Tag Archives: alt-investing

Best And Worst Q3’15: Materials ETFs, Mutual Funds And Key Holdings

Summary Materials sector ranks sixth in Q3’15. Based on an aggregation of ratings of 12 ETFs and 15 mutual funds. FMAT is our top-rated Materials ETF and FSCHX is our top-rated Materials mutual fund. The Materials sector ranks sixth out of the 10 sectors as detailed in our Q3’15 Sector Ratings for ETFs and Mutual Funds report. It gets our Neutral rating, which is based on an aggregation of ratings of 12 ETFs and 15 mutual funds in the Materials sector. See a recap of our Q2’15 Sector Ratings here. Figures 1 ranks all nine ETFs and Figure 2 ranks the five best and five worst mutual funds in the sector. Not all Materials sector ETFs and mutual funds are created the same. The number of holdings varies widely (from 27 to 139). This variation creates drastically different investment implications and, therefore, ratings. Investors seeking exposure to the Materials sector should buy one of the Attractive-or-better rated ETFs or mutual funds from Figures 1 and 2. Figure 1: ETFs with the Best & Worst Ratings – Top 5 (click to enlarge) * Best ETFs exclude ETFs with TNAs less than $100 million for inadequate liquidity. Sources: New Constructs, LLC and company filings The PowerShares DWA Basic Materials Momentum Portfolio ETF (NYSEARCA: PYZ ), the ProShares Ultra Basic Materials ETF (NYSEARCA: UYM ) and the Guggenheim S&P Equal Weight Materials ETF (NYSEARCA: RTM ) are excluded from Figure 1 because their total net assets are below $100 million and do not meet our liquidity minimums. Figure 2: Mutual Funds with the Best & Worst Ratings – Top 5 (click to enlarge) * Best mutual funds exclude funds with TNAs less than $100 million for inadequate liquidity. Sources: New Constructs, LLC and company filings The Fidelity MSCI Materials ETF (NYSEARCA: FMAT ) is the top-rated Materials ETF and the Fidelity Select Chemicals Portfolio (MUTF: FSCHX ) is the top-rated Materials mutual fund. FMAT earns a Neutral rating and FSCHX earns an Attractive rating. The iShares Goldman Sachs Natural Resources ETF (NYSEARCA: IGE ) is the worst-rated Materials ETF and the Rydex Series Basic Materials Fund (MUTF: RYBMX ) is the worst-rated Materials mutual fund. IGE earns a Neutral rating and RYBMX earns a Very Dangerous rating. 172 stocks of the 3000+ we cover are classified as Materials stocks. Compass Minerals International, Inc. (NYSE: CMP ) is one of our favorite stocks held by Materials ETFs and mutual funds and earns our Attractive rating. Since 2012, Compass Minerals has grown after-tax profit ( NOPAT ) by 18% compounded annually. The company’s return on invested capital ( ROIC ) has also improved the past three years and is currently a top-quintile 18%. In spite of Compass Minerals’ impressive fundamental performance, the stock remains undervalued. At its current price of ~$80/share, CMP has a price to economic book value ( PEBV ) ratio of 1.0. This ratio implies that the market expects NOPAT to never grow from its current level. However, if Compass Minerals can grow NOPAT by 6% compounded annually for the next six years , the stock is worth $104/share today – a 30% upside. Hecla Mining Company (NYSE: HL ) is one of our least favorite stocks held by Materials ETFs and mutual funds and earns our Very Dangerous rating. Since 2011, Hecla’s NOPAT has declined by 46% compounded annually while revenue has only grown by 1% compounded annually. Hecla’s bottom quintile ROIC of 1% is well below the 14% it earned in 2011 as well. Unfortunately for investors, despite the stock price being down 14% YTD, it remains overvalued. To justify its current price of ~$2/share, Hecla must grow NOPAT by 14% compounded annually for the next 21 years . Two decades of double digit profit growth is a hurdle for even the best of companies and even more so for one that hasn’t grown NOPAT over the past four years. Figures 3 and 4 show the rating landscape of all Materials ETFs and mutual funds. Figure 3: Separating the Best ETFs From the Worst ETFs (click to enlarge) Sources: New Constructs, LLC and company filings Figure 4: Separating the Best Mutual Funds From the Worst Mutual Funds (click to enlarge) Sources: New Constructs, LLC and company filings D isclosure: David Trainer, Kyle Guske II, and Max Lee receive no compensation to write about any specific stock, sector or theme. Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More…) I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

