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Mixed Views On Emerging Markets: Funds To Buy And Sell

There are mixed views on emerging markets now. According to a report from Bank of America Merrill Lynch, fund managers have mostly been pessimistic about emerging-market equities since 2001. On the other hand, some strategists at leading banks and financial companies believe that securities from emerging markets may have hit their lowest point. Amid the contradictory opinions, certain market experts are of the view that investors often invest in emerging market funds too late or they stay invested for too long. So, while buying certain favourably ranked emerging market funds at a discount now should be a prudent move, investors may also dump certain Sell-rated funds that their portfolio will not miss. The Pessimism According to Bank of America Merrill Lynch’s monthly survey, fund managers are the most underweight on emerging-market equities against developed-market equities since the survey began in 2001. While post 2009, fund managers’ relative positioning had jumped and stayed mostly in the green till 2013, the sentiment soured after that. In 2014, the sentiment dropped to a new low before rebounding in late 2014 and early 2015. However, the sentiment is the most pessimistic now. The bearish outlook is concentrated mostly on Asia. Investors are apprehensive about the slowdown in China’s economy while the U.S. central bank may hike rates. The International Monetary Fund (IMF) meeting on Nov 30 is also crucial. Investors fear further devaluation in the Chinese currency but not before IMF adds the yuan to its Special Drawing Rights basket of currencies. And if this happens, Bank of America strategists fear that the markets will move even lower. Goldman Sachs projects that yuan traded at offshore rate may weaken by 2.5% to 3% against the dollar in the next 2 months. Eventually, the devaluation of yuan may impact other emerging-market currencies, as they are often influenced by the monetary policies in the world’s second-largest economy, China. The Contrarian View Meanwhile, market watchers at a number of leading banks and financial institutions have said that they believe asset values for emerging markets have hit a rock bottom. In fact, the views come from the likes of Bank of America, Goldman Sachs and Barclays PLC. Following three continuous years of losses, markets and assets from developing nations are poised for a rebound. According to Morningstar, in the 12 months ended October, emerging-market stock funds traded in the US dropped an average 13.4%. A major indicator of valuations for emerging markets is the MSCI Emerging Markets Index, which is down 30% from the high achieved in 2011. The index is currently trading at approximately 12x its earnings estimates. Additionally, the index’s valuation is nearly three times lower than the S&P 500’s current figure. This is why analysts at Barclays believe that prices of emerging market securities are significantly lower than their intrinsic value. Over the six-month period since the last three American market tightening cycles began, global markets have gained an average 15%. Strategists are also hopeful that emerging markets might rebound in 2016. They say that it might not mirror the “roaring”2000s, but 2016 might be the year the emerging markets “find their feet”. 2 Emerging Market Funds to Buy As mentioned earlier, investors should not miss the buying opportunity. An uptrend in emerging economies brings good tidings for investment instruments from these countries. Many of them currently have reasonable valuations compared to their historical averages. Below we present 2 International Bond – Emerging Market mutual funds that carry either a Zacks Mutual Fund Rank #1 (Strong Buy) or Zacks Mutual Fund Rank #2 (Buy). Remember, the goal of the Zacks Mutual Fund Rank is to guide investors to identify potential winners and losers. Unlike most of the fund-rating systems, the Zacks Mutual Fund Rank is not just focused on past performance, but also on the likely future success of the fund. Fidelity New Markets Income (MUTF: FNMIX ) fund invests the lion’s share of its assets in emerging markets or makes other investments that are economically linked to emerging