, I would buy it

to get paid, but inflation is at least 2%, and then youve got to pay taxes. It is a guar- today. I would buy at least a 1%
anteed negative real rate of return. position, if not more. Murray Stahl considers Bitcoin a value investment.
When Stahl started to hold lunches with clients about Bitcoin around 2014, 99% Others question whether
of them hadnt heard of it and were particularly skeptical. But many had come of age value investors should be plunging into Bitcoin.
Courtesy of Horizon Kinetics

during the rampant inflation of the 1970s and could remember how it destroyed value. David Dietze, president of Point View Wealth Management in Summit, N.J., says
They understand debasement because they experienced it, he says. he would steer clear of Bitcoin and then rattled off a half-dozen reasons: Its not
Bill Miller, a longtime Legg Mason value fund manager whose strategies led his backed by any government; its not clear that it cant be hacked; it has no intrinsic
fund to beat the market for 15 consecutive years before trailing during the financial value. Sentiment is frenzied; the run-up seems to have no fundamental basis. That
crisis, got interested in Bitcoin about three years ago. Miller, who left Legg Mason chart is scary. This will end in tears. A.S.
December 4, 2017 BARRONS 25

Tech Trader

Tech Giants Shadows Fall Over Promising Start-Ups

by Tiernan Ray
WHAT EVERY YOUNG TECH COMPANY NEEDS TO DO, JAMES offeringswhats known as being Amazond.
Barksdale of the early internet darling Netscape Com- Being Amazond is like what they said about Microsoft, which was

munications once said, is find a parade, and jump in known to embrace and extend offerings of smaller competitors by mak-
front of it. ing their products features of its Windows operating system and giving
That task is increasingly difficult for young compa- them away. Microsoft suffocated Netscapes browser business.

us l,
nies, given that the tech (ticker: MuleSoft sells tools that let companies run applications in the cloud.
AMZN), Alphabet (GOOGL), and Apple (AAPL)show Such an application can in turn become a kind of service that a Mule-

al a
no signs of slowing down. They increasingly call the shots in tech in a way Soft client can turn around and sell to other companies. For example, the

that limits the scope within which small companies operate. United Kingdom black cab company Addison Lee has described how it

ci on
Take initial public offerings. There have been some strong starts out uses the companys software kit to let other firms send notifications
of the gate, with software tools maker Appian (APPN) surging 39% since between cab drivers and passengers. Think of it as letting Addison Lee
its debut in late May, and streaming TV-set appliance maker Roku act like Uber, the ride-sharing service, in this case by helping fleet opera-
(ROKU) up 85% in under two months of trading. But cloud-computing tors, not putting them out of business.
darlings MuleSoft (MULE) and Tintri (TNTR) are down 7% and 28%, A worthy endeavor, but one ultimately reliant on Amazon, since AWS

from the first days close.)

er rs
respectively, since their March and June debuts. (All IPO returns are is the cloud-computing service that MuleSoft uses for its own code. This

The investment returns reflect a world tilted to the

giants. You could have bet on Apple, Amazon, and Alphabet Some companies
column has already warned of such a risk. For example,
Twilio (TWLO), another promising tech IPO from 2016, is
selling messaging technology used by Uber, and others,
m e
and made returns of 48%, 55%, and 29%, respectively, this built on AWS. In a sense, MuleSoft is trying to give clients
year. Its hard for small-caps to carve out a safe place in that have recently like Addison Lee the same capabilities as Twilio, an odd
m rp
this market. gone public are parallelism.
Many of these start-ups show promise, but dwell in the As pointed out in this space in April, Twilio and other
shadow of the giants. Netscape didnt survive the onslaught vulnerable to being young companies born in the cloud are particularly vulnera-
of Microsoft in the dot-com eraproof that the parade can ble to being Amazond (Amazon Web Services: Launchpad
end up flattening you even when your product is good and Amazond. for a New Generation of Start-Ups. Is That Good or Bad?
co Fo

your management is astute. April 1). While that hasnt yet happened, Twilio stock is
Similarly, these promising businesses seem somewhat diminished by down 9% since its debut in June of 2016.
the staying power of the giants. Amazon, especially, is a formidable force, MuleSoft has beaten revenue expectations for all three of its quarters
continually building its Amazon Web Services, a business that behaves as a public company, though at $291 million in revenue this year, its still
like a start-up even though one analyst, Heath Terry of Goldman Sachs, early days. Tintri, another cloud hopeful, is a little different. It is seeking
last week pegged its value at $430 billion. to enable companies other than Amazon to build their own cloud-comput-
ing operations. Also a worthy endeavor, though its possible that Tintri
The singular failing of the 2017 class of IPOs may be that their could see its client base evaporate as Amazon sucks the air out of the
ambition is too limited in scope, certainly much narrower than the ambi- room. Tintri has stumbled, slightly missing estimates for its first public
tion that birthed Amazon. Building an e-commerce giant from scratch was quarter in September. The company next reports results on Dec. 13.
something so daunting few would have conceived it, much less tried it, Another hopeful that, like Tintri, is selling infrastructure, is Mongo-
when Jeff Bezos got going in 1994. DB (MDB), which makes database software that it believes is better

Doubtless, Bezos was helped by the markets willingness to look past suited to cloud computing than the offerings of Oracle (ORCL) that
years of operating losses. Nor was Bezos ambition clear to all in Amazons have been around for years. The problem is, Amazon has several data-
early days, when it was a mere bookseller. The point is, Amazon was an bases of its own, and increasingly sees itself as a successor to Oracle.

enormous undertaking worthy of proportionate reward if successful, and Like Tintri, MongoDB is betting on a cloudscape, if you will, thats big-
it has been very successful. ger than just Amazon, but its not certain thats how things will play out.
MuleSoft and Tintri are two companies that have attached themselves MongoDB shares are down 13% since the IPO on Oct. 19. The com-
to Amazon. To paraphrase Barksdale, theyve found a cloud to get on top pany is set to report a day ahead of Tintri. At $144 million in revenue pro-
of. One wonders if Amazon will eventually say, Get off my cloud. That jected for the year ending in January, its about the same size as Tintri.
could be both a blessing and a curse. AWS is an expanding empire for Somewhat better insulated is SendGrid (SEND) of Denver, which
MuleSoft to leverage, but it also raises the risk that Amazon could ulti- just went public on Nov. 15. Its shares are up 17% since. Of the compa-
mately make obsolete some of what MuleSoft is doing with competing nies built on AWS, SendGrid may have a better approach. Its clients
26 BARRONS December 4, 2017

use it to send over a billion emails per day, as

IVY ADVANTUS BOND FUND (IVBIX) a kind of email service bureau. Those 58,000
customers include such up-and-comers as pri-
vately held music service Spotify. An increasing
number of them come from outside North
INTERMEDIATE-TERM BOND FUNDS (BASED ON RISK-ADJUSTED RETURNS) I AS OF 09/30/17 America. Being a resource with hooks into how
companies operate may make SendGrid less

3-YEAR O UT O F 852 FU ND S I 5-Y E A R O U T OF 773 F U N D S
prey to Amazon than tool and infrastructure
sellers like MuleSoft, Tintri, and MongoDB.
Investors so far like companies outside Am-
azons orbit, such as Appian and Roku, but


theyre not without concern. Appians software

tools enable more individuals to get in the
game of making software with very little cod-
ing knowledgeyet another worthy goal. One

problem is that others have done the same and

received a lukewarm reception from investors.
Tableau Software (DATA), which had a
similar mission statement, went public in May


us l,
of 2013, and is up 39% since then, trailing the
Standard & Poors 500s 58% return. Revenue

al a
growth has cooled for Tableau, dropping to
27% last year from 58% in 2015. As the com-

ci on
pany approaches $1 billion in annual sales,
growth is expected to be 5% this year. Appian
might be a more modern Tableau, in that it
uses AWS to serve up its tools. But, then, like
can offer different paths. INTERMEDIATE-TERM BOND FUNDS I AS OF 09/30/17 MuleSoft, theres that Amazond risk.

Security selection, not forecasting, drives our results.

Guided by macro-based sector allocation and bottom-up
Roku, this years IPO sensation, is trying to
define itself as a platform serving companies
that distribute video, like Netflix. In addition
to selling the Roku box, Roku makes money
m e

analysis, the Ivy Advantus Bond Fund relies primarily on off subscriptions sold to consumers to watch

bond-by-bond security selectionwith a strong emphasis video, and advertising. Its the Internet analog
m rp
of the cable businessa distributor and a gate-
on the relative value.
11 5 10
Rokus first earnings report, on Nov, 8,
Led by the same Advantus portfolio team for over 12 years,
blew the doors off, and the outlook was simi-
the fund managers utilize heightened risk awareness and
100 larly good. Revenue from fees and subscrip-
co Fo

a disciplined investment process to stay selective amidst 1-YEAR 3-YEAR 5-YEAR

tions surged 140%, to $57 million. This is still
mixed economic signals. Morningstar Percentile Rankings: 1-year, 104 out of 985; 3-year, 50 out of 852; 5-year, 79 out of 773; 10-year, 79 out of 546. a very young business, with just half a billion
Rankings are based on total returns.
in revenue projected this year, compared with
THE WORLD COVERED Netflixs $12 billion annually.
The deeper question is the classic one of
IVYINVESTMENTS.COM content versus distribution. If Netflix is the
FACEBOOK.COM/IVYINVESTMENTS content and Roku the distribution, which one
INVESTMENTS @IVY_INVESTMENTS really owns the customer, as they say, and
which one will profit most?
The projects of MuleSoft and SendGrid are
Past performance is no guarantee of future results. Risk factors: The value of the Funds shares will change, and you could lose money on your investment. Fixed income securities are subject to interest rate risk and, as
worthy, and intriguing, but their ambitions are
more pedestrian than Amazons and Googles in

such, the net asset value of the fund may fall as interest rates rise. Investing in below investment grade securities may carry a greater risk of nonpayment of interest or principal than higher-rated bonds. These and other risks are more
fully described in the funds prospectus. Not all funds or fund classes may be offered at all broker/dealers. Before investing, investors should consider carefully the investment objectives, risks, charges and the early days. That makes it hard to see them
expenses of a mutual fund. This and other important information is contained in the prospectus and summary prospectus, which may be obtained at or from a financial advisor. Read it ever reaching a similar scale. Perhaps the
carefully before investing. Source: Morningstar Direct; Fund listed is from the IVY FUNDS mutual funds family for Class I shares. Other funds and share classes have different and/or lesser ratings. Class I shares are only
available to certain types of investors. IVBIX Morningstar ratings: 3-year, 5 stars, 852 funds; 5-year, 5 stars, 773 funds; 10-year, 3 stars, 546 funds; overall, 4 stars out of 852 funds. The Morningstar Rating for funds, or star rating, is cloud will nevertheless prove to be the parade

calculated for managed products (including mutual funds, variable annuity and variable life subaccounts, exchange-traded funds, closed-end funds, and separate accounts) with at least a three-year history. Exchange-traded funds and they can join and have several more years of
open-ended mutual funds are considered a single population for comparative purposes. It is calculated based on a Morningstar Risk-Adjusted Return measure that accounts for variation in a managed products monthly excess healthy sales growth as a result.
performance, placing more emphasis on downward variations and rewarding consistent performance, and does not include the effects of sales charges. The top 10% of products in each product category receive 5 stars, the next 22.5%
receive 4 stars, the next 35% receive 3 stars, the next 22.5% receive 2 stars, and the bottom 10% receive 1 star. The Overall Morningstar Rating for a managed product is derived from a weighted average of the performance figures If they cant ultimately thrive, several may
associated with its three-, five-, and 10-year (if applicable) Morningstar Rating metrics. The weights are: 100% three-year rating for 36-59 months of total returns, 60% five-year rating/40% three-year rating for 60-119 months of total yet end up being acquisitions if one of the
returns, and 50% 10-year rating/30% five-year rating/20% three-year rating for 120 or more months of total returns. While the 10-year overall star rating formula seems to give the most weight to the 10-year period, the most recent giants takes a shine to their innovations and
three-year period actually has the greatest impact because it is included in all three rating periods. Percent Rank in Category is the fund's total-return percentile rank relative to all funds that have the same Morningstar Category. The
highest (or most favorable) percentile rank is 1 and the lowest (or least favorable) percentile rank is 100. The top-performing fund in a category will always receive a rank of 1. % Rank in Category is based on total returns which include decides to slip them into its pockets.
reinvested dividends and capital gains, if any, and exclude sales charges. Multiple share classes of a fund have a common portfolio but impose different expense structures. 2017 Morningstar, Inc. All Rights Reserved. The
information contained herein: (1) is proprietary to Morningstar; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any
damages or losses arising from any use of this information. IVY INVESTMENTS refers to the investment management and investment advisory services offered by Ivy Investment Management Company, the financial services Tiernan Ray can be reached at
offered by Ivy Distributors, Inc., a FINRA member brokerdealer and the distributor of IVY FUNDS mutual funds and IVY VARIABLE INSURANCE PORTFOLIOS, and the financial services offered by their affiliates.,,
IVY DISTRIBUTORS, INC. 37039 (11/17)
December 4, 2017 BARRONS 27

Mutual Funds
Lead manager Ryan
Caldwell uses quant
Mutual Funds

models to allocate the

go-anywhere Chiron
Capital Allocation fund.

