Tag Archives: investing

5 Mutual Funds To Ride Solid Service Sector Growth This Spring

Even though manufacturers and energy producers have been adversely affected this year, service companies continue to expand at an encouraging pace. The ISM non-manufacturing index touched its highest level this April, while another indicator, the Markit Services PMI, outstripped the initial expectation. The pickup in service sector activities signaled that the U.S. economy has negotiated the rough winter patch and is more likely to hit stronger growth this spring. In this scenario, investing in mutual funds having significant exposure to the service industry will be a prudent choice. Upbeat ISM Service Index The index for nonmanufacturing economic activity increased to 55.7 in April from 54.5 in March, its highest level since December, according to the Institute for Supply Management. Thirteen of the 18 service sectors tracked by the ISM expanded in April. The index covers almost everything from restaurant meals, dry cleaning, doctor’s visits, haircuts to tax preparations. The reading above 50 indicates that the sector’s activity including employment and prices moved north. The employment index climbed to 53.0 in April from 50.3 in March, while the price index spiked to 53.4 in April from 49.1 in March. Prices increased for the first time in the last three months. Meanwhile, the business activity index dipped to 58.8 in April from 59.8 in the previous month. However, the new orders index rose to 59.9 in April from 56.7 in the prior month. With a jump in orders it is expected that business activities will improve too from the next month. The ISM index extensively surveys a considerable number of purchasing executives spanning the length and breadth of the service sector. According to Anthony Nieves, chair of the ISM Non-Manufacturing Business Survey Committee, most of the respondents’ comments reflected “optimism about the business climate and the direction of the economy.” Markit Services PMI Revised Up A separate indicator also showed that the service sector picked up steam last month. Markit Economics’ services purchasing managers index rose to 52.8 in April from a flash reading of 52.1. The index came in at 51.3 in March. April’s data was slightly higher than the first quarter’s average, while overall business confidence strengthened. This showed steady rise in service activities, especially from February’s 28-month low, which was mostly due to disruptions in weather conditions. Chris Williamson, chief economist at Markit said that the Markit’s survey indicated that the economy continued “to pick itself up after the stagnation seen in February.” Growth in Services Picks Up: 5 Mutual Funds to Buy The U.S. service sector witnessed stronger growth in April. This showed that the broader economy has gained momentum following a slow start to this year on manufacturing woes. A strong dollar, weak energy prices and slowdown in global demand weighed on the manufacturing sector. Americans continued to spend for services ranging from haircuts to meals. Some of the major nonmanufacturing industries reporting growth in April include Finance & Insurance, HealthCare & Social Assistance, Real Estate, Retail Trade and Utilities. Respondents from the Finance & Insurance field said that “Business is holding steady, revenue is almost as anticipated and costs are lower which is helping to maintain current profitability.” When it came to HealthCare & Social Assistance, respondents said “We expect our business condition to improve in Q2 as compared to Q1. Typically, Q1 is our slowest period and business activity picks up later through the year.” Respondents from the other aforementioned industries also sounded optimistic. Given this, it will be wise to invest in mutual funds from such nonmanufacturing industries. We have selected five such mutual funds exposed to the service sector that have given impressive 3-year and 5-year annualized returns, boast a Zacks Mutual Fund Rank #1 (Strong Buy) or #2 (Buy), offers a minimum initial investment within $2,500 and carry a low expense ratio. 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. The Franklin Mutual Financial Services A (MUTF: TFSIX ) invests a major portion of its assets in securities of financial services companies. TFSIX’s 3-year and 5-year annualized returns are 8.8% and 7.7%, respectively. Annual expense ratio of 1.41% is lower than the category average of 1.54%. TFSIX has a Zacks Mutual Fund Rank #2. The Fidelity Select Health Care Services Portfolio (MUTF: FSHCX ) invests the majority of its assets in securities of companies engaged in the ownership or management of nursing homes, health maintenance organizations and other companies specializing in the delivery of health care services. FSHCX’s 3-year and 5-year annualized returns are 17.7% and 12.8%, respectively. Annual expense ratio of 0.79% is lower than the category average of 1.35%. FSHCX has a Zacks Mutual Fund Rank #1. The SSgA Clarion Real Estate Fund (MUTF: SSREX ) invests a large portion of its assets in real estate investment trusts. SSREX’s 3-year and 5-year annualized returns are 8.1% and 10.2%, respectively. Annual expense ratio of 1% is lower than the category average of 1.28%. SSREX has a Zacks Mutual Fund Rank #1. The Putnam Global Consumer Fund A (MUTF: PGCOX ) invests a major portion of its assets in securities of companies in the consumer staples and consumer discretionary products and services industries. PGCOX’s 3-year and 5-year annualized returns are 9.6% and 9.8%, respectively. Annual expense ratio of 1.26% is lower than the category average of 1.43%. PGCOX has a Zacks Mutual Fund Rank #2. The Fidelity Telecom and Utilities Fund (MUTF: FIUIX ) invests the majority of its assets in securities of telecommunications services companies. FIUIX’s 3-year and 5-year annualized returns are 7.8% and 10.2%, respectively. Annual expense ratio of 0.74% is lower than the category average of 1.25%. FIUIX has a Zacks Mutual Fund Rank #2. Link to the original post on Zacks.com

What Pushed Up These Agricultural ETFs?

