MicroSectors June Newsletter

Tesla (TSLA) In response to a decline in sales, as well as the impending reduction in the Federal Tax Credit given for purchasing an electric vehicle, Tesla has reduced the base price for both the Model S and Model X by around 2% to 3%. By lowering the price, Tesla hopes to increase demand, with the ultimate goal of restoring profitability to this industry giant. Furthermore, the construction of “Gigafactory 3” in Shanghai has been progressing ahead of schedule, with vehicle production set to begin within the next six months.

Pioneer Natural Resources (PXD) In an attempt to cut $100 million in costs, as well as raise dividends for shareholders, Pioneer Natural Resources recently announced plans to lay off approximately one quarter of their workforce. This number includes 300 individuals who were the recipients of a buyout in April of this year, as well as an additional 230 people to be laid off in the future. However, these layoffs should not be interpreted as harbingers of a potential decline in oil revenues, but rather are indicative of an industry-wide trend of prioritizing immediate stability and profitability over future growth. Although Pioneer’s CAGR projections have been reduced from 20% in November 2018 to the mid-teens in their most recent reports, it is now evident as a result of this reduction in overheads costs that Pioneer can generate excess cash flows, ensuring profitability if prices remain near current levels.

Facebook (FB) Facebook has announced plans to launch their own Cryptocurrency, which has tentatively been named ‘GlobalCoin’, and is set to launch in a number of countries around the world by April 2020. The plans are to integrate this product into their pre-existing Messenger and WhatsApp services, enabling mobile on-the-go payments between devices using this new currency. One way in which this product aims to differentiate itself is that there are reported plans for Facebook to negotiate deals with online retailers for consumers who pay using GlobalCoin.

BB&T (BBT) BB&T has continued preparations for their upcoming merger with SunTrust Banks (NYSE: STI), a move which will result in the creation of one of the largest banks in the United States. This merger has been justified as being a consequence of the shifting technological landscape of the banking world. Additionally, it has been recently announced that the merger will result in the creation of an entirely new brand, as opposed to retaining elements of either SunTrust or BB&T in the name of the newly minted company.

Alphabet (GOOGL) Google recently reported that, due to high levels of traffic among consumers in the Northeastern United States on Sunday, June 2nd, there was an outage of many of their largest products, such as Snapchat, Gmail, and YouTube, for up to four hours on Sunday afternoon. The root cause of these outages were found to be issues with Google’s cloud service, which is an integral component to the apps that were affected. In other news, the United States Department of Justice has opened preliminary investigative procedures into Google, examining their advertising algorithm as it relates to user search history. This has been prompted, allegedly, by complaints from other members of the industry.

Chevron (CVX) Chevron recently began requesting relief from U.S. sanctions that limit the amount of business that oil companies can do in the conflict-ridden nation of Venezuela. These sanction have been utilized by the United States to deprive the regime of Nicolas Maduro of funding, in an attempt to wrest control from his government, which has been recognized as illegitimate by the United States in the aftermath of a 2018 election with evident flaws. Oil production in Venezuela, the nation with the largest oil reserves in the world, has dropped to less than 1,000,000 barrels per day, down from an average of almost 2,000,000 barrels per day in 2017. The decision of whether or not to extend the waivers currently received by Chevron in relation to the ongoing sanctions ultimately reflects a much larger conflict of interest for the United States: does the country value domestic business interests over international diplomatic statements?


Big Oil Performance Analysis

Source: Bloomberg



Big Bank Performance Analysis

Source: Bloomberg


FANG+ Performance Analysis

Source: Bloomberg


Chart of the Month

Source: Bloomberg



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What is MicroSectors?

MicroSectors provides concentrated exposure to investable market segments that heavily influence many investor portfolios. Developed as trading and hedging instruments, MicroSectors give sophisticated investors specified exposures to popular niches of the market. More info on MicroSectors can be found here.

For Institutional use only, this is not intended for retail investors, public viewing or distribution.

Bank of Montreal, the issuer of the ETNs, ("Bank of Montreal" or the "Issuer"), has filed a registration statement (including certain pricing supplements, prospectus supplement and prospectus) with the Securities and Exchange Commission (the "SEC") about each of the offerings to which this website relates. Please read those documents and the other documents relating to these offerings that Bank of Montreal has filed with the SEC for more complete information about Bank of Montreal and these offerings. These documents may be obtained without cost by visiting EDGAR on the SEC website at www.sec.gov. Alternatively, Bank of Montreal, any agent or any dealer participating in these offerings will arrange to send the applicable pricing supplement, the prospectus supplement and the prospectus if so requested by calling toll-free at 1-877-369-5412.

The ETNs are senior, unsecured debt obligations of Bank of Montreal, and are subject to Bank of Montreal’s credit risk.

