Category Archives: stocks

Amazon, Comcast Content Delivery Network Push Could Hurt Akamai

Comcast ( CMCSA ) and Amazon Web Services, part of Amazon.com ( AMZN ), are becoming bigger players in the content delivery network market, posing a challenge to CDN leader Akamai Technologies ( AKAM ), according to Goldman Sachs. CDNs increase the speed of e-commerce transactions, business software downloads and video streaming to mobile devices. “Amazon is growing its Cloudfront CDN to an estimated $1.8 billion in 2016 revenues and shifting its own video delivery from independent CDNs to its own network, and startups like Fastly are growing share,” Goldman Sachs analyst Heather Bellini said in a research report. AWS is part of the e-commerce giant’s fast-growing cloud computing business. Amazon stock surged to an all-time high  on Tuesday, as the Wall Street Journal reported that Salesforce.com ( CRM ) was building a new service that uses AWS. AWS was a big reason Amazon reported its highest sales growth in nearly four years when it posted first-quarter earnings on April 28, sending the stock up nearly 10% the following day. Amazon is an IBD Leaderboard stock, with a strong IBD Composite Rating of 95, where 99 is highest. Akamai has a 59 CR. Bellini, who has a sell rating on Akamai stock, attended the 2016 Content Delivery Summit in New York on Monday, gaining views on market trends. “A key takeaway was that the competitive landscape remains intense, as Comcast looks to triple its CDN capacity next year,” wrote Bellini. Comcast, the No. 1 cable TV company, has been expanding commercial services to businesses. Comcast  moved into CDN services in late 2014, Bellini noted. One market trend could work in Comcast’s favor, said the Goldman Sachs analyst. “Multi-CDN deployments were a key theme of the conference,” she wrote, “with new startups making it easy to route traffic across multiple CDNs.” Cambridge, Mass.-based Akamai is the No. 1 provider of CDN services. Worries that big customers such as  Apple ( AAPL ) and  Facebook ( FB ) are shifting more of their data traffic to their own CDNs have pressured Akamai stock. Aside from AWS and Comcast, Akamai competes with  Level 3 Communications ( LVLT ),  Limelight Networks ( LLNW ), and Verizon Communications ( VZ ), as well as startups Fastly and CloudFlare.

Buy 5 Best Dividend Mutual Funds For Enticing Returns

A Fed rate hike seems off the table in June as companies scaled back hiring in April. Not only was the increase in hiring the slowest since September, the labor force participation rate also declined, which could mean that people found it a bit more difficult to get jobs. The Fed is already cautious about raising rates in the near term as the U.S. inflation rate in the first quarter came in way below its desired target. Possibility of a rate hike receding in the near term makes investment in dividend-paying mutual funds more alluring. As economic growth stalled in the first three months of the year, with a slew of data from consumer spending to manufacturing in April neither painting a solid picture, it will be prudent to stay invested in such funds. Dividend-paying funds generally remain unperturbed by the vagaries of the economy. Rate Hike Improbable in June The latest report on weak job creations in April made the Fed cautious about raising rates sooner. The U.S. economy created a total of 160,000 jobs in April, significantly lower than the consensus estimate of 203,000. The tally was also considerably lower than March’s downwardly revised job number of 208,000. The unemployment rate in April was in line with March’s rate of 5%. However, more people dropped out of the labor force. The participation rate fell to 62.8%, declining for the first time in 7 months as 300,000 individuals quit jobs or gave up job searches. An impending threat with regard to job additions continues to haunt the economy. Companies’ profits are getting squeezed, so they could look to stabilize their labor costs by reducing hiring further. Fed officials were already harboring mixed feelings about raising rates in June. The core personal consumption expenditures (PCE) price index, the Fed’s preferred inflation measure, increased 0.1% in the first quarter, below the consensus estimate of a 0.2% gain. This is also way below the Fed’s desired target level of 2%. Economic Data Disappointing As businesses and consumers turned cautious with their spending, the U.S. economy posted its weakest quarterly growth in two years between January and March. The U.S. economy expanded at an annualized rate of 0.5% in the first quarter, way below last quarter’s growth rate of 1.4%, according to the Commerce Department. Into the second quarter, things aren’t looking bright either. Consumer spending that weakened in the first quarter may have further experienced a slowdown in April. The Reuters/University of Michigan consumer sentiment index declined to 89.0 in April from 91.0 in March. Compared with year-ago levels, the index plummeted 7.2%. The battered U.S. manufacturing sector did stabilize a bit in April, but is yet to regain full health. The ISM manufacturing index dropped to 50.8 in April from 51.8 in March. Top 5 Dividend Mutual Funds to Invest In Diminishing chances of a rate hike soon, calls for investing in dividend-paying mutual funds. Dividend payers suffer when rates are rising as investors focus on safe bonds. Add to this a flurry of weak economic reports and we all know why investing in such top-notch dividend funds won’t be a bad proposition. Companies that pay dividends persistently put a ceiling on economic uncertainty. These companies have steady cash flows and are mostly financially stable and mature companies, which help their stock prices to increase gradually over a period of time. Moreover, dividends are less taxed as compared to interest income, help your portfolio to grow at a compounded rate and offer protection from earnings manipulation. We have selected five such mutual funds that offer a promising year-to-date dividend yield, have given impressive 3-year and 5-year annualized returns, boast a Zacks Mutual Fund Rank #1 (Strong Buy) or #2 (Buy), offer a minimum initial investment within $2,500 and carry a low expense ratio. Funds have been selected over stocks, since funds reduce transaction costs for investors and also diversify their portfolio without the numerous commission charges that stocks need to bear. Vanguard Dividend Growth Fund Investor (MUTF: VDIGX ) invests primarily in stocks that tend to offer current dividends. VDIGX’s year-to-date dividend yield is 1.88%. VDIGX’s 3-year and 5-year annualized returns are 10.5% and 11.9%, respectively. The annual expense ratio of 0.33% is lower than the category average of 1.01%. VDIGX has a Zacks Mutual Fund Rank #2. Fidelity Strategic Dividend & Income Fund (MUTF: FSDIX ) invests the fund’s assets with a focus on equity securities that pay current dividends. FSDIX’s year-to-date dividend yield is 2.71%. FSDIX’s 3-year and 5-year annualized returns are 7.1% and 9.3%, respectively. The annual expense ratio of 0.75% is lower than the category average of 0.82%. FSDIX has a Zacks Mutual Fund Rank #1. Vanguard Dividend Appreciation Index Fund Investor (MUTF: VDAIX ) seeks to track the performance of a benchmark index that measures the investment return of common stocks of companies that have a record of increasing dividends over time. VDAIX’s year-to-date dividend yield is 1.95%. VDAIX’s 3-year and 5-year annualized returns are 8.7% and 9.9%, respectively. The annual expense ratio of 0.19% is lower than the category average of 1.01%. VDAIX has a Zacks Mutual Fund Rank #2. Fidelity Dividend Growth Fund (MUTF: FDGFX ) invests primarily in companies that pay dividends or that Fidelity Management & Research Company believes that these companies have the potential to pay dividends in the future. FDGFX’s year-to-date dividend yield is 1.38%. FDGFX’s 3-year and 5-year annualized returns are 8.9% and 8.3%, respectively. The annual expense ratio of 0.68% is lower than the category average of 1.01%. FDGFX has a Zacks Mutual Fund Rank #2. Vanguard High Dividend Yield Index Fund Investor (MUTF: VHDYX ) employs an indexing investment approach designed to track the performance of the FTSE High Dividend Yield Index. VHDYX’s year-to-date dividend yield is 2.9%. VHDYX’s 3-year and 5-year annualized returns are 10.2% and 12.1%, respectively. The annual expense ratio of 0.16% is lower than the category average of 1.1%. VHDYX has a Zacks Mutual Fund Rank #1. Original Post

