Tag Archives: mutual-fund

U.S. Manufacturing Shows Signs Of Healing: 3 Mutual Fund Picks

By the end of last year, U.S. manufacturing was tottering on the verge of a recession, after the collapse in commodity prices and a stronger dollar took a toll on American factories. However, based on encouraging readings on factory activity in March, it seems that manufacturing is on a resurgence. Philadelphia, New York and Richmond Fed manufacturing reports were impressive for this month. Markit’s flash manufacturing PMI also ticked up in March, while the ISM manufacturing index had already shown signs of a turnaround last month. A rise in new orders for U.S. factory goods in January points toward an easing in manufacturing slump. For now, even though there is volatility in the oil price movement, it has recovered considerably from its mid-February record low. Moreover, the Fed’s dovish stance in its two-day policy meeting last week has weakened the dollar considerably. In this scenario, it will be prudent to invest in mutual funds that focus on the industrial sector. The Industrial Select Sector SPDR ETF (NYSEARCA: XLI ) had gained 4.3% on a year-to-date basis, the second-highest among all the S&P 500 sectors. Factory Activity Positive in March Manufacturing activity in the Philadelphia area turned positive in March for the first time in seven months. The Philadelphia Fed manufacturing index advanced to 12.4 in March from a negative 2.8 in February. Any reading above zero shows that industrial activity is improving. Separately, new orders and shipments rose significantly. Factory activity in the New York region also expanded this month for the first time since last July. The Empire State manufacturing index rose to 0.6 in March from minus 16.6 in February. While new orders and shipments increased, more manufacturers expect business conditions in the region to improve further in the next six months. A measure of manufacturing activity in the lower U.S. Atlantic region too rose in March. The Richmond Manufacturing Index jumped to 22 this month, its highest level in almost six years. The index had been at a negative 4 in February. The index covers manufacturing activity in the District of Columbia, Maryland, Virginia, North Carolina, South Carolina and most of West Virginia. Flash PMI Ticks Up, ISM Turns Around Markit’s flash manufacturing PMI came in at 51.4 in March. The PMI showed that manufacturing activity picked up this month from February’s 28-month low of 51. Output and new business volumes moved up at a slightly faster pace compared to February. This reading followed the Institute for Supply Management’s (ISM) reading on manufacturing activity in February. The ISM manufacturing index increased to 49.5, above January’s reading of 48.2. This indicated that fewer manufacturers had cut back on activities in February than in January. Any reading above 50 shows expansion. Add to this a robust surge in factory orders in January, and it becomes even clearer that the manufacturing sector is coming out of troubled waters. The Commerce Department had reported that new orders for U.S. factory orders rebounded 1.6% in January from a drop of 2.9% in December. New orders increased the most in seven months in January. Factory orders rose broadly in January, with orders for transportation equipment soaring 11.4%. Orders for on-defense capital goods excluding aircraft, which indicates business confidence and spending plans, gained 3.4%. Inventory levels, on the other hand, dropped for the seventh straight month, indicating factories were progressing steadily on reducing inventory glut. Buy The 3 Best-Performing Industrial Mutual Funds It looks like the worst of U.S. manufacturing is coming to an end as recent reports on manufacturing activity in core factory hubs such as Philadelphia, New York and Richmond turn out to be promising. An uptick in Markit’s flash manufacturing PMI in March makes us believe that factory activities in the U.S. will improve. In fact, when it comes to the ISM manufacturing index, RBC Capital Markets’ Chief U.S. economist, Tom Porcelli, expects the index to climb above the 50 mark in April. He believes the negative impact of low oil prices and strong dollar will fade. Moreover, record factory orders data in January also show a release from the slump. Banking on this optimism, investors may bet on three industrial mutual funds that not only boast strong fundamentals, but have also given solid returns over a long period of time. These funds possess a Zacks Mutual Fund Rank #1 (Strong Buy) or #2 (Buy), have positive year-to-date and 5-year annualized returns, minimum initial investments within $5000 and carry a low expense ratio. Fidelity Select Industrials Portfolio No Load (MUTF: FCYIX ) invests the majority of its assets in securities of companies primarily involved in the research, development, manufacture, distribution, supply or sale of industrial products, services or equipment. The fund’s year-to-date and 5-year annualized returns are 2.9% and 10.1%, respectively. It carries a Zacks Mutual Fund Rank #2, and the annual expense ratio of 0.78% is lower than the category average of 1.33%. Fidelity Select Industrial Equipment Portfolio No Load (MUTF: FSCGX ) invests a major portion of its assets in securities of companies principally engaged in the manufacture, distribution or servicing of products and equipment for the industrial sector. The fund’s year-to-date and 5-year annualized returns are 2.9% and 8.3%, respectively. FSCGX carries a Zacks Mutual Fund Rank #1, and its annual expense ratio of 0.77% is lower than the category average of 1.33%. Putnam Global Industrial Fund A (MUTF: PGIAX ) invests a large portion of its assets in securities of companies in the industrial products, services or equipment industries. Even though it invests in large and mid-sized companies worldwide, around 80% of its investments are in the U.S. PGIAX’s year-to-date and 5-year annualized returns are 2.2% and 8.8%, respectively. The fund carries a Zacks Mutual Fund Rank #1, and its annual expense ratio of 1.27% is lower than the category average of 1.33%. Original Post

