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Buy These Funds To Beat A Choppy Q4

Unlike the previous two years, 2015 has turned out to be very frustrating for investors. It has been a bear story so far with the downtrend intensifying every passing quarter. August was particularly disturbing, when the market rout dragged the Dow & S&P 500 to their correction territories. In the third quarter, the Dow, S&P 500 and Nasdaq declined 7.6%, 7% and 7.4%, respectively. As for mutual funds, just 17% of mutual funds managed to finish in the green. This is a slump from 41% in the second quarter, which was again a sharp fall from 87% of the funds ending in positive territory in the first quarter. Unfortunately, we are not too bullish about the overall trend in the fourth quarter as well. Rather, lingering concerns from the third quarter may continue to disrupt the markets. Moreover, we are all too aware of the increased volatility that has worsened the investment climate in recent months. Market movements may yet again be volatile as investors continue to grapple with global growth worries, oil’s decline notwithstanding the momentary upsides, and a looming Fed lift-off. Three primary questions will keep the volatility alive – firstly, when will Fed hike rates; will China continue to negatively impact markets; and is the Bull Run over. As we move into the fourth quarter, Market Neutral mutual funds, Long Short mutual funds or Bear market funds should be the best picks at the moment. Market Neutral funds maintain a low correlation to market trends, helping to beat the volatility. Before we pick these funds, let’s look at the economic conditions: China, Global Growth Fears Linger The International Monetary Fund (NYSE: IMF ) has yet again trimmed the global economic growth projection. IMF’s latest World Economic Outlook (WEO) projects global economic growth of 3.1%, down from prior expectations of 3.3%. Slowdown in the emerging markets is largely to be blamed for the world economy expanding at its weakest pace since the financial crisis. Emerging markets are now expected to grow at 4% in 2015, down from the previous projection of 4.2%. Modest growth in the U.S. and a small recovery in the Eurozone won’t be strong enough to stem the declining trend in the emerging markets. Maurice Obstfeld, the IMF’s new chief economist, stated: “Six years after the world economy emerged from its broadest and deepest postwar recession, a return to robust and synchronized global expansion remains elusive.” The downward projection comes after China-led growth concerns have already wreaked havoc. A number of economic data out of China had confirmed that the world’s second largest economy was shaky. In China, lower-than-expected investment and factory output, dismal manufacturing data, significant trade gap and decline in foreign exchange reserves were among the dismal reports. Asian Development Bank’s (ADB) weak economic outlook for China also dented investor sentiment. China’s key benchmark moved down to the 3K level, from the 5K level enjoyed by the Shanghai Composite Index in early June. China Region fund category was the third best gainer in the first half of 2015, but the market rout has now made it the third biggest loser in the third quarter. Government measures to prop up markets did not have much success in China. However, it must be noted that the Chinese government has been implementing financial reforms, fiscal reforms and structural reforms for sustaining long-term growth. The implementation may have slowed growth in the short term. Going forward, it seems that support measures announced by the government hold the key to market movement. Investors need to look for such indications before placing their bets. Fed Rate Hike in December? The hullabaloo about the September rate hike was put to rest after the policy makers decided against a lift-off. However, while 9 out of 10 policy makers voted in favor of keeping the rate at the near zero level; 13 out of 17 committee members indicated that a rate hike may be possible this year. The chance of a rate hike in December was further fueled by Federal Reserve President Dennis Lockhart’s hawkish comments. Lockhart said: “As things settle down, I will be ready for the first policy move on the path to a more normal interest-rate environment. I am confident the much-used phrase ‘later this year’ is still operative.” Meanwhile, weak jobs report for the month of September raised speculation that the Federal Reserve may become more circumspect about raising rates this year. The Fed has been keeping an eye on further improvements in the labor market for hiking interest rates. Ultra-low interest rates have aided economic recovery and helped the markets enjoy a bull run. How to Beat Uncertainty in Q4 Market neutral funds aim to invest in bullish stocks and an equivalent number of bearish stocks. The objective is to generate above-average returns at relatively lower levels of risk. In fact, this category of funds adopts a precision approach to long-short investing, by ignoring the market’s direction. This is particularly relevant in today’s highly volatile market scenario when the objective is to protect the invested capital. This approach aims to identify pairs of assets whose price movements are related. Subsequently, the fund goes long on the outperforming asset and shorts the underperformer. Market neutrality is achieved by allocating the same proportion of assets to both positions. These funds may not offer robust gains, but they may be safe picks in a volatile market. Below we present three Market Neutral mutual funds that carry a favorable Zacks Mutual Fund Ranks. The following funds carry either a Zacks Mutual Fund Rank #1 (Strong Buy) or Zacks Mutual Fund Rank #2 (Buy) as we expect the 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. The minimum initial investment is within $5000. These funds carry low beta and are in the green over year-to-date and 1-year periods. The 3- and 5-year annualized returns are also favorable. Calamos Market Neutral Income A (MUTF: CVSIX ) invests in equity securities of domestic companies irrespective of their market capitalization. CVSIX also employs short selling to reduce market risk and generate more income. Its average maturity varies within the range of 2 to 10 years. CVSIX may also invest a major portion of its assets in junk bonds. Calamos Market Neutral Income A carries a Zacks Mutual Fund Rank #1. While the year-to-date and 1-year returns are 0.4% and 2.6%, respectively, the respective 3- and 5-year annualized returns are 2.6% and 3.6%. CVSIX’s 1- and 3-year beta scores are -0.31 and 0.05, respectively. Annual expense ratio of 0.94% is lower than the category average of 1.84%. TFS Market Neutral Fund (MUTF: TFSMX ) seeks capital growth while having minimum correlation to the domestic equity market, or the S&P 500 Index, as defined by the advisor. TFSMX mostly invests in common stocks traded on the US exchanges, irrespective of their market capitalization, sector or style. However, average capitalization of TFSMX tends to be in the small-cap range. A maximum of 25% of its assets may be invested (as long and short positions) in other registered investment companies (“RICs”). TFS Market Neutral carries a Zacks Mutual Fund Rank #2. While the year-to-date and 1-year returns are 1.4% and 4.3%, respectively, the respective 3- and 5-year annualized returns are 3% and 3.4%. TFSMX’s 1- and 3-year beta scores are 0.02 and 0.14, respectively. Annual expense ratio of 2.02% is however higher than the category average of 1.62%. Gateway Fund A (MUTF: GATEX ) seeks to achieve maximum return from the equity markets at less risk. The fund focuses on acquiring common stocks to add to its well-diversified portfolio. The fund invests a significant share of its assets in index call options in order to reduce volatility and maintain steady cash flow. Gateway A carries a Zacks Mutual Fund Rank #1. While the year-to-date and 1-year returns are 1.4% and 4.5%, respectively, the respective 3- and 5-year annualized returns are 4% and 4.6%. GATEX’s 1- and 3-year beta scores are 0.4 and 0.36, respectively. Annual expense ratio of 0.94% is lower than the category average of 1.84%. Link to the original post on Zacks.com