EWZ: July Review

Summary Share price of the iShares MSCI Brazil Capped ETF declined by more than 12% in July. The Brazilian economy is in a bad shape, the commodity prices are weak and the corruption scandal keeps on growing. It is hard to expect any positive changes in August. Share price of the iShares MSCI Brazil Capped ETF (NYSEARCA: EWZ ) declined rapidly in July. It was negatively affected by declining commodity prices and by new developments in the Petrobras (NYSE: PBR ) corruption affair. Six former execs of a construction company were sentenced to 6-15 years of jail due to their involvement in the Petrobras corruption scandal and money laundering. Moreover, the former Brazilian president da Silva is being investigated for his involvement in a scandal related to foreign activities of Brazilian construction company Odebrecht SA. Although this case is not directly related to Petrobras’s kickback schemes, it has reignited the fears of investors that investigations will reveal involvement of current president Dilma Rousseff which could destabilize the Brazilian political situation even more. Investigations have shown that other Brazilian state controlled companies were involved in corruption schemes. One of them is Eletrobras (NYSE: EBR ). Moreover, the S&P rating agency warned that the Brazilian investment grade rating is endangered. And another bad news for the share markets came in the end of July, as the Brazilian central bank increased interest rates to 14.25% to tackle inflation. 53% of EWZ’s portfolio is created by shares of 15 companies. The three biggest holdings are the same as in June: preferred shares of Itau Unibanco (NYSE: ITUB ), shares of beer and soft drink producer Ambev (NYSE: ABEV ) and preferred shares of Banco Bradesco (NYSE: BBD ). Weights of oil giant Petrobras and diversified miner Vale (NYSE: VALE ) decreased significantly compared to June. Source: own processing, using data from ishares.com EWZ lost 12.45% of its value in July. Among the most significant holdings, only shares of the apparel producer Lojas Renner ( OTC:LORPF ) experienced a notable growth. On the other hand, share prices of Kroton Educacional, Petrobras, BMF Bovespa and preferred shares of Itau Unibanco experienced double-digit declines. (click to enlarge) Source: own processing, using data from Bloomberg Although EWZ’s share price was strongly correlated with the S&P 500 and the United States Oil ETF (NYSEARCA: USO ), these correlations were slightly fluctuating over the last two months. On the other hand, the correlation between share prices of EWZ and Petrobras is extremely high and stable. It has been moving in the 0.8-1.0 range for the last 10 weeks. It shows that Petrobras and its corruption scandal is still the main factor affecting the Brazilian share market. (click to enlarge) Source: own processing, using data of Yahoo Finance The chart below shows the volatility of EWZ, using the 10-day moving coefficient of variation. Although June and the first part of July were relatively calm, the volatility increased significantly in the second half of July and it peaked at the 5.5% level. Although it has been declining for the last couple of days, it is still high and other news related to the corruption investigations may lead to further dramatic spikes. (click to enlarge) Source: own processing, using data from Yahoo Finance Some of the more interesting news: Petrobras doesn’t have problems only with the corruption scandal but also with the Brazilian tax authorities. As a result, it had to pay R$1.6 billion ($463 million) of tax deficiencies. Petrobras desperately needs more cash. One of the ways how to raise it should be the IPO of Petrobras Distribuidora , the largest Brazilian fuel distributing company with more than 7,000 service stations. The IPO may occur as soon as Q4 2015. On July 31, Petrobras announced the start of production from the Iracema Norte project, that is located in the Lula field, in the pre-salt area of the Santos Basin. The first production well is expected to produce up to 32,000 barrels of oil per day. In Q2, Vale achieved first profit after three quarters of losses. The company recorded net income of $1.675 billion, mainly due to higher iron ore production and lower iron ore production costs that reached only $15.8/t. Vale has also announced that it will sell its 36.4% share in Mineracoes Brasileiras Reunidas S.A. for R$4 billion ($1.16 billion). The Brazilian economy is not in good shape and its problems should also continue in 2016, according to a study by Itau Unibanco. The bank expects that the Brazilian economy will decline by 2.2% in 2015 and by 0.2% in 2016. The previous estimate expected -1.7% and +0.3% respectively. Moreover, the unemployment rate should climb to 8% in 2015 and to 9% in 2016. Also the Brazilian government acknowledged the poor performance and bleak outlook of the economy, as the targeted 2015 primary fiscal surplus was reduced from 1.2% to 0.15% of GDP. Conclusion A bad condition of the Brazilian economy, weak commodity prices and the raging corruption scandal pushed the share price of EWZ down by more than 12% in July. Also August will be probably hard for EWZ investors, unless the commodity prices start to recover. On the other hand, any positive momentum may be easily drowned by another corruption related news. EWZ may seem to be cheap, but it is also risky right now. Disclosure: I am/we are long PBR. (More…) I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.