us l,
al a
ci on
er rs
m e
m rp
co Fo

Talking With Ryan Caldwell ment to the concepts appeal and its managers reputation.
The question is whether any fund can deliver on such a complex strategy. Execu-
tion has been the bane of the world allocation category. According to Morningstar,
Lead Portfolio Manager, Chiron Capital Allocation Fund over the past five years the average world allocation fund had an upside/downside
capture ratio of 90/128, versus the Morningstar Moderate Target Risk Total Return

A Fund for All Seasons

Index, which comprises 60% global stocks and 40% global bonds. That means the av-

erage fund had 90% of the benchmarks upside when it was rising and 128% of its
downside when fallingunderperforming in both good and bad markets.
Chirons managers have an impressive pedigree and a unique investment style that
by Lewis Braham

should differentiate them. Lead manager Ryan Caldwell was co-manager of Ivy Asset
Strategy (WASAX) from January 2007 through June 2014, during which the fund pro-
ITS A PERENNIAL FANTASY FOR MANY INVESTORSFINDING THE ONE FUND THAT CAN DO duced an 89% cumulative return, compared with the world allocation categorys 29%
well in every kind of market, up, down, or sideways. and its benchmarks 55%, according to Morningstar. Caldwell makes the asset-alloca-

Ryan Nicholson for Barrons

Chiron Capital Allocation (ticker: CCAPX) could be that fund. Launched in tion decisions. Co-manager and stockpicker Grant Sarris managed Buffalo Small
November 2015, this world allocation fund has the flexibility to invest anywhere, Cap (BUFSX) for 10 years and Ivy Small Cap Growth (WSGAX) for fiveboth top
within a wide range of allocations25% to 70% in equities, zero to 50% in cash, 20% performers during his tenure. Rounding out the team is co-manager Brian Cho, a
to 50% in bonds, and up to 20% in emerging markets. It can also own commodities quant with 25 years experience who designs the models.
and short securities. The fund has already gathered $1.5 billion in assetsa testa- The fund is new, but so far so good. Since its 2015 continued on page 28
28 BARRONS December 4, 2017

inception, Chiron has had 100% of the upside portunity in cheap stocks is greater than Scoreboard: Banks Lead the Way
of the Morningstar Moderate Target bench- usual, so the fund tilts toward value. If dis- (The broad market beat the average diversified U.S. stock fund, 1.9% to 1.6%. Financial services funds,
mark with only 52% of its downside, deliver- persion is narrow, it tilts toward growth. In however, did twice as well, returning 3.4% in the week ended Thursday, according to Lipper.
ing a 24.4% cumulative return. One reason Chirons composite valuation score, coun- One Week Year-to-Date
for the funds success is the same reason for tries rated below zero indicate a growth tilt;
the average world allocation funds failure: those above one indicate value. Right now, U.S. STOCK FUNDS 1.64% 17.5%
TOP SECTOR / Financial Services Funds 3.42 14.9
Many have a decided style tilt. In particular, the U.S., Canada, and Europe are below BOTTOM SECTOR / China Region Funds 4.02 45.2
some of the largestBlackRock Global Al- zero while most emerging markets are well S&P 500 1.94 18.3
location (MDLOX), GMO Benchmark- above it. U.S. BOND FUNDS 0.15 3.6
Bloomberg Barclays AGG Bond 0.40 2.5
Free Allocation (GBMFX), and IVA World- Our portfolio in emerging markets looks
wide (IVWAX)favor cheap securities. very different, Caldwell says. There is a THE WEEK'S TOP 25

Thats been a problem, since recently value bias because theres still dispersion in Fund Investment Objective One Week Year-to-Date

pricier growth stocks like China, India, Russia, and Turkey. In Russia,
Kinetics Internet NL / WWWFX Science & Tech 9.17% 43.2%
(AMZN) have surged. Growth is now the fund has owned cheap cyclical companies Kinetics Global NL / WWWEX GL Sm/Mid-Cap 6.86 37.1
squarely in leadership in the U.S. and Eu- like oil giant Lukoil (LUKOY), which has a Fidelity Sel Transport / FSRFX Industrials 6.57 19.2
rope, says Caldwell. The market has price/earnings ratio of just eight, according Kinetics Mrkt Opps NL / KMKNX Flexible Portfolio 5.75 35.0

Fidelity Sel Health Care / FSHCX Health/Biotech 5.45 24.9
to Morningstar. In China, the fund has held Global Strat Inc A / VEEEX European Region 5.29 16.7
Chiron Capital Total Return* state-owned Agricultural Bank of China Athena Value Fund I / ATVIX Multi-Cap Value 5.08 4.6
Since (1288.Hong Kong), which has a 5.5 P/E.
Allocation Fidelity Sel Air Trans / FSAIX Specialty & Misc 4.96 21.0

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1-Yr Inception Fidelity Sel Banking / FSRBX Financial Services 4.94 11.5
CCAPX 16.6% 24.4%
Despite the developed-market growth
Saratoga Finl Svcs I / SFPIX Financial Services 4.77 18.2
Morningstar Mod. Target Risk 14.7 21.3
tilt, the funds models limit the risks of Fidelity Adv FnSv A / FAFDX Financial Services 4.70 18.7

al a
frothy markets by reducing the allocation as Fidelity Sel Financial / FIDSX Financial Services 4.69 19.0
Asset Allocation** valuations increase, while simultaneously in- Small Cap Value Fund / SCAPX Small-Cap Value 4.69 26.0
J Hancock Reg Bank A / FRBAX Financial Services 4.68 11.1

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Stocks creasing exposure to cheaper markets. So in Upright Growth Fund / UPUPX Global Multi-Cap Core 4.65 2.7
Equity 74.4% the funds fiscal year ending in October 2017, Rydex Transport Inv / RYPIX Industrials 4.51 20.8
Equity Short Hedge -15.6 North American stock exposure dropped SkyBridge Div Val I / SKYIX Equity Income 4.41 5.0
Total Net Equity 58.8 from 50% to 36% while emerging markets Hodges Pure Contr Rtl / HDPCX Small-Cap Value 4.37 8.3
Fixed Income Fairholme Allocation / FAAFX Flexible Portfolio 4.35 13.6
increased from 15% to 21%. The same logic Rydex Banking Inv / RYKIX Financial Services 4.27 11.6

er rs
U.S. Govt Bonds 21.6
applies with bonds: If yield spreads between ICON Financial S / ICFSX Financial Services 4.24 17.6
U.S. Govt Agency Bonds 1.4 ICON Industrials S / ICTRX Industrials 4.11 13.1
corporate bonds and Treasuries are wide,
Investment Grade 1.8 HCM Dividend Sector+ A / HCMNX Equity Income 4.04 14.8
the fund tilts toward corporates, but if nar- Blue Chip Investor Fund / BCIFX Large-Cap Core 4.02 16.3
High Yield 4.3
row, toward government bonds. The latter
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Hennessy Sm Cp Finl Inv / HSFNX Financial Services 3.98 3.0
Convertible Preferred 1.1
now account for 23% of the fund, up from
Fixed Income Hedge -4.5 THE WEEK'S BOTTOM 10
9% a year ago as corporate and high-yield
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Total Net Fixed Income 25.7 Fund Investment Objective One Week Year-to-Date
have fallen from 12% to 6%.
Commodities 0.9
Also, to accommodate the growth stock Oberweis China Opps Inv / OBCHX China Region 5.79% 51.7%
Gold Futures 0.9
theme, Sarris has found companies with Matthews Asia China Inv / MCHFX China Region 5.44 53.9
Cash 4.6 Columbia Grtr China A / NGCAX China Region 5.05 54.9
strong revenues but lower valuations than Neuberger Gr Chn Eq Is / NCEIX China Region 5.04 61.3
*As of 11/28/17 **As of 10/31/17 Sources: Chiron; Morningstar
market darlings. The fund allocated some of
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US Glbl China Region / USCOX China Region 5.01 58.1

its tech weighting to Chinas version of Ama- Clough China I / CHNIX China Region 4.80 40.2
themes it now believesbig disruptive tech- zon, Alibaba Group Holding (BABA), which Fidelity China Region / FHKCX China Region 4.77 47.8
Bail Giff Em Mkt 5 / BGEDX Emerging Markets 4.68 50.3
nologies, semiconductors, artificial intelli- was far cheaper than Amazon at the start of Victory Sophus China A / RSCHX China Region 4.65 54.5
gence, and robotics. Investors are betting 2017. (It is up 113% year to date.) For a Morg Stan I Asia Opp I / MSAQX Pacific Ex Japan 4.46 63.6
on those sectors vigorously, and theres no while during the first part of the year,
questioning whether the top companies are Alibaba was one of our largest positions, Assets 3-Year* 1-Week YTD
dominant. Value investing in this environ- Caldwell says. China had valuation disper- Fund (billions) Investment Objective Return Return Return
ment just doesnt work. So the fund has in- sion plus growth. That was really attractive. Fidelity Contrafund / FCNTX $89.4 Large-Cap Growth 13.0% 0.51% 31.8%
vested in tech darlings such as Amazon and Sarris fundamental research can also act Vanguard Wellington Adm / VWENX 85.4 Mix Tgt All Gro 7.8 1.49 13.4
Alphabet (GOOG) and has a hefty 19.1% as a check on the quant models when they American Funds Gro A / AGTHX 84.4 Large-Cap Growth 12.0 0.77 24.7
American Funds Inc A / AMECX 77.1 Mix Tgt All Mod 6.2 0.98 11.6
tech weighting in its equity allocation. produce misleading results. This often hap- American Funds CIB A / CAIBX 71.5 Global Equity Income 4.7 0.79 13.1
Its important to understand that pens when companies or sectors are in a Dodge & Cox Stock / DODGX 68.4 Large-Cap Value 10.0 2.49 15.5

Dodge & Cox Intl Stock / DODFX 65.5 Intl Large-Cap Core 3.4 0.96 21.5
Caldwell arrived at this allocation not by transitional state. If our fundamental ana- American Funds EuPc R6 / RERGX 64.3 Intl Large-Cap Growth 7.8 1.60 29.7
believing the stories behind these momen- lysts meet with a companys management American Funds ICA A / AIVSX 62.3 Large-Cap Core 9.0 1.89 17.6
American Funds Bal A / ABALX 62.0 Mix Tgt All Gro 7.8 1.05 13.9
tum stocks, but via quantitative models that and realize theres a problem that hasnt American Funds CWGI A / CWGIX 56.4 Global Large-Cap Core 7.3 0.23 22.8

will steer him away if conditions change. The shown up yet on the companys income state- American Funds Wash A / AWSHX 56.2 Large-Cap Core 10.0 2.60 18.3
PIMCO Tot Rtn Inst / PTTRX 54.8 Core Plus Bond 2.5 0.53 4.5
fund employs what Chiron calls a quanta- ment, then we defer to the fundamental anal- American Funds FInv A / ANCFX 52.9 Large-Cap Core 11.7 1.22 21.1
mental approach: Cho screens for factors ysis, Caldwell says. It works the other way. Dodge & Cox Income / DODIX 52.4 Core Bond 2.9 0.22 3.9
Vanguard PRIMECAP Adm / VPMAX 52.1 Large-Cap Core 13.3 1.08 28.0
that are currently driving markets world- If the analyst likes the companys story, but Met West Total Return I / MWTIX 48.5 Core Plus Bond 2.0 0.32 3.0
wide, paying particular attention to a statis- its deteriorating in the quantitative work, we Franklin Cust Inc A / FKINX 46.3 Mix Tgt All Mod 4.0 0.85 7.5
PIMCO Income Inst / PIMIX 45.5 Multi-Sector Inc 6.1 0.04 8.3
tic known as valuation dispersion. That mea- have to ask, Are we missing something? DoubleLine Tot Rtn I / DBLTX 44.7 US Mortgage 2.7 0.27 3.5
sures how wide the gap is between growth Chirons goal is to integrate quantitative and Vanguard Sh-Tm Inv Adm / VFSUX 42.1 Short Inv Grade 1.9 0.05 2.1
American Funds NPer A / ANWPX 41.7 Global Large-Cap Growth 10.5 0.53 28.4
and value stocks on Chirons composite score fundamental research perfectly so they Vanguard Wellesley Adm / VWIAX 40.7 Mix Tgt Alloc Con 6.1 0.53 9.1
of 16 valuation metrics, which includes divi- become quantamental. Sure, the name T Rowe Price Gro Stk / PRGFX 40.2 Large-Cap Growth 14.1 0.66 34.1
dend yields, earnings, and cash-flow ratios. sounds gimmicky, but the strategy behind it Vanguard Tgt Ret2025 Inv / VTTVX 38.0 Mixed-Asset Target 2025 6.6 0.59 14.7

A wide dispersion indicates that the op- could be the one investors dream of. *Annualized 11/26/2014 to 11/30/2017. Through Thursday. Source: Lipper
December 4, 2017 BARRONS 29

Fund of Information

How Smart Investors Give to Charity

by Lewis Braham
WITH GREAT POWER COMES GREAT RESPONSIBILITY: NEVER HAS ultimately to 0.1% for accounts of more than $15 million.
this been truer than with donor-advised funds. These philan- Vanguard has a minimum investment of $25,000, 0.6%

thropic investment accountsessentially mutual funds that administrative fees, and an annual $250 maintenance fee for
enable individual investors to emulate private foundations accounts that drop below $15,000, making it much less
have surged in popularity recently. Were the second- affordable for the smallest donors. The administrative fee

us l,
largest charitable grant maker in the U.S. after the Bill and drops to 0.4% above $500,000, but goes no lower for standard
Melinda Gates Foundation, says Elaine Martyn, managing accounts. There is, however, a select account that Van-

al a
director of the private donor group at Fidelity Charitable, guard can award at its discretion for accounts with more than

the most popular donor-advised fund sponsor. We do about $1 million, which charges 0.13% and then drops to 0.05% for

