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Is It Worth Investing In China? 3 Mutual Fund Picks

Slowdown in the manufacturing sector and the export business taking a hit are compelling China to turn into a consumer driven economy. This phase of transition is expected to be painful. But for patient investors, the returns are expected to be encouraging if they choose to remain invested in the service sector over the long run. While the service sector was on an expansionary mode in February, retail sales registered double-digit growth during the first two months of this year. China’s regulatory measures, on the other hand, raised hopes of a much stable economy. Hence, it will be prudent to invest in China focused mutual funds that have significant exposure to the service sector. GDP Slows Down, Foreign Trade Hit Badly China’s GDP came in at 6.9% last year, the lowest in almost a decade. The International Monetary Fund has trimmed China’s economic growth to 6.3% this year. China’s economy continued to be weighed down by sluggish demand at home and abroad. China’s trade surplus narrowed to $32.6 billion in February from January’s all-time high of $63.3 billion. Exports in February tanked 25.4% from last year’s figure, while imports including oil, iron ore and copper nosedived 11.2%. Even though this fall is partly due to the Lunar New Year holidays that fell in February, the overall trend is downward. In January, both exports and imports had declined by 11.2% and 18.8%, respectively. Moreover, in 2015, China’s foreign trade shrank by 8% from 2014. Manufacturing Slows Down China has mostly been a manufacturing hub. But of late, its manufacturing sector is slowing down. The official manufacturing Purchasing Managers’ Index (PMI) came in at 49.0 in February, lower than January’s reading of 49.4. In fact, China’s factory activities contracted for the seventh straight month in February. The Caixin manufacturing PMI also came in at 48 in February, a five-month low. Manufacturing was hit mostly by the beleaguered construction sector, which generally boosts demand for industrial products. Major funds such as Oberweis China Opportunities (MUTF: OBCHX ), AllianzGI China Equity A (MUTF: ALQAX ) and Matthews China Investor (MUTF: MCHFX ) fell 11.8%, 8.4% and 13.1%, respectively, on a year-to-date basis, mostly due to significant exposure to the industrial sector. Service Sector Expands, Retail Sales Rise Due to weakness in the manufacturing sector, China is looking to shift its focus to the service and consumption based sector. The official services PMI came in at 52.7 in February, down from January’s figure of 53.5. Also, the Caixin services purchasing managers’ index (PMI) for February was at 51.2 compared to 52.4 in January. Even though these figures went down in February, it remained above the key figure of 50, indicating expansion in service activities. He Fan, chief economist at Caixin Insight Group said that “overall, the services sector has outperformed manufacturing industries, reflecting continued improvement in the economic structure.” Meanwhile, retail sales of consumer goods gained 10.2% on a year-over-year basis during the first two months of 2016, according to the National Bureau of Statistics (NBS). Retail sales were mostly driven by online sales. Online sales in the first two months of this year surged by 27.2% year on year to 636.1 billion yuan. 3 China-Focused Mutual Funds to Buy Given this scenario, China’s service sector remains the only bright spot, which might help its economy to navigate through troubled waters. Moreover, China’s financial market regulators’ promising moves to boost the economy such as imposing a ban on initial public offerings, restrictions on margin trading, allowing government-managed pension funds to invest in equity markets and restricting large shareholders from shorting stocks will help investors in the long run. Here we have selected three China focused mutual funds that mostly invest in the service sector, which includes retail, financials, information technology, telecommunications and healthcare. 