markets that have stock markets as defined by MSCI. These emerging market countries also may also be the ones with low- to middle-income as classified by the World Bank. FNMIX currently carries a Zacks Mutual Fund Rank #1. FSRPX has gained respectively 3.7% and 0.2% in the year-to-date and 1-year periods. The 3- and 5-year annualized returns are 1.2% and 5.4%, respectively. Annual expense ratio of 0.84% is lower than the category average of 1.16%. Goldman Sachs Emerging Market Debt A (MUTF: GSDAX ) predominantly invests in emerging market debt securities. These instruments may be issued by governments as well as corporate entities. To gain exposure to certain emerging economies, GSDAX may use structured securities or derivatives among others. GSDAX currently carries a Zacks Mutual Fund Rank #2. GSDAX has gained respectively 2.8% and 0.5% in the year-to-date and 1-year periods. The 3- and 5-year annualized returns are 1.5% and 5.1%, respectively. Annual expense ratio of 1.24% is higher than the category average of 1.16%. 2 Emerging Market Funds to Sell It is also important to not stay invested in certain underperforming funds. For investors not ready to bet on the emerging markets now or for investors who have lost plenty staying invested in some emerging market funds, below we present 2 funds that either carry a Zacks Mutual Fund Rank #4 (Sell) or Zacks Mutual Fund Rank #5 (Strong Sell). Eaton Vance Emerging Markets Local Income A (MUTF: EEIAX ) gains exposure to the emerging economies by investing in securities and derivatives among other instruments. Bulk of EEIAX’s assets are invested in securities denominated in currencies of emerging market countries, fixed income instruments that are issued by emerging market entities, and in emerging-market denominated derivative instruments. EEIAX currently carries a Zacks Mutual Fund Rank #5. EEIAX has lost respectively 10.6% and 16.5% in the year-to-date and 1-year periods. The 3- and 5-year annualized returns are negative 7.2% and negative 2.5%, respectively. Annual expense ratio of 1.25% is higher than the category average of 1.16%. PIMCO Emerging Markets Currency A (MUTF: PLMAX ) invests most of its assets in currencies of emerging market countries or in fixed income instruments denominated by these currencies. PLMAX currently carries a Zacks Mutual Fund Rank #4. PLMAX has lost respectively 5.2% and 9.7% in the year-to-date and 1-year periods. The 3- and 5-year annualized returns are negative 4.7% and negative 2.4%, respectively. Annual expense ratio of 1.25% is lower than the category average of 1.58%. Original post

Buy 4 Retail Funds As A Warm Up To The Black Friday Spree

Last Friday, the markets buoyed up on earnings results from certain retail primes. The Consumer Discretionary Select Sector SPDR ETF (NYSEARCA: XLY ) jumped 1.2% and was the biggest gainer among the S&P 500 components. Apart from positive results, the retail sector also has the upcoming holiday season to draw investor focus. The positives should boost retailers, translating into gains for the sector’s mutual funds as well. So, picking favorably ranked retail mutual funds will be prudent as these promise investors rich rewards this holiday season. Earnings Numbers Including releases before the opening bell on Nov. 18, 33 of the 43 retailers in the S&P 500 index have reported results. Total earnings for these retailers gained 4.4% year on year on 5.2% higher revenues. Of these companies, 57.6% beat EPS estimates and 42.4% surpassed on revenues. However, there were some robust results that came in afterward, which gave a boost to the growth numbers. Last Friday, Abercrombie & Fitch Co.’s (NYSE: ANF ) stock soared 25% after reporting quarterly adjusted earnings of 48 cents per share, significantly ahead of the Zacks Consensus Estimate of 19 cents. Moreover, earnings increased 14.3% year over year. Ross Stores Inc. (NASDAQ: ROST ) also reported better-than-anticipated top and bottom lines for the third quarter of fiscal 2015 and retained its outlook for the fourth quarter. Its shares jumped 10%. Foot Locker, Inc.’s (NYSE: FL ) shares gained 5.7% after its adjusted earnings of $1.00 per share came ahead of the Zacks Consensus Estimate of 94 cents, and jumped 20% year over year. Separately, Nike, Inc. (NYSE: NKE ) added 5.5% following its announcement of a new share repurchase program worth $12 billion, along with a hike in its dividend and a two-for-one stock split. Nike jumped to a 52-week high. Also, its weekly gain of 8.9% was the best since the week ended Sept. 26, 2014. In fact, the positive results were not a one-day event as it followed great earnings news from behemoths like Amazon.com (NASDAQ: AMZN ), Home Depot (NYSE: HD ), McDonald’s (NYSE: MCD ), BJ’s Restaurants (NASDAQ: BJRI ) and eBay Inc. (NASDAQ: EBAY ). These retail top performers have historically performed well and their stock prices have been on the rise. Upward estimate revisions based on their positive outlook should also translate into stocks moving up as the holiday season heats up. Holiday Season to be Positive Tomorrow is Thanksgiving Day. And after the turkey and prayers, America will loosen its purse strings for the year’s busiest shopping day on Black Friday. So we are on the verge of this year’s mega shopping spree, and thanks to a rebounding economy, a falling unemployment rate and improved consumer sentiment, sales should see a rise. Several factors indicate that there will be an uptrend in holiday sales this year. According to the National Retail Federation, holiday sales, excluding gasoline, restaurants and cars, will increase 3.7% on a year-over-year basis. A yearly increase of 3.7% is substantially higher than the average increase of 2.5% recorded over the last 10 years. Data compiled by eMarketer suggests a 5.7% jump in holiday sales (November and December) to $885.7 billion against 3.2% growth projected earlier. Retail e-commerce holiday season sales are anticipated to increase 13.9%, and represent approximately 9% of total sales this season (or $79.4 billion), up from 8.3% last year. Moreover, the increase in seasonal hiring by retailers, the slump in fuel prices and record wage growth are all in favor of consumers. These factors are likely to result in a strong holiday shopping season. A significant improvement in the labor market situation and lower fuel costs have increased disposable incomes. Another major factor encouraging spending this holiday season is the continued slump in fuel prices. The ability and willingness to spend should lead to jingling cash registers this time. Separately, retailers are efficiently allocating their capital toward a multi-channel growth strategy focused on improving merchandise offerings, and developing IT infrastructure to enhance web and mobile experiences of customers among others. Retail Mutual Funds in Focus Below we present 4 mutual funds from the retail sector that should be on investors’ radar now. They carry either a Zacks Mutual Fund Rank #1 (Strong Buy) or Zacks Mutual Fund Rank #2 (Buy) . Remember, the goal of the Zacks Mutual Fund Rank is to guide investors to identify potential winners and losers. Unlike most of the fund-rating systems, the Zacks Mutual Fund Rank is not just focused on past performance, but also on the likely future success of the fund. Putnam Global Consumer Fund A (MUTF: PGCOX ) invests in mid to large companies that are involved in the manufacture, sale or distribution of consumer staples and consumer discretionary products and services. PGCOX uses the “blend” strategy to invest in common stocks of companies. PGCOX currently carries a Zacks Mutual Fund Rank #1. PGCOX has gained, respectively, 6% and 7% in the year-to-date and 1-year periods. The 3- and 5-year annualized returns are 14.9% and 11.1%, respectively. Annual expense ratio of 1.26% is, however, higher than the category average of 1.21%. Fidelity Advisor Consumer Discretionary Fund A (MUTF: FCNAX ) seeks growth of capital. The fund invests mostly in securities issued by firms that are involved in manufacture and distribution of consumer discretionary products and services. The fund uses fundamental analysis and also looks into economic and market conditions for investment decisions. FCNAX currently carries a Zacks Mutual Fund Rank #1. The fund has gained 7% and 11.3%, respectively, over year-to-date and 1-year periods. The 3- and 5-year annualized returns are 18.6% and 15.1%, respectively. Annual expense ratio of 1.14% is lower than the category average of 1.41%. Rydex Retailing