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$4 billion in grant-making a year. assets over $30 million. According to Vanguard: Approval is
Total donor-advised fund charitable assets stood at $85 bil- unlikely if account activity results in excessive expenses or
lion at the end of 2016 and have been growing rapidly. Weve significant balance fluctuation above and below $1 million.
seen a 50% increase in new accounts so far in our latest fiscal Fidelity has only four break points, starting at 0.6% or
year, says Kim Laughton, president of Schwab Charitable, $100, whichevers greater, for accounts of $5,000 to $500,000, Donor-advised funds

er rs
the third-largest donor-advised fund sponsor.
Four of the largest sponsorsFidelity, Goldman Sachs,
Schwab, and Vanguardhave offshoots that are legally chari-
ties themselves, although in reality they act as middlemen,
then falling to 0.15% for assets above $2.5 million.
There are also the underlying investment options to con-
sider. Vanguard has 15 that are primarily low-cost index
funds. But surprisingly, Vanguard is not the low-cost leader,
enable investors to
essentially create
m e
allowing you an immediate tax deduction for your donation as it often is outside the DAF world. Fidelity and Schwab
their own private
while passing it on to other charities whenever you want both match or undercut Vanguards funds fee-wise with their foundation, but better.
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them to receive itnow or years down the road. While, index offerings, even beating Vanguards lowest-cost Select
legally, Schwab Charitable does control the disposition of the fund class.
assets, practically speaking, as long as you select any charity Moreover, Fidelity and Schwab offer top-notch actively
deemed eligible by the IRS, we will approve managed funds, such as JPMorgan U.S. Equity (ticker:
Cash Track, the grant to that charity, Laughton says. JMUEX) at Fidelity and Hartford International Opportu-
co Fo

page M28 That level of control is typically afforded nities (HAOYX) at Schwab. They also offer socially respon-
only to private foundations, which are costly sible funds. Although Goldman Sachs administrative fees are
to set up and maintain and have smaller tax benefits. Donor- comparable to the other three sponsors, its underlying funds
advised funds, also known as DAFs, allow greater deductions are pricey and DAFs are available only to private wealth
for cash donationsup to 50% of your gross income compared clients with assets over $10 million.
with 30% for foundationsand for appreciated stock dona-
tions, 30% of income to foundations 20%. And donor-advised Top marks overall go to Schwab, as it has a professionally
funds allow you to donate illiquid assets you couldnt easily managed account option for accounts over $250,000, allowing
give directly to most charitiesreal estate, business interests, donors who hire an advisor to invest in almost any stock,
even art. In fact, your control is even greater than that of a bond, or fund. Fidelity allows such investment flexibility only
foundation, which must by law distribute at least 5% of their at the $5 million level via its Charitable DonorFlex Program.
assets annually. DAFs have no such requirements. Yet hiring an advisor actually adds another layer of

Still, more control means more responsibility. You choose responsibility for conscientious donors. Unlike most invest-
the end charities, the amount and timing of your annual chari- ing, the goal of charity is to give your assets away, yet most
table distributions, as well as the right donor-advised fund. advisors are compensated by a percentage of assets. That

Ideally, you want investments in the account to perform well. incentivizes them to hoard the assets, instead of distributing
Two key factors affecting that are the accounts administra- them to the charities that need thema conflict of interest.
tive costs and its underlying investment options. Both vary, Hoarding donor-advised fund assets means that the tax
depending on your account size. deduction you received for it is a drain on society, not a help.
At Schwab, the minimum account size is $5,000, and ad- Some advisors manage the charitable portion of their clients
ministrative fees start at 0.6% of assets or $100 a year, which- portfolios for free, Laughton and Martyn both say. That
ever is greater, for the first $500,000 invested. Fees drop to removes the conflict and ensures that they take seriously
0.3% for the next $500,000, then fall at different break points, DAFs newfound power to foster charity.
30 BARRONS December 4, 2017

ETF Focus recall Jack Bogle himself curses the day he introduced growth and value funds, be-
cause that encouraged performance-chasing behavior.
No wonder industry insiders are abuzz. To a degree, Vanguard reifies factor
ETFs as a critical piece of armature, Hougan adds.
That may be true, but the firm is working hard to keep the discussion between
active and passive. Just as outgoing CEO Bill McNabb has been careful never to ac-
knowledge the term smart beta, incoming CEO Tim Buckley likely had a hand in

Vanguard to Launch New ETFs

crafting the language in Vanguards press release, which never endorses factor in-
vesting outright and is even headlined: Vanguard to Introduce First Actively Man-
aged ETFs With Suite of Factor Funds.
Vanguard is adamant that it does not want investors to use these ETFs to time the
by Crystal Kim

market. Timing is worrisome, and risky for individual investors. Even sophisticated

DONT CALL IT SMART BETA, OK? CALL IT ACTIVE MANAGEMENT. advisors think they can predict and control results with particular exposures, but there
That was the gist of Vanguard Groups message when the $4.5 is no way to predict what returns are going to be, says Ameriks.
trillion firm, $836 billion of which is in exchange-traded funds, an- ETF Table,
nounced plans to launch an entire suite of actively managed factor Its true that factor investors need to be patientno factor outper-

ETFsfive single-factor ETFs keyed into low volatility, value, mo- forms all the time. But factor strategies are more about overall port-
mentum, quality, and low trading liquidity, plus two multifactor folio construction than expecting one product to beat the market. Thats why Van-
strategies in ETF and mutual-fund form. They will begin trading guard says these products were designed for financial advisors and institutional

us l,
in the first quarter of next year. investors seeking to achieve specific risk or return objectives. The firm expects that
Research says certain factors can provide excess return over long periodsthats advisors and institutional investors are better equipped to use them properly. For

al a
the promise of factor investing. But theres no guarantee, and that is an important instance, to lower the risk profile of portfolios without adding to the fixed-income
distinction for Vanguard. Nobody at Vanguard believes in magic, John Ameriks, sleeve, advisors can use a minimum-volatility ETF.

ci on
head of the nearly $35 billion quantitative equity group at Vanguard, told Barrons. The funds will embody the firms focus on cost: The single-factor ETFs will charge
Our assessment of the research is that we have more confidence in certain factors an estimated expense ratio of 0.13%, the multifactor ETF and mutual fund, 0.18%.
over others, but we dont have perfect confidence in any of these types of approaches. Hougan says factor ETFs used to charge 75 basis points, or 0.75%; now they charge
Its always an active proposition. somewhere in the mid-30s, and are heading down. All systematic strategies are on
Vanguard has a deep research bench and theres likely disagreement about the a march toward zero [fees], and that is just as true with smart beta, Hougan says.

er rs
capturability and validity of factors, says Matt Hougan, CEO of Inside ETFs. You But, for the love of Pete, dont call it smart beta.
m e
m rp


There are risks involved with investing in ETFs,
including possible loss of money. ETFs are subject
co Fo

to risks similar to those of stocks.

Factor investing is an investment strategy in
which securities are chosen based on certain
characteristics and attributes.
Shares are not individually redeemable, and
owners of the Shares may acquire those Shares
from the Funds and tender those Shares for
redemption to the Funds in Creation Unit
aggregations only, typically consisting of 10,000,
50,000, 75,000, 100,000 or 200,000 Shares.

Before investing, investors should


carefully read the prospectus/

SPLV SPMO SPHQ summary prospectus and carefully
consider the investment objectives,
risks, charges and expenses. For this

and more complete information about

SPVU XSLV SPHD the Funds call 800 983 0903 or visit for

precision investing with factors Invesco Distributors, Inc.

December 4, 2017 BARRONS 31 disrupted customer relationship software nearly 20 years ago and keeps
finding ways to grow. New markets and fatter margins could send the stock up 25%.

Buy the Stock From This Salesforce

by Jack Hough
More Chances

its name, but its getting close. Its cloud- Salesforce founder
based software designed to help sales- To Close Deals

and CEO Marc Benioff
people turn leads into deals, called Sales As Salesforce launches new products, its
Cloud, now brings in only about a third of "addressable market"the universe of business
subscription revenue, down from half just it can pursueexpands (see below). That means

more opportunities for sales and
three years ago. Its not that Sales Cloud potentially wider margins. 105
is slipping; revenue there is still growing 95
at a double-digit yearly clip. But newer 86

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productsService Cloud, Marketing Cloud, $70 78
App Cloudare growing even faster. And (bil)

al a
the company isnt done expanding its menu.

All of this is increasing the dollar

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amount of business that
(ticker: CRM) can pitch for, or what Wall
Street calls its total addressable market.
That could top $100 billion by the end of
the decade. Salesforces goal is to double its
revenue in the next five years, reaching
$20 billion to $22 billion. That growth will
be important, because investors have
already awarded Salesforce an ambitious
er rs 2016
2017E 2018E
App Cloud
2019E 2020E
m e
E=Estimate Sources: Gartner, company reports, UBS
stock market value of $75 billion, which
works out to about 30 times the free cash it years. That makes the shares appear not growing their systems, and their workers products. In sales software, Salesforce
m rp
is expected to generate next year, versus 20 only worth their premium price, but also can access programs across different enjoys a market share around 40%. In mar-
times for the Standard & Poors 500 index. headed for more gains. They could rise devices and operating systems. Salesforce keting and service, its share is half that.
The good news is that Salesforce looks more than 20% over the next year, in line remains the leader in CRM. It competes But last quarter, while Sales Cloud revenue
likely to increase the productivity of its with their average yearly increase of 22% with much larger players, including Oracle, grew 17% from a year earlier, revenue for
own, well, sales force, by gathering more over the past decade. valued at $207 billion, and SAP (SAP.Ger- Service Cloud rose 25%. Marketing Cloud
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revenue from existing customers as it goes many), at $136 billion. grew 38%. Salesforce Platform and Other,
after new ones. The practical result of that Salesforce was founded in 1999 by Salesforce appears to have more to win which includes App Cloud, grew 34%.
for investors is likely to be rising profit former Oracle (ORCL) executive Marc from these giants than to lose to them. Canaccord Genuity analyst Richard
margins. Operating margin has already Benioff and partners, with the idea to There is still $14.6 billion worth of CRM Davis calls Salesforce one of the worlds
pushed above 14% from 10.7% three years deliver business software via the internet. spending for in-house systems, according to highest-quality software companies, and its
ago. It could top 20% in three to four At the time, Siebel Systems was the leader estimates by Gartner, a market researcher. shares, a good place to invest in 2018. His
in software for customer relationship man- That might understate the opportunity, price target of $130, implying 25% upside (CRM - NYSE) agement, a broad term for tracking sales, because companies tend to spend more on from a recent price of $103.50, works out to
Weekly close on Nov. 30 service, and marketing interactions. Sales- SaaS than they do to maintain their legacy an enterprise value, or stock market value
$110 force entered the CRM market with sales software. That makes sense, because adjusted for surplus cash, of 29 times his
90 software that customers can pay for as they embedded in the price of SaaS is the cost free-cash-flow projection for calendar 2019.
go via subscription. Early on, it proved of the remote hardware it runs on. Invest- There are risks. The giants that Sales-

70 popular with small and midsize businesses ment bank UBS pegs the revenue to be force competes against generate plenty of
that didnt want the financial commitment gained from moving in-house CRM soft- free cash to spend on product development,
of installing and maintaining software on ware to the cloud at $24 billion. and while they were late to the cloud, they

30 their own machines. Then, larger busi- In an investor presentation last month, have been making strides. Like many tech
13 14 15 16 17 nesses began signing on. Siebel fell into Salesforce said it expects to grow revenue companies, Salesforce pays its workers
Source: Bloomberg
decline and was bought by Oracle in 2006. by 24% this fiscal year through January, to partly in stock, which can expand its share
Today, the model that Salesforce $10.4 billion, and 20% next year, to count over time. And of course, with ele-

David Paul Morris/Bloomberg

The Bottom Line pioneered is called software-as-a-service, or $12.5 billion. Overseas markets offer one vated stock valuations can come an elevated shares should continue SaaS, and its benefits are well known. opportunity for growth. Revenue there is risk of a selloff, if results fall short of expec-
to outperform as revenue rises and Theres often no hardware needed, and well below that of the companys Americas tations. There, Salesforce at least has a
margins improve. A 25% increase nothing to install. Software is updated division, which includes the U.S., but has record of guiding toward numbers it can hit.
in 2018 to $130 seems achievable. quickly and seamlessly behind the scenes. been growing faster. Another obvious path It has beaten consensus revenue estimates
Companies dont have to worry about out- for growth is through relatively young each quarter over the past five years.
832 BBA
ONNSS December
December 4,
4, 2017
2017 December
December 4,
4, 2017
2017 BBA

Are MLPs part of your starting lineup?

An Interview With Ken Sena
Senior Analyst, Wells Fargo Securities Streetwise
I was surprised that, by the time I wrote our first report about the project in September,
Aiera was already writing her own reports and providing her own predictions.

