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Great ETF Picks For 2nd Half Of 2015

The global stock market ended the first half of the year in the green amid bouts of volatility and uncertainty. Though U.S. stocks, as represented by the S&P 500 index, have recorded their worst performance in five years, foreign investing took the credit. All the thanks go to ultra-easing policies across the globe in stark contrast to the U.S. Policy easing has however not helped to reduce volatility, which at the moment seems to be the only constant factor. The markets are grappling with the dire issue of unpaid debts in Greece and Puerto Rico, as well as the looming stock bubble in China. The developments in these areas will continue to unnerve investors as the second half unravels. There is the additional uncertainty of interest rate hike in the U.S. while a strong dollar will continue to play foul in the global financial world (read: ETF Strategies for 2H ). This is especially true as the U.S. economy has been on a moderate growth path as reflected in increased consumer confidence, higher spending power, renewed optimism in housing recovery and an improving job market. Meanwhile, waves of merger and acquisition deals will continue to brighten up the stock world. However, any downbeat data, including disappointing job growth, no wage increase, lower inflation, and less manufacturing and industrial activity, could delay rate hike or bring in more volatility. That being said, it seems that the second half will most likely resemble the first, extending the winning streak of the top performing ETFs of 1H. In fact, most of these ETFs have a top Zacks ETF Rank of 1 or “Strong Buy”, suggesting their continued outperformance for the rest of the year (read: Top Performing ETF Areas of 1H ). Below, we have highlighted some excellent ETF picks from three different categories given that there will be no major shift in fundamentals in the coming months. These funds should lead to big gains for investors and are worth a closer look heading into the second half. U.S. Sector ETFs Healthcare has been the soaring corner of the broad U.S. market so far this year, and this trend is likely to continue given the M&A boom, strong earnings growth, cost-cutting efforts, aging population and Obamacare. Combined with attractive fundamentals, the sector provides a defensive tilt to the portfolio due to its non-cyclical nature unaffected by global turmoil (read: 3 Buy-Ranked ETFs for a Healthy Portfolio ). Investor should focus on the iShares U.S. Healthcare Providers ETF (NYSEARCA: IHF ), which looks to offer exposure to the companies that provide health insurance, diagnostics and specialized treatment. Another alternative could be a small-cap play on the broader sector through the PowerShares S&P SmallCap Health Care Portfolio ETF (NASDAQ: PSCH ). Both funds gained 20.4% and 18.5%, respectively, so far this year. U.S. Style-Box ETFs 2015 is the year of growth as Americans are brimming with confidence instilled by their fat wallets and rising income. In particular, the small-cap space will likely be the major beneficiary of this trend as pint-sized stocks are closely tied to the U.S. economy and generate most of their revenues from the domestic market. This makes them safer bets than their large and mid-cap counterparts during a global turmoil. The Guggenheim S&P SmallCap 600 Pure Growth ETF (NYSEARCA: RZG ), which gained nearly 11% in the year-to-date frame, looks to be a compelling choice for the rest of the year. Global ETFs Global investing has been in vogue this year, reversing the past three-year trend. Though many developed and developing economies are still struggling with slower growth, Europe and Japan remained the bright spots and are gaining a lot of attention from investors this year. The iShares Currency Hedged MSCI Japan ETF (NYSEARCA: HEWJ ) and the WisdomTree Europe Hedged Equity ETF (NYSEARCA: HEDJ ) are the two popular picks in the broad Japanese and European stock markets. Both funds provide hedge against any fall in their respective currencies – yen and euro – which have been badly hammered. Moreover, rising concerns over Grexit have depressed many European ETFs in recent weeks, providing a solid entry point. HEWJ and HEDJ are up 17.6% and 10.5%, respectively, so far this year. In the developing world, China ETFs have been performing amazingly and are still on top at the midway mark, but it has been entering the bear market lately, dulling the appeal for Chinese products. On the other hand, the Indian economy has regained its strong momentum lately, after losing its shine this year. If this trend persists, the EGShares India Consumer ETF (NYSEARCA: INCO ) could be the best way to go. The fund added nearly 8% in the year-to-date time frame. Original post