The ETNs are intended to be daily trading tools for sophisticated investors to manage daily trading risks as part of an overall diversified portfolio. They are designed to achieve their stated investment objectives on a daily basis. You should proceed with extreme caution in considering an investment in the ETNs.


The ETNs do not guarantee any return of your investment. If the closing Indicative Note Value or the Intraday Indicative Value for the ETNs is equal to or less than $0 at any time during an Exchange Business Day (each as defined in the applicable pricing supplement), you will lose all of your investment in the ETNs. Even if the Index Closing Level has increased or decreased, as applicable, from the Initial Index Level, you may receive less than the principal amount of your ETNs upon a call, redemption, at maturity, or if you sell your ETNs, as well as consequences of any leverage, each as described in more detail in the applicable pricing supplement.

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The ETNs are subject to a call right, which may adversely affect the value of, or your ability to sell, your ETNs. The ETNs do not pay any interest, and you will not have any ownership rights in the Index constituents. The Index Closing Level used to calculate any payment by the Issuer of the ETNs may be different from the Index Closing Level at other times during the term of the ETNs. There are restrictions on your ability to request a redemption of the ETNs, and you will not know the amount due upon redemption at the time you elect to request that the ETNs be redeemed. The Issuer may sell additional ETNs, but is under no obligation to do so.


Market disruptions may adversely affect your return. Significant aspects of the tax treatment of the ETNs are uncertain.

The Intraday Indicative Value and the Indicative Note Value are not the same as the closing price or any other trading price of the ETNs in the secondary market. There is no assurance that your ETNs will be listed or continue to be listed on a securities exchange, and they may not have an active trading market. The value of the ETNs in the secondary market may be influenced by many unpredictable factors.


The Issuer or its affiliates may have economic interests that are adverse to those of the holders of the ETNs as a result of its business, hedging and trading activities, or as Calculation Agent (as defined in the applicable pricing supplement) of the ETNs, and may have published research, expressed opinions or provided recommendations that are inconsistent with investing in or holding the ETNs, and may do so in the future.

Each Index has limited actual historical information. The Index Calculation Agent (as defined in the applicable pricing supplement), may adjust the Index in a way that may affect its level, and may, in its sole discretion, discontinue the public disclosure of the intraday Index value and the end-of-day closing value of the Index. The Indices lack diversification and are vulnerable to fluctuations in the applicable sector. A limited number of Index constituents may affect each Index Closing Level, and the Indices are not necessarily representative of its focus industry. An Index constituent may be replaced upon occurrence of certain events. The manner in which each Index selects its components may differ from how other index providers or market participants might do so.

Use of Hypothetical Back-Tested Data - The historical data of the Indices shown herein is from the dates displayed. Any Index data shown prior to that date is hypothetical and a result of the application of the Index methodology to historical data, and has inherent limitations. The creation of hypothetical data necessarily involves assumptions and cannot take into account the impact of financial risk in actual trading. Alternative modeling techniques or assumptions may produce different hypothetical back-tested information that might be more appropriate and that might differ significantly from the information presented herein. The hypothetical back-tested data herein should not be considered indicative of actual results that might be obtained from an investment in a financial instrument referencing the Index.


Historical and hypothetical back-tested results are neither an indicator nor a guarantee of future Index performance or the return of the ETNs.


Please see the “Risk Factors” section in the pricing supplement, the prospectus supplement and the prospectus relating to the applicable offering.


This information is not intended to provide and should not be relied upon as providing accounting, legal, regulatory or tax advice. We urge you to consult your investment, legal, tax, accounting and other advisers before you invest in the ETNs.

MicroSectors™ and REX™ are registered trademarks of REX Shares, LLC (“REX”). FANG+ is a registered trademark of ICE Data Indices, LLC (“ICE Data”). The trademarks have been licensed for use for certain purposes by Bank of Montreal. The NYSE® FANG+™ Index is a product of ICE Data, and has been licensed for use by Bank of Montreal. The ETNs are not sponsored, endorsed, sold or promoted by REX or any of its affiliates or third party licensors (collectively, “REX Index Parties”) or by ICE Data or any of its affiliates or third party licensors (collectively, “ICE Data Index Parties”). REX Index Parties and ICE Data Index Parties make no representation or warranty, express or implied, to the owners of the ETNs or any member of the public regarding the advisability of investing in securities generally or in the ETNs particularly or the ability of the NYSE® FANG+™ Index to track general market performance. REX Index Parties and ICE Data Index Parties’ only relationship to Bank of Montreal with respect to the Index is the licensing of the Index and certain trademarks, service marks and/or trade names of REX Index Parties and ICE Data Index Parties. 

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