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Precious Metals Get The Better Of Equities: 5 Mutual Funds To Buy

Of late, gold and other precious metals are trouncing equities as weaker economic growth both in the U.S. and globally continue to dent investors’ sentiment. In times of economic upheaval, investors dump equities to look for safe haven assets, and precious metals are well suited to serve this purpose. Lower interest rate environment across the globe is also luring investors to bet on precious metals. After seeing three back-to-back years of losses, these metals have rallied about 20% this year. Hence, investment in mutual funds having exposure to precious metals will surely be a prudent choice. Domestic Economic Growth Weak U.S. economic growth stalled in the first three months of the year since businesses and consumers turned cautious with their spending. The economy expanded at an annualized rate of 0.5% in the first quarter, its weakest quarterly growth in two years, according to the Commerce Department. Into the second quarter, things aren’t looking bright either. The battered U.S. manufacturing sector did stabilize a bit in April, but is yet to regain full health, while consumer spending may have further experienced a slowdown in April. The ISM manufacturing index dropped to 50.8 in April from 51.8 in March. The Reuters/University of Michigan consumer sentiment index, on the other hand, declined to 89.0 in April from 91.0 in March. When a country’s growth prospects are headed south, investors mostly get out of risky investments like stocks. By the end of April, investors pulled money out of equities at the fastest pace since last summer’s market rout and poured money into precious metals, which boast of a safe haven appeal. Precious metals tend to retain their value and even increase their value during times of market downturn. Let’s also not forget that we are in May, which is predominantly a bad month for investment. Investors as it is tend to offload their stock holdings this month and reenter the markets in fall. Global Growth Uncertainties And it’s just not a domestic malice. Global growth worries also continue to linger on. Soft Chinese and British factory data rekindled fears of slowing global growth. In China, manufacturing activity slipped last month. China’s official manufacturing PMI fell to 50.1 in April from 50.2 in March. The production index, new orders index and the new export orders index all ticked down in April. British factory output for the month of March was abysmal. Factory output declined 1.9% than a year earlier, its steepest fall since May 2013, according to the Office for National Statistics. Shut down in the steel industry led to such broad-based declines. Meanwhile, the European Commission cautioned about slow economic growth among many large countries. All these factors boosted the appeal for precious metals. Fed Rate Hike Not in the Cards Coming back to domestic shores, expectations that the Federal Reserve won’t raise rates at the June meeting lifted precious metals. The latest report on weak job creations in April made the Fed cautious about raising rates sooner. The U.S. economy created a total of 160,000 jobs in April. This increase in hiring was the slowest since September. Moreover, the labor force participation rate declined to 62.8%, which could mean that people found it a bit more difficult to get jobs. The Fed is already cautious about raising rates in the near term as the U.S. inflation rate in the first quarter came in way below its desired level. Lower interest rates generally tend to boost precious metals, as it makes yield-bearing assets such as U.S. Treasuries less attractive. Lower rates also adversely affect the dollar, which in turn raises the appeal for precious metals. Add to this, central banks across the world including Japan, Sweden, Switzerland, Denmark and Europe are adopting negative interest rates. This is why investors are snapping up gold this year. Top 5 Precious Metals Mutual Funds to Invest In As mentioned above, concerns about domestic and global economic growth along with near-zero and even negative interest rates around the world are playing a major role in helping precious metals gain at the expense of equities. In fact, when it comes to the yellow metal, banking behemoths such as The Goldman Sachs Group, Inc. (NYSE: GS ) and JPMorgan Chase & Co. (NYSE: JPM ) have turned bullish. Goldman Sachs increased its three, six and twelve-month forecasts to $1,200, $1,180 and $1,150 an ounce from an earlier prediction of $1,100, $1,050 and $1,000 per ounce, respectively. JPMorgan Private Bank’s Solita Marcelli has said that “We’re recommending our clients to position for a new and very long bull market for gold.” Banking on these bullish sentiments, it will be judicious to invest in mutual funds that have considerable exposure to precious metals. We have selected five such precious metals mutual funds that have given impressive year-to-date