Tag Archives: mutual funds

Best And Worst Q2’16: Financials ETFs, Mutual Funds And Key Holdings

The Financials sector ranks sixth out of the ten sectors as detailed in our Q2’16 Sector Ratings for ETFs and Mutual Funds report. Last quarter , the Financials sector ranked seventh. It gets our Neutral rating, which is based on aggregation of ratings of 38 ETFs and 249 mutual funds in the Financials. See a recap of our Q1’16 Sector Ratings here . Figures 1 and 2 show the five best and worst rated ETFs and mutual funds in the sector. Not all Financials sector ETFs and mutual funds are created the same. The number of holdings varies widely (from 21 to 572). This variation creates drastically different investment implications and, therefore, ratings. Investors seeking exposure to the Financials 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 PowerShares KBW Property & Casualty Insurance Portfolio (NYSEARCA: KBWP ) is excluded from Figure 1 because its total net assets (NYSEARCA: TNA ) 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 Schwab Financial Services Fund (MUTF: SWFFX ) is excluded from Figure 2 because its total net assets are below $100 million and do not meet our liquidity minimums. iShares U.S. Financials Services ETF (NYSEARCA: IYG ) is the top-rated Financials ETF and Fidelity Select Banking Portfolio (MUTF: FSRBX ) is the top-rated Financials mutual fund. Both earn a Very Attractive rating. iShares Residential Real Estate Capped ETF (NYSEARCA: REZ ) is the worst rated Financials ETF and Rydex Series Real Estate Fund (MUTF: RYREX ) is the worst rated Financials mutual fund. REZ earns a Dangerous rating and RYREX earns a Very Dangerous rating. 595 stocks of the 3000+ we cover are classified as Financials stocks. American Express (NYSE: AXP ) is one of our favorite stocks held by IYG and earns a Very Attractive rating. We previously published a case study outlining how AXP could boost its value by $50 billion by making strategic decisions to boost return on invested capital ( ROIC ). Over the past six years, American Express has grown after-tax profit ( NOPAT ) by 6% compounded annually. At the same time, the company has improved its ROIC from 12% in 2005 to a top-quintile 20% in 2015. However, some short-term issues, which we identify in our case study have left AXP undervalued. At its current price of $62/share, American Express has a price-to-economic book value ( PEBV ) ratio of 0.9. This ratio means that the market expects American Express’ NOPAT to permanently decline by 10%. If AXP can, instead, grow NOPAT by 6% compounded annually for the next decade , the stock is worth $98/share today – a 58% upside. Essex Property Trust (NYSE: ESS ) is one of our least favorite stocks held by REZ and earns a Very Dangerous rating. Essex earns its rating in large part to its misleading earnings. Over the past decade, GAAP net income has grown by 11% compounded annually. However, Essex’s economic earnings , its true cash flows, have declined from $7 million to -$249 million over the same time period. Further highlighting the deterioration of Essex’s operations, the company’s ROIC has halved from 8% in 2005 to a bottom-quintile 4% in 2015. GAAP earnings have propped up shares for too long, and ESS remains overvalued. In order to justify its current price of $225/share, Essex must grow NOPAT by 12% compounded annually for the next 11 years . After a decade of shareholder value destruction, the expectations baked in ESS remain too high. Figures 3 and 4 show the rating landscape of all Financials 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. 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.