4 Top-Ranked Technology Mutual Funds For High Return

The technology sector is more likely to report above par earnings than other sectors as the demand for technology and innovation remains high. However, technology stocks are considered to be more volatile than other sector specific stocks in the short run. In order to minimize this short-term volatility almost all tech funds adopt a growth management style with a focus on strong fundamentals and a relatively higher investment horizon. Investors having an above par appetite for risk and a fairly longer investment horizon should park their savings in these funds. Below we will share with you 4 buy-rated technology mutual funds. Each has earned a Zacks Mutual Fund Rank #1 (Strong Buy) as we expect these mutual funds to outperform their peers in the future. Columbia Seligman Global Technology Fund A (MUTF: SHGTX ) seeks long-term capital growth. SHGTX invests a major portion of its assets in equities of technology companies located throughout the globe. SHGTX invests across a wide range of countries. SHGTX invests a minimum of 40% of its assets in foreign companies that are not traded in the US. The Columbia Seligman Global Technology A is a non-diversified fund and has returned 21.3% over the past one year. SHGTX has an expense ratio of 1.46% as compared to the category average of 1.47%. BlackRock Science & Technology Opportunities Portfolio A (MUTF: BGSAX ) invests the majority of its assets in equity securities issued by domestic and foreign science and technology companies. BGSAX may invest a maximum 25% of its net assets in emerging economies. BGSAX generally invests in common stocks but may also invest in preferred stocks and convertible securities. The BlackRock Science & Technology Opportunities Investor A has returned 19.3% over the past one year. As of August 2015, BGSAX held 158 issues with 6.41% invested in Apple Inc. (NASDAQ: AAPL ). Fidelity Advisor Electronics Fund A (MUTF: FELAX ) seeks capital appreciation. FELAX invests a large portion of its assets in common stocks of companies whose primary operations are related to electronic components, equipment vendors, electronic component manufacturers, electronic component distributors, electronic instruments and electronic systems vendors. Investments are made in both domestic and foreign companies. FELAX uses a fundamental analysis to select companies for investment purposes. The Fidelity Advisor Electronics A is a non-diversified fund and has returned 21.2% over the past one year. FELAX has an expense ratio of 1.27% as compared to the category average of 1.47%. T Rowe Price Global Technology Fund (MUTF: PRGTX ) invests a major portion of its assets throughout the world in the common stocks of companies that derive their revenues from the development, advancement, and use of technology. PRGTX invests in a minimum of 5 countries and a minimum 25% of its assets are invested in foreign companies. PRGTX invests in firms with an established track record. The T Rowe Price Global Technology Fund has returned 21.2% in the last one year. Joshua K. Spencer is the fund manager and has managed PRGTX since 2012. Original Post Share this article with a colleague

