Monday, November 27, 2017

And the Beat...

Monday, November 27, 2017 - U.S. Equities’ record-setting year continued this week, as the major indices soared to new highs in a holiday-shortened week. Despite being confronted with a hung government in Germany, mixed economic data, persistent below-target inflation, further flattening of the yield curve and the announced resignation of Janet Yellen from the Fed Board of Governors, investor enthusiasm for equities remained unabated. This upbeat outlook is underpinned by the conviction that a strengthening domestic economy, synchronized global growth, rising corporate profits and the prospect of a tax overhaul, provide a supportive backdrop to extend this year's rally even further.

Small-Cap stocks led the way in this week's gains after being lifted by the passage of the House version of the tax bill. The tech-heavy Nasdaq composite performed similarly well with the familiar FAANG contingent leading the way. Consumer discretionary stocks also provided a boost amid positive forecasts for Black Friday and holiday season shopping. At week's end, the Russell 2000 was up 1.9%, along with 0.9% and 1.6% advances for the DJIA and Nasdaq. The S&P 500 rose 0.9%, setting another 100 point milestone as it crossed the 2,600 mark on Friday.

ETFG Equity Exposure Report - M&A activity in the fast-consolidating semiconductor industry was in focus this past week, following the news of Broadcom's unsolicited $130 billion bid to acquire Qualcomm and Marvell's $6 billion acquisition of rival Cavium. Through our equity exposure report, you can track ETPs that will be potentially be effected by corporate actions, like M&A activity and other events that have a material impact on either the composition or performance of an ETP from the constituent level. While Qualcomm rejected Broadcom's initial overtures, it will be worth monitoring going forward as Broadcom is reportedly considering upping its already record-breaking offer. Looking at our equity exposure report, we can see that 182 and 105 ETPs hold Qualcomm and Broadcom respectively. The iShares PHLX Semiconductor ETF (SOXX) is the ETF that devotes the largest weighting to both companies at 8.72% and 7.31%.

Marvell's pending acquisition of Cavium has the potential to impact the as many as 130 of the combined ETPs that hold both companies as constituents. The funds with the most exposure to Marvel are the SPDR S&P Semiconductor ETF (XSD), Powershares Dynamic Semiconductors Portfolio (PSI), and First Trust Nasdaq Smartphone Index Fund (FONE) with 3.59%, 3.31%, 2.39% weightings. Cavium's largest exposures reside in the SPDR S&P Semiconductor ETF (XSD), PowerShares Russell Midcap Pure Growth Portfolio (PXMG) and First Trust Nasdaq Semiconductor ETF (FTXL) with 3.78%, 1.9%, and 1.77% weightings.

As always, when assessing the potential impact a merger will have on a given ETP, it is important to review a fund's weighting methodology and selection criteria.

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