Aiera, Why Do You Like Amazon Shares? You're not likely to nd MLPs in your large cap equity fund.
Diversify and add income potential to your portfolio.
vance when she sees mention of measures It also raises social questions, because changed by AI, so you could see Amazons continuing to focus on the ads themselves.
like beta or operating margin, for we are talking about a technology that has addressable market opening into new Investors dont credit Google for those op-
instance. At what point does Aiera start to a tremendous capability for automation. industriesallowing them to sustain their portunities and are maybe even discount-
by Bill Alpert Aiera. So she watches articles written by provide better services than I do? I dont That will affect society. growth rate over a long period of time. If ing Google for its research investments.

North Korea vs. the Market

Barrons and others. Also Twitter feeds see that coming anytime soon. we go back five years and look at our
To the extent that Im making predic- Unemployment? Amazon models, what we were expecting With Alphabet shares at $1,036, how

KEN SENA HAS BECOME QUITE POPULAR and Facebook. Ultimately, she starts to
with the robot crowd since September, understand what sentences, what articles, tions about stocks that go up or down Unemployment, wage growth was much lower than where they are high could they go?
when the Wells Fargo Securities analyst can move a stock. Using this type of tech- over a short time period, Aiera might be growing today. You could say the same My target is $1,275.
introduced an artificial-intelligence system nology, a certain amount of media bias can in a better position to assess whether or by AlexaboutEuleGoogle and Alibaba.

not a particular stock is oversold or over- Ken Senas Picks And how is Alibaba exploiting these
called Aiera that issues Buy and Sell calls be eliminated.
bought. But I would still say that myDURING abil- A NEWS MEETING A FEW MONTHS AGO, Recent With Amazon trading around $1,176 technologies?
on nearly 550 stocks. Aiera uses the ONE OF MY Eurasia Group, a geopolitical consultancy, said this week that the
Media bias? Company / Ticker today, your price target is what?
machine-learning technology known as a ity to lay out a fundamental idea to colleagues
a cli- brought up a story idea: how toPrice protect risk of military conflict in North Korea hadnt Whatactually
is so interesting
changed follow- about Alibaba is

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neural network, which also makes our Aiera will learn from experience that, per- ent and look further over the horizoninvestment will portfolios
Alibaba from the
Group Holding threat of North
/ BABA $177.08 KoreaIt ising
$1,430 over atest.
the latest 12- to 18-month
This period. they
latest provocation doestake
data signals through search
the prob-
electronics talkative and our cars autono- haps, a story in Barrons has additional continue to have an advantage over Aiera and the potential for nuclear war. ability of military conflictwhich we still like assessGooglebut
is 20%but also
wefromexpect transactions
Alphabet / GOOGL 1,036.17 And at Alphabets Google, what are the

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for some time. like Amazon.
tests andAnd with forAnt Financial, they

mous. With AI busting out all over, we credibility with investors, because the The room fell silentnot a common occurrence at more ICBM [intercontinental ballistic missile] a call more
It is not necessarily about wholesale market opportunities? have the largest mobile payment platform
caught up with Aiera and Sena to find out stock moves accordingly. But she decides. our weekly meetings./Then AMZNfolks jumped in with a mix sanctions, the firm wrote in a note to clients.

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how machine learning is working on Wall It is not something that we tell her. Aiera automation or replacement. It is really of bewilderment and shame that we were actually hav-GoogleKnowing was verytheres
early in understanding
a one in five chance in of
war which
with an is like PayPal. Then they
much more about enhancement Tencent Holdings / 700.Hong Kong HK$398
and howAt Barrons,
Street and at the companies he recom- has insights on some media that you or I ing the conversation. were good at finding the investingthe nuclear science. power
If youwont
are searching
help my sleep. for a But alsoinvestors,
have Chinas facedlargest
with an cloud-services
mends, like, Alphabet, and might recognize, for example: Almost all do you use data science
angle intonews do events.
the jobBut Prices
thisasone was different. How do
of 11/30/17 Source: Bloomberg tennis racket from your desktop
unknown threat, at have
work,shown platform and the toleading
a willingness hit the business-to-
Alibaba. the stories they write about this particular better than was done youintalk
the stocks
past. when millions of lives are at stake? they are going tosnooze send you to pages
button. During business
withthe 13 days oftrading
the Cuban platform.
missile So they have
You obviously think thatloss
If someone fires off
stock or industry are negative! Corporate America has been at its own for learning that research. But if you
crisis in 1962, the Dow fell nearly
are searching a total ofa just
half-billion shoppers and one
3.5%. Nuclear

er rs
Barrons: What led you to machine You report Aieras Buy and Sell recom-
words. Even as the nuclear
mendations, but Wells Fargo makes sure
AI willwas helpbuilding
the likesover
of Amazon,
the a nuclear
but frombomb,
your mobilewar devicemayonbe thethe one thing million
weekend, investors cloud
discount. Data scale and
learning? How current are the feeds from Twitter,
To reprint or license content, please contact Barron's reprints department at 800-843-0008 or

summer, management teams how doesremained your study of the

relatively they are going to send This you is the to worst
a store type compute
of risk toefficiency
prepare for, are says
the two critical
Sena: A few years ago, we started inviting Facebook, and such? you surround what she says with dis-
Just three companies in the change
Standardyour discounted
& Poors 500 cash
indexflow fore- what werewheredoing
you can purchase
Rodgerit Baker,
and tellvice you the ingredients
president in thisanalysis
of strategic neural-network-backed
claimers that say its just for education.
people from industry to help us understand It is continuous. Its 24/7. You have thou- mentioned North Korea casts on theirand third-quarter
target prices for the stocks?
confer- quickest
in our portfolios way to get there.
Stratfor, a geopolitical computer
intelligence era,
firm. so
Its welowsee Alibaba
proba- as poten-

m e
Ken Senas recommendations are the Google arguably leads
AI. I met great people, including Bryan sands of media sources and a half-million ence callsand even then, only in passing, according to bility withboth industry
extremely high tially best positioned among our coverage
official recommendations, right?
Healey, who is the head of AI for the pieces of media information fed into Aiera a search I ran in Sentieo, It afalls into two buckets.
financial-data platform. One bucket is going
is andto be way in understanding
academia Stratfor is advising machinecorporateuniverse. China
clients will potential
about represent nearly half

m rp
online travel business called Lola. Bryan on any given day. Correct. We report Aieras
But thepredictions
risk hasnt gone what away,
they doand themselves. A faster pace of learning, from therisks
it re-emerged algorithms
to theirtoemployees of the estimated
the infra- overseas and how to$15 trillionfor
prepare impact that ar-
had worked on Amazons digital assistant, alongside of ours because they give people
uncomfortably last week, innovation
after North and growth will become
Korea tested a downstructure
possi- my list. and computersupply-chain hardware. You tificial intelligence
disruptionsshipping routes iscould
expected be to have over
Alexa, as one of the original team members What investment was required to build an interesting senseballistic
of whether or not
missile withherthe ble for scaled
capability of striking who have the data could see Google blocked,
players Washing- extending forAIinstance,
into other without10 toany15actual
years.conflict. Baker
For personal non-commercial use only. Do not edit or alter. Reproductions not permitted.


to get it off the ground. I asked him if he calls are improving. AtD.C.,
ton, someorpoint,anywheremy elseparticularly data close
on the planet. to theseem
It would to mark abusinesses,
consumer notes that outside
Southof search.
Korea is responsible for 17% of global semiconductor
work and Aieras will dovetail. Alibaba stock is now $177. What do
could automate what I do. He said Id have The cost in both time and money is sur- turning point,Until
at least and an abilitywhen
we psychologically, to drive
we canthose data signals
accurately say that sales, 64% of memory chips, and about 10% of automotive parts.

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have conviction thatnoAiera What other kind of opportunities? AI opportunities make it worth?
to explain to him what I do. prisingly little, given the capability. Thats partisofproviding
the world into from
ad-is safe their North
operations and supply
Korean aggression. chains for Youre basically talking about undermining the entire global supply
I told him a little bit about my role, and an important takeaway for investors to get vice that somehow trumps mine, my calls greater efficiency. Autonomous driving
chain in tech, he one. Health care Im targeting $225.
he explained some of the products and their heads around. remain the established
So howones.did Ultimately,
the market react? The second The Dow bucket is the
Jones Industrial they thats another
services Average industry
Paul Bracken, where
a Yale Google
School of has
Management professor and author we hope this technology will You mentioned Tencent.
that I would use to try to repli- Weve been working on it for roughly soared to enhance
a new high ourthe offer to others.
day after the test. Companies
Japans Nikkeilike Amazon
rose 0.5%, of The Second Nuclear made Age, somesays serious
the world is coming to grips with the
cate it. Just a thought experiment, without six months, and weve been learning about work as analysts. and South Koreas marketcan wasturn their leadership
essentially flat. Twoindays cloud services
after A sample report
the test, permanence of our investments.
nuclear threat. If we The Mobile
reality is data are moved
weve important intodrivers
a of how
a clear idea where it could go. it over that time, too. My goal in the the Dow crossed 24,000 for intotheleadership
first time,inasAI services
the U.S. Senate preparedfrom
like speech the of nine nuclear-weapons
world size the amount states, that AI heplatforms understand
told Barrons, the individual. In
Will machine learning affect any recognition and translation. artificially
beginning was simply to be able to explain to pass tax reform. North Korea. gets spent annually China, about 60% of mobile time spent is
Next thing youshould carefully
knew, you consider
were talking the investment
to investors how you mightobjectives,
automate the risk, charges and expenses of any exchange traded fund
industries that your colleagues
Jim Paulsen, chief investment strategist at the Leuthold Group,intelligent In hisequity
view, theonlikelihood
advertising within action
of military on Tencent.
in North The opportunity
Korea remains to provide a
(ETF) prior to investing. For a prospectus
to Aiera, the artificially intelligent equity service we containing
provide. So I was this and other information, please visit or call
cover? Is it going to transform
Detroit or insurance underwriting?
So which companies do you talk to your
views the weeks price action as a revealing moment for the agingresearch
clients about?
quiteanalyst, those twowho
low. But Bracken, industries,
teaches the bridge
rarebetween businesses
business-school and customers,
research analyst. How does Aiera work?
1-877-398-8461. Please read the prospectus that, by the time carefully
I wrote aboutbefore
the projectinvesting. bull market. It tells you something about sentiment and how muchAiera, aboutappears
defense issues,we get sayssomewhere
growing in thenonuse
tension the aKorean
platform like Tencents for
Very, very broad strokeit is a function of in September, Aiera was already writing Yeah, it will have a role
greedin is
in prices all We
muchversus fear, usually
Paulsen leadsays.with
What Amazon out to mewithisthe
stands[ticker: online
likely to spur athe neighborhood
high-tech arms race customerthe
of between supportis
U.S. andgreat China, for them. They
Fund seeksand investment results that
data. Algorithms arecorrespond
rules her(before fees andand
own reports expenses) generally
providing her own to the price and yield performance of its underlying index, the Alerian MLP Infrastructure of the industries weisfollow.
how muchIt is harder
credence AMZN],
to were willingAlphabet
to give[GOOGL]
a tax policy and that
Alibabano oneversion
leadingof this
to even moreabout $12 billion
investment to alsointelligence,
in artificial have the largest gameand
robotics, platform in the

for Anhow

on distributions
the data. Butthat
in the
the software
act deferred
will accrue differently
Fund involves
equal in
risk, including
and acts
to machine
the distribution
than taxes
income the algos
were her
for any future taxpredictions,
a functionpartnership
the underlying of how good
and howwith
liability associated did (i)
loss of principal. Infrastructure master limited partnerships (MLPs) are subject to risks specic to the industry they serve
including, but not limited to: reduced volumes of commodities for transporting; changes in regulation; and extreme weather. The ETF is not required to make distributions or
programs. The Fund is taxed as a regular corporation for federal income purposes. The
see portion of MLP distributions considered to be a tax-deferred return of capital as well
think about industries
some effect on. Weve
it wont
even have Group
from Google
And then,
Holding on the[BABA].
we have the second coming of the Cuban missile crisis, and no one
and from major universities
cares. that AI could
OK, why Amazon?
Oh, and
other side
of the equation,story.
Tencent cyberwarfare. $14 billion. But if you world. AI technology can help learn where

those two industries

I wondered
look at the size of the value exists within a particular game
our news you meeting content. That
are whether will the
hedging ultimately
nuclear make Tencent
as (ii) capital
were usedappreciation
tothese algos of itsare
not neces-basedthatonimproving.
the federalThe income tax rate
validity applicable
tests show to corporations currently 35% and an assumed rate attributable to state taxes. This represent an opportunityPaulsen thats the sentiment check makes him more cautious on thetalking
saysbigger risk about several
could have thetrillions
perverseofeffectdollars. more aefficient
of enabling tragedy. in If how they go after the
the worlds
sarilyfrom most investment
determined by human companies,
coders. which
We thatelectshe
to be treated as
continues toregulated
get better.investment
So, Id companies to avoid paying entity level income taxes. The NAV of Fund Shares will than mobile and maybe bigger
margins when than the to
it comes Because
stocks.when But he you are up
sums looking
the same at dataview most If
col- Google
money is can use thisfor
positioned science to come
the risk, does the gaming
damage opportunity
somehowand extend those fran-
also be reduced by the accrual of any deferred tax liabilities. The Funds after tax performance could differ signicantly from the underlying assets even if the pre-tax performance internet itself.
feed these algorithms theondata and the say,
thestay tuned. of us had during our newslection, meeting computing,
over the summer: If someone firesup with
and an understanding moresolutions
manageable for industries
and thus less are chises globally.
Patrick James Miller for Barrons