5 Small-Cap Growth Mutual Funds To Consider

When capital appreciation over the long term takes precedence over dividend payouts, growth funds become a natural choice for investors. These funds focus on realizing an appreciable amount of capital growth by investing in stocks of firms whose value is projected to rise over the long term. However, a relatively higher tolerance to risk and the willingness to park funds for the longer term are necessary when investing in these securities. This is because they may experience relatively more fluctuations than other fund classes. Meanwhile, small-cap funds are a good choice for investors seeking diversification across different sectors and companies. Investors with a high risk appetite should invest in these funds. Small-cap funds generally invest in companies having market cap lower than $2 billion. The companies, smaller in size, offer growth potential and their market capitalization may increase subsequently. Below we will share with you 5 small-cap growth mutual funds . Each has earned a Zacks Mutual Fund Rank #2 (Buy) as we expect these mutual funds to outperform their peers in the future. To view the Zacks Rank and past performance of all small-cap growth funds, investors can click here to see the complete list of funds . T. Rowe Price Diversified Small Cap Growth Fund (MUTF: PRDSX ) invests a large chunk of its assets in growth oriented companies having market capitalizations similar to those listed in the MSCI US Small Cap Growth Index. PRDSX is expected to maintain a diversified portfolio with a maximum of half of its assets invested in the top 25 holdings. The T. Rowe Price Diversified Small Cap Growth fund has returned 12.4% in the year-to-date frame. Sudhir Nanda is the fund manager and has managed PRDSX since 2006. ClearBridge Small Cap Growth Fund A (MUTF: SASMX ) seeks capital appreciation over the long run. SASMX invests a major portion of its assets in equities of small-cap firms. SASMX invests in domestic companies that believed to have impressive growth prospect. The ClearBridge Small Cap Growth A fund has returned 5.5% in the past one year. SASMX has an expense ratio of 1.24% as compared to a category average of 1.35%. Eaton Vance Small-Cap Fund A (MUTF: ETEGX ) invests a lion’s share of its assets in small-cap firms having above-average growth potential. ETEGX focuses on acquiring common stocks of companies. ETEGX may invest a maximum of one-fourth of its assets in non-US companies including those from emerging economies. The Eaton Vance Small-Cap A fund has returned 7.5% in past one year. As of March 2015, ETEGX held 64 issues with 2.43% of its assets invested in West Pharmaceutical Services (NYSE: WST ). WesMark Small Company Growth Fund (MUTF: WMKSX ) seeks long-term capital growth. WMKSX maintains a diversified portfolio by investing a large portion of its assets in small-cap companies. WMKSX defines small-cap companies as those which have market cap size within the universe of the Russell 2000 Index or the Standard & Poor’s SmallCap 600 Index. The WesMark Small Company Growth fund has returned 2% in past one year. WMKSX has an expense ratio of 1.22% as compared to category average of 1.35%. TCW Small Cap Growth Fund (MUTF: TGSCX ) invests a majority of its assets in companies having market capitalizations identical to those included in the Russell 2000 Growth Index. TGSCX may also invest in non-US firms including those located in developing and emerging countries, and ADRs. The TCW Small Cap Growth fund has returned 13.5% in the past one year. Chang Lee is the fund manager and has managed TGSCX since 2012. Original post

