Tag Archives: nreum

5 Buy-Ranked High-Yield Bond Mutual Funds

For the average investor, high-yield bond mutual funds are a great method to invest in bonds rated below investment-grade, popularly known as junk bonds. This is because these funds hold a wide range of such securities, significantly reducing the portfolio risk. In addition, these funds provide better returns than investments with higher ratings, including government and corporate bonds. Further, because the yield from such bonds is higher than investment-grade securities, these investments are less susceptible to interest rate fluctuations. Below we will share with you 5 buy-rated high yield bond mutual funds. Each has earned either a Zacks Mutual Fund Rank #1 (Strong Buy) or a Zacks Mutual Fund Rank #2 (Buy) , as we expect these mutual funds to outperform their peers in the future. To view the Zacks Rank and past performance of all high-yield bond funds, investors can click here . Lord Abbett Bond Debenture Fund A (MUTF: LBNDX ) invests a large chunk of its assets in fixed-income securities, including bonds and debentures. LBNDX may invest a significant share of its assets in junk bonds that are believed to provide a high return. It invests in high-yield securities that are ranked below BB/Ba. The Lord Abbett Bond-Debenture Fund A has a three-year annualized return of 7.2%. LBNDX has an expense ratio of 0.86%, compared to a category average of 1.07%. Wells Fargo Advantage Short-Term High Yield Bond Fund Investor (MUTF: STHBX ) seeks total return through high current income and capital growth. It invests a major portion of its assets corporate debt securities that are rated below investment-grade. STHBX may also invest a maximum of one-fourth of its assets in non-US securities that are denominated in the US dollar. The fund invests in securities that include corporate bonds and bank loans having fixed, floating or variable rates. The Wells Fargo Advantage Short-Term High-Yield Bond Investor fund has a three-year annualized return of 3.1%. As of May 2015, STHBX held 165 issues, with 1.47% of its total assets invested in Cit Grp 4.25%. Fidelity Advisor High Income Fund A (MUTF: FHIAX ) invests in income-generating securities, including debt securities, preferred stocks and convertible securities, with a primary focus on below-investment grade securities. It may also invest in defaulted securities and common stocks. In addition, FHIAX invests in firms that are going through a tough time. Factors such as financial strength and economic condition are considered before investing in a security throughout the globe. Matthew Conti is the fund manager, and he has managed FHIAX since 2001. Transamerica Partners High Yield Bond Fund Inv (MUTF: DVHYX ) seeks high current income. It mainly invests in underlying funds. DVHYX invests majority of its assets in bonds that are expected to provide a high return. The fund has a three-year annualized return of 6.2%. DVHYX has an expense ratio of 0.58%, compared to a category average of 1.07%. City National Rochdale High-Yield Bond Fund Servicing (MUTF: CHYIX ) invests a lion’s share of its assets in below-investment grade securities that are believed to produce fixed income, commonly known as “junk bonds.” The fund invests in securities, including corporate bonds and debentures, convertible securities, preferred securities and debt securities. CHYIX invests in securities that are issued by both US and non-US entities. As of March 2015, CHYIX held 179 issues, with 2.04% of its total assets invested in Central Garden & Pet 8.25%. Original Post

