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Low-Beta Funds For Safety Amid Fears Of Downturn

In spite of registering this year’s best gains last week, the benchmarks remained deep in the red due to volatility in oil prices along with weakness in global and domestic growth. The Dow, the S&P 500 and the Nasdaq are down 5.7%, 6% and 10.1% in the year-to-date frame. In this erratic market, low-beta funds, which provide a better understanding on volatility or the systematic risk of a portfolio in comparison to the broader market, may turn out as safer investments. Meanwhile, low-beta funds from broader categories like utility, precious metals and municipal bonds that are performing well this year despite an overall negative tone, may offer healthy returns with low associated risk. Surging Volatility The CBOE Volatility Index (VIX) – considered the most popular fear gauge – has surged 15.2% in the year-to-date frame and is hovering around 20, indicating fears of a downtrend among investors. Investopedia defines VIX as “a key measure of market expectations of near-term volatility conveyed by S&P 500 stock index option prices.” VIX also increased 11.2% and 13.1% over the past five days and in the trailing one-month period, respectively. The deep plunge in oil prices with short-lived spikes has been troubling investors since the start of 2016. Despite several indications, the major oil producers failed to take a bold step in reducing output and thus left a negative impact on oil prices and the broader markets. Moreover, the growth condition in major economic zones including the U.S., China and Eurozone appears bleak. And if these weren’t enough, the recent slump in global financial stocks added to investors’ worries. Why Low-Beta? Generally, there are five indicators of investment risks, namely alpha, beta, r-squared, standard deviation and the Sharpe ratio. Among these, beta is a popular tool to measure the level of volatility in a mutual fund in contrast to the broader markets. “Essentially, beta expresses the fundamental tradeoff between minimizing risk and maximizing return,” according to Investopedia. Therefore, when the major benchmarks are facing a high level of volatility, investors may seek low-beta funds to minimize the risk level in their investments. Now, the question is: what is the range of low beta? Beta ranging from 0 to 1 is generally considered low beta as funds falling in this range will show less volatility than the broader markets. While negative beta indicates an inverse relationship with the broader markets, beta equal to 0 signals no relationship at all. Beta with a minimum value of 1 indicates that the fund will experience the same or a higher level of volatility than the broader markets. 3 Low-Beta Funds from Winning Sectors Low-beta funds from sectors with a safe-haven appeal are favorable in an unstable market. This is why precious metals – especially gold- utilities and municipal bonds are enjoying a dream run since the start of this year. We present three mutual funds from the above-mentioned sectors that carry either a Zacks Mutual Fund Rank #1 (Strong Buy) or #2 (Buy) and have beta within 0 to 1. We expect these funds to outperform their peers in the future. 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. These funds have steady three-month and year-to-date returns. The minimum initial investment is within $5000. Also, these funds have a low expense ratio and no sales load. Precious Metal Fund After experiencing a rough patch for three years, mutual funds having significant exposure to securities related to gold made a strong rebound this year by virtue of their safe-haven appeal. The American Century Quantitative Equity Funds Global Gold Fund Inv (MUTF: BGEIX ) seeks total return. BGEIX invests in securities of global companies whose operations are related to gold or other precious metals. The fund invests the lion’s share of its assets in companies involved in processing, mining, fabricating and distributing gold or other precious metals. BGEIX currently carries a Zacks Mutual Fund Rank #2 and a 3-year beta of 0.33 against the standard index. The fund has three-month and year-to-date returns of 30% and 30.3%, respectively. The annual expense ratio of 0.67% is lower than the category average of 1.44%. Utility Fund Utility is prospering this year thanks to the safety it offers. The broader utility sector, which has added 8.1% in the year-to-date frame, is the biggest gainer among the S&P 500 sectors. Also, dimming prospects of an immediate rate hike gave a boost to this sector, which requires a high level of debt. American Century Utilities Fund Investor (MUTF: BULIX ) invests a large portion of its assets in equities related to the utility industry. BULIX’s portfolio is constructed on qualitative and quantitative management techniques. In the quantitative process, stocks are ranked on their growth and valuation features. The fund currently carries a Zacks Mutual Fund Rank #1 and a 3-year beta of 0.36 against the standard index. The three-month and year-to-date returns of BULIX are 8.5% each. The annual expense ratio of 0.67% is lower than the category average of 1.25%. Municipal Bonds Fund Municipal bond funds are attracting healthy investments since the start of this year. According to Lipper, these funds witnessed a net inflow of $669 million in the week ended Feb 17, preceded by an inflow of $940.7 million in the prior week. Russell Tax Exempt Bond Fund (MUTF: RTBEX ) seeks tax-exempted current income. RTBEX invests the major portion of its assets in securities that are expected to provide income free from federal income tax. The fund primarily focuses on acquiring municipal debt obligations that are rated as investment grade. RTBEX currently carries a Zacks Mutual Fund Rank #2 and a 3-year beta of 0.69 against the standard index. The three-month and year-to-date returns of RTBEX are 2.4% and 1.6%, respectively. The annual expense ratio of 0.78% is lower than the category average of 0.81%. Original Post