Dividend ETFs Battle It Out: Get The Right Sectors

Summary There are three big dividend ETFs from the major low cost index providers, Charles Schwab and Vanguard. Two of the three still offer yields over 3% and all three have excellent expense ratios. Investors deciding which one to buy should look at the sector allocation. These ETFs have some major differences in their allocations. Investors seeking high consumer staples exposure should look to SCHD and VIG. Investors wanting more financial exposure should look at VYM. SCHD and VYM both offer around 10% exposure to the energy sector, but VIG has very little allocation there. If you want oil in the portfolio, SCHD and VYM make. Can you smell what the dividend ETF champions are cooking? There are a few big dividend ETFs for broad exposure to companies offering respectable dividend yields. In this article I want to compare a few of them. Let’s meet the big contenders: Name Ticker Yield Expense Ratio Schwab U.S. Dividend Equity ETF SCHD 3.02% 0.07% Vanguard Dividend Appreciation ETF VIG 2.26% 0.10% Vanguard High Dividend Yield ETF VYM 3.10% 0.10% For investors that prefer to see those numbers in graphs, I put together a couple quick charts: First Impressions Investors right away may notice that the Vanguard Dividend Appreciation ETF doesn’t have a very high yield compared with the other dividend ETFs. It may be rational for investors looking at it to ask whether it should really be considered a high dividend ETF. While the Schwab U.S. Dividend Equity ETF technically only has 70% of the expense ratio of Vanguard’s options, the difference of .03% is not material. There is no viable way to spin the difference into being material. Assuming your decision isn’t based strictly on yields, the next area to look into is the sector allocations. I grabbed the sector allocations for each ETF: (click to enlarge) (click to enlarge) (click to enlarge) Sector Analysis The first thing that I’m noticing when I look at the sectors is that two of these funds go heavily overweight on consumer staples. When it comes to dividend ETFs, I like going overweight on consumer staples. Consumer Staples The nice thing about the consumer staples sector is that they are defined by the production of products that consumers will need regardless of what else is happening in the economy. Any sector can run into problems, but the kind of macroeconomic issues that can really slam my portfolio value should have a smaller hit on the earnings (and thus dividend potential) of companies in the consumer staples category. Of course, there is no free lunch. In exchange for getting companies that should be more resilient, I have to accept that during a prolonged bull market these companies are likely to rally less than other sectors. If my focus was strictly designing the portfolio for the highest projected total long term return, it would be very reasonable to argue against going heavy on consumer staples. It is up to each investor to determine how they feel about that trade off. If the investor wants more certainty that the underlying companies can sustain their dividends because they intend to use the dividends to cover living expenses, then the importance of those dividends being sustained is more important. Having to sell off part of the portfolio during the kind of recession that sees dividend cuts across the combined portfolio would be pretty painful. Financials Where SCHD and VIG put consumer staples at the top, VYM puts financials at number one. This is very interesting because SCHD placed it at 1.99% and VIG weighted it at 6.37%. Clearly the structure of the portfolio is materially different. There are some very good reasons to like the financial sector for investments. At the top of my list would be the demographic analysis showing that Generation Y is fairly weak at understanding money . If the next generation is less capable of understanding their money, then there may be more opportunities for the financial firms to make money off complicated products that the consumers don’t fully understand. That may sound cynical, but who cares? My goal is to understand where sales and profits will be flowing. If you own shares in the banks, would you encourage the CEO to ensure they have transparent pricing even if cuts earnings and means a smaller dividend? I really doubt shareholders would be thrilled to hear “We cut the dividend to make up for a cash shortfall from lowering prices when the current pricing system was working well.” My concern about aggressive allocations to the financial sector comes from regulation. If we see more regulatory pressure or cases brought against large banks for unethical actions in the pursuit of profit, the development could represent declining margins (from regulatory pressure) or cash expenses to settle cases. Energy SCHD and VYM both put energy over 10% of the portfolio. VIG holds it as just over 1% of the portfolio. There are some fairly different kinds of companies that can be considered “Energy” companies. When energy refers to enormous companies with strong dividends like Exxon Mobil (NYSE: XOM ), I like that allocation. If it was referring to much more volatile industries like off shore oil drilling, I wouldn’t be a fan. In the case of SCHD, XOM is the heaviest single holding. The same can be said for VYM. While the energy sector has been punished with oil prices at very low levels and no clear path higher, I see those issues as being priced into the shares. As long as the issues are already priced in, I want some exposure that would benefit from higher gas prices. Lower fuel prices mean more money for consumers to spend on other goods and services. If the low fuel price trend ends, I’d like to at least have the upside from earnings going up for a big dividend payer in the portfolio. What do You Think? Which dividend ETF makes the most sense for you? Do you want to overweight consumer staples for more safety in a downturn or would you rather have more upside in a prolonged bull market? Do you want to own the oil companies, or do you foresee gas as being in a long term downtrend that makes the business model much weaker?