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. Further, these funds boast a Zacks Mutual Fund Rank #1 (Strong Buy) or #2 (Buy), have positive 4-week and 3-year annualized returns and carry a low expense ratio. Fidelity China Region (MUTF: FHKCX ) invests a large portion of its assets in securities of Chinese issuers. As of the last filing, Tencent Holdings Ltd. ( OTCPK:TCEHY ), China Construction Bank Corp. ( OTCPK:CICHY ) and AIA Group Ltd. ( OTCPK:AAGIY ) were the top three holdings for FHKCX. FHKCX’s 4-week and 3-year annualized returns are 10.3% and 1.4%, respectively. Annual expense ratio of 0.96% is lower than the category average of 1.76%. FHKCX has a Zacks Mutual Fund Rank #2 and has a minimum initial investment of $2,500. Matthews China Dividend Investor (MUTF: MCDFX ) invests the majority of its assets in dividend-paying equity securities of companies located in China. As of the last filing, New Oriental Education SP (NYSE: EDU ), SERCOMM and China Construction Bank Corp. were the top three holdings for MCDFX. MCDFX’s 4-week and 3-year annualized returns are 9.6% and 4.2%, respectively. Annual expense ratio of 1.19% is lower than the category average of 1.76%. MCDFX has a Zacks Mutual Fund Rank #1 and has a minimum initial investment of $2,500. ProFunds UltraChina Investor (MUTF: UGPIX ) seeks returns that correspond to two times the daily performance of the BNY Mellon China Select ADR Index. As of the last filing, Alibaba Group Holding Limited (NYSE: BABA ), China Mobile Ltd. (NYSE: CHL ) and Baidu Inc. (NASDAQ: BIDU ) were the top three holdings for UGPIX. UGPIX’s 4-week and 3-year annualized returns are 38% and 7.8%, respectively. Annual expense ratio of 0.75% is lower than the category average of 1.99%. UGPIX has a Zacks Mutual Fund Rank #1 and has a minimum initial investment of $15,000. A higher minimum investment helps the fund manager to control cash flows, which eventually helps management of assets on a regular basis. Original Post

7 Year Bull Market? It May Only Be 6 Years And 2 Months After All

What do these 10 companies – Wal-Mart (NYSE: WMT ), Macy’s (NYSE: M ), Kohl’s (NYSE: KSS ), Sears (NASDAQ: SHLD ), Target (NYSE: TGT ), Best Buy (NYSE: BBY ), Office Depot (NASDAQ: ODP ), K-Mart, J.C Penney (NYSE: JCP ), Gap (NYSE: GPS ) – all have in common? Each one of them is closing down a slew of retail storefronts. The “talking heads” on CNBC want you to believe that brick-and-mortar woes are merely a reflection of the consumer’s preference to shop online. Maybe. Or perhaps shuttering the doors will help boost the bottom-line profitability of retail company shareholders. After all, the SPDR S&P Retail ETF (NYSEARCA: XRT ) has bounced an astonishing 17.5% off its bear market lows. On the other hand, a 24.5% bearish descent for the retail segment does not reflect positively on the well-being of American business. In fact, many influential sectors of the U.S. economy have already descended more than a bearish 20%. There have been peak-to-trough declines ranging from 20%-40% in energy, materials, transporters, biotechnology as well as financial institutions. The bear market rally in the Financial Select Sector SPDR ETF (NYSEARCA: XLF ) still leaves the influential sector in correction territory, roughly 12% beneath its July pinnacle. Perhaps ironically, the business media excitedly embraced the 7th birthday of the bull market yesterday (3/9/16). What was missing from the exuberance? The S&P 500 traded at 1989 back in July of 2014. That’s 20 months ago. More critically, 42% of S&P 500 components remain mired in bear market territory, even after the 10% bounce off of the February lows. And what if the S&P 500 should ultimately drop 20% prior to reclaiming its May 2015 record high of 2130? In that case, the bull market would have ended ten months ago at an age of six years, two months. Not surprisingly, the very same folks who believed the bear market was unstoppable at the February lows – S&P 500 at 1829 – shifted back to the bull camp the minute the S&P 500 closed above 2000. Did the fundamental backdrop on three consecutive quarters of declining earnings per share (EPS) change to justify the bullishness? Hardly. Hadn’t they ever seen how bear market rallies work? Where broad market gauges could jump 10%, 15%, even 18% in the middle of a bearish downtrend? Apparently not. In spite of the bullish refrain that you have to invest in stocks because there is no alternative (T.I.N.A.), investor preference for intermediate-term treasury bonds demonstrates otherwise. The Federal Reserve is raising its overnight lending rate; committee members express a desire for gradual stimulus removal. Yet that guidance has done little to dissuade the investment community from embracing low yielding investment grade debt – the kind of capital preservation one might get by selecting the iShares 7-10 Year Treasury Bond ETF (NYSEARCA: IEF ). The result? The yield curve continues to flatten. The spread between “10s” and “2s” has fallen to a meager 1%. In fact, you’d have to go back to the start of the Great Recession to witness a similar phenomenon. “But Gary,” there is not going to be a recession. “The Federal Reserve won’t make the mistake that it made in 2008 by waiting an entire calendar year before coming to the rescue with asset purchases via electronic money creation (a.k.a. QE).” How is that working