The Appropriate Portfolio Vs. The Optimal Portfolio

Perfect is the enemy of the good” – Adapted Italian Proverb We all want the perfect portfolio, the portfolio that achieves the highest amount of return for the lowest degree of risk. But one of the inconveniences of a system as dynamic as a financial market is that it’s impossible to consistently maintain the perfect portfolio. This pursuit, unfortunately, causes more damage than good since it leads to increased activity, higher fees, higher taxes and usually lower returns. I have argued in my new paper, Understanding Modern Portfolio Construction , that this pursuit of alpha is misguided and that we should seek the appropriate portfolio as opposed to the optimal portfolio. Here’s my basic thinking: There is an abundance of data supporting the fact that more active investors do not consistently generate alpha or excess return.¹ Alpha is elusive because it doesn’t exist in the aggregate and because we all generate the after tax and fee return of the aggregate financial markets. So, the diversified low fee indexer must ask themselves – if I want to be properly diversified and alpha is impossible to achieve in the aggregate, then is this a pursuit I should bother engaging in? For most people, the answer should be no. For most people, the generation of “alpha” is not a necessary financial goal. Asset allocators should be concerned with generating the appropriate return as opposed to the optimal return. This means building a portfolio that is consistent with your risk profile and managing it across time so that you maintain that profile while maintaining an appropriately low fee, tax efficient and diversified approach. The pursuit of alpha generation not only reduces returns by increasing taxes and fees, but also misaligns the way the portfolio manager perceives risk with the way the client sees risk. Since the portfolio manager is benchmarked to a passive portfolio they likely cannot outperform they will often exacerbate many of the frictions that degrade portfolio returns all the while increasing the risk that the client will not achieve their financial goals. Of course, the “optimal” portfolio might not seem so different from the “appropriate” portfolio, but I would argue that there’s a substantive difference. For instance, let’s look at an example of a 40-year-old man with $500,000 to allocate. Let’s assume he uses the simple “age in bonds” approach and comes to a 60/40 stock/bond portfolio. Every year this asset allocator should rebalance his portfolio so that he owns approximately 1% more in bonds. In all likelihood, the stock piece of the portfolio will outperform the bonds over long periods of time so he will consistently be tilting further away from stocks and into bonds. But why does he rebalance? He rebalances to maintain an appropriate risk profile, not to optimize returns and generate alpha. He is accepting the high probability of a good return and foregoing the risks associated with pursuing the perfect return. This should be the approach taken by most asset allocators seeking to build a proper savings portfolio. Countercyclical Indexing takes this process of risk profile based rebalancing a step further.¹ Since a 60/40 portfolio derives 85%+ of its risk from the equity market piece (and even more late in a market cycle) it is prudent to try to achieve some degree of risk parity across the market cycle. But we should be clear about the process of this rebalancing – we are not rebalancing to achieve alpha. We are rebalancing to better balance our exposure to asset risk across time. Said differently, we don’t implement this rebalancing to capture the best portfolio, but to capture an appropriate portfolio. In doing so, we are accepting that our portfolio might merely be “good,” but by pursuing the appropriate portfolio we are avoiding many of the pitfalls involved in pursuing the perfect portfolio. If more asset allocators abandoned the false pursuit of the optimal portfolio, I suspect they would perform better. Instead, they’ve let perfect become the enemy of the good. ¹ – See the annual SPIVA reports. ² See, What is Countercyclical Indexing ?