Tag Archives: mutual funds

Best And Worst Q4’15: Consumer Discretionary ETFs, Mutual Funds And Key Holdings

Summary The Consumer Discretionary sector ranks fourth in Q4’15. Based on an aggregation of ratings of 17 ETFs and 20 mutual funds. RTH is our top-rated Consumer Discretionary ETF and FSRPX is our top-rated Consumer Discretionary mutual fund. The Consumer Discretionary sector ranks fourth out of the 10 sectors as detailed in our Q4’15 Sector Ratings for ETFs and Mutual Funds report. It gets our Neutral rating, which is based on aggregation of ratings of 17 ETFs and 20 mutual funds in the Consumer Discretionary sector. See a recap of our Q3’15 Sector Ratings here . Figures 1 and 2 show the five best and worst-rated ETFs and mutual funds in the sector. Not all Consumer Discretionary sector ETFs and mutual funds are created the same. The number of holdings varies widely (from 25 to 391). This variation creates drastically different investment implications and, therefore, ratings. Investors seeking exposure to the Consumer Discretionary sector should buy the one Attractive rated ETF in Figure 1. 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 PowerShares Dynamic Retail Portfolio ETF (NYSEARCA: PMR ) and the U.S. Global Jets ETF (NYSEARCA: JETS ) 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 Rydex Retailing Fund ( RYRIX , RYRAX ) and the Rydex Leisure Fund ( RYLIX , RYLAX ) are excluded from Figure 2 because their total net assets are below $100 million and do not meet our liquidity minimums. The Market Vectors Retail ETF (NYSEARCA: RTH ) is the top-rated Consumer Discretionary ETF and the Fidelity Select Retailing Portfolio (MUTF: FSRPX ) is the top-rated Consumer Discretionary mutual fund. RTH earns our Attractive rating and FSRPX earns our Neutral rating. The SPDR Homebuilders ETF (NYSEARCA: XHB ) is the worst-rated Consumer Discretionary ETF and the Rydex Series Leisure Fund (MUTF: RYLSX ) is the worst-rated Consumer Discretionary mutual fund. XHB earns our Neutral rating and RYLSX earns our Dangerous rating. 450 stocks of the 3000+ we cover are classified as Consumer Discretionary stocks. Twenty-First Century Fox, Inc. (NASDAQ: FOXA ) is one of our favorite stocks held by Consumer Discretionary ETFs and mutual funds and earns our Very Attractive rating. Over the past five years, Twenty-First Century Fox has grown its after-tax operating profit ( NOPAT ) by 5% compounded annually. Twenty-First Century Fox’s return on invested capital ( ROIC ) has risen to 10% from 8% over this same timeframe. Though content creators will always be in demand in the television/movie industry, fears about the future of television viewership have left FOXA undervalued. At its current price of $29/share, FOXA has a price to economic book value ( PEBV ) ratio of 0.9. This ratio implies that Twenty-First Century Fox’s NOPAT will permanently decline by 10%. However, if Twenty-First Century Fox can grow NOPAT by just 5% compounded annually for the next 5 years , the stock today is worth $41/share, a 41% upside. KB Home (NYSE: KBH ) is one of our least favorite stocks held by Consumer Discretionary ETFs and mutual funds and was recently featured as a Danger Zone stock . It earns our Very Dangerous rating. KB Home’s problems are twofold; declining market share/profits and overpriced shares. Despite the housing market improving since 2011, KB Home’s economic earnings have only gotten worse over this time. However, because GAAP net income does not account for off-balance sheet liabilities and equity capital, KB Home has been able to report growing GAAP EPS. The disconnect between GAAP EPS and economic earnings has left KBH overvalued. To justify its current price of $14/share KB Home’s must grow NOPAT by 18% compounded annually for 13 years . This expectation is rather optimistic given KB Home’s inability to participate in the housing recovery over the past few years, which, as we detail in our Danger Zone report, will not likely continue for much longer. Figures 3 and 4 show the rating landscape of all Consumer Discretionary 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 Disclosure: David Trainer and Blaine Skaggs receive no compensation to write about any specific stock, sector or theme.