UWTI And UGAZ: A Cautionary Tale Of Fortunes Won And Lost

Summary 3X commodity ETNs are overwhelmingly volatile and risky. UWTI and UGAZ are widely traded ETNs that should be approached with a sober and patient mind. 3X commodity ETNs have potential for huge gains as well as catastrophic losses. Introduction This summer, I took on the arduous task of learning the ins and outs of leveraged commodity ETNs. Like many foolish investors before me, I firmly believed I could trade these volatile monsters and actually make serious money. I began with a meticulous research in an attempt to determine a central price point in which to buy and sell. I learned about the holdings of each ETN, and I learned how these funds were leveraged to attain daily 3X returns. I transferred a percentage of my funds to a commission-free brokerage account (Robinhood). Then, drunk on overconfidence in my own ability to predict future market behavior, I set out to make my fortune. ETN Functionality After extensive research, I came to the conclusion I could profit most off of the volatility of natural gas and crude oil futures. My weapons of choice included VelocityShares 3X Inverse Crude Oil ETN (NYSEARCA: DWTI ), VelocityShares 3X Long Crude Oil ETN (NYSEARCA: UWTI ), VelocityShares 3X Inverse Natural Gas ETN (NYSEARCA: DGAZ ), and VelocityShares 3X Long Natural Gas ETN (NYSEARCA: UGAZ ). I wanted to utilize the maximum amount of leverage to capitalize heavily on price swings. I learned everything I could about the benefits of 1X, 2X, and 3X leverage. I’ll include them here , but if you’re reading this article, you likely already understand the risks and rewards. I’ll briefly mention the underlying financials, but chances are you understand those too. Each ETN is issued by Credit Suisse and traded on the NYSE. All four indexes I mentioned have market capitalizations over 100 million and are traded very heavily over millions of times each day. They are designed to track daily performance, and they are not designed to be held for extended periods of time. ETNs have a veritable laundry list of risks , and they suffer from significant contango over time. Additionally, these ETNs have an expense cost and no dividends. The point is that they are essentially designed to lose money in the long run. Don’t believe me? Look at the long-term returns of each. With the exception of DWTI (for obvious reasons), ETNs perform sub optimally in the long term. They should be used for short-term performance only. Determining Price: Market Conditions I approached pricing from (what I believed to be) a logical top-down view. In regards to oil , I felt it had been oversold, because China’s economy was not slowing as much as believed, Iran had already been priced in, the Greek crisis was overblown, and rig increases were a sign of strength (not weakness). I also looked at world supply and demand, OPEC projections, and EIA estimates. I came to the conclusion that a fair short-term price for crude (WTI) was $57, though a selloff could push oil to $53. Never did I think prices would go as low as $51. For natural gas , I looked at EIA.gov forecasts, and I looked at world supply and demand. Natural gas consumption seemed (and seems) poised to gradually increase over time. The recent influx of natural gas, particularly from the shale boom and improved technology (fracking, etc.) had been decimated by cheap energy over the past year. I concluded that natural gas supply would gradually rebound as well to match rising consumption. I also came to the conclusion that the wide held notion that El Nino would cause a “cool summer” was misunderstood and false. With those underlying assumptions, I moved on to figuring out a fair price to gauge when I should buy and sell the ETN. Determining Price: Central Swing Point 3X ETNs are inherently volatile. I included UGAZ to visually provide an example of daily price swings. These securities also reset each day and often can start significantly higher or lower than they ended from the day before. They generally swing up and down around a central point and rally significantly in trending markets. ETNs also decay over time, so it is advisable to trade daily rather than over a long term. For each ETN, I created a monthly average point for each index and compared them to their underlying future prices. I created my own “fair price point”, and whenever the price dipped around 5%-10% of my preconceived fair price, I would snatch up equity. For example, my fair price for UGAZ (as I mentioned about a month ago) was 2.1. Whenever UGAZ fell to a price around 2.00, I generally would proceed to purchase the stock and wait for it to rebound above 2.1. I sold UGAZ whenever it hit 2.20. My “fair price points” for the others were $3.2 for UWTI, $62 for DWTI, and $5.55 for DGAZ. Equipped with my “fool proof” strategy, I went forth to make some money. Building a Fortune – What Went Right My first (and arguably smartest) course of action was to put my money into a zero-commission account before making a large number of trades. ETN trading is day trading, and I did not want some broker to siphon off my earnings. From June 12-June 29, I made almost 30%. For my first trade, I bought UGAZ around 2.1 (I didn’t let it fall the first time) on June 12 and sold at 2.32 on June 14. Then, I purchased DGAZ at 5.31 on June 15 and sold at 5.45 on June 17. I was already off to a decent start. Next, I moved to UWTI; I bought on June 19 at 3.37 and sold at 3.55 on the 23rd of June. I believed I was infallible. I proceeded to buy DWTI on June 23 at 61 and sold on June 29 at 69. I felt on top of the world, and ultimately my swelling pride became my downfall. Losing Everything – Where I Went Wrong On July 1st, I went all in on UWTI at 2.88, thinking I had gotten a steal. On July 6th, I sold my position at 2.12 thinking oil prices would keep dropping based on negative sentiment. I over exposed myself, and I lost the majority of my gains. I didn’t follow my own beliefs about crude (that the selloff was irrational), and I realized a loss that I shouldn’t have. I could have easily held UWTI for another couple days and sold at 2.25 even. Instead, I got cocky and then I got scared. I also lost sight of the most important fact of futures trading. No one can truly predict where prices are going to go. Energy is volatile, and speculation is rampant. 3X ETNs can easily drop off in one day. The thrill of 10% gains in a single day had gotten the best of me. Conclusion I made my last trade on July 9. I bought UGAZ at 1.90 and sold it on Monday at 2.20. With that trade, my overall returns were slightly above even, and I consoled myself with the idea that I would turn my back on futures once and for all. Now, I research long-term value stocks, but every once in a while, the thrill of trading crosses my mind. These stocks are definitely not for the faint of heart or risk averse. For those bold traders who want to make a fortune in a single day, just remember that you can lose it all at any moment. Investing in 3X ETNs is legalized gambling, and UWTI, DWTI, UGAZ, and DGAZ ought to only be considered in very specific situations (such as hedging). Heed my warning and proceed with caution when considering these three 3X ETNs. Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More…) I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Greece Bailout Agreement Adds To GLD Selling Pressure

