CWEB: Extreme Bullish Performance Likely To Continue (NYSEARCA:CWEB) - Seeking Alpha

1 year ago 41

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Investment Thesis

KWEB and CWEB returned 96.36% and 245.09% successful 65 trading days betwixt 10/24/2022 and 1/26/2023. The illustration beneath shows that these formidable returns person been made without immoderate important sell-offs.

My anticipation is that this betterment is persistent and whitethorn continue, connected and disconnected with humble corrections for astatine slightest fractional a year. Therefore, I complaint some funds arsenic BUY. The prime betwixt KWEB and CWEB depends mostly connected the hazard tolerance of the investor, those with debased hazard tolerance should put successful the non-leveraged, KWEB, fund, portion the much assertive whitethorn spell with CWEB. Everyone is expected to usage beardown hazard absorption strategies due to the fact that these funds are precise volatile.

To admit the risks involved, 1 whitethorn look astatine the adjacent chart, showing a precise agelong downtrend of astir 2 years, from 2/22/2021 to 10/24/2022. During this interval KWEB and CWEB returned -79.33% and -97.78%, respectively. To retrieve from these devastating losses, KWEB would request a summation of 484%, portion CWEB needs 4,504%.

Although enormous, those figures should not scare the investors experienced successful the mode markets work. If anything, we each work the mantra that “leverage” is unsafe and leverage funds are lone day-trading instruments, suitable lone for hedge funds specialists and nonrecreational traders. This is simply a story that gets demolished by a elemental argument.

Both graphs amusement that the consistency and spot of the trends presented outstanding opportunities for agelong word trade. A agelong CWEB commercialized initiated connected 10/24/2022 would person gained 245%. That is much than doubly the 96% instrumentality of KWEB. This is simply a bully illustration of the information that successful dependable uptrends the leveraged funds compound further gains, supra the leverage factor.

A akin statement tin beryllium made for downtrends, but I volition not dwell connected it, since this nonfiction is addressed to long-only investors. The hedge funds specialists cognize rather good however to nett by shorting the markets.

KWEB Fund Data

Inception Date: 7/31/2013

Net Assets: 6.5 B

Yield: 0.44%

Expense Ratio: 0.69%

Top 10 Holdings arsenic of 2023-1-25

Tencent Holdings Ltd 10.88%

Alibaba Group Holding Ltd Ordinary Shares 9.75%

Meituan Class B 7.23%

JD.com Inc Ordinary Shares - Class A 5.98%

Pinduoduo Inc ADR 5.80%

NetEase Inc Ordinary Shares 4.43%

Tencent Music Entertainment Group ADR 4.09%

Kanzhun Ltd ADR 4.00%

Trip.com Group Ltd 3.96%

KE Holdings Inc ADR 3.93%

# of Holdings 34 arsenic of 2023-01-25

KWEB Valuation

All the stocks successful KWEB person debased valuations. The weighted mean of the terms to book, income and currency flows are sizeable little than those of the akin US stocks.

Price/Book = 4.29

Price/Sales = 0.55

Price/Cash Flow = 23.65

Technical Analysis

The play terms charts of KWEB and CWEB are identical twins. The apical was successful February 2021 and the bottommost successful October 2022.

The KWEB illustration shows a “bullish” transverse of the 10-week with 40-week MA sometime successful the past week of December. The aforesaid signifier happened astir 2 weeks aboriginal connected CWEB.

Both charts bespeak a beardown uptrend, which I judge is apt to continue.

Next is simply a “relative rotation graph” of KWEB, CWEB and TCEHY, BIDU. It illustrates the information that the outperformance of Chinese net stocks is successful afloat plaything and has a beardown momentum.

Both funds person options. KWEB has LEAP options 2 years out, to January 2025. CWEB options marketplace is precise constricted with the longest expiration successful six months, by July 2023.

Cautionary Notes

These notes code the other risks associated with trading of leveraged assets, specified arsenic CWEB.

First, present it is simply a connection by FINRA astir trading successful inverse and leveraged funds.

“Due to the effects of compounding, their show implicit longer periods of clip tin disagree importantly from their stated regular objective. Therefore, inverse and leveraged ETFs that are reset regular typically are unsuitable for retail investors who program to clasp them for longer than 1 trading session, peculiarly successful volatile markets.”

Regulatory Notice 09-31 | FINRA.org

The pursuing illustration illustrates the worth erosion suffered erstwhile a leveraged money is held for a agelong clip period. While KWEB returned 6.54% successful the past 12 months, the 2X leveraged money CWEB returned -32.57%, a important loss.

Conclusion

Ratings for CWEB and KWEB are BUY.

Both funds are precise volatile and necessitate beardown hazard extortion measures.

As a leveraged fund, CWEB is NOT suitable arsenic semipermanent concern and is recommended arsenic BUY lone for short-term tactical investment. Long-term investors should usage the non-leveraged KWEB fund.

Editor's Note: This nonfiction discusses 1 oregon much securities that bash not commercialized connected a large U.S. exchange. Please beryllium alert of the risks associated with these stocks.