returns, boast a Zacks Mutual Fund Rank #1 (Strong Buy) or #2 (Buy), offer a minimum initial investment within $2,500 and carry a low expense ratio. Funds have been selected over stocks, since funds reduce transaction costs for investors. Funds also diversify their portfolio without the numerous commission charges that stocks need to bear. The American Century Global Gold A (MUTF: ACGGX ) invests the majority of its assets in companies that are engaged in mining, processing, distributing and exploring in gold. ACGGX’s year-to-date return is 75.4%. Annual expense ratio of 0.92% is lower than the category average of 1.44%. ACGGX has a Zacks Mutual Fund Rank #1. The Fidelity Advisor Gold A (MUTF: FGDAX ) invests a large portion of its assets in securities of companies engaged in gold-related activities, and in gold bullion or coins. FGDAX’s year-to-date return is 65.9%. Annual expense ratio of 1.2% is lower than the category average of 1.44%. FGDAX has a Zacks Mutual Fund Rank #1. The Franklin Gold and Precious Metals Advisor (MUTF: FGADX ) invests the majority of its assets in securities of gold and precious metals operation companies. FGADX’s year-to-date return is 70.7%. Annual expense ratio of 0.84% is lower than the category average of 1.44%. FGADX has a Zacks Mutual Fund Rank #2. The Deutsche Gold & Precious Metals A (MUTF: SGDAX ) invests a major portion of its assets in companies engaged in activities related to gold, silver, platinum or other precious metals. SGDAX’s year-to-date return is 69.4%. Annual expense ratio of 1.25% is lower than the category average of 1.44%. SGDAX has a Zacks Mutual Fund Rank #1. The Wells Fargo Precious Metals A (MUTF: EKWAX ) invests a large portion of the fund’s net assets in investments related to precious metals. EKWAX’s year-to-date return is 69.8%. Annual expense ratio of 1.1% is lower than the category average of 1.44%. EKWAX has a Zacks Mutual Fund Rank #2. Link to the original post on Zacks.com

Qihoo, Alibaba-Backed Momo Are Bellwethers Of China Go-Private Bids

China’s up and down stock market and scrutiny from regulators have slowed but apparently not soured China-based companies that trade on Wall Street from preparing to delist in the U.S. and head home in search of better stock valuations. The process, though, “is a bumpy road, definitely,” ITG Research analyst Henry Guo told IBD. Take the case of Qihoo 360 Technology ( QIHU ), a Beijing-based Chinese security software and Web search giant that is one of China’s biggest Internet businesses on Wall Street. Just a few years after its 2011 IPO and the stock’s nearly 800% run-up from August 2012 to March 2014, Qihoo is near the last phase of delisting from the NYSE. The company announced in March that its shareholders had approved a previously announced plan to be taken private by a consortium of investors, in a deal originally valued at $9.3 billion. China Internet billionaire and Qihoo 360 CEO Zhou Hongyi has backed the deal. And Qihoo has a lot of delisting company. Last year, 28 Chinese-owned companies that traded in the U.S. stock market reported plans to go private, according to research firm Dealogic. That group includes Trina Solar ( TSL ), which in December announced that it had received a go-private offer as its U.S.-based listing became less appealing compared with higher-value domestic markets back in China. CEO Jifan Gao and an investment group submitted a bid to buy out shareholders, in a letter filed with the U.S. Securities and Exchange Commission. The 28 proposed delistings of China-based companies is up from just one in 2014 and 11 in 2013, Dealogic found. This is so even though, after touching eight-year highs in June 2015 and April 2015, respectively, the Shanghai composite and Hong Kong composite indexes have plummeted 45% and 30%, respectively. The fact that so many companies are making the move has spurred the China Securities Regulatory Commission to review such businesses, Bloomberg reported this month, quoting a commission spokesman as saying the panel is conducting “in-depth analysis and research.” And, separately, Bloomberg reported on Thursday that the Qihu deal specifically was having trouble with China’s State Administration of Foreign Exchange on the issue of moving the acquisition funds offshore. Anonymous sources told Bloomberg that China wants to avoid encouraging too many buyouts of overseas-traded companies that could increase depreciation pressure on China’s currency. Autohome, E-House Just The Latest To Seek Delisting This year, as of early March, eight Chinese companies listed in the U.S. had announced going-private plans, Dealogic’s data shows. Then in April, Autohome ( ATHM ), which provides online content for car buyers in China, announced that it had received a nonbinding management-led buyout offer for $1.6 billion, or $31.50 a share, from a consortium including Autohome CEO James Qin, Boyu Capital, Sequoia China and Hillhouse Capital. And leading China real estate company E-House ( EJ ) announced that company management would take the Shanghai-based business private for $6.85 per share. The deal is expected to close in the second half of the year. Mobile social networking platform and dating app Momo ( MOMO ), which was originally backed by powerful China e-commerce giant Alibaba Group ( BABA ), is said by observers to have strong prospects for success with its go-private plan. But the news from the China Securities Regulatory Commission has seen its U.S. shares fall from near 16.50 to near 11.50, and U.S. shares of other pending delisters YY ( YY ) and E-Commerce China Dangdang ( DANG ) have plunged by similar percentages. Momo got a $2.6 billion offer last June — just six months after the company held its U.S. stock market IPO — from a group that includes some of its top executives. In early April, Alibaba made a regulatory filing showing it had joined the group seeking to buy out Momo, support that is expected to accelerate Momo’s privatization prospects. Momo says it is the third-most-popular social app in China, after Tencent Holdings ( TCEHY )-owned WeChat and Mobile QQ. Will the go-private movement strengthen or fizzle? Analysts are torn. “The problem is that, first of all, the China capital market is not that stable,” analyst Guo said. China’s capital markets sizzled last year, especially in the first half, making it much easier to raise money at a good valuation in China than in the U.S., Guo says. China Markets Have Settled, But Growth Slows After a frenzied stock market sell-off in January that jolted the globe, China’s markets have settled down, despite slowing economic growth. But the recent calm is not expected to last, as China’s rising debt and ineffective economic reform programs could contribute to more shake-ups, according to a Wall Street Journal report. “You can see that the capital market in China is not that stable,” Guo said. “And we see a lot of companies who announced they were going to have a privatization haven’t really proceeded as planned. “I think the reason behind that is they have had difficulty raising enough money to go private. And secondly, after the privatization, I think they see some difficulty going public again in China. I have not seen that many other companies who have made huge progress.” In the meantime, the process of relisting in China after leaving the U.S. “is not an immediate switch-over,” said Clara Gillispie, director of Trade, Economic and Energy Affairs for the National Bureau of Asian Research, a Seattle-based nonprofit research group. “There are a lot of regulations that you have to go through and approvals you must get from investors. “Even in normal times, you have this big queue lined up. When you see the successful, hot market that you did at the beginning of last year — that really put a lot more (companies) onto that train.” Gillispie said observers consider Qihoo 360 to be “a bellwether” of what lies ahead on the China go-private front. She called Qihoo “a very large, successful company. They have done well in the U.S. market. How they sustain this transition can say a lot about the (go-private) process.” China Companies Had Coveted U.S. Markets In the past, the tide for China companies has washed in the opposite direction. Chinese businesses have wanted to come to the U.S. to gain access to foreign capital and for the cachet of being publicly traded in the U.S. Think Alibaba. The China-based Internet conglomerate made the biggest-ever U.S. IPO when it raised $25 billion in its New York Stock Exchange debut in 2014. Chinese companies, though, found that being on Wall Street “was not always an easy ride,” said Daniel Roules, office managing partner of the Shanghai office of law firm Squire Patton Boggs, which has assisted China companies interested in privatizing. “A general perception grew that the U.S. was a difficult investment environment due to the regulatory hurdles and threat of litigation,” Roules told IBD via email. That apparently has helped fuel the current go-private trend, even in the face of tumultuous times back in the Chinese stock market. Though Chinese companies traded in the U.S. that have considered re-listing in China could be holding off on their plans, Roules said, “We will likely see a number of companies going private in the next few months and then deciding whether to re-list in China” later on. Guo says going back to China remains a logical move for many Chinese companies. “From the longer-term view, it really is in their best interest to go back to China because they’ve got higher valuations there and they’re closer to their consumers, who know the company’s products well,” Guo said. “For the long run, that’s the trend.” In the near term, however, the process isn’t easy, he says. Going private takes a lot of money and the process can take three to five years, he says. “For now,” said Guo, “management really needs to think about how to implement everything, to make a choice that’s in their best interest.”