Telecom ETFs Falling On Lackluster Earnings

The year has been rather mediocre for the telecom industry with lukewarm results coming up amid turbulent economic conditions. The industry has evolved as an intensely contested space where success depends largely on technical superiority, quality of services and scalability. Cut-throat pricing competition has put pressure on margins this earnings season. However, mixed results and global market concerns notwithstanding, the overall sentiment for the U.S. telecommunications industry for the rest of 2016 is positive. Telecommunications is one of the few industries to have managed to undergo rapid technological improvement even during depression. In this era of digitization and technology, the ever-growing demand for technologically superior products should see the sector through. Below we have highlighted in greater detail earnings of some of the major Telecom companies which really drive this sector’s outlook. (read more: What Lies Ahead for Telecom ETFs in 2016? ). Telecom Earnings in Details U.S. telecom behemoth AT&T Inc. (NYSE: T ) reported impressive results beating on both the top and bottom line. Adjusted earnings per share of 72 cents beat the Zacks Consensus Estimate of 69 cents. Quarterly total revenue increased 24.4% year over year to $40,535 million, outpacing the Zacks Consensus Estimate of $40,493 million. AT&T has gained 2.1% since reporting earnings (as of May 4, 2016). Although the company reported strong results, its U.S. postpaid wireless subscriber addition of 129,000 was down a significant 70.7% year over year. In contrast, U.S. telecom giant Verizon Communications Inc. (NYSE: VZ ) reported mixed financial results wherein the top line lagged the Zacks Consensus Estimate, while the bottom line just met the same. Verizon’s adjusted earnings per share moved up almost 3.9% year over year to $1.06, in line with the Zacks Consensus Estimate. Quarterly revenue increased 0.6% year over year to $32,171 million, but missed the Zacks Consensus Estimate of $32,367 million. The stock has fallen 1.8% since reporting earnings (as of May 4, 2016). CenturyLink Inc. ‘s (NYSE: CTL ) first-quarter 2016 adjusted earnings per share of 71 cents surpassed the Zacks Consensus Estimate of 68 cents and were up 6% year over year. However, quarterly total revenue of $4,401 million fell 1.1% from the prior-year quarter and missed the Zacks Consensus Estimate of $4,426 million. The stock was down 4.71% during after-hours trading on May 4, 2016. ETFs in Focus Thanks to mixed results, telecom ETFs with considerable exposure to the three stocks above were all in the red in the last 5 trading sessions (as of May 4, 2016). Below we discuss four of these that will be in focus in the coming days (see all Telecommunication ETFs here ). iShares U.S. Telecommunications ETF (NYSEARCA: IYZ ) IYZ tracks the Dow Jones U.S. Select Telecommunications Index. The fund manages assets worth nearly $617.4 million and has an average trading volume of roughly 502,000 shares a day. The fund charges an expense ratio of 45 basis points a year. The fund holds 25 stocks and has more than one-fifth of its assets in the top 2 holdings while the others have less than 5.7% exposure. Among individual holdings, top stocks in the ETF include AT&T, Verizon and CenturyLink with asset allocation of 10.7%, 9.9% and 5.5%, respectively. The four major sectors of this ETF are Integrated Telecom, Wireless Telecom, Alternative Carriers and Communications Equipment with asset holdings of 50.5%, 24.7%, 18.2% and 3.8%, respectively. The product lost 0.9% in the past 5 days and currently has a Zacks ETF Rank #3 (Hold) with a Medium risk outlook. Fidelity MSCI Telecommunications Services Index ETF (NYSEARCA: FCOM ) This ETF tracks the performance of the MSCI USA IMI Telecommunication Services 25/50 Index. The fund manages assets worth nearly $164.8 million and has an average trading volume of roughly 64,000 shares a day. The fund charges an expense ratio of 12 basis points a year. The fund holds 32 stocks and has a concentrated approach in the top 10 holdings with 67.4% of the asset base invested in them. Among individual holdings, AT&T, Verizon and CenturyLink number among the top three with asset allocation of 22%, 20.8% and 4.3%, respectively. Diversified Telecommunication Services and Wireless Telecommunication Services are the two major sectors of this ETF with asset holdings of 84.9% and 15.1%, respectively. The product lost 1% in the past 5 days and currently has a Zacks ETF Rank #3 with a Medium risk outlook. iShares Global Telecommunications ETF (NYSEARCA: IXP ) This ETF tracks the S&P Global 1200 Telecommunications Services Sector Index. The fund has nearly $418.2 million of assets under management and an average trading volume of roughly 41,000 shares a day. The fund charges an expense ratio of 48 basis points a year. The fund holds 32 stocks in its portfolio and has a concentrated approach in the top 10 holdings with approximately 71.3% of the asset base invested in them. Among individual holdings, top stocks in the ETF include AT&T and Verizon with asset allocation of 18.5% and 15.9%, respectively. CenturyLink holds weight of 1.3%. Integrated Telecommunication, Wireless Telecommunication and Alternative Carriers are the three major sectors with asset holdings of 72.9%, 25.7% and 1.2%, respectively. It fell almost 1.8% in the last 5 days and currently has a Zacks ETF Rank #3 with a Medium risk outlook. Vanguard Telecommunication Services ETF (NYSEARCA: VOX ) This ETF seeks to track the performance corresponding to the benchmark MSCI U.S. Investable Market Telecommunication Services 25/50 Index. It has assets under management of nearly $1.5 billion and an average trading volume of roughly 135,000 shares a day. The fund charges an expense ratio of 10 basis points a year. The fund holds 31 stocks in its portfolio and has a concentrated approach in the top 10 holdings with 69.6% of the asset base invested in them. Among individual holdings, top stocks in the ETF are AT&T and Verizon with a combined share of almost 50%. CenturyLink has the third highest share with 4.6% weight. Integrated Telecommunication Services, Alternative Carriers and Wireless Telecommunication Services are the three major sectors with asset holdings of 67.1%, 20.3% and 12.5%, respectively. The fund lost 0.9% in the last 5 days and currently has a Zacks ETF Rank #3 with a Medium risk outlook. Link to the original post on Zacks.com