Don’t Sell Your XLF

Yesterday a very bearish piece was published on XLF. But I think the author’s arguments are factually incorrect. XLF should perform well as rates normalize. Yesterday, fellow SA author James Stefurak published a piece on the F inancial Select Sector SPDR ETF (NYSEARCA: XLF ), explaining that now is the time to sell given that he sees 20%+ downside for the ETF. A variety of reasons are given for this bearishness but given that I steadfastly disagree with both the reasoning and final conclusion of the piece, please accept this article as my humble and well-intentioned rebuttal. The first point given for why XLF is doomed is concentration. Like most ETFs, XLF has a few key names that make up a significant proportion of the fund. This is normal and even if it wasn’t, the top three names only make up 25% of the fund. The author says if “something goes awry” with one of the top holdings the XLF will tank. That is, of course, true but that’s true of the SPDR S&P 500 Trust ETF (NYSEARCA: SPY ) as well or any other fund. I’m not sure what qualifies as “something going awry” but the author seems to imply that would mean a total liquidation of the holding. Not sure about you but playing for JPMorgan (NYSE: JPM ) or Wells Fargo (NYSE: WFC ) to go out of business and sink the XLF is probably not the highest probability trade I’ve heard of. The XLF isn’t really all that concentrated and besides, concentration is not a reason to sell by itself. If that were the case then all exchange-traded products would be off limits. Next up is the housing recovery and here, I see some efficacy in the arguments made. It is true the housing market is having a tough time producing sales due to a lack of inventory and high prices. This will crimp earnings for the big mortgage players going forward so the author is right about that. Where we differ is in whether or not this information is priced in. The author seems to think the market doesn’t yet know about this information but this has been going on for a year or more now; the market is well aware that mortgage originations are weak. He also draws comparisons to the financial crisis but these are quite short-sighted because the banking landscape is a completely different world than it was in 2008. Capital levels and controls are infinitely stronger and more robust and with regulators watching every move large banks make, the idea of another 2008 style meltdown is pretty far-fetched. Derivative exposure is the next reason to sell I’ll touch on here. This is one that bears have been pointing to forever as a reason that the world is going to explode. Yes, the dollar values are huge in the derivative market but that doesn’t mean that banks are on the hook for a quadrillion dollars in losses if the world economy sneezes. This “reason” for a selloff is ridiculous and has been touted for years to no avail. The derivative market is not a reason to sell because derivatives to a large degree are hedging instruments. There is no possible scenario where they all come due at once which is what bears continuously tout as the reason the stock market will collapse. It’s beyond the realm of possibility and should be ignored. Finally, the author claims that many financials are actually negatively correlated to interest rates and quotes this as yet another reason to sell. I was dumbfounded when I read this because regardless of whatever evidence may be presented, the market is telling you otherwise and that is all that matters. You don’t have to take my word for it; here are just three examples of where the financials rallied this year as rates moved up ( here , here and here ). It is important to note that this is not my opinion; this is hard evidence that the market likes when rates move up for financials. Presenting anything besides this isn’t intellectually honest. On the valuation piece, the author makes assumptions that I find entirely too bearish without presenting any basis for how the numbers were chosen. This removes the efficacy of the price target because the extreme bearishness has no basis presented. To quote the author: “We have a 12-month price target for XLF at $19.75 which represents an approximate 20% discount to current share price. This downside is conservative. We modeled various assumptions including equity market selloffs (12% U.S. equity market selloff), interest rate rises (the 3-month LIBOR at 35 basis points, the 30-year fixed mortgages of 4.50%, the U.S 10-year Treasury above 3%) and U.S. unemployment rate moving higher (to 5.8%, U-6 rate up to 11.3%) and a bottoming of the delinquency rate on Commercial Real Estate (FRED’s ‘DRCR’).” Based on what? A 12% selloff in equities would produce a sizable selloff in XLF but that’s true of any stock fund; that is not a reason to sell XLF specifically. Rates rising would be a positive, not a negative, as I already outlined. And unemployment is moving up towards 5.8%? Again, based on what? The Federal Reserve is projecting 5% out to at least 2017 so no offense to the author, but I’ll stick with that. Wrapping up, I see very little reason to sell XLF based upon the forecasts of the author’s piece. The evidence presented largely lacks substance in my view and in particular, the section on valuation. If equities in general sell off, of course XLF will go down. But other than that, forecasts for economic doom and gloom are not a reason to sell XLF. Before you run out and dump your XLF – which I think will perform very well as rates rise – please make sure you look at both sides of the argument. Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More…) I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. Additional disclosure: I am long several names in the XLF but not long the fund itself.