Macro Themes And The Implications: Time To Pay Attention To U.S. High Yield Bonds

By Dr. Chenjiazi Zhong Key Macro Themes and the Implications Low inflation : Inflation is low but it does not mean inflation is zero. The slow growth in global economy keeps inflation subdued even as CPI slowly rises. Global policy divergence : Fed continues to normalize slowly as other central banks pursue stimulus policies. Investors should expect yields to rise modestly. Supply-side weakness : Across developed countries, the low productivity and growth in labor force will ultimately cap longer-dated yields. Strength in U.S. economy : U.S. economy remains resilient; recession risks are being overpriced for 2016, which indicates a good environment for high yield bond. Gradual recovery in Europe : The expansion in Europe is on track; monetary policy is a key factor that will support EU stocks and credit markets. Japan – beyond Abenomics : The economic risk in Japan is becoming more binary; the asset returns will be more geared to fiscal response. Emerging markets rebalancing : The stats of emerging markets implies that the environment is stabilizing and the valuations are undemanding. The short-term risks exist but investors can expect the conditions will improve in 2016. China in transition : That China is shifting from resources to services will continue to weigh on global trade. U.S. High Yield Bonds In an environment of full valuation, fragile investor sentiment, favorable relative valuations of credit over equity, slow but positive growth with limited recession risk that is priced in, high yield credit that offers equity-like returns is an attractive proxy for stocks. U.S. High yield credit spreads widened the most since 2011. U.S. high yield bonds offer lower volatility than equities due to their coupon income. In down markets, a larger coupon for high yield bonds helps to offset market declines; in up markets, high yield bonds usually correlate to rising equities. Moreover, high yield bonds are generally not impacted by modest rise in interest rates; spreads are more a reflection of market expectations for future default rates rather than expectations for higher interest rates. Furthermore, high yield bonds managers charge lower fees as compared to the hedge funds specializing in distressed debt. Despite U.S. high yield bonds offer equity-like return, investors need to adjust or discount the asset class for its potential for downside losses, liquidity constraints, sector risks, and other realities: The high yield bonds market is characterized by asymmetric risk whereby the potential for downside losses outweighs upside capital appreciation. Asymmetric risk exposure is a situation in which the potential gains and losses on an investment are uneven. The high yield bonds are traded over the counter, which highly depends on dealer capital. Additionally, the majority of high yield bonds do not trade on a daily basis, which means there may be a significant difference between trade prices and broker quotes. Independent fundamental analysis is paramount. The market generally anticipates upgrades and downgrades long before the actual rating changes. The difficulty in estimating defaults is defaults are not correlated to the severity of recessions. For instance, the 2008-2009 period was not the worst for defaults but it was dramatic to other asset classes. The key to long-term success in investing in high yield bonds is managing credit risk, avoiding dangerous concentrations and minimizing defaults in the portfolio. In addition, in harvesting carry across extended credit markets, security selectivity becomes even more crucial . Investors shall stay engaged, know the securities; do not be afraid of sentiment. The increase in volatility is creating numerous opportunities for fundamental, bottom-up investors. With more movement in the market, there is a wider range of possible outcomes, some of them lost, but some of them gained. While the downside increases, so does the upside. As with any investment, the riskier it is, the greater the possible return is. Furthermore, a contrarian stance, backed by a comprehensive understanding of companies’ long-term fundamental prospects, will provide a strong foundation to withstand as well as profit from a world of rising volatility.