out for Europe? This morning, Mario Draghi of the European Central Bank (ECB) hoped to kick-start its moribund regional economy by announcing a foray into deeper negative interest rate waters (-0.4%) and committing to $87 billion per month in asset purchases. Not only did global investors sell the news – not only did the SPDR EURO STOXX 50 ETF (NYSEARCA: FEZ ) give up nearly all of its 2% intra-day gains – but the European economy has yet to show genuine improvement from the stimulus policies of the ECB. Consequently, the bear market rallies in Europe have consistently registered “lower highs” and “lower lows.” Meanwhile, each of the respective BRIC nations (i.e., Brazil, Russia, India, China) are still suffering. There are cracks in Australia’s housing market. And the entire Canadian economy? It has been falling apart on numerous measures. The hope, then, is that the resilient U.S. consumer will buck the trend of global stagnation. Unfortunately, U.S. corporate profits cannot escape a worldwide demand strike , particularly when 50% of profits come from overseas operations. It seems the resilient U.S. consumer is being asked to carry a whole lot more weight on his/her shoulders than is feasible. With Markit’s U.S. Services PMI hitting a recessionary 49.8 in February – a data point that is at the lowest level in nearly two-and-a-half years – maybe the consumer is getting closer to “tapping out.” Disclosure: Gary Gordon, MS, CFP is the president of Pacific Park Financial, Inc., a Registered Investment Adviser with the SEC. Gary Gordon, Pacific Park Financial, Inc, and/or its clients may hold positions in the ETFs, mutual funds, and/or any investment asset mentioned above. The commentary does not constitute individualized investment advice. The opinions offered herein are not personalized recommendations to buy, sell or hold securities. At times, issuers of exchange-traded products compensate Pacific Park Financial, Inc. or its subsidiaries for advertising at the ETF Expert web site. ETF Expert content is created independently of any advertising relationships.

Fed Rate Hike On The Table Again: 5 Finance Mutual Fund Picks

The Federal Reserve had raised interest rates for the first time in almost a decade in December and assured that it would hike rates four times this year, provided there are signs of a strengthening labor market, inflation rises to the target level of 2% and the financial markets remain strong. However, the continuous slump in oil prices, weak global economy and volatile financial markets since the beginning of the year raised doubts as to whether the Fed will be able to fulfill its commitment. Nevertheless, Friday’s upbeat jobs report reinforced the notion that the labor market is firming, which puts Fed rate hikes in play. An uptick in inflation data and rise in consumer spending levels also kept rate hikes in the cards. Additionally, the broader markets regained momentum in the last three weeks after a rebound in oil prices from its 12-year low ebbed deflationary concerns. China’s stimulus measures, on the other hand, raised hopes of a much stable global economy, which would, in turn, contain the volatility in the broader markets. While these encouraging facts aren’t probably enough to push the central bank to raise rates this month, it could bolster the case for a rate hike in the upcoming meetings this year. A large number of economists and some Fed officials also expect the central bank to continue hiking rates this year. Given these positive vibes, it is profitable to invest in financial mutual funds that are positioned to benefit from subsequent lift-offs. These funds also boast strong fundamentals and solid returns. Upbeat Jobs Data The jobs data painted a solid picture of the labor market. The U.S. economy added 242,000 jobs in February, handily beating the consensus estimate of 194,000, according to the Bureau of Labor Statistics (BLS). The tally was also considerably higher than January’s upwardly revised job number of 172,000. Meanwhile, the unemployment rate in February remained unchanged at 4.9%. Further, the unsparing U-6 rate that includes the unemployed, the underemployed and the discouraged dipped to 9.7% in February from 9.9% in January, its lowest level since May 2008. The labor force participation rate also increased to 62.9% last month, the highest level in almost a year. Moreover, the report found that wages went up 2.2% in the past 12 months. Even though it increased at a slower pace compared to the previous month, it is still consistent with a tightening labor market that is viewed by the Fed as one of the major criteria for a rate hike. Underlying Inflation Picks Up, Spending Rises This surge in hiring followed the Commerce