How To Find The Best Style Mutual Funds: Q1’16

Finding the best mutual funds is an increasingly difficult task in a world with so many to choose from. How can you pick with so many choices available? Don’t Trust Mutual Fund Labels There are at least 929 different Large Cap Value mutual funds and at least 6296 mutual funds across twelve styles. Do investors need 524+ choices on average per style? How different can the mutual funds be? Those 929 Large Cap Value mutual funds are very different. With anywhere from eight to 741 holdings, many of these Large Cap Value mutual funds have drastically different portfolios, creating drastically different investment implications. The same is true for the mutual funds in any other style, as each offers a very different mix of good and bad stocks. Large Cap Blend ranks first for stock selection. Small Cap Growth ranks last. Details on the Best & Worst mutual funds in each style are here . A Recipe for Paralysis By Analysis I think the large number of Large Cap Value (or any other) style mutual funds hurts investors more than it helps because too many options can be paralyzing. It is simply not possible for the majority of investors to properly assess the quality of so many mutual funds. Analyzing mutual funds, done with the proper diligence, is far more difficult than analyzing stocks because it means analyzing all the stocks within each mutual fund. As stated above, that can be as many as 741 stocks, and sometimes even more, for one mutual fund. Any investor focused on fulfilling fiduciary duties recognizes that analyzing the holdings of a mutual fund is critical to finding the best mutual fund. Figure 1 shows our top rated mutual fund for each style. Figure 1: The Best Mutual Fund in Each Style Click to enlarge Sources: New Constructs, LLC and company filings The Barrow Value Opportunity Fund (MUTF: BALIX ) ranks first, the Brown Advisory Equity Income Fund (MUTF: BAFDX ) ranks second, and the Wall Street Fund (MUTF: WALLX ) ranks third. The Artisan Mid Cap Value Fund (MUTF: APHQX ) ranks last. How To Avoid “The Danger Within” Why do you need to know the holdings of mutual funds before you buy? You need to be sure you do not buy a fund that might blow up. Buying a fund without analyzing its holdings is like buying a stock without analyzing its business and finances. No matter how cheap, if it holds bad stocks, the mutual fund’s performance will be bad. Don’t just take my word for it, see what Barron’s says on this matter. PERFORMANCE OF FUND’S HOLDINGS = PERFORMANCE OF FUND If Only Investors Could Find Funds Rated by Their Holdings… The Vulcan Value Partners Fund (MUTF: VVPLX ) is the top-rated Large Cap Blend mutual fund and the overall top-rated fund of the 6296 style mutual funds that we cover. The mutual funds in Figure 1 all receive an Attractive-or-better rating. However, with so few assets in some of the funds, it is clear investors haven’t identified these quality funds. Disclosure: David Trainer and Kyle Guske II receive no compensation to write about any specific stock, style, or theme. Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. 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.

