The Shadow Stock Trader
Friday, December 12, 2008
By Horacio Marquez
Email – #38
** We sit on HealthShares Drug Discovery Tools Exchange-Traded Fund (NYSE: HHV) until it is liquidated
A few days ago, HealthShares decided to liquidate four funds, including our HealthShares Enabling Technologies (NYSE: HHV), because of low assets under management. The fund will cease trading on December 23 and will be liquidated.
The reality is that most of the volume in health care ETFs is concentrated in our other holding, Biotech Holders Trust (AMEX: BBH) and a few similar funds. Ultra-targeted ETFs like this one bring less interest in general because of lower diversification and the need to research individual components more, despite the huge appeal of the underlying stocks in which it invests.
Many of these stocks, which typically have lower market capitalizations than the ones that make up the broad-based indexes saw undeserved weakness in the recent market turmoil. As the market has recovered recently, we similarly saw a nice recovery pattern in our fund.
What to do about the liquidation?
But before I jumped to hit a bid, I called HealthShares and asked them about their fund-liquidating methodology. For starters, there is a huge (27%) short interest in this fund, probably taken by sophisticated hedge fund players to hedge against existing positions in one or a few of the underlying stocks, which they expect to see outperform the index. These shorts MUST NECESSARILY CLOSE on or before December 23. This is a big positive: 27% of the fund must be bought back before it closes.
No wonder it outperformed on Thursday, despite the soft market.
If we add the fact that the market has shown as of this year and for next year a nice predisposition towards the healthcare sector in general, and that the market in general has been very constructive lately, even in the face of bad news, I am happy to sit on our shares and get liquidated on December 23. This strategy has the additional positive that we will pay no commission for the transaction. The cash will appear in our account.
We should take this cash and move it over to our biotech fund Biotech Holders Trust (AMEX: BBH). But the sector in general should not be slighted, since it is so cheap that we should see a wave of takeovers, including hostile ones starting in the new year, as the large ones take advantage of these low valuations to grow their portfolios.
Enjoy and Profit,
Horacio Marquez
All Shadow StockTrader recommendations will be posted on the Money Map Press website. Simply go to http://www.moneymappress.com and click on “Money Shadow Stock Trader.”
Current Portfolio:
Name: iShares FTSE/Xinhua China 25 Index ETF (NYSE: FXI)
Current Price: $29.55
Comments: Buy
Name: iShares Russell 2000 Index (NYSE: IWM)
Current Price: $45.69
Comments: Buy
Name: Biotech Holders Trust (AMEX: BBH)
Current Price: $162.03
Comments: Buy
Name: S&P DEP RECEIPTS (AMEX: SPY)
Current Price: $87.39
Comments: Buy
Name: Powershares DB Agriculture Fund (AMEX: DBA)
Current Price: $23.96
Comments: Buy
Name: Materials Select Sector SPDR (AMEX: XLB)
Current Price: $22.94
Comments: Buy
Name: HealthShares Enabling Technologies (NYSE: HHV)
Current Price: $23.72
Comments: Buy
Name: Energy Select Sector SPDR (AMEX: XLE)
Current Price: $47.38
Comments: Buy
Market Watch
NASDAQ
1462.11
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SP 500
778.12
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DJIA
7395.70
+178.73
As Of 5:33AM 3/18/2009
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