Department’s report that showed a rise in inflation. The Fed’s preferred gauge, the personal consumption expenditures index (PCE), increased 1.3% in January from year-ago levels. The so-called “core” inflation that excludes food and energy prices came in at a solid 1.7%, much closer to the Fed’s desired target. Moreover, consumer spending levels increased at the fastest pace in eight months this January. Retail sales are also off to a good start this year, indicating strength in consumer spending, which accounts for more than two-thirds of U.S. economic activity. These reports increase the likelihood of a rate hike soon. Broader Markets Rally The markets have also showed signs of stability in recent times. Oil prices bounced back from their record low in mid-February, which eventually boosted the broader markets. Signs of decline in U.S. production and continuous talk about freezing output by the major oil producers were cited to be the reasons behind the oil price surge. Positive developments in China also fueled investor sentiment. The recent stimulus measures by the People’s Bank of China (“PBOC”) to address concerns over the country’s recent economic slowdown boosted investor sentiment. The PBOC reduced the reserve requirement ratio by 0.5% to 17%. 5 Finance Mutual Funds to Invest In If the broader markets continue their winning streak, the Fed will have to raise rates this year. Additionally, a pick-up in the inflation rate, rise in consumer spending levels and encouraging nonfarm payroll reports are also paving the way for a rate hike as early as possible. Fed Vice Chairman Stanley Fischer had already told the National Association for Business Economics on Monday that inflation may be “stirring,” which suggests that he might want rates to increase in the near future. Richmond Fed President Jeffrey Lacker had also said that ongoing strength in the labor market warrants rate hikes this year. A survey by the National Association for Business Economics on Monday showed that almost 80% of economists expect a Fed rate hike this year at least once. The CME Group’s FedWatch tool expects that there is a solid 53% chance a hike could come as soon as November, while it projects that there is almost a 50% chance of a rate hike in September. Separately, the Bank of America Merrill Lynch Global Research stated last Friday that Americans can witness two interest rate hikes this year and three more next year. Given that there is a fair chance of a rate hike this year, it will be prudent to invest in finance mutual funds. Financial companies, including banks, insurers and brokerage firms, are likely to be among the biggest beneficiaries of the rate hike. Here, we have selected five such finance funds that boast a Zacks Mutual Fund Rank #1 (Strong Buy) or #2 (Buy), have positive 3-year and 5-year annualized returns, offer minimum initial investment within $5000 and carry a low expense ratio. John Hancock Regional Bank Fund A (MUTF: FRBAX ) invests a large portion of its assets in equity securities of regional banks. The fund’s 3-year and 5-year annualized returns are 12.1% and 10.1%, respectively. Its annual expense ratio of 1.26% is lower than the category average of 1.54%. FRBAX has a Zacks Mutual Fund Rank #1. Fidelity Select Banking Portfolio No Load (MUTF: FSRBX ) invests a major portion of its assets in securities of companies principally engaged in banking. Its 3-year and 5-year annualized returns are 8.7% and 7.9%, respectively. The annual expense ratio of 0.79% is lower than the category average of 1.54%. FSRBX has a Zacks Mutual Fund Rank #2. Schwab Financial Services Fund No Load (MUTF: SWFFX ) invests the majority of its assets in equity securities issued by companies in the financial services sector, which includes commercial banks, insurance and brokerage companies. The fund’s 3-year and 5-year annualized returns are 7.8% and 7.1%, respectively. Its annual expense ratio of 0.9% is lower than the category average of 1.54%. SWFFX has a Zacks Mutual Fund Rank #1. Fidelity Select Insurance Portfolio No Load (MUTF: FSPCX ) invests a large portion of its assets in securities of companies principally engaged in property, life or health insurance. Its 3-year and 5-year annualized returns are 12.8% and 11.4%, respectively. The annual expense ratio of 0.81% is lower than the category average of 1.54%. FSPCX has a Zacks Mutual Fund Rank #1. Franklin Mutual Financial Services Fund A (MUTF: TFSIX ) invests a major portion of its assets in securities of financial services companies. The fund’s 3-year and 5-year annualized returns are 8.9% and 7.4%, respectively. Its annual expense ratio of 1.44% is lower than the category average of 1.54%. TFSIX has a Zacks Mutual Fund Rank #1. Original Post