Investing For Impact: A Brief Guide For The Perplexed

By Travis Allen and Anne Bucciarelli (click to enlarge) Discussions about investment strategies that take values or ethical principles into account can be confusing. Several different terms are used, often interchangeably; in fact, they may be converging. The most common terms we hear are socially responsible investing (SRI); environmental, social, and governance (ESG) principles; and impact investing. SRI strategies usually employ screens to identify companies to include or exclude, based on the manager’s or the investor’s ideas about their social impacts. ESG strategies are similar but tend to focus on certain areas of concern: Environmental factors, including climate change, hazardous-waste disposal, nuclear energy, and natural-resource depletion; Social factors, including human and labor rights, consumer protection, and diversity; and Corporate-governance factors, including management structure, executive compensation, and shareholder rights. Some, but not all, ESG-oriented institutional investors are signatories to the United Nations-supported Principles for Responsible investment (PRI). Impact investing goes further: It seeks to invest (usually privately) in organizations having a positive impact in a particular area, perhaps to revive a blighted neighborhood. Investors often feel empowered by impact investing, but they should recognize the risks. These investments can be as risky as venture capital. Such investments may be best made with capital that exceeds your target financial capital (the amount of money you need to fund you long-term spending). Impact on Portfolios There are many ways to address SRI or ESG concerns. Some investment managers buy or create ESG screening tools to help them avoid investing in companies with undesirable practices or products. We think such tools may be useful but are rarely enough. AB integrates research into potential ESG issues for a company into all parts of our research process, from meetings with company managements, suppliers, and industry experts, to monitoring news reports, as the display shows: But assessing ESG issues can raise as many questions as it answers. For example, if you try to avoid investing in companies with high cardon dioxide emissions or abusive labor practices, do you have to check all the vendors of each company you consider? Many technology and clothing companies are now under attack for the actions of their suppliers, or of their suppliers’ suppliers. Investors should also recognize that both positive and negative screens limit portfolio managers’ flexibility and may affect portfolio returns. Investors with otherwise identical portfolios are likely to have different results, if one of them imposes restrictions on companies in certain industries. Some ESG advocates argue that companies with an ESG focus can outperform the broad market over time. Other people argue that narrowing the universe of potential investments is likely to detract from long-term returns relative to more diversified standard benchmarks. Perhaps the arguments of the ESG advocates are true, but it’s too soon to tell. While the number of managers that invest with a social lens is growing, few ESG managers have a statistically meaningful track record. Therefore, we think it is still too early to assess the relative performance of the ESG segment. Investors whose priority is a portfolio that reflects their personal values now have a range of choices to meet their social as well as financial goals. The goal for such investors should be to work with managers who share their philosophy about social issues, as well as risk and return. Disclaimer: The views expressed herein do not constitute research, investment advice or trade recommendations and do not necessarily represent the views of all AB portfolio-management teams.

