Tag Archives: consumer

DHS: Strong Dividend, Intelligent Holdings, Solid Sector Allocations

Summary The dividend yield is a strong 3.41%. The holdings include several established dividend champions which gives the portfolio a more durable feel. The sector allocations look respectably defensive which is a positive when I would consider the market to still be moderately expensive. The Federal Reserve pushing short rates higher could help the financial sector generate more interest income. The WisdomTree Equity Income ETF (NYSEARCA: DHS ) hits very well on 3 of 4 categories. The only weakness in this fund is the expense ratio. The dividend yield, holdings, and sector allocations create a very compelling trio of factors in favor of the ETF. Expenses The expense ratio is a .38%, which is fairly standard for several of the WisdomTree (NASDAQ: WETF ) funds I’ve looked into. Dividend Yield The dividend yield is currently running 3.41%. This is simply excellent, no complaints there. Holdings I grabbed the following chart to demonstrate the weight of the top 18 holdings: (click to enlarge) General Electric (NYSE: GE ) has had a disappointing several years as their strong dividend has not been matched with solid share price growth. However the company has been very active in looking for solutions and even took measures as extreme as turning one of their departments into Synchrony Financial (NYSE: SYF ). To be fair, it is unclear to me why the finance division that turned into Synchrony Financial was supposed to fit with the rest of the company at GE. Exxon Mobil (NYSE: XOM ) and Chevron Corp (NYSE: CVX ) both get heavy allocations and have huge dividends. Oil is extremely “out of favor” right now, but I expect an eventual comeback. If it never comes, at least the oil for my truck will be fairly cheap. Two of the highest holdings go to the telecommunications sector with AT&T (NYSE: T ) and Verizon (NYSE: VZ ). I’ve found those allocations to be fairly risky given the aggressive competition in the telecommunications industry, but there are some positive aspects to doing a heavy allocation here as it aligns part of the risk with the investor’s expenses. If T and VZ are having a hard time covering their dividend, it would indicate that the profits within the telecommunications industry had dried up and would suggest that the investor is probably saving a chunk of money on their cell phone bill each month. McDonald’s (NYSE: MCD ) is another holding that I think should be represented in most dividend growth portfolios in one way or another. While their burgers have left a great deal to be desired over the last few years, they have still been able to remain relevant because they collected a large amount of high quality real estate. Over the last earnings report things began to look materially better for this real estate giant disguised as a seller of cheap burgers. Phillip Morris (NYSE: PM ), Altria Group (NYSE: MO ), and Coke (NYSE: KO ) all sell products that kill people, but they continue to deliver sales and earnings and the earnings are used to pay some fairly attractive dividends. I know some investors might think I’m crazy for tossing Coke in there with the tobacco companies, but high fructose corn syrup has quite a few very damaging health effects and heart failure is a major source of death in the United States. You won’t see me protesting the stable dividend though. Sectors Financials get a heavy weight which might be a good thing with the Federal Reserve working so hard to raise rates and justify paying interest on excess reserves when the rest of the world is shifting towards further rounds of quantitative easing or NIRP (negative interest rate policy). We have learned over the last few years that negative nominal returns and negative real returns are very possible because simply holding onto cash creates other problems. It turns out that protecting cash is not free and that banks can be pushed to accept negative interest rate policies. That’s interesting and it suggests there will be quite a few books on macroeconomics that need to have chapters replaced. The heavy allocations to consumer staples and energy look good in my opinion since I like the defensive nature of the consumer staples sector and appreciate the energy exposure as demonstrated in my comments on XOM and CVX. The three defensive sectors are consumer staples, utilities, and health care. Those three are all present in the top 6 allocations, so this looks like a respectably defensive fund. Since P/E ratios are fairly across most of the market, I prefer a defensive portfolio to an aggressive portfolio. Conclusion Great dividend, mediocre expense ratio, great holdings, and great sector weightings make a fairly attractive portfolio. If the expense ratio were lower it would get some very serious consideration from me. This fund simply performs great on several metrics.

Small-Cap Value ETFs: Key To Win In Post Lift-Off Era?