Best And Worst Q2’16: Energy ETFs, Mutual Funds And Key Holdings

The Energy sector ranks last out of the ten sectors as detailed in our Q2’16 Sector Ratings for ETFs and Mutual Funds report. Last quarter , the Energy sector ranked ninth. It gets our Very Dangerous rating, which is based on aggregation of ratings of 22 ETFs and 100 mutual funds in the Energy sector. See a recap of our Q1’16 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 144). This variation creates drastically different investment implications and, therefore, ratings. Investors should not buy any Energy ETFs or mutual funds because none get an Attractive-or-better rating. If you must have exposure to this sector, you should buy a basket of Attractive-or-better rated stocks and avoid paying undeserved fund fees. Active management has a long history of not paying off. 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 Four ETFs 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 Rydex Series Energy Service Portfolio (MUTF: RYVIX ) is excluded from Figure 2 because its total net assets are below $100 million and do not meet our liquidity minimums. Market Vectors Oil Services ETF (NYSEARCA: OIH ) is the top-rated Energy ETF and MainStay Cushing Renaissance Advantage Fund (MUTF: CRZZX ) is the top-rated Energy mutual fund. Both earn a Neutral rating. iShares US Oil & Gas Exploration & Production ETF (NYSEARCA: IEO ) is the worst rated Energy ETF and Saratoga Advantage Energy and Basic Materials Portfolio (MUTF: SBMBX ) is the worst rated Energy mutual fund. Both earn a Very Dangerous rating. 178 stocks of the 3000+ we cover are classified as Energy stocks. LyondellBasell Industries (NYSE: LYB ) is one of our favorite stocks held by CRZZX and earns a Very Attractive rating. Over the past five years, LYB has grown after-tax profit ( NOPAT ) by 10% compounded annually. Over the same time period, Lyondell’s return on invested capital ( ROIC ) has improved from 17% to a top-quintile 22%. Additionally, over the past four years, LYB has generated a cumulative $14.8 billion in free cash flow . Despite the strength of the business, LYB is undervalued. At its current price of $88/share, LYB has a price-to-economic book value ( PEBV ) ratio of 0.8. This ratio means that the market expects LYB’s NOPAT to permanently decline by 20% from current levels. If LYB can grow NOPAT by just 4% compounded annually for the next decade , the stock is worth $139/share today – a 58% upside. Hess Corporation (NYSE: HES ) is one of our least favorite stocks held by IEO and earns a Dangerous rating. Contrary to GAAP net income, which has fluctuated wildly over the past decade, Hess’ NOPAT has only worsened by declining from $1.7 billion in 2005 to -$859 million in 2015. Over the same time period, Hess’ ROIC has fallen from 11% to -2%. In a large disconnect from reality, HES has risen over 50% over the past three months, which has made shares more overvalued. In order to justify its current price of $57/share, Hess must immediately achieve positive pre-tax margins (from -22% in 2015) and grow revenue by 20% compounded annually for the next 20 years . In this scenario, 20 years from now Hess would be generating $254 billion in revenue, which would nearly equal oil giant Exxon’s 2015 revenue. The expectations already embedded in HES are unrealistically high. 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. 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.