Fund A (MUTF: RYRTX ) invests most of its assets in retailers that are traded in the US and also in derivatives. RYRTX invests significantly in small to mid-sized retail companies. RYRTX currently carries a Zacks Mutual Fund Rank #2. RYRTX has lost 0.1% year to date, but is up 3.5% over the last 1-year period. The 3- and 5-year annualized returns are 14.2% and 14%, respectively. Annual expense ratio of 1.58% is, however, higher than the category average of 1.41%. Fidelity Select Retailing Portfolio (MUTF: FSRPX ) seeks growth of capital. FSRPX invests a large chunk of its assets in securities of retailing companies that are traded within the domestic boundary. These firms are involved in merchandising finished goods and services to consumers. FSRPX currently carries a Zacks Mutual Fund Rank #1. FSRPX has gained, respectively, 20.3% and 26.4% in the year-to-date and 1-year periods. The 3- and 5-year annualized returns are 25.1% and 21.3%, respectively. Annual expense ratio of 0.81% is higher than the category average of 1.41%. Original Post

Finding Value With The Piotroski F-Score Year 2: Part 1

Summary The Piotroski F-Score was designed to find companies that are cheap and recovering. The first year showed mixed results. This year the portfolio has been adjusted in an attempt to improve performance. This is the first article of the second series of articles looking at the investment performance of the Piotroski F-Score. In the first series, I covered the performance of a Piotroski F-Score long only strategy over the space of twelve months. The results were extremely disappointing. The value of the portfolio declined by 49.3% over the period . Still, giving up on the strategy after only one year wouldn’t accomplish much. So, this year two of the study. The details of the study are below. Finding value In the world of value investing, there are many ways to hunt for value opportunities. However, few are as well defined as the Piotroski F-Score, which aims to identify the healthiest companies amongst a basket of value stocks through applying a set of nine accounting-based stock selection criteria. The F-Score was designed to hunt out value opportunities that are profit-making, have improving margins, don’t employ any accounting tricks and have strengthening balance sheets. However, as usual, this strategy cannot be employed alone, it needs to be combined with another screening tool to produce a suitable set of results. One point is awarded for each criterion the company passes and the stocks that score the highest, eight, or nine are regarded as being the strongest candidates for recovery. Piotroski recommended scoring the bottom 20% of the market in terms of price to book value and then working from there. Using the following system, Piotroski’s April 2000 paper Value Investing: The Use of Historical Financial Statement Information to Separate Winners from Losers , demonstrated that the Piotroski score method would have seen a 23% annual return between 1976 and 1996 if the expected winners were bought and expected losers shorted. According to the American Association of Individual Investors , year to date the F-score screening criteria with a low P/B value would have returned 3.4%. Over the past five years this return would have been 33.9% and the ten-year return was 26.7%. The screen I’m testing the F-Score, as both a way to discover value stocks and trade them without fundamental analysis. The screening criteria and investments are based purely on the financials in an attempt to remove any emotional bias — something that holds back investment performance. The F-Score screening criteria are as follows: Profitability Signals 1. Net Income – Score 1 if there is positive net income in the current year. 2. Operating Cash Flow – Score 1 if there is positive cashflow from operations in the current year. 3. Return on Assets – Score 1 if the ROA is higher in the current period compared to the previous year. 4. Quality of Earnings – Score 1 if the cash flow from operations exceeds net income before extraordinary items. Leverage, Liquidity and Source of Funds 5. Decrease in Leverage – Score 1 if there is a lower ratio of long term debt to in the current period compared value in the previous year. 6. Increase in