Tag Archives: mutual funds

Best And Worst Q1’16: Energy ETFs, Mutual Funds And Key Holdings

The Energy sector ranks ninth out of the ten sectors as detailed in our Q1’16 Sector Ratings for ETFs and Mutual Funds report. Last quarter , the Energy sector ranked last. It gets our Dangerous rating, which is based on aggregation of ratings of 23 ETFs and 112 mutual funds in the Energy sector. See a recap of our Q4’15 Sector Ratings here . Figures 1 and 2 show the five best and worst-rated ETFs and mutual funds in the sector. Not all Energy sector ETFs and mutual funds are created the same. The number of holdings varies widely (from 25 to 153). This variation creates drastically different investment implications and, therefore, ratings. Investors seeking exposure to the Energy sector should buy one of the Attractive-or-better rated ETFs or mutual funds from Figures 1 and 2. Figure 1: ETFs with the Best & Worst Ratings – Top 5 Click to enlarge * Best ETFs exclude ETFs with TNAs less than $100 million for inadequate liquidity. Sources: New Constructs, LLC and company filings The Van Eck Market Vectors Uranium+Nuclear Energy ETF (NYSEARCA: NLR ), the PowerShares Dynamic Oil & Gas Services Portfolio (NYSEARCA: PXJ ), and the Van Eck Market Vectors Unconventional Oil & Gas ETF (NYSEARCA: FRAK ) are excluded from Figure 1 because their total net assets are below $100 million and do not meet our liquidity minimums. Figure 2: Mutual Funds with the Best & Worst Ratings – Top 5 Click to enlarge * Best mutual funds exclude funds with TNAs less than $100 million for inadequate liquidity. Sources: New Constructs, LLC and company filings The Van Eck Market Vectors Oil Services ETF (NYSEARCA: OIH ) is the top-rated Energy ETF and the Fidelity Select Energy Service Portfolio (MUTF: FSESX ) is the top-rated Energy mutual fund. OIH earns an Attractive rating and FSESX earns a Neutral rating. The First Trust ISE Water Index Fund (NYSEARCA: FIW ) is the worst-rated Energy ETF and the Saratoga Advantage Energy and Basic Materials Portfolio (MUTF: SBMBX ) is the worst-rated Energy mutual fund. FIW earns a Dangerous rating and SBMBX earns a Very Dangerous rating. 184 stocks of the 3000+ we cover are classified as Energy stocks. The FMC Technologies (NYSE: FTI ) is one of our favorite stocks held by OIH and earns an Attractive rating. While the Energy market has certainly had its issues over the past two years, FMC Technologies business has continued to exhibit strength. Over the past five years, FMC has grown after-tax profit ( NOPAT ) by 9% compounded annually. The company currently earns a return on invested capital ( ROIC ) of 12%. Best of all, FMC has earned positive economic earnings every year since 2006. Despite the above, FTI declined over 37% in 2015. Now, at its current price of $25/share, FTI has a price to economic book value ( PEBV ) ratio of 0.8. This ratio means that the market expects FMC’s NOPAT to permanently decline by 20% over its remaining corporate life. If FMC can grow NOPAT by just 2% compounded annually for the next decade , the stock is worth $31/share today – a 24% upside. The Diamondback Energy (NASDAQ: FANG ) is one of our least favorite stocks held by SBMBX and earns a Dangerous rating. Despite reporting impressive revenue growth, Diamondback Energy’s business is in decline. The company’s economic earnings have declined from -$32 million in 2012 to -$331 million over the trailing twelve months. Diamondback’s ROIC has fallen from 3% to -2% over the same timeframe. Despite the deterioration of the business, FANG was up 12% in 2015, which has left shares highly overvalued. To justify its current price of $58/share, Diamondback must grow NOPAT by 12% compounded annually for the next 18 years . When contrasted with Diamondback’s short history of value destruction, this expectation appears overly optimistic. Figures 3 and 4 show the rating landscape of all Energy ETFs and mutual funds. Figure 3: Separating the Best ETFs From the Worst ETFs Click to enlarge Sources: New Constructs, LLC and company filings Figure 4: Separating the Best Mutual Funds From the Worst Mutual Funds Click to enlarge Sources: New Constructs, LLC and company filings D isclosure: David Trainer and Kyle Guske II receive no compensation to write about any specific stock, sector or theme.