Finally, soft commodities are catching up with the hard commodities this year. Several hard commodities including precious metals have made a comeback this year, but soft commodities could not keep pace with them. A stronger dollar, weak global fundamentals that are impacting the demand profile and ample supplies marred agricultural commodity investing. However, many agro-based commodities and the related ETFs have staged a recovery lately. A favorable demand-supply scenario is the major driver of this. Below, we highlight three agricultural ETFs that saw decent gains in the last one month (as of April 26, 2016) and see if the gains can last: Cocoa Cocoa prices have exhibited a wining trend lately due to supply concerns. Worries about lower yield in the mid-crop season in the key growing region of Ivory Coast led to this rise in prices. A long-drawn-out dry weather actually hit crop production. In addition, the demand scenario is also shaping up with cocoa grinding – a key gauge of cocoa demand – in Asia rising 2.9% in the first quarter of 2016. The data came in better than analysts’ expectation of a 1% rise. The double tailwinds put the cocoa market in an upward trajectory and showered gains on cocoa ETFs like the iPath Dow Jones-UBS Cocoa Total Return Sub-Index ETN (NYSEARCA: NIB ) and the iPath Pure Beta Cocoa ETN (NYSEARCA: CHOC ). Cotton Global cotton prices took a beating earlier after talks about China – one of the key growing regions of cotton – preparing to sell some of its 11 million-metric-ton cotton hoard, which is a massive chunk and enough to roil global cotton prices, per Wall Street Journal . Notably, China accounts for about 60% of the world’s cotton inventory. But the ” delay in sales of its giant state cotton reserves” by China kept supplies at check and pushed up prices. Also, raw cotton deliveries to Indian mills have declined 12% this season, giving signs of lesser production. This scenario has boosted cotton exchange-traded products like the iPath Pure Beta Cotton ETN (NYSEARCA: CTNN ) and the iPath Dow Jones-UBS Cotton Total Return Sub-Index ETN (NYSEARCA: BAL ) . Sugar Sugar prices have also recovered lately on ‘ global deficit’ concerns . As per sources, research agencies have predicted a shortfall in supplies globally for the current season that will end in September 2016 (read: Sugar ETFs Hit 52-Week Highs: Time for Sweet Returns? ). Going by a recent Wall Street Journal article, “Brazil, India and Thailand – three of the world’s top producers – are showing ongoing signs of production risk.” Inadequate moisture in these top growing counties spoiled output, especially in Asia. All these led to a reduced number of sugar-cane estimates that spurred deficit concerns and boosted the price (read: Can El Nino Boost Agricultural ETFs? ). The Teucrium Sugar Fund (NYSEARCA: CANE ) and the i Path Pure Beta Sugar ETN (NYSEARCA: SGAR ) were the major beneficiaries of this trend. Bottom Line Having said this, we would like to note that we, at Zacks, are not positive on agricultural ETFs over the medium term. Though the products have gained lately, we expect the trend to lose momentum as the latest drivers are short-lived in nature. Link to the original post on Zacks.com

Manufacturing Churns Out Slow Growth In U.S. – ETFs In Focus

U.S. manufacturing is yet to recover from prolonged sluggishness. This was indicated by the recent manufacturing report from the Institute for Supply Management (ISM). As per ISM, the reading was 50.8 in April (a reading of 50 or higher points to growth), down from 51.8 recorded in March. Economists had forecast the index to decline to 51.4% (read: ETFs to Watch on U.S. Manufacturing Revival ). Though the latest reading has come in above 50 for the second successive month and was the second best number in the last eight months, the sequential decline may subdue investors’ optimism over the sector. New orders index to 55.8% from 58.3% in March. Huge capex cuts by energy companies to fight back the plunge in oil prices and still-sluggish export demand in the wake of global growth issues kept a check on the sector. However, investors should note that export orders touched a 17-month high. A comparable industry measure compiled by Markit also point to the same trend. Markit’s final U.S. manufacturing PMI fell to 50.8% in April from 51.5% in March. As per trading economics , input costs bucked the trend at the manufacturing sector as pressures building up lately defying the prolonged trend of decline. This was because raw materials’ costs crept up leading to higher input costs. However, output prices fell resulting in reducing pricing power. Market Impact Most of the industrial ETFs were in the green post release of the manufacturing data. ETFS like the PowerShares DWA Industrials Momentum Portfolio ETF (NYSEARCA: PRN ), the iShares U.S. Industrials ETF (NYSEARCA: IYJ ) and the Industrial Select Sector SPDR ETF (NYSEARCA: XLI ) added small gains on May 2, 2016 ( see all industrials ETFs here ). Bottom Line While the latest data was nowhere near impressive, it can be seen as a slowly improving trend. ISM Employment Index was 49.2% in April versus 48.1% registered in March, revealing that the decline in employment – this time for the fifth successive month — is finally slowing. ISM noted that out of the 18 manufacturing sectors under coverage, 11 logged growth in employment in April. On the other hand, the long-tottering energy sector might be on an upward trajectory in the days to come on an oil price recovery. This can spell optimism for the manufacturing sector as a whole. Moreover, the U.S. labor market remains healthy. This should also back consumers’ purchasing power, boost demand for goods and result in higher factory activity. A still-low interest rate environment in the U.S. should also favor the industry as the sector depends on interest rates for its operations. The scenario beyond the U.S. border should also gain steam on a huge round of monetary easing. In conclusion, we would like to note that a full-fledged recovery may take more time than previously envisaged. So, as of now, it is better to bet on our top-rated industrial ETFs PowerShares Dynamic Building & Construction ETF (NYSEARCA: PKB ) – a key beneficiary of the solid construction spending in the U.S. – and the First Trust Industrials AlphaDEX ETF (NYSEARCA: FXR ) . On May 2, 2016, PKB and FXR were up 1.52% and 0.44%, respectively. Both carry a Zacks ETF Rank #2 (Buy). Link to the original post on Zacks.com