Liquidity – Score 1 if there is a higher current ratio this year compared to the previous year. 7. Absence of Dilution – Score 1 if the Firm did not issue new shares/equity in the preceding year. Operating Efficiency 8. Gross Margin – Score 1 if there is a higher gross margin compared to the previous year. 9. Asset Turnover – Score 1 if there is a higher asset turnover ratio year on year (as a measure of productivity). And the 20 largest companies that qualify in the current environment are as follows (in order of mkt. cap): NRG Energy Inc (NYSE: NRG ), Noble Corp plc (NYSE: NE ), Darling Ingredients Inc (NYSE: DAR ), EP Energy Corp (NYSE: EPE ), DigitalGlobe Inc (NYSE: DGI ), McDermott International (NYSE: MDR ), Atwood Oceanics, Inc. (NYSE: ATW ), Cash America International Inc (NYSE: CSH ), Navigator Holdings Ltd (NYSE: NVGS ), Danaos Corporation (NYSE: DAC ), DHT Holdings Inc (NYSE: DHT ), Roadrunner Transportation Systems Inc (NYSE: RRTS ), Century Aluminum Co (NASDAQ: CENX ), Ocean Rig UDW Inc (NASDAQ: ORIG ), West Marine, Inc. (NASDAQ: WMAR ), Marchex, Inc. (NASDAQ: MCHX ), Luby’s, Inc. (NYSE: LUB ), Manning and Napier Inc (NYSE: MN ), Hardinge Inc. (NASDAQ: HDNG ), Trans World Entertainment Corporation (NASDAQ: TWMC ). P/B figures rounded to the nearest whole number. To assess the F-Score, I’m starting a hypothetical portfolio with a $1,000 investment in each company. Investment prices are based on the closing price on 11/20/2015. These positions are based on financial data only; there’s no weighting to fundamental factors. I’ve decided to use this method in an attempt to take all of the emotion out of the trading and running of the portfolio, only when a stock qualifies under the set criteria will it be included in the portfolio and held for the next 12 months until rebalancing. Like the original Piotroski F-Score, as well as buying a basket of stocks that qualify for the screen, I’m also shorting a hypothetical basket of stocks. The short basket will be composed of companies that have the lowest F-Score in my screen. For liquidity issues, I’m excluding any companies with a market cap. of less than $100m from my short basket. Here are the short candidates, in order of market cap: Vertex Pharmaceuticals Incorporated (NASDAQ: VRTX ), Tesla Motors Inc (NASDAQ: TSLA ), Under Armour Inc (NYSE: UA ), Ctrip.com International, Ltd. (ADR) (NASDAQ: CTRP ), BioMarin Pharmaceutical Inc. (NASDAQ: BMRN ), Endo International plc (NASDAQ: ENDP ), Annaly Capital Management, Inc. (NYSE: NLY ), OneMain Holdings Inc (NYSE: LEAF ), Seattle Genetics, Inc. (NASDAQ: SGEN ), STERIS Corp (NYSE: STE ), Renren Inc (NYSE: RENN ), Southwestern Energy Company (NYSE: SWN ), Impax Laboratories Inc (NASDAQ: IPXL ), bluebird bio Inc (NASDAQ: BLUE ), The Medicines Company (NASDAQ: MDCO ), SolarCity Corp (NASDAQ: SCTY ), HRG Group Inc (NYSE: HRG ), Federal National Mortgage Assctn Fnni Me ( OTCQB:FNMA ), Prothena Corporation PLC (NASDAQ: PRTA ), Nord Anglia Education Inc (NYSE: NORD ). The short portfolio is being run with the same rules as the long portfolio. The companies have been selected based on financial data only; there’s no weighting to fundamental factors. Stocks will be included in the portfolio and held for the next 12 months until rebalancing. To reiterate, there’s no bias here. The companies selected are only included because they have the lowest F-Score of the largest 11,300 US companies my screen covers. The number of shares sold short will have an initial value of $1,000. Putting it altogether Here are the two initial portfolios based on the closing prices as of 11/20/2015. The bottom line Those are the 40 picks. I will admit that some of the companies mentioned above are risky bets but on a purely financial basis, they conform to the F-Score criteria, so they have been included. I’m tempted to include some fundamental analysis for each company, but that’s not the point of this study. Research has shown that emotional bias is one of the investors’ worst enemies; the F-Score tries to eliminate that That’s the introduction, over the next few months I will be assessing the portfolio’s performance on a regular basis with a final round-up this time next year. Editor’s Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.