is closely tracked. Depending the taxes paid by fund as a result of income and/or gains from investments and/or the sale of MLP interests, the return on an investment in
Fund will be start to act Adifferently.
reduced. portion ofYou
the are
Funds distributions are expected to be treated as a return of capital for tax purposes. Returns of capital distribution are not taxable Thinking about which companies
off a nuclear bomb, havewhatofwere
data doingscience, Amazon
in our is at is
portfolios thegoing
top ofto bemore efficient
Stratforsthan whatdownplays
Baker exists currently
the moral hazard angle, given that inves-
So, with Tencent now at 398 Hong Kong
income your
to you buthands
reduceoff yourthe
taxwheel your Fund Shares. If designs
basis in Does she have
any MLPs owned by the Fund Artificial
on your job?
were treated as intelligence
corporations for UScould represent
federal income anitopportunity
tax purposes, could result in a leg up, it will be way
a question
down my A) Are the list. Amazon is applying AI across its eventors
of: list. if have
they little
on North haveKoreas
the actions. This really is trying
lower income and a reduction
seeing where it will go. in the value of your investment in the Fund.
Every week there is some new develop- they quick to apply andGenerally,
embrace this new seem
investors retailassuaged
experience thatand cloud-services
North Korea is a plat- rationalsameto share
how markets
you act thatin they do dollars,
a situation
what is your price target?
when you have near-zero
AMLP Shares ment, wherebuy Aiera canshares
do something that on that is bigger than mobile and maybe biggermay than capability? B) Do they have
actor thatdata sets undertake
wont that form.a suicide mission. But what if theyrein searchyou control, hecan see there is an oppor- HK$470.
What dataare not individually
sources redeemable. Investors
does Aiera use? sheshares.
and sell of the AMLP
couldnt the previous week. She is
a secondary market. Only market makers or authorized participants trade
are useful and proprietary?
wrong? Should And C) Do be aTheir
there cloud on
risk trade business
a North is aKorean to tunity for them that might actually be big-
directly with the Fund, typically in blocks of 50,000
Over 1,000 data sources get pulled into starting to recognize the investment rele- the internet itself. Ken Sena they have access tolaunch?
computing? many industries that will find themselves ger email: what they could get from just Our thanks to you, and to Aiera.
Fund distributed by ALPS Portfolio Solutions Distributors, Inc.
34 BARRONS December 4, 2017

Michael Moeller of Wells Fargo Advisors learned a few good lessons

BEST from Dad: Buy quality, know what you own, and dont ever stretch
ADVICE for yield. Moeller favors dividend growers, municipal bonds, and cash.

Savvy Teacher, Smart Student

by Steve Garmhausen

Johnson were incredulous when their up-and- Sticking to high Location: Chesterfield, Mo.
coming executive announced that he was leav-

quality is the secret Clients: 1,025
ing to join his dads financial-advisory busi- sauce of what we Typical Account: $2 million
ness. Do you have any idea what we have in do, says Moeller. Moeller likes dividend growth in
store for you? he remembers being asked.

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stocks and a laddered portfolio in
Moeller, now 47, insists he has never bonds. He has been stockpiling cash in
second-guessed his decision. And in hindsight, anticipation of a market correction.

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it looks pretty smart. Now part of a six-
person team within Wells Fargo Advisors,

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Moeller (pronounced molar) manages $1.275
billion for 1,025 clients.
Moeller didnt get where he is through in-
vesting in daredeviltry, but rather, its opposite.
My whole goal is to be consistently boring, Stocks 67%

er rs
U.S. 50%
says the advisor, No. 2 in Barrons financial- Developed Foreign 10%
advisor ranking for Missouri. His wealthy Emerging Markets 7%
clients rely on Moeller to engineer a rising
income stream over the course of their lives, Bonds 20%
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leaving them free to find excitement elsewhere. Munis 10%
Corporates 7%
A St. Louis native, Moeller earned a Government 3%
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business degree in 1992 from the Kelly Alternatives 7%
School of Business at Indiana University Cash 6%
Bloomington. He then applied to J&J. This
little division in J&J was growing so fast
that they took a chance on me, he says. As a buyer, Moeller calculates the present
co Fo

The boss was desperate. That business value of a companys future dividends to deter-
was Janssen Pharmaceuticals, now a key unit mine if a stock is cheaply priced. Right now,
of J&Js pharmaceuticals business. Moeller few are, he says, so he has been holding a lit-
worked there for a little more than four tle more cash than usual as he waits for attrac-
years as a sales representative, but during tive valuations to pop up. And a correction is
that time, his father, Ron, an advisor with increasingly being built into Wall Streets ex-
A.G. Edwards, kept recruiting him. By 1995, pectations; investing giant Vanguard Group re-
he succeeded. It was a chance to work with cently said the odds of a steep drop are 70%.
my dad, and I love investments and people, A correction doesnt mean a recession,
the younger Moeller explains. however. I tell [clients] that we will have
Moellers core investing principles were another recession, Moeller says, but I dont
drummed into him during 11 years working see it happening right now.

shoulder to shoulder with his father. Always

buy quality in all asset classes, he says. Moellers approach to bonds is as conser-
Dont ever stretch for yieldeventually youll get your Acme Widgets boosts its payout by 10% annually, youll vative as his approach to stocks. The bulk of his fixed-in-

arm cut off. And dont put yourself in a position where sleep well, he reasons. Sticking to high quality is the come allocation is in municipal bonds, and he believes in
you might have to sell an asset at an inopportune time. secret sauce of what we do, he says. laddering to curb interest-rate risk. As bonds mature,
Above all, he says, know what you own. Moeller points Moeller wouldnt name specific companies for this story, theyre rolled into new ones that pay out more as interest
to the real estate bubble of a decade ago, when complex but his old employer, J&J (ticker: JNJ), is an example of rates rise.
mortgage-backed securities were often recommended to a stock that might fit well into a core portfolio. J&J has in- In his free time, Moeller, a father of four, coaches his
clueless clients by equally clueless advisors. Those are usu- creased its dividend for more than 50 consecutive years. kids soccer teams and follows their dance competitions.
Jay Fram for Barrons

ally the investments that come back to haunt you, he says. Moellers approach wasnt an easy sell in, say, 1998, Hes also an avid convert to pickle ball, a fast-growing
Moeller builds his portfolios around established com- when a dividend-growth portfolio might have trailed a sport that resembles miniature tennis and is popular
panies that have little or no debt and a history of increas- tech-heavy one by 20 percentage points. But the advisor among the older, sometimes less-mobile, set. Im told its
ing their dividend. If inflation grows by 2.5% a year and has come out looking pretty good. where tennis players go to die, he says.
December 4, 2017

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36 BARRONS December 4, 2017

A proposed regulatory change could boost profits, share prices,

dividends, and deal making at smaller financial institutions.

Lifting the Lid on Regional Banks

by Lawrence C. Strauss
FOR THE LARGER REGIONAL BANKS THAT UNCLE SAM the threshold rises, potentially boosting their earn-

classifies as systemically important financial insti- ings sooner. (As of Sept. 30, CIT had just under

tutions, there are major drawbacksin particular, $50 billion in assets, thanks in part to the recent
heightened regulatory scrutiny and higher costs. sale of its commercial aircraft-leasing business
Some of that could be rolled back soon, how- though it previously had been considered a SIFI.)
ever, due to an effort in Congress to lighten the Changing the size regulation could also spur

regulatory requirements for regional banks with mergers and acquisitions, which regional banks
assets of $50 billion to $250 billion. And that would have been wary of, given their concern about
be good news for shareholders. hitting the $50 billion asset mark.

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While some bank stocks have perked up recently Joseph Ficalora, CEO of New York Community
on the possibility of less onerous oversight, the sec- Bancorp (NYCB), which had $48.5 billion in assets

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tor has underperformed this year. The SPDR S&P as of Sept. 30, told analysts recently that raising the
Regional Banking exchange-traded fund (ticker: asset threshold would facilitate our ability to

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KRE) has returned 8%, versus about 20% for the engage in mergers with institutions, regardless of
Standard & Poors 500 index. size, [and] enable us to grow our loan portfolio
Some bank stocks have benefited from rising organically, as well as through acquisitions.
short-term interest rates and the prospect of tax Another benefit could be higher dividend-payout
reform. A lighter regulatory burden could provide ratiosthe percentage of earnings paid out to
a further liftespecially for shares of institutions
with $50 billion to $100 billion in assets.
If you could boost [return on equity] through
reducing the capital base, that would be a tailwind
er rs shareholders. These have been edging up after
hovering around 30% for many large regionals and
money-center institutions.
Zerbe foresees share repurchases boosting per-
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for bank valuations, says Stephen Rigo, a senior share profits of banks with plenty of excess capital.
research analyst at ClearBridge Investments. It Those in the $50 billion to $100 billion range, he
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could also free up more capital for dividend in- estimates, could see an average 12% increase to
creases, share buybacks, and deal making. existing 2020 Morgan Stanley earnings estimates.
The rigorous Comprehensive Capital Analysis
and Review, which is part of the post-financial- One bank that could benefit is Comerica, a
crisis Dodd-Frank Act and applies to bank holding Dallas-based lender with a big focus on commercial
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companies with assets of at least $50 billion, credits. Zerbe maintains that the bank has the fi-
includes an annual financial stress test and a nancial wherewithal to earn 22% more in 2020 than
capital-planning review. his current estimate of $6.18 a share. Admittedly,
2020 is more than two years away, and a lot could
But a bipartisan agreement announced on Ready to Rise happen in the interim, but the outlook is promising.
Nov. 13 by members of the Senate Banking Com- Many regional bank stocks, like the three below, have plenty of excess capital on The stock trades at 15.7 times the $5.32 that Wall
mittee calls for raising the threshold for being their balance sheets. Theyre likely to get a boost if, as proposed, they no longer Street expects the bank to earn next year, down from
would have to undergo the Federal Reserves annual CCAR exam.
considered a systemically important financial insti- 17.8 times at the end of this year, when bank shares
Recent YTD P/E Div Payout Assets
tution, or SIFI, from $50 billion to $250 billion. Company / Ticker Price Return 2018E Ratio* (bil)** were frothy following Donald Trumps election.
Goldman Sachs analysts have estimated that banks CIT Group / CIT $49.84 16.8% 14.2 18% $49.3 Comerica is expected to earn $4.69 a share this year.
of that size have more than $18 billion of excess Banks with $100 billion to $250 billion in assets
capital that could be freed up. Comerica / CMA 83.31 22.3 15.7 23 72.0 dont stand to enjoy as much earnings upside as

On average, banks with $50 billion to $250 bil- Zions Bancorp / ZION 49.55 15.1 15.7 16 65.6 their smaller peers. Not only do they begin buying
lion in assets have a common-equity Tier 1 capital *2017 Estimates; **As of 9/30/17 E=Estimate Sources: FactSet; Bloomberg; company reports back stock [more than] one year later than the
ratio of 11.5%well smaller banks, but several of the larger banks are

above the 9% that we believe regulatory asset threshold are Comerica (CMA), Zions already running very close to the 9% common-equity
The Bottom Line is a more appropriate long- Bancorp (ZION), and CIT Group (CIT), whose third- Tier 1 capital ratios considered adequate, Zerbe adds.
Raising the bar for term target for the group, quarter common-equity Tier 1 capital ratios were 11.5%, He maintains that 2020 earnings estimates for CIT
says Ken Zerbe, an analyst at 13.3%, and 14.3%, respectively. The ratios weigh Tier 1 Group and Zions could rise from current levels by 14%
Michele Marconi for Barrons

financial firms to be
rated systemically Morgan Stanley. Tier 1 capi- capital against all of a banks assets, adjusted for riskiness. and 13%, respectively. That would put the forecast for
important could free tal is the core cash and stock Under the bipartisan agreement, banks with $100 bil- CIT at $4.62 a share; this year, its expected to make
over $18 billion in that could allow a bank to lion to $250 billion in total assets would be released from $3.43. And it would get Zions to $4.54 a share, compared
excess capital at withstand a financial shock. the more stringent regulatory requirements 18 months with the $2.81 it is likely to earn in the current year.
regional banks. Among the banks he thinks after the revised rules take effect. Banks in the $50 billion Changing the SIFI rule would remove a big hurdle to
could benefit from a higher to $100 billion range would be released immediately after higher profits and share prices for regional banks.
December 4, 2017 BARRONS 37

SPEAKING OF DIVIDENDS n by Lawrence C. Strauss A sweet deal on warrants cuts the effective cost
of the Koch brothers investment in publisher

Good Global Growth

Merediths acquisition of Time

Third-quarter payouts increased in every region A Kiss for the Kochs

STRONGER ECONOMIC PERFORMANCE GLOB- ity prices; Hong Kongs average payout
ally translated into higher corporate divi- was boosted by a special dividend paid by Andrew Bary

dend payments in the third quarter. by China Mobile (ticker: 941.Hong
Dividends increased at the biggest Kong). In emerging markets, dividends which the company is raising to pay for

quarterly rate in three years, according to rose 3% in home currencies, with China Koch brothers $650 million investment its offer for Times equity? It isnt easy
the Janus Henderson Global Dividend In- down fractionally. Many banks there had in magazine publisher Merediths acqui- to determine.
dex14.5% over the prior years third lower payouts in the quarter. sition of Time Inc.and whether the Meredith executives said the Koch

quarter (in U.S. dollar terms), to Of the 10 largest dividend payers in brothers would have editorial influence brothers investment was attractive. The
$328.1 billion. In 2016s third quarter, divi- the third quarter, only two are based in over the Time propertiesa sweetener company is expected to have a below-
dend payments fell by 3.6%. the U.S.Exxon Mobil (XOM) and attached to the transaction has gotten investment-grade credit rating of single-