The U.S. economy will probably experience a shift in era by this year end, if economic conditions remain unchanged. With the Fed now overtly referring to December as the timeline for raising interest rates after a decade and putting global growth issues aside unlike its prior meetings, investors may now have to rush to alter their portfolio and make it in line with the looming Fed rate hike. Though much of the impending shock has been priced in at the current level, gyrations are still expected in the stock market post lift-off. Though the Fed affirmed that the rate hike trail would be slower, investors know that this will be the beginning of the end of the rock-bottom rates era. Naturally, they will be hunting for the right equity investing strategy. Notably, years of cheap money fueled the U.S. growth stocks as evident from the 106% jump by iShares Russell 2000 Growth ETF (NYSEARCA: IWO ) in the last 10 years and its 75% surge in the last five years (as of November 18, 2015). But, value stocks underperformed, as indicated by iShares Russell 2000 Value ETF ‘s (NYSEARCA: IWN ) 45.3% gain in the last 10 years and about 44% rise in the last five years. Growth investing means buying those companies, which exhibit fast-growing earnings, indulge heavily in capital spending and are forecast to earn at an above-industry rate. This group of companies normally pays lesser dividend or no dividend and capital appreciation is the main motive. Quite understandably, this high-growth proposition requires more capital and lower interest rates to be executed. On the other hand, value strategy includes stocks with strong fundamentals – earnings, dividends, book value and cash flow – compared with their current market prices. These stocks trade below their intrinsic value and are undervalued by the market. This pool of companies normally pays sounder dividends too. Thus, it is historically seen that value stocks perform better than growth stocks in a rising rate environment, mainly due to the difference in their modes of operation. Then, as per analysts , the right time to tap value is when the market reaches its zenith and retreats on overvaluation. For fear of a horrendous sell-off, investors seek safety, which value stocks normally offer unlike growth stocks. Since the market is likely to be wobbly, value stocks can predominate. Moreover, in the absence of cheap money inflows, investors are likely to look for cheaper stocks with great potential rather than the pricey and glamorous growth stocks. All in all, there is a high chance that value stocks will rule the U.S. markets over the next few months. The global investment management firm Pimco also expects this trend to be established in the coming future. Analysts noted that: “During the periods when the Fed was raising interest rates, the value stocks had an average return of 1.2% a month, or 14.4% a year, versus the growth index’s 0.7% a month, or 8.3% a year.” Now with the U.S. economy taking root, job reports showing strength and inflation staying decent, small-cap value stocks should be the best bets ahead. Small-cap stocks are the best measure of domestic economic recovery as these are less exposed to foreign lands. Moreover, terror attacks in several parts of the globe and international growth issues can also be stripped out via U.S. small-cap valued ETFs. Below we highlight three such ETFs, which could be in focus in the coming days. S&P Small Cap 600 Value Index Fund (NYSEARCA: IJS ) The fund looks to provide exposure to U.S. small-cap value stocks by tracking the S&P SmallCap 600 Value Index. The $3.14-billion fund holds a total of 468 small-cap stocks. The fund appears diversified as no stock accounts for more than 0.92% of the basket. Among the different sectors, Financials, Industrials and IT occupy the top three positions with 24.36%, 19.75% and 16.59% of weight, respectively. The fund charges a premium of 25 basis points annually. This Zacks Rank #3 (Hold) ETF was up 1.25% in the last one month (as of November 18, 2015). WisdomTree SmallCap Earnings Fund (NYSEARCA: EES ) For a slightly different approach to the small-cap market, investors may want to consider EES, as it follows earnings-generating companies in the small-cap universe of the U.S. stock market. Furthermore, the fund looks to weight by earnings, giving bigger weights to firms that earn more, irrespective of market capitalization. This results in a portfolio of roughly 950 securities. No stock accounts for more than 1.1% of the fund. Financials (27.34%), Industrials (18.48%), Consumer Discretionary (15.68%) and IT (12.24%) are the top four sectors of the fund. This $382-million fund charges 38 bps in fees. The fund has a Zacks ETF Rank #3 (Hold) while it was almost flat in the last one month. Vanguard Small-Cap Value ETF (NYSEARCA: VBR ) This fund provides exposure to the value segment of the U.S. small-cap market by tracking the CRSP US Small Cap Value Index. It holds a large basket of 843 stocks, which is widely spread across individual securities as none of these has more than 0.6% of assets. In terms of sector exposure, Financials dominates the portfolio at 30%, followed by Industrials (20.5%) and Consumer Services (12.2%). The ETF is quite popular with AUM of more than $5.68 billion. It is one of the low-cost choices in the small-cap space, charging 9 bps in fees per year from investors. The fund added about 0.6% in the last one month. VBR has a Zacks ETF Rank #3. Original post .

Selectivity: The New Way Forward For Investors

We believe these changes position investor portfolios to capture what we view as the best opportunities in global equity markets that we expect to play out over the next several years. More specifically, some of the broader changes we’ve made are from a thematic perspective: Equity and multi-asset class portfolios underwent a fairly significant reorientation away from companies levered to the commodity complex (i.e., the Energy and Materials sectors) to those more levered to services/consumption (i.e., the Information Technology and Healthcare sectors). Portfolios also continue to have significant exposure to the Consumer Discretionary sector as we seek to capitalize on service/consumption trends. Additionally, we notably decreased exposure to the Industrials sector and meaningfully increased exposure to Consumer Staples in our Non-U.S. Equity portfolios. Equity positioning is driven by our bottom-up, fundamental research, complemented by our top-down macroeconomic viewpoints. Primary driving factors behind the portfolio repositioning include: The waning commodity supercycle, combined with China’s structural transition from an investment-driven model of growth to one driven more by consumption. And more broadly: Emerging markets’ burgeoning middle class, along with ongoing advancement in emerging market consumers’ wealth. China’s economic transformation does indeed present the risk that Chinese GDP deviates from investor expectations. The transition to a slower – albeit more stable and sustainable – pace of growth, however, is necessary and well underway, as evidenced by GDP and Purchasing Managers’ Index (PMI) data. Data showing contribution to real GDP is released annually in China. The most recent release shows that in 2014, consumption contributed more to GDP growth than investment. More recently, PMI data shows that activity in the services sector continues to expand (i.e., a reading above 50), whereas manufacturing activity has been contracting. This suggests that the rebalancing story continues to play out. (click to enlarge) More broadly, emerging market consumers currently spend only a fraction of what their developed world counterparts spend, due in large part to income disparities. As the emerging markets’ middle class grows, consumer spending on goods and services should become larger contributors to GDP. According to McKinsey & Company, emerging markets’ consumption is expected to equal $30 trillion by 2025, a 150% increase from 2010. (click to enlarge) In our view, all of these dynamics present long-run opportunities for investors seeking growth. We believe that the changes in our portfolio positioning will enable investors to benefit from the trends that we think will move global equity markets over the next several years. Nevertheless, flexibility is paramount to any investment strategy in order to adapt to an ever-changing economic backdrop. To be sure, a selective approach is critical, as opportunities are far from uniform across all countries and sectors. Learn more about the importance of selectivity in today’s environment, in our latest video series from our investment team experts. 1 Source: Winning the $30 trillion decathlon