You Do Not Get Paid For Knowing Yesterday’s News

You do not get paid for knowing yesterday’s news… unless you work as a pundit! In that case you just need to go on TV and repeat what you read that morning in the Wall Street Journal or the FT. Like the “B” student in a class, you learn the conventional wisdom and repeat it. You can sound very confident – even smug – and seem right because you are describing the past. For traders and investors, yesterday’s news is history – already reflected in market prices. Unlike other aspects of life, being well-informed provides you no edge. It might even be a disadvantage. The post-hoc explanations for market moves twist theory to fit perceptions. As humans, we crave to make sense of everything; we are very creative in finding explanations. This may build a view of the world that is quite wrong. Finding an investing or trading edge requires an accurate view of the future, not the past. You can do this in several ways: Better information – possession of facts not widely known; Speed – getting news faster and drawing the right conclusions; Interpretation of data – understanding and using an indicator or technique that is not widely followed; Contrarian investing Determine the conventional wisdom Find important mistakes in the popular, oft-repeated viewpoints Consider what sectors and stocks would benefit if there is a return to reality Examples If you start asking yourself the right questions, following the points listed above, you will find some fresh ideas. Here are a few examples: Information – There are many important facts that are not widely known. Worldwide demand for energy has increased every year, more this year than last. Using energy prices as a gauge for the world economy is too pessimistic. Bank exposure to energy companies is relatively modest and reserves are much better than in 2008. If you accept this information, you can shop economically sensitive companies and banks. This information is hiding in plain sight. Speed – Good luck with this approach! You really need to have a plan in advance and jump on breaking news, beating the computer algorithms. Indicators – The page-view payoff for pessimistic news has inflated the perceived probability of a recession. Insider buying has been strong in several crucial sectors. CEO’s generally express confidence about their own business, even when less optimistic about others. The relevant data is easy to find. Contrarian Analysis – The conventional wisdom has punished biotech because of a political debate about drug prices. Oil prices are seen as hovering at a permanently depressed level. Banks are targets for political rhetoric and exposed to bad loans. Apple is too big and lacks new products. And more. Do we really believe that an aging population will not embrace the new drug discoveries? That China, India, and other countries will not need enough energy to close a 1% gap between supply and demand? That banks will not escape the political noise with more profit? Conclusion I do not expect everyone to agree with the specific trade ideas in this post, but I hope readers will consider the basic approach. If you want trading or investment profits, think for yourself and think ahead! Reading the news only helps to know what others are doing. Disclosure: I am/we are long AAPL. 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. Additional disclosure: I have positions in biotech, energy, cyclicals, and regional banks.

Best Ways To Invest In Gold Now – Metal Or Miners ETFs?

Gold appears to be one of the hottest trades this year. The precious metal has gained almost 16% this year-making it the best start to the year since 1980 . The rush to gold and other safe havens is a direct result of concerns about the global economy, including China slowdown, oil price plunge and earnings recession in the US. Growing worries that central banks may be running out of ammunition are also aiding gold’s ascent. Further, negative interest rates in Japan and some European countries are also boosting gold prices. Gold critics often argue that it is an unproductive asset since it pays nothing to holders and that argument does make some sense when interest rates are high but in the current ultra-low/negative interest rate environment, there is almost no opportunity cost of holding the metal. Then there are supply factors too. According to a report from the World Gold Council, Gold production declined during Q4 last year – its first quarterly drop since 2008 and they expect this trend to continue as mining firms have cut investments after years of losses. And demand is China and India has been rising. While Indians have been buying jewelry, Chinese have increased their purchases of gold coins and bullion as the country’s currency and stocks continue to weaken. Physically Backed Gold ETFs Physically backed gold ETFs – SPDR Gold Trust (NYSEARCA: GLD ) and iShares Gold Trust (NYSEARCA: IAU ) provide a convenient and cost-effective access to physical gold. ETF Name Ticker AUM Expense Ratio YTD Return SPDR Gold Trust GLD $28.3 bil 0.40% 16.6% iShares Gold Trust IAU $7.2 bil 0.25% 16.8% While IAU has a lower fee, GLD’s excellent trading volumes make its trading very cheap. So, IAU is more suitable for buy and hold investors while GLD is better for shorter-term traders . Gold Miners ETFs Gold miners are leveraged plays on the metal. Miners’ profits rise even with a small increase in the price of the metal. Market Vectors Gold Miners ETFs (NYSEARCA: GDX ) and Market Vectors Junior Gold Miners ETF (NYSEARCA: GDXJ ) are the two most popular ETFs in the space. These ETFs-which are high risk/high reward plays–have been outstanding performers this year. However, in addition to their volatility, investors should also remember these ETFs have a lot of international exposure and associated currency risks. ETF Name Ticker AUM Expense Ratio YTD Return Market Vectors Gold Miners ETF GDX $5.71 bil 0.53% 37.8% Market Vectors Junior Gold Miners ETF GDXJ $1.6 bil 0.55% 32.9% To learn more please watch the short video below: Original post