On The Statistical Significance Of The Knowledge Factor

Over the last week or so we’ve been highlighting how factor investing is not as cut and dry as advertised . The traditional simple factors (value, size, momentum, quality, low volatility) sometimes work and sometimes don’t so investors are left to make educated guesses about which factors will work in any given year. Here we’re defining “work” as these factors’ outperformance, or not, of the broad equity market. But the Knowledge Factor (the Gavekal Knowledge Leaders Developed World Index) doesn’t appear to have this same limitation. As we’ve shown already two times in the last five days, the Knowledge Factor – the tenancy of highly innovative companies to realize excess stock market performance – is the only factor that delivers consistent outperformance vs the global stock market. In the first chart below we show the yearly binary relative out/under performance of each MSCI Factor index relative to the MSCI World Index itself. A blue line and a +1 represents a year of outperformance for that factor and a red line and a -1 represents a year of underperformance. The results speak for themselves as it’s clear that there is no discernible trend in the out or underperformance of the five MSCI simple factors on a yearly basis. Said differently, sometimes the factor exposures outperform and sometimes they don’t. The top line that shows the Knowledge Factor’s relative performance is as stable as it gets, returning less than the MSCI World Index only twice in 16 years. Click to enlarge This next chart shows the cumulative performance since 2000 for each of the MSCI simple factors and the Knowledge Factor (the bars) and the yearly hit rate of outperformance relative to the MSCI World Index (the stars). Over time, the stable outperformance of the Knowledge Factor has resulted in by far the highest total return of any factor over the last two full market cycles. Click to enlarge Having laid out the above, we then analyzed the performance of the Knowledge Factor to see if there were certain market environments which were not supportive of the Factor’s outperformance. We looked at bull markets and bear markets, periods of rising and falling interest rates, periods of rising and falling commodity prices, and periods of rising and falling inflation trends. We observed no market environment in which the Knowledge Factor did not outperform the MSCI World Index, leading us to conclude that the Knowledge Factor is the gift that keeps on giving . Statistical Analysis: Today we want to take a slightly different tack to try to understand the sources of performance of the Knowledge Factor (the Gavekal Knowledge Leaders Developed World Index). We’re going to decompose the return of the Knowledge Factor to see if underlying simple factor tilts are the sole reason for this factor’s outperformance. If the Knowledge Factor is just an intelligent combination of the simple factors, then the return stream could be easily replicated and the relative performance of the Knowledge Factor described above would lose significance. To test the hypothesis that the Knowledge Factor adds value (aka Alpha) even after taking into account of any underlying factor exposure, we show a multiple regression of the since 2000 return stream of the Knowledge Factor (dependent variable) vs the all the MSCI simple factors (the independent variables). Given the below ANOVA table we observe the following: This factor exposure model does a good job explaining the return stream of the Knowledge Factor (the Gavekal Knowledge Leaders Developed World Index) because the adjusted r-square is .95, meaning that 95% of the Knowledge Leaders Index return stream is explained by this model. All of the beta coefficients except the Size Factor coefficient are in the single digits and none of the individual beta coefficients are statistically significant. In other words, there are no large factor tilts in the Knowledge Leaders Index returns and any factor tilts observed in the model cannot be statistically relied upon given the low t-stats and high p-values. Said even differently, none of the MSCI simple factors, in isolation or combined, can explain the returns of the Knowledge Factor. Even after taking into account the incredibly small and insignificant factor exposures, the Knowledge Factor has a highly statistically significant unexplained annualized alpha of 3.18%. We know the 3.18% alpha is statistically significant because the t-stat is greater than 2 and the p-value is close to zero. These results indicate that the Knowledge Factor is not simply an aggregation of the simple factors. The returns of the Knowledge Factor are all-together different than the return streams of the simple factors. This goes a long way in explaining why the Knowledge Factor consistently outperforms global stocks on a yearly basis and outperforms in all the market environments studied. There are no underlying factor tilts dictating the performance of Knowledge Leaders except the Knowledge Factor itself, which is the systematic mispricing of highly innovative companies. Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. 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.