Pessimistic Outlook? Maybe You Should Manage A Bond Fund

Ever notice how pessimistic bond fund managers are? They are some of the most “glass half empty” people you will ever come into contact with. Even the ones who have successfully built legacies that will endure for generations are consistently talking down on the economy, central banks, growth, and other unfavorable data points. Jeffrey Gundlach recently hypothesized that emerging markets could fall as much as 40%. He has also been an outspoken critic of the Federal Reserve’s rate hike agenda and the lack of inflation in the developed world. Gundlach is the head of DoubleLine Capital, which manages $85 billion in fixed-income assets. Similarly, renown bond investor Bill Gross railed about the problems with government debt and social service liabilities in his 2016 investment outlook . He seems very concerned about demographic trends and workforce shortages. Gross ran one of the biggest bond funds in the world at PIMCO prior to his separation from the firm he founded and transition to Janus Capital Group. These are just two of the most vocal and well-known bond managers in the world, but there are countless others that are quick to point out cracks in the global economic picture. Talking Your Book In the business we call this “talking your book” or simply slanting the facts and opinions towards a conclusion that favors your trade. Volatility, uncertainty, and fear are a bond managers dream come true. They have built empires on the back of investors fleeing the stock market in a rush to safety. Stocks usually drop in tandem with interest rates, which means that bond prices rise in kind. This favors their performance story and leads to a wave of new assets that quickly enter and are slow to leave. The returns are steady, the volatility is low, and the fees are reasonable – why would you ever want to depart that warm cocoon? These bond fund titans are simply saying ” take my hand and I’ll guide you around all the pitfalls and uncertainty “. Bless their hearts. Active managers in particular are able to shape the underlying holdings of their funds in accordance with their views. They have certain limits and mandates according to the prospectus guidelines. However, there is always some leeway to reduce exposure to areas they are concerned about, add to undervalued opportunities, or build in hedges as appropriate. This can lead to a measurable boost in performance over the benchmark if they are on the right side of the market. The best bond fund managers have risen to their status because they are right more often than they are wrong. My review of Gundlach’s predictions for 2015 were pretty spot on with the exception of his call on gold. I have been a long-time fan of his flagship strategy in the Doubleline Total Return Bond Fund (MUTF: DBLTX ) and continue to hold it in my own account as well as for my clients. The rigors of managing billions in bonds is a stress that I will likely never have to endure. As a result, I have a more even-keeled outlook for the future that balances the dangers of a bear market or recession against the opportunity for a resurgence in risk assets. This allows for a more flexible (if guarded) approach that has served me well in riding out the ups and downs of this fickle market. The Bottom Line Understanding the motivations of an investment manager can be useful in deciphering their market calls and help frame their message in the context of your personal outlook. In addition, it’s always advantageous to dig a little deeper to see how their actual portfolio is positioned versus what they are saying publicly. If there is a disconnect between these two points, it may be best to err on the side of their actions versus their words. Remember that everyone has a motivation or bias in the investment world (even me). By understanding this perspective, you can more acutely discern brains from bullshit and act accordingly.

3 Strong Buy Franklin Templeton Mutual Funds

Founded in 1947, Franklin Templeton Investments – a segment of Franklin Resources, Inc. – seeks to provide investment management strategies and integrated risk management solutions to individuals, institutions, pension plans, trusts and partnerships. With over 650 investment professionals in 35 countries, the company invests in public equity, fixed income and alternative markets. The company manages assets worth over $866.5 billion with more than 9,300 employees. Below we share with you 3 top-rated Franklin Templeton mutual funds. Each has earned a Zacks Mutual Fund Rank #1 (Strong Buy) and we expect the fund to outperform its peers in the future. Franklin Mutual Financial Services Z (MUTF: TEFAX ) seeks growth of capital. TEFAX invests a major portion of its assets in undervalued companies that are involved in the financial services domain. TEFAX may also invest in merger arbitrage securities and securities of distressed companies. TEFAX may invest a significant portion of its assets in non-US securities. The Franklin Mutual Financial Services Z fund has a three-year annualized return of 10.9%. Andrew B. Sleeman is one of the fund managers having managed TEFAX since 2009. Franklin California High Yield Municipal Advisor (MUTF: FVCAX ) invests a large share of its assets in municipal securities that pay interest, which is exempted from taxes collected by the government and the State of California. FVCAX may also invest all of its assets in instruments that provide return subject to minimum tax. FVCAX may invest a maximum of 35% of its assets in municipal bonds approved by the US territories including Puerto Rico. The Franklin California High Yield Municipal Advisor fund has a three-year annualized return of 5.2%. FVCAX has an expense ratio of 0.53% as compared to a category average of 0.90%. Franklin International Small Cap Growth A (MUTF: FINAX ) seeks capital growth over the long run. It invests the majority of its assets in a wide range of tradable equity and related securities of small foreign companies. FINAX focuses on purchasing common stock. FINAX invests in securities of companies with market capitalizations below $5 billion or similar to those included in the Morgan Stanley Capital International (MSCI) Europe, Australasia, Far East (EAFE) Small Cap Index. The Franklin International Small Cap Growth A fund has a three-year annualized return of 5.9%. As of September 2015, FINAX held 40 issues with 5.12% of its assets invested in Optimal Payments PLC. Original Post