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Dividend This years third-quarter Apple (AAPL). But its important to re- little attention. B, which could have meant a relatively
Payments, increase was helped by a member that in many countries, divi- Meredith (ticker: MDP), based in high yield on a preferred deal offered in

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strong showing in all re- dends are often paid once or twice a year, Des Moines, Iowa, has agreed to pay the open market to institutional inves-

page M39
gions. For the first time not quarterly as is the case in the U.S. $1.85 billion in cash for New Yorkbased tors. (By comparison, bank preferred

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since 2010, weve seen most of the econo- Payout trends also improved in the Time (TIME), the two major magazine stock from leading institutions such as
mies around the world growing, says Ben United Kingdom, which had been hit by a publishers announced last JPMorgan Chase yields
Lofthouse, director of the global equity in- weakening of the pound following last week. Meredith about 5.5%. Banks are the
come team at Janus Henderson Investors. years referendum in which voters opted Koch Equity Develop- (MDP - NYSE) leading issuers of pre-
Weekly close on Nov. 30
There has been a stron- to leave the European ment, a private-equity $70 ferred stock.)
ger pickup in economic Third-Quarter
growth than we ex- Dividend
pected. Region
This has led to better Asia-Pacific
er rs
Dividend Growth
Union. There were also
some big dividend cuts in
the mining sector, includ-
ing Rio Tinto (RIO.UK)
business controlled by
Charles and David Koch,
received 1.625 million 10-
year warrants from Mere-

It offered the best
economic terms, Meredith
Chief Financial Officer
Joseph Ceryanec told Bar-
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36.2% 55
dividend growth. Com- and Anglo American dith to purchase its com- rons of the Koch deal. We
United Kingdom 12.7
panies across a wide (AAL.UK). But those mon stock at just $1 per 50 reached out to several
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range of sectors and North America 10.2 companies are doing share, according to a secu- private-equity firms. He
Time Inc.
regions are feeling com- Europe 7.8 much better, thanks to rities filing. Those war- said most of them wanted
fortable enough to raise Emerging Markets 6.0 higher commodity prices. rants are now worth $110 Weekly close on Nov. 30 a board seat or two, which
dividends, even in areas Japan 2.0 Measured in British ster- million, with Meredith $20 the Koch brothers didnt
like mining and oil where ling, dividends rose 17.5%. shares trading Friday at get, and equity upside in
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Global 14.5
they only recently cut Note: The growth reflects the year-over- Looking ahead, Janus $67.88. Meredith via warrants,
them, adds Lofthouse. year change in U.S. dollars Henderson forecasts div- The warrants, which 15 options, or outright equity.
Janus Henderson Source: Janus Henderson Global Investors idend growth will in- one investor calls a kiss, He pointed out that
tracks the dividends paid by the largest crease by 7.4% this year, to $1.25 trillion. amounted to an equity bo- the Time transaction was
1,200 firms by market value. That compares with flat performance last nus to the Koch brothers M J J A S O N 10 done without an equity
In North America, which accounted year and a decrease of 2% in 2015. for buying $650 million of Source: Bloomberg component, aside from
for 40% of all dividends paid out globally Meredith preferred stock, the warrants, thus mini-
in the third quarter, payouts rose by Elsewhere, Walt Disney (DIS) declared which carries a rich dividend yield of mizing dilution to Meredith holders. In-
10.2%, with increases in all U.S. sectors, a semiannual dividend of 84 cents a 8.5%. Adjusted for the current value of vestors appear to like the transaction,
the largest being aerospace and defense. share, up nearly 8% from 78 cents. With the Meredith equity, the Koch brothers with Meredith stock up more than 10%
In Canada, where overall dividend the higher dividend, the stock would have invested about $540 million in the last week in the aftermath of the deal.
growth had slowed considerably in re- yield 1.6%.Merck (MRK) declared a transaction. They are effectively getting Shares are trading 30% above their mid-

cent years due to struggling energy and quarterly dividend of 48 cents a share, a roughly 10% yield on the preferred November levels.
commodity firms, payouts climbed 11% in up by a penny, or 2%. The pharmaceuti- shares, based on our calculations. (Pre- Ceryanec said the equity dilution
local currency. Recovering commodity cal giants stocks implied yield is 3.5%. ferred stock is a senior form of equity from the warrants is only about 3% to

prices helped. Europe ex-U.K. also saw McCormick (MKC) plans to raise its that typically pays a fixed dividend.) 4%; he noted the strong stock perfor-
improvement; dividends rose 4.6% locally. quarterly dividend by 10.6%, to 52 cents The preferred shares also came with mance since the deal was announced.
In Japan, dividend payments fell by a share from 47 cents. Its implied yield options to purchase 875,000 shares of The Koch brothers got a deal similar
2% in the quarter, after converting those is 2%.Earlier this month, Hormel Meredith common stock at $70.50. Those to what Berkshire Hathaway (BRK.A)
figures to U.S. dollars. But adjusting to Foods (HRL) announced it will raise its five-year options arent in the money yet has made in companies such as Bank of
the yen, dividends there rose by 6%. In annual dividend by 10%, to 75 cents a but could be valuable if the stock America (BAC)preferred stock and
the rest of Asia-Pacific, dividends were share from 68 centsthe 52nd consecu- appreciates. They have time value now. warrants. Meredith wouldnt comment
up 12.1% locally. Payment records were tive dividend increase for the maker of about whether it approached Berkshire
set in Hong Kong, Australia, and Taiwan. SPAM and other food products. Its im- Could Meredith have gotten better CEO Warren Buffett as an alternative to
Australia benefited from higher commod- plied yield is 2.1%. terms on that portion of financing, the Koch investment.
38 BARRONS December 4, 2017

Mailbag Is the current 18% risk premium offered by emerging

Mailbag markets sufficient to warrant taking a plunge into this
shadowy world? CHELSEA PRIM, Shawnee, Kan.

Emerging Market Concerns go from 50% of gross domestic product to the light on municipal closed-end funds, Derisking Bitcoin Futures
over 250% of GDP, and the only way the and highlighting the characteristics that
To the Editor: Japanese can afford to pay the interest on allowed them to outperform their open- To the Editor:
Regarding your Nov. 25 cover story How that massive debt is for its central bank to end and exchange-traded fund cousins on In Bitcoin Futures: Risky Business for

to Play Emerging Markets Now, the four lower interest rates. The rate on the 10- a long-term basis (Want Muni Bonds? Cboe, CME (Striking Price, Nov. 25),

stock-fund managers provide an informa- year-bond has fallen from 6% in 1990 to Look at Closed-End Funds, Fund of Steven M. Sears mentions Thomas Pe-
tive discussion of the pros and cons atten- 0.1% in 2017. Inflation has fallen from 5% in Information, Nov. 25). terffys reasonable concern that the very
dant on investing in emerging markets, 1990 to 0% in 2017. However, it isnt just municipal closed- volatile futures on Bitcoin present a
including the best countries to consider. The central banks have been suppress- end funds that have done this. Closed-end threat to the nations clearing system.

Although these countries conduct mone- ing interest rates for a prolonged period, funds invested in various other sectors, The solution is to set margins appropri-
tary and fiscal policy just like we do, rather than letting the market operate as such as technology, share the same ineffi- ately high enough to reflect this volatility.
their policies are masked from view, and it should. It might be prudent for the cen- ciencies and mechanics that astute inves- Any clearing firm at risk of a massive

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therefore present far more risk and un- tral banks to raise and lower interest rates tors can utilize to generate alpha. Liquid- move should be forced to buy protective
certainty to the investor. Is the current for a short time period. But doing this for ity, or lack thereof, is what makes closed- out-of-the-money puts or calls so the sys-

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18% risk premium offered by emerging a prolonged period is going to have really end funds more suitable as long-term tem is not at risk. This will enable option
markets, as noted in your story, sufficient bad effects. The sooner the U.S. can get investments. Many closed-end funds have prices to signal the size of margin.

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to warrant taking a plunge into this shad- its 10-year-bond rates up to 3% to 5%, the thin trading volumes, and, consequently, Futures are a useful tool to manage risk
owy world? better. We have a chance. Japan has during times of market stress, bid-to-ask in a highly volatile situation. Sears quotes
Investors in U.S. markets are com- painted itself into a corner. spreads widen, prices can drop precipi- Warren Buffetts statement, Derivatives
forted knowing that the Federal Reserves WILLIAM THAYER tously, and the discounts to net asset value are weapons of mass destruction. Nothing
monetary policy includes some interest- San Diego widen. If one is forced to liquidate quickly could be further from the truthderivatives
rate increases in the future, but not
enough to create major concerns for busi-
ness. Moreover, the Fed has made public
its commitment to avoid disrupting our
er rs
Bullish on Closed-End Funds
into a declining market, its virtually im-
possible to do so without driving the price
even further down. Here is where long-
term investors find opportunities.
are modern reasons and finances solution
to complex financial problems.
Bala Cynwyd, Pa.
m e
markets in the process of normalizing in- To the Editor: I. AL DJINDIL
terest rates and its balance sheet. More Kudos to Randall W. Forsyth for shining Naples, Fla.
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important, the tax-reform plans of Presi- Taxes and Home Values
dent Donald Trump and the GOP probably
will enhance and extend our bull market, To the Editor:
thus making the choice between investing Out here in sunny California, housing
in emerging markets or continuing to rely prices are doing a pretty fair imitation of
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on domestic markets an easy one. bubbly 2005. Prices in most coastal areas
CHELSEA PRIM have matched or exceeded those of that
Shawnee, Kan. halcyon year. Multiple offers are made in
hot spots like Silicon Valley, West Los
Angeles, and Orange County, often at
The Curse of Low Rates prices far above the initial asking price.
Provisions in the new tax bill could
To the Editor: bring housing prices back to earth. Limit-
The Fed is right to fear asset values such ing the amount of mortgage interest, as
as stocks. Were in a bubble caused by well as state and local taxes (including
prolonged low interest rates around the property taxes), that taxpayers can de-
world. Fed Chair Janet Yellen has duct from their federal returns could

described persistent, sub-2% inflation as a tame the animal spirits of real estate buy-
mystery (What the Fed Really Might ers. Without these tax advantages, real
Fear: A Bear Market, Up & Down Wall estate as an investment class could lose

Street, Nov. 25). some of its luster, and demand and prices
Lets clear up the mystery. Lower inter- could suffer.
est rates cause lower inflation, and thats AL NYBERG
not all. Prolonged lower interest rates Vista, Calif.
Kamaan Hafeez for Barrons

cause economic stagnationor worse.

Japan is an excellent example of this. After Send letters to:
Japan reached market saturation in many To be considered for
of its export markets, it tried to goose its publication, correspondence must bear the
economy by budget deficitsfor the past 27 writers name, address, and phone number.
years. This has caused the national debt to I have a question about my health coverage. Letters are subject to editing.
December 4, 2017 BARRONS 39

Other Voices
by Anatole Kaletsky

Investor Exuberance Is Perfectly Rational

WITH SHARE PRICES AROUND THE WORLD SET- lowed by a slump once the artificial stimulus tions become less favorable,

ting new records almost daily, it is tempting to was withdrawn or even reduced. Europe, Japan, and many
ask whether markets have entered a period of Many investors still believe the recovery is emerging markets are enter-

irrational exuberance and are heading for a doomed, because it was triggered by unsus- ing the sweet spot: Profits
fall. The answer is probably no. tainable monetary policies. But this is no lon- are rising strongly, but inter-
What many analysts still see as a tempo- ger a reasonable view. The policy has pro- est rates remain very low.

rary bubble, pumped up by artificial and un- duced positive results. The Federal Reserve, All of these cyclical reasons
sustainable monetary stimulus, is maturing which pioneered zero interest rates and QE, for optimism are challenged
into a structural expansion of economic activ- began to reduce its purchases of long-term se- by long-term structural anxi-

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ity, profits, and employment that probably has curities at the start of 2014, stopped QE com- eties. Can low interest rates
many more years to run. There are at least pletely later that year, and began raising in- compensate for rising debt

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four reasons for such optimism. terest rates in 2015all without producing the burdens? Is productivity re-

First and foremost, the world economy is cold-turkey effects predicted by skeptics. ally falling, as implied by most