Summary Greece had finally yielded to Creditor’s demand for austerity against the wishes of its people and this removes the Grexit risk. Fed is now more likely to rise rates as global growth is now more secured to get against financial stability as advocated by the BIS. Gold prices will continue to slump as a result. Greek Bailout Agreement This article is motivated by the breaking news that Greece had reached an agreement with its creditors after a 17 hour marathon negotiation session. It was a make or break moment for Greece and Greece folded to the EU austerity demands despite a clear ‘No’ referendum result on July 5. As the screen shot from European Council President Donald Tusk’s Twitter account shows, there was unanimous approval for the third Greek bailout. Source : Twitter In the end, pensions will be cut and taxes will rise for Greece to stay within the Eurozone and pay its debt on time. Austerity will continue to bite against of the Greek population wishes but at least we can see the light at the end of the tunnel. It is possible that Greek banks will open by the end of the month as the European Central Bank (ECB) is likely to increase its funding support and deposit flight would be reduced greatly. Implication For Gold Prices However the key question for this article would be what does it mean for the price of gold? My previous position for the price of gold is that the premium for USD in the rush for safety will outweigh the premium for gold over Grexit financial stability concerns. This has largely played out which I would highlight in the gold price chart towards the end of the article. Today we have a different situation where the threat of Grexit has largely been taken off the table. This would be even more bearish for the price of gold. The obvious point is that there will be less concern over financial stability. Hence there is now less need for the financial markets to hold gold. The second and less obvious pull factor away from gold would be that it would clear the path for the Fed to rise rates earlier. This could now be done as early as the FOMC meeting on 17 September 2015. We can have more clues from the July 29 FOMC statement and the minutes which will be published on August 19. It is clear that the US economy had been consistent progress especially in the second quarter of 2015. The Fed is approaching its mandate of maximum employment with unemployment at 5.3% and the target unemployment range is from 5.0% to 5.2%. This range has been revised lower consistently and wages have gone up as a result. Quit rates have gone up as well as employees quit jobs to find jobs that fits them better. This is a result of higher confidence in the jobs market which translated to better consumer confidence. The Fed is confident of hitting its 2% inflation target in the medium term over the next 2 years and this period would be the time for them to raise rates and get ahead of the curve. BIS Support For Rate Hike & Growth Implication On the international front, there has been difference in opinion between the Bank of International Settlements (BIS) and the International Monetary Fund (IMF). The BIS advocated that the Fed rise rates as soon as possible so as not to punish savers unnecessarily and to create bubbles in other parts of the financial markets. In addition, the higher rates would also give the Fed the tools it need to deal with the next crisis. This is the quote for the relevant Handelsblatt interview which the BIS expressed its views Do you think that central banks should raise the interest rate earlier and faster in order to preserve financial stability? Would that be your advice for the Fed? Mr. Caruana: We think there are risks and costs if central banks raise interest rates too late. They become apparent only once you fully factor financial stability considerations into monetary policy. But at present the debate is not paying much attention to this. Rather, it focuses on the costs of raising interest rates too early. Mr Jamie Caruana is the General Manager of the BIS. This article was published recently on July 10 and it is in response to the IMF opinion that the Fed should push its rate hike to year 2016. IMF Managing Director Christine Lagarde advocated that the Fed push its rate hike to year 2016 so as not to undermine the fragile recovery. Conclusion The Greek bailout agreement takes the risk away that a rate hike would hurt the European recovery as a whole. This would also mean that higher growth would also necessitate higher interest rates to tame inflation going forward. If institutional savers are constrained by artificial low interest rates, they would be tempted to push up other asset values such as real estate or the equity market. This is the financial stability risk which the BIS was referring to. It is not saying that the Greek bailout would lessen financial stability risk and hence there is lesser need for a rate hike. (click to enlarge) As we can see from the SPDR Gold Trust ETF (NYSEARCA: GLD ) chart above, gold prices have been bearish for the past month as the Grexit crisis intensified as predicted by my previous articles. This is likely to continue in the near future as the chances of a Fed rate hike in September 2015 goes up. Hence we should continue to avoid gold in the short run. Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More…) I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.