5 Taxable Bond Funds To Invest In Despite Record Outflows

Taxable bond funds are debt securities whose interest payments are taxable at the local, state or federal level. Concerns about higher interest rates resulted in a massive sell-off in taxable bond funds in the third quarter of this year. Federal Reserve Chairwoman Janet Yellen indicated that the lift-off option is very much on the table later this year provided the economy is strong enough to boost employment and inflation touches the desired level. Moreover, worries about global growth, mostly in emerging economies, led to the outflow in taxable bond funds. Nevertheless, these type of funds showcased strength in an otherwise punishing market environment. They posted steady returns amid the stock market sell-off. They are even poised to yield better results banking on stepped-up economic activity, rising business and consumer confidence, improving housing market and continued job creation. Hence, investing in these funds should be a prudent idea. Taxable Bond Funds Suffer Huge Outflows Investors have pulled $36.2 billion out of taxable bond mutual funds in the third quarter of this year, according to the preliminary Lipper data. This represents the biggest outflow from this fund type since the fourth quarter of 2008. In fact, taxable bond mutual funds continued to bleed in the week ended October 7. During the week, investors pulled $2.3 billion out of taxable bond mutual funds, registering its 11th continuous week of net withdrawals. This dismal performance came in after taxable bond mutual funds posted their second-largest weekly outflow on record for the week ending September 30. In the first half of the year, however, taxable bond mutual funds had posted an inflow of more than $23 billion. But if this current outflow continues for the rest of the year, taxable bond mutual funds will mark their first annual net outflow since 2000. According to Jeff Tjornehoj, head of Americas research at Lipper, outflow from this type of funds was broad-based as it was spread across all types of categories and companies. He added: “Investors are getting out of these bond funds because of fear. An unfounded fear, in my opinion, of higher rates and a global recession.” Higher Rates, Global Growth Concerns Concerns about higher interest rates in the near term resulted in outflows from taxable bond mutual funds. Last month, the Fed Chairwoman Janet Yellen said that the Federal Open Market Committee (FOMC) members “expect that the various headwinds to economic growth … will continue to fade, thereby boosting the economy’s underlying strength.” She added: “Most FOMC participants, including myself, currently anticipate that achieving these conditions will likely entail an initial increase in the federal funds rate later this year, followed by a gradual pace of tightening thereafter.” Worries about global economic growth, especially in the emerging economies including China, also led to outflow from bond funds. Markets across the world took a beating in response to the slowdown in China’s economic growth and its surprise move to devalue its currency. Weak Chinese trade data also raised concerns about the country’s growth outlook. While its exports were down 3.7% in September from the same period last year, its imports plunged 20.4% last month from a year earlier. Separately, other emerging markets also face the threat of instability, since their debts are vulnerable to rising interest rates in the US. Overall, the International Monetary Fund downgraded its global growth forecast for this year to 3.1%, which will result in the weakest growth performance since 2009. 5 Taxable Bond Funds to Buy as it Shows Signs of Stability Despite the outflows this year, taxable bond mutual funds are holding up a lot better than the stock markets. Amid volatility in the financial markets, returns from this type of funds remain more or less stable for the year, while the S&P 500 is down 2.7% year to date. Additionally, taxable bond mutual funds have given a steadier average annual return of 4.3% in the last 10 years. Moreover, flows are a result of economic events. A gradual recovery in domestic housing and manufacturing sectors, steady improvement in labor market conditions and lower gasoline prices are expected to boost the US economy in the near term. These factors are likely to have a positive impact on the fund’s performance. Several taxable bond mutual funds are excelling this year. Below we present five such bonds that have given steady returns, possess a relatively low expense ratio and boasts a Zacks Mutual Fund Rank #1 (Strong Buy) or Zacks Mutual Fund Rank #2 (Buy). Buffalo High-Yield (MUTF: BUFHX ) invests a major portion of its net assets in higher yielding, higher-risk fixed income securities.BUFHX currently carries a Zacks Mutual Fund Rank #1. BUFHX’s year-to-date and 1-year total returns are 3.2% and 4.7%, respectively. Annual expense ratio of 1.02% is lower than the category average of 1.06%. Vanguard Intermediate-Term Investment-Grade Investor (MUTF: VFICX ) invests in a widely diversified group of intermediate-term bonds, most of them issued by corporations with good credit ratings. VFICX currently carries a Zacks Mutual Fund Rank #2. VFICX’s year-to-date and 1-year total returns are 2.1% and 2.2%, respectively. Annual expense ratio of 0.20% is lower than the category average of 0.84%. Columbia Strategic Income Fund Class A (MUTF: COSIX ) invests in debt securities issued by the US government, including mortgage-backed securities issued by US government agencies. COSIX currently carries a Zacks Mutual Fund Rank #1. COSIX’s year-to-date and 1-year total returns are 1.2% and 1%, respectively. Annual expense ratio of 1.04% is lower than the category average of 1.27%. SEI Daily Income Trust GNMA Fund Class A (MUTF: SEGMX ) invests primarily in mortgage-backed securities issued by GNMA. SEGMX currently carries a Zacks Mutual Fund Rank #1. SEGMX’s year-to-date and 1-year total returns are 1.1% and 2.2%, respectively. Annual expense ratio of 0.63% is lower than the category average of 0.91%. Performance Trust Strategic Bond (MUTF: PTIAX ) invests a major portion of its net assets in fixed-income instruments. PTIAX may also invest in derivative instruments. PTIAX currently carries a Zacks Mutual Fund Rank #1. PTIAX’s year-to-date and 1-year total returns are 2.3% and 3.1%, respectively. Its annual expense ratio of 0.94% is lower than the category average of 1.03%. Original Post