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firing on all cylinders, with the U.S., Europe, Instead of falling back into recession or economic statistics, or acceler-
and China simultaneously experiencing robust secular stagnation, the U.S. economy contin- ating, as technological break-
economic growth for the first time since 2008. ued growing and creating jobs as stimulus was throughs suggest? Are nation-
Eventually, these simultaneous expansions will reduced, then stopped. And asset prices, far alism and protectionism
face the challenge of infla- from collapsing, hit new poised to overwhelm globaliza-
tion and higher interest
rates. But, given high un-

spare capacity in China,

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Very low interest rates highs and accelerated from
early 2013 onwardexactly
employment in Europe and will likely persist, at least until when the Fed started talk-
ing about tapering QE.
tion and competition? Will in-
equality be narrowed by job
creation or widen, causing po-
litical upheaval?
m e
plus the persistent defla-
the end of the decade. And The Feds experimenta-
tionary pressures from that means that current tion points to a third reason The list could go on and
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technology and global com- for optimism. By demon- on. But while we wont know
petition, the dangers of stock-market valuations, strating the success of mon- the true answers for years,
overheating are years away. etary stimulus, the U.S. pro- we can say with confidence
Without hard evidence
which imply prospective vided a road map for other that long-term market ex-
of rapid inflation, central returns of 4% or 5% above countries to follow, but with pectations are strongly influenced by short-
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bankers will prefer to risk long and variable lags. term cyclical conditions visible today.
overstimulating their econ- inflation, are still attractive. Japan began full-scale mon- During recessions, investor opinion is dom-
omies, rather than prema- etary stimulus in 2013, five inated by long-term anxieties about debt, ag-
turely tightening. There is thus almost no years after the Fed. Europe lagged by seven ing, and weak productivity growth, as has
chance of a quick return to what used to be years, starting QE in March 2015. And in been true since 2008. In upswings, psychology
considered normal monetary conditionsfor many emerging economies, monetary stimulus shifts toward the benefits of low interest
example, of U.S. short-term interest rates ris- and recovery began this year. As a result, busi- rates, leverage, and technological progress.
ing to the pre-crisis inflation average, plus ness cycles and monetary policy are less syn- When this optimistic shift goes too far, as-
roughly 2%. Instead, very low rates will likely chronized than in previous global expansions. set valuations rise exponentially and the bull
persist, at least until the end of the decade. Thats good news for investors. While the market reaches a dangerous climax. Some
And that means that current stock-market Fed is raising rates, Europe and Japan are speculative assets, such as cybercurrencies,
valuations, which imply prospective returns of planning to keep theirs near zero, at least un- have reached this point, and shares in even

4% or 5% above inflation, are still attractive. til the end of the decade. That will moderate the best companies may experience temporary
A second reason for confidence is that the the negative effects of U.S. tightening on as- setbacks if they run up too fast. But for stock
financial impact of zero interest rates and the set markets around the world, while Euro- markets generally, valuations arent yet exces-

vast expansion of central-bank money, known pean unemployment and Asian overcapacity sive, and investors are far from euphoric. So
as quantitative easing (QE), are much better will delay upward pressure on prices normally long as such cautiousness continues, asset
understood than when they were introduced created by a coordinated global expansion. prices are more likely to rise than fall.
following the 2008 crisis. In the first few years This suggests a fourth reason why the

Gary Musgrave for Barrons

of these unprecedented monetary-policy ex- global bull market will continue. While U.S. ANATOLE KALETSKY is chief economist and co-chair-
periments, investors feared they would fail or corporate profits, which have been rising for man of Gavekal Dragonomics, and the author of
cause even greater financial instability. Mone- seven years, have probably hit a ceiling, the Capitalism 4.0: The Birth of a New Economy in the
tary stimulus was often compared to an illegal cyclical upswing in profits outside the U.S. has Aftermath of Crisis.
performance drug, which would produce a only recently started and will create new in-
brief rebound in activity and asset prices, fol- vestment opportunities. So, even if U.S. condi- Copyright: Project Syndicate, 2017
40 BARRONS December 4, 2017

Which is why we offer funds and

ETFs across asset classes to help
your clients weather every market

trend for the long-term.


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4 diverse solutions to help build

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TREND HAS AN a stronger portfolio:

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DATE er rs
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Investors should carefully consider the investment objectives and risks as well as charges and expenses of a fund. The prospectus
contains this and other information about the fund and should be read carefully before investing. To obtain a prospectus for Mutual

Funds: Contact JPMorgan Distribution Services, Inc. at 1-800-480-4111 or visit Exchange Traded Funds: Call
1-844-4JPM-ETF or visit International investing has a greater degree of risk and increased volatility due to political
and economic instability of some overseas markets. Changes in currency exchange rates and different accounting and taxation policies
outside the U.S. can affect returns. Investing involves risk, including possible loss of principal. J.P. Morgan ETFs are distributed by
JPMorgan Distribution Services, Inc., which is an affiliate of JPMorgan Chase & Co. Affiliates of JPMorgan Chase & Co. receive fees for
providing various services to the funds.
J.P. Morgan Asset Management is the brand for the asset management business of JPMorgan Chase & Co. and its affiliates worldwide. This communication is issued by Distribution Services Inc.
and J.P. Morgan Institutional Investments, Inc., both members of FINRA/SIPC.; and J.P. Morgan Investment Management Inc . JPMorgan Chase & Co., November 2017
December 4, 2017 BARRONS M1

November 27 through December 1, 2017

Index to Statistics 17

As Bitcoin soars, theres lots of talk

The market cant
about whether the virtual currency is

decide if Bitcoin is
the next Apple or becoming the new gold. For those mak-

ing the comparison, history provides
some sobering context. Golds best year

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came in 1979, when the precious metal

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more than doubled in price, to $512 per

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ounce in the spot market. (Bitcoin is up
nearly 1,000% so far this year.) The rally

er rs continued into January 1980, when gold

peaked at a nominal price of $850. But it
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was downhill from there. Gold tumbled
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65% over the next five years, and didnt
retouch its 1980 high until 2008. On an
inflation-adjusted basis, 1980 remains
co Fo

the high-water mark for gold.

The Trader Emerging Markets

In Like Flynn Bumps Ahead
Stocks fell sharply on How to smooth any
Friday, but the Dow and coming rocky patches in
S&P rose on the week. 3 emerging markets. 7

European Trader Current Yield

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The best picks. 6 always get sick. 9

Asian Trader Striking Price

Milton Glaser for Barrons

Bright Star Growing Hedges
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valuable insurance firm off if volatility spikes and
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December 4, 2017 BARRONS M3

The Trader

Whew! We Dodged a Market Melt-Up

by Ben Levisohn
IT WAS THE MELT-UP THAT WASNT. AND Dow Jones Industrials CLOSE 24231.59
PERCENTAGE CHANGE: 52-Wk +26.40 YTD +22.61 Wkly +2.86
thats probably good news for investors.

Last week, the major indexes were well
on their way to new highsthe Dow Jones
Industrial Average had gained more than 22200

us l,
700 points through Thursdays close
thanks to solid Thanksgiving shopping re- 21100

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ports from retailers and progress on tax reform.
And then they werent.

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Headlines hit the newswires reporting that Michael 18900
Flynn, a former advisor to President Donald Trump, had D J F M A M J J A S O N
agreed to plead guilty and testify, causing the Dow to shed S&P 500 CLOSE 2642.22
400 points from peak to trough in a matter of minutes. The PERCENTAGE CHANGE: 52-Wk +20.54 YTD +18.02 Wkly +1.53
The Nasdaq ended drop happened so quickly that some opined that humans
down on the week, as
clear a sign of sector er rs
couldnt have been responsible for the tumble. No way real
traders were moving that fast, says Andrew Brenner, head
of international fixed income securities at NatAlliance Secu-
rities. Clearly, it was algorithms taking over.

m e
rotation as investors Not for long, however. The Dow rallied back and finished
are likely to see. off just 40.76 points on Friday, ending the week, if not on a
m rp
high note, then with a sigh of relief. The Dow industrials
gained 673.60 points, or 2.9%, to close at 24,231.59their
largest weekly gain since December 2016. The Standard &
Poors 500 index rose 1.5%, to 2642.22. Only the Nasdaq Nasdaq Composite CLOSE 6847.59
PERCENTAGE CHANGE: 52-Wk +30.29 YTD +27.20 Wkly 0.60
Composite finished lower: It dropped 0.6%, to 6847.59.
co Fo

Yes, the Nasdaq, home to some of the years best-per-

forming stocks, finished down on the week, as clear a sign 6525
of a market rotation as were likely to see. The seven top-
performing stocks, including L Brands (ticker: LB) and 6050
Discovery Communications (DISCA), had all suffered dou-
ble-digit declines this year, while the nine worst-performing 5575
stocks, including Micron Technology (MU) and Nvidia
(NVDA), all had double-digit gains. That rotation might 5100
have exacerbated Fridays selloff, says James Paulsen, chief D J F M A M J J A S O N
investment strategist at the Leuthold Group. He contends Barrons 400 CLOSE 705.27
that the move from one sector to another likely made the PERCENTAGE CHANGE: 52-Wk +20.94 YTD +17.23 Wkly +1.25
market more susceptible to some sort of surprise. It could

have been any news, he explains. If the rotation hadnt 680

been happening, it might not have mattered.
But the rotation is happening. JPMorgan strategist 640

Shawn Quigg attributes the shift from highflying growth

stocks to beaten-down value plays to the increasing odds 600
that tax reform will pass, as investors begin to shift money
into the companies that will benefit if taxes are cut. If thats
the case, investors have two choiceseither to put new
money into what had been the markets laggards, in which
Source: Barrons Statistics
the former highfliers could lag but still rise with the market,
or reduce their exposure to the former winners like Face-
M4 BARRONS December 4, 2017

book (FB), Wynn Resorts (WYNN), and

How much is your Netflix (NFLX) and put that cash to work
Bank Breakout?
elsewhere. Quigg leans toward the former, Financial stocks are approaching a level
but notes that either way, investors should versus the S&P 500 that could signal

broker charging you? be more careful with their winners. Theres

some added risk into year-end, Quigg says.
But Fridays Flynn-inspired selloff that
outperformance in the months ahead.

Financials vs. S&P 500

Daily close on Nov. 30
wasnt can also be chalked up as just one 0.11
more test for this bull market that began
US Margin Loan Commission Rates more than eight years ago. Weve had sell-
offs related to Brexit, weakness in Chinas 0.10
Rates Comparison Comparison

yuan, and numerous others along the way.
And yet the market keeps ticking higher. If

Options1 Base 0.09
$300K Equity Trades you werent watching closely Friday, you
per contract
might not have even noticed that anything
exciting was happening. 0.08

no base cost
Interactive Brokers2 2.32%3 $2.34 It also pays to remember that politics 2011 12 13 14 15 16 17
$0.71 per contract4 doesnt usually derail a bull marketit cer- The line represents the price of the Financial Select Sector
SPDR ETF divided by the price of the SPDR S&P 500 ETF.
tainly didnt during the Bill Clinton im- Source: Sentieo
$6.95 base

us l,
Fidelity 6.82% $4.95 peachment, says Krishna Memani, chief in-
+ $0.75 per contract vestment officer at OppenheimerFunds. And With that in mind, one would expect

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with the melt-up postponed, stocks are set shares of Delta to fetch a big valuation

$4.95 base to continue what has been a slow plod premium, relative to those of United. But
Schwab 6.82% $4.95

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+ $0.65 per contract higher. Were in a good situation, he adds. one would be wrong. Delta trades at a 9.5
We should fret less and enjoy it more. price/earnings ratio, based on projected 2018
$6.95 base earnings, while United fetches 9.7 times. In
TD Ameritrade 7.50% $6.95
The Delta-United Dance a note last week, Wolfe Research analyst
+ $0.75 per contract
Some things just cant escape their pairings. Hunter Keay pointed out this strange state

er rs
Each rms information reects the standard online trades pricing obtained from the respective rms
websites as of 11/3/17. Pricing and offers subject to change without notice.
Laurel was always associated with Hardy.
Batman goes with Robin. And in the market
right now, Delta Air Lines and United
Continental Holdings are locked in an odd,
of affairs, going so far as to call it crazy. So
he did what analysts should when they see
something strange: He found an explanation,
one that essentially comes down to hope.
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inescapable tango. Few investors would argue that United
To see the full comparison visit: Consider: Delta (DAL) is arguably the Continental is currently at a disadvantage
m rp
airline industrys best in class, with net to Delta. The debate is instead on whether profit margins among the highest at 10.1%
in 2016. Its the one wed put forward as a
United is fixable. When United makes a big
change, its shares tend to surge ahead of
sign that airlines have shed their boom-and- Deltas as investors bet that the difference
bust past. United Continental (UAL), in in profit margins will begin to narrow. That
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contrast, has one of the worst margins, at was the case in August 2016, when United
7.7%. With a proclivity for lowering prices installed Scott Kirby and Andrew Levy as
to take on all comers, its the carrier wed president and chief financial officer,
point to if we wanted to argue that nothing respectively, to help turn things around, and
One World, One Account has changed. its shares, which were close to even with

Interactive Brokers Rated Low Cost Friday's
% Chg. Last Week Week Earlier

by Barrons 16 years in a row* DJ Industrials 24231.59 + 673.60 + 2.86 NYSE Advances 1,687 2,138
DJ Transportation 10186.63 + 566.43 + 5.89 Declines 1,383 925
Unchanged 59 54

DJ Utilities 767.16 + 8.09 + 1.07

DJ 65 Stocks 8196.75 + 267.47 + 3.37 New Highs 547 369
Trading on margin is only for sophisticated investors with DJ US Market 660.21 + 9.46 + 1.45 New Lows 151 102
high risk tolerance. You may lose more than your initial investment. NYSE Comp. 12614.56 + 192.63 + 1.55 Av Daily Vol (mil) 3,816.0 2,593.4

Member - NYSE, FINRA, SIPC Supporting documentation for any claims and statistical information will be NYSE Amer Comp. 2614.10 + 9.97 + 0.38 Dollar
provided upon request. Services vary by rm. *Low Cost Rated by Barrons 16 Years Straight - Low cost (Finex spot index) 92.89 92.78
broker 2002 through 2017 according to Barrons online broker reviews. For more information see, S&P 500 2642.22 + 39.80 + 1.53
info - Barrons is a registered trademark of Dow Jones & Co. Inc. [1] Options involve risk and are not suitable S&P MidCap 1894.58 + 35.39 + 1.90 (CBT nearby futures) 153-080 154-080
for all investors. For more information read the Characteristics and Risks of Standardized Options. For a copy,
call 312 542-6901. [2] The IB commission rates shown are the average of the client commissions for trades S&P SmallCap 937.31 + 10.06 + 1.08 Crude Oil
executed in Oct 2017 and are subject to minimums and maximums as shown on the IB website. Some of the (NYM light sweet crude) 58.36 58.95
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rms listed may have additional fees and some rms may reduce or waive commissions or fees, depending on Inflation KRCRB
account activity or total account value. Under some commission plans, overnight carrying fees may apply. Value Line (arith.) 6020.39 + 93.18 + 1.57
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[3] IB calculates the interest charged on margin loans using the applicable rates for each interest rate tier listed Russell 2000 1537.02 + 17.86 + 1.18
on its website. For additional information on margin loan rates, see Gold
[4] $1.00 transaction minimum. DJ US TSM Float 27375.90 + 385.36 + 1.43 (CMX nearby futures) 1278.80 1286.70
December 4, 2017 BARRONS M5

Deltas, eventually traded at an 11% pre- Industry Action

The next chapter

mium to them. But when those hopes are Performance of DJ U.S. Ind, ranked by wkly % chg.*
dashedas they were earlier this year Telecommunications 6.37%
United skids.
Financials 3.40
Theres a name thats missing here, of

in investing
course, and thats American Airlines Oil & Gas 2.69

Group (AAL), the third major carrier. Keay Consumer Services 2.62
argues that because Americans merger with
U.S. Airways came after the mergers that Industrials 1.88
created United Continental and the new Health Care 1.83
Delta Air Lines, investors dont have the
Consumer Goods 1.56

same track record to inspect, at least not

yet. So this really is a two-airline issue for Utilities 1.05
the time being, he says. Basic Materials 0.01
For now, it looks like Uniteds game to
2.21 Technology
lose. After reporting disappointing second-

* For breakdown see page M36. Source: S&P Dow Jones Indices
quarter earnings, its shares tumbled and its
valuation premium disappeared. Investors
once again are waiting for the next fix.

us l,
United has work to do, and the market has their 2018 earnings estimates, as reflected in Visit or call 1-866-SECTOR-ETF
once again demonstrated a lack of confi- consensus expectations, since the middle of

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dence that its problems can be fixed, Keay the year, even as theyve been lowering their
says. Until United shows otherwise or estimates for the S&P 500 as a whole. Ana- An investor should consider investment objectives, risks, charges and expenses
carefully before investing. To obtain a prospectus, which contains this and other

ci on
makes a major strategic change, this lack of lysts now expect financials to grow earnings
confidence is likely to persist. at a 15.2% clip in 2018, up from 13.4% on information, call 1-866-SECTOR-ETF or visit Read the
Until it does, fly Delta. June 30. (The S&P 500s earnings are pre- prospectus carefully before investing.
dicted to grow by 10.7% next year, down All ETFs are subject to risk, including possible loss of principal. Sector ETF products are also subject to
Banks Still Have Room to Run from 12.1%.) Its also just one of three sec- sector risks and non-diversication risks, which generally results in greater price uctuations than the
overall stock market. Ordinary brokerage commissions apply.
Its never too early to be right. That might
be the best way to describe this columns
bullish call on financials this year.
Weve been upbeat on the sector for
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tors that had fourth-quarter estimates go up
following the most recent results, Bell says.
Still, analysts seem reluctant to play up
bank stocks. Strategas Research Partners
ALPS Portfolio Solutions Distributor, Inc., a registered broker-dealer, is distributor for the Select
Sector SPDR Trust.
m e
most of the year, in good times and bad, technical analyst Chris Verrone notes that
though mediocre is the best way to describe fewer than 40% of bank analysts have Buy
m rp
the call. Financials had been range-bound ratings on their stocks, compared with, say,
since a January rally and looked as if they the 60% who have Buy ratings on semi-
would trail the market in 2017. At the end of conductor stocks. Even JPMorgan Chase
August, the Financial Select Sector SPDR (JPM), one of the more stable banks out
exchange-traded fund (XLF) had returned there, cant turn the majority of analysts
How do you play
co Fo

just 7%, and the SPDR S&P 500 ETF bullish: 59% still rate the stock Neutral or
(SPY), 12%. Sell. Curiously, and despite the ongoing
What a difference three months makes.
The Financial Sector ETF has gained 12%
strength from the group, sell-side analysts
remain indifferent, at best, Verrone says. Asias internet
stock boom?
since the beginning of September, while the They might not be able to much longer.
SPDR S&P 500 ETF is up 7.1%. Both have One way technical analysts try to understand
returned about 18% this year. We reiterated the market is by comparing two indexes, to
our bullish view three weeks ago, when the visualize how one has done, relative to the
sector had sold off 4% in one week. other. Over the past seven years, financials
Is it too late to buy the banks? Nope. In have been stuck in a relative performance
fact, the sectors run of outperformance rangethe Financial Select Sector SPDR has
might just be starting. returned 165%, and the SPDR S&P 500 ETF,

Financial stocks gained 5% last week, 158%with bouts of outperformance followed

and are benefiting from whats happening in by ones of underperformance.
Washington. Big institutions were already Andy Addison, publisher of research

getting a boost from a more-forgiving regu- service Institutional View, says financials
latory environment, and with tax cuts likely performance, relative to the S&P 500, could
as we went to press, they could have what be ready to break out, and could have a long
they need to head higher still. The prom- way to run: Financials are one of the few
ises of the post-election blue sky scenarios sectors that has yet to reachand surpass Find out at
for financial stocks should come to fruition their pre-financial-crisis high. Its like a Free for Barrons subscribers
in 2018, KBW analyst Frederick Cannon rocket thats gotten through the gravity and
wrote in a note last week. is propelling itself on inertia, Addison says.
But its not as if financials need a ton of That should be relatively easy.
help. CFRA Research strategist Lindsey
Bell notes that analysts have been raising email: 2017 Dow Jones & Company. All Rights Reserved. 2E107
M6 BARRONS December 4, 2017

European Trader

Swiss Stocks That Look Tempting

by Victor Reklaitis
STRATEGISTS ARE BLOWING THEIR ALPENHORNS ABOUT THE OP- pharmaceuticals (versus other international defensives), and
portunity in Swiss stocks. they feature in Switzerland. Roche (ROG.Switzerland) and

The alpine countrys shares are changing hands below Novartis (NVS) are among the big names in the non-Euro-
their typical premium, the Swiss franc appears poised to slide pean Union countrys pharma industry.
further against the euro, and earnings growth looks good. The most popular U.S. exchange-traded fund focused on

us l,
UBS strategists rank Switzerland as the No. 1 European Swiss stocks is iShares MSCI Switzerland Capped
market for investors, based on factors such as cheaper-than- (EWL), which has about $1.3 billion in assets, according to

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normal valuations, profit-recovery potential, and dividend Other options are iShares Currency Hedged

yield. And a recent client note from a Morgan Stanley team MSCI Switzerland (HEWL) and First Trust Switzerland

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declares: We have decided to make an overweight stance AlphaDEX fund (FSZ).
on Switzerland one of our key recommendations for the The iShares MSCI ETF has gained about 19% this year,
start of 2018. while Switzerlands blue-chip benchmark, the Swiss Market
Switzerlands market trades at a roughly 16% premium Index (SMI.Switzerland), has tacked on roughly 14%. The
to Europes overall, according to Morgan Stanley, which fund trades at 19 times forward-year estimated earnings, Stock valuations are

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looks at metrics such as price-to-earnings ratios and price-
to-book values. That is modestly below its long-run aver-
age, and hence provides no impediment to outperformance,
says the banks equity strategy team, led by Graham Secker.
above the iShares Europe ETFs (IEV) multiple of 16, but
below the SPDR S&P 500 ETFs (SPY) 20. Its dividend
yield is 2.1%.
Health-care shares account for 29% of the funds hold-
below the norm,
earnings are rising,
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ings; financials and consumer non-cyclicals, 21% apiece, and
and the Swiss franc is
The Swiss franc looks likely to weaken more, thanks in industrials, 10%. The ETFs five biggest holdings are Ger- weakening.
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part to the Swiss National Banks sticking to accommodative ber and Hagen-Dazs parent Nestl (NESN.Switzerland),
policies, while other central banks tighten a bit. In addition Novartis, Roche, Swedish-Swiss engineering conglomerate
to helping tourists in Zurich, that should lift Swiss multina- ABB (ABB) and banking heavyweight UBS (UBS) Swatch
tional companies, which generate considerable sales in eu- makes it into the ranks of the ETFs top 20 holdings.
ros, dollars, and other currencies, then convert them into Morgan Stanley has Overweight ratings on Nestl, No-
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francs. Watch maker Swatch Group (ticker: UHR.Switzer- vartis, and UBS, along with Cartier parent Compagnie Fi-
land), for example, gets only 10% of its revenue from its nancire Richemont (CFR.Switzerland) and financial gi-
home country, according to FactSet. ants Credit Suisse (CS) and Swiss Re (SREN.Switzerland).
In 2017, the euro has gained about 9% on the franc,
touching its highest level since the Swiss In European markets last week, the main equity gauges
European central bank removed its fixed floor for the were a mixed bag. With less than one month to go in 2017,
Markets, currency pair in January 2015. The dollar Germanys DAX is up about 13% for the year, while Frances
page M27 is down against the franc this year, but CAC 40 has advanced 11% and the U.K.s FTSE 100 has
only by about 3%. added 3%. They have been boosted by such factors as an ex-
Morgan Stanley cites Switzerlands improving economy panding global economy, rising corporate profits, and anemic
and notes that consensus earnings estimates for 2018 and expected returns for other assets.
2019 are rising nicely. The Swiss equity market is getting Both France and Germany look overbought, warn the

the third-biggest rise in year-ahead forecasts of any country. Morgan Stanley strategists. Beyond buying Switzerland, the
Among recent encouraging economic readings, an expec- banks team is recommending that investors underweight
tations indicator from Credit Suisse and the CFA Society what they dub Europes FANG marketsFrance, Austria,

Switzerland jumped to 40.7 last week, its highest reading the Netherlands, and Germany.
since mid-2010. Gross domestic product showed 1.2% year- What about U.K. stocks? That market might resemble a
over-year growth in the third quarter, up from a softer sec- nice deal like Switzerland, but its hard to value the market
ond quarter. ahead of Brexit, say Olney and her UBS colleagues, refer-
Swiss stocks historically are considered defensive. They ring to Britains planned exit from the European Union.
should provide investors with a nice hedge against wider
market volatility, Secker and his colleagues say. In a recent VICTOR REKLAITIS, who is based in London, writes
note, UBS strategists, led by Karen Olney, say: We like for MarketWatch.
December 4, 2017 BARRONS M7

Asian Trader
Emerging Markets

Ping An Stock Could Rise 25% Emerging Market Alternatives

by Assif Shameen by Dimitra DeFotis

Insurances growing hordes of fans insist its financial-technology assets may this year, investors should expect some bumps in the months
be worth a lot more than the market currently thinks. ahead.
Ping An shares (ticker: 2318.Hong Kong) have already risen 94% this year, We dont think theyll be too jarring or too long-lasting for

up 152% from their lows of February last year. They trade at 13.6 times 12- a lengthy list of reasons: Emerging-markets corporate earn-
month forward earnings and have a 1.8% dividend yield. ings are healthy, commodity prices are recovering, China
Insurance companies normally use incoming premiums to buy assets such seems to have found its footing, the dollar has weakened to

us l,
as real estate, bonds, equities, and private-equity investments to create enough reasonable levels, and central bank policies are mostly sound.
income and return to match their long-term liabilities. Ping An does all that But investors should consider ways to diversify beyond the traditional EM

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but invests in technologyand not just shares in technology companies and indexes to smooth out the rocky portions.
their bonds. The company has also invested heavily in tech infrastructure to Institutional investors, for instance, are buying privately-held businesses

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improve efficiency, and has incubated an array of tech ventures, two of which, and alternative assets such as real estate, agriculture, and natural resources,
Lufax and Good Doctor, are now unicornsprivate start-ups worth at least $1 including water. That includes developing-market farmers and food producers,
billion. Analysts are betting that initial public offerings of the pair in the next which are helping to meet rising demand for organic and non-GMO grain and
12 months could send Ping Ans stock higher. produce in the U.S. and Europe. Japanese pension and insurance funds are
considering investing in food and agriculture operations, through private equity

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Ping An has identified five key technologiesbiometrics, big data, artificial
intelligence, blockchain, and the cloudto ease the growth of its four ecosys-
tems: financial services, health care, auto services, and real estate finance. It
sees itself not only as an insurer, but as a tech company that is also into insur-
and other funds, to boost portfolio yields. That could pique interest from family
offices, endowments, sovereign wealth funds, and other investors, says Philippe
de Laprouse, a managing director at High