Tag Archives: outlook

4 Best-Rated Fidelity Mutual Funds To Invest In

Fidelity Investments is one of the largest and oldest mutual fund companies in the world. The company serves nearly 25 million individual customers. As of December 31, 2015, it had total assets of $5.15 trillion, with $2.04 trillion under management. Fidelity Investments carries out operations in the U.S. through 10 regional offices and over 180 Investor Centers. It also has its presence in eight other countries of North America, Europe, Asia and Australia. The company provides investment advice, discount brokerage services, retirement services, wealth management services, securities execution and clearance and life insurance products to its clients. At Fidelity, a large group of investment professionals carry out extensive and in-depth research on potential investment avenues worldwide. Below, we share with you four top-ranked Fidelity mutual funds. Each has earned a Zacks Mutual Fund Rank #1 (Strong Buy) and is expected to outperform its peers in the future. To view the Zacks Rank and past performance of all Fidelity mutual funds, investors can click here . Fidelity Select Telecommunications Portfolio No Load (MUTF: FSTCX ) invests the majority of its assets in securities of companies primarily involved in the manufacture and sale of communications services or communications equipment. It invests in both domestic and foreign issuers. Factors including financial condition and industry position, as well as market and economic conditions are considered before investing in a company. The fund is non-diversified and has a three-year annualized return of 7.5%. As of March 2016, FSTCX held 51 issues, with 22.18% of its assets invested in AT&T Inc. (NYSE: T ). Fidelity Select Retailing Portfolio No Load (MUTF: FSRPX ) seeks growth of capital. It invests a large chunk of its assets in securities of firms involved in merchandising finished goods and services to consumers. FSRPX focuses on acquiring common stocks of companies throughout the globe. Factors including financial strength and economic condition are considered before investing in a company. The fund has a three-year annualized return of 18.3%. Deena Friedman has been the fund manager of FSRPX since 2014. Fidelity Select Software & IT Services Portfolio No Load (MUTF: FSCSX ) invests a major portion of its assets in companies whose primary operations are related to software or information-based services. It primarily focuses on acquiring common stocks of both domestic and foreign companies. FSCSX uses fundamental analysis to select companies for investment purposes. It has a three-year annualized return of 15.9%. FSCSX has an expense ratio of 0.76%, as compared to a category average of 1.45%. Fidelity International Small Cap Opportunities Fund No Load (MUTF: FSCOX ) seeks capital appreciation. It invests the majority of its assets in small-cap companies located outside the U.S., including those from emerging countries. FSCOX emphasizes investing in common stocks of companies with market capitalization below $5 billion. The fund invests in securities issued in different countries. It has a three-year annualized return of 6.2%. Jed Weiss has been the fund manager of FSCOX since 2008. Original Post

Smart Beta And The Portfolio Construction Puzzle

The portfolio puzzle The Rubik’s cube has become a popular metaphor for the marketing teams of ETF providers. With good reason. For each client there’s a portfolio construction puzzle to be solved with building blocks, representing geographies, sectors, asset classes, factors and styles. There has been rapid expansion from providers of ETFs tracking main-market indices, with the largest institutional providers capturing the lion’s share of flows, owing to their ability to deliver on four key ETF governance criteria — consistency, liquidity, transparency and, of course, price. This means that ETFs for main market cap-weighted indices are increasingly commoditized. After all, there doesn’t seem to be anything overly smart about replicating market beta, other than the smartness of saving on fees relative to ‘closet-tracker’ active funds. Traditional cap-weighted index investing is a preference: either out of philosophy or necessity. Innovation Means Smarter? Hence R&D of institutional investors, index providers and ETF manufacturers alike has focused more on “smart beta.” This has triggered a slew of innovation – both superficial and substantive. At a superficial end, age-old alternative weighting strategies (e.g. value indices that screen stocks for low book values, or dividend-weighted indices) have been re-branded as being “smart.” In these cases, for “smart” read “non-market-cap weighted.” In fairness, this rebranding is part of broadening of alternative weighting strategies that are factor-based. More substantively, research programs such as EDHEC-Risk Institute’s Scientific Beta have been instrumental in promoting fresh thinking in the field of both factor-based and risk-based smart beta strategies. Factor-Based Approach As a result, providers are focusing on making building blocks smarter. Instead of relying on the ‘traditional’ factor of market capitalization for index inclusion, smart beta indices (and related ETFs) look at alternative factors: book value, dividend yield, volatility, for example. In that respect, the FTSE Russell 1000 Value Index launched in 1987 is probably the oldest factor index on the block. More recent factor indices are stylistic: Both iShares (Oct-14) and Vanguard (Dec-15) have launched global equity factor ETFs focusing on liquidity, minimum volatility, momentum and value. The sophistication of factor-based index construction will continue to increase with the increase in data availability and computing power. Risk-Based Approach Portfolio strategists meanwhile can apply quantitative rules-based approaches to portfolio construction, creating static or dynamic asset allocation strategies from a growing universe of both cap-weighted and alternatively weighted index tracking funds. These strategies — such as maximum Sharpe, minimum variance, equal risk contribution and maximum deconcentration — offer an alternative to the standard but troubled single period mean variance optimization (MVO) approach. MVO’s limitations The single-period MVO approach remains the traditional bedrock of very long-run investing in normal market conditions where the sequence of returns does not matter. However it runs into difficulty in the short-run when markets are non-normal and sequence of returns matters a lot. So unless you are a large endowment with an infinite time horizon, or perhaps can afford to invest for yourself and your family without ever needing to withdraw any capital, relying entirely on the MVO approach for asset allocation gives false comfort. For cases where there are constraints that challenge the MVO model – due to multiple or limited time horizons, expected capital withdrawals, risk budgets, and unstable risk/return/correlation profiles of asset classes (collectively known as real life) — portfolio construction requires a smarter, more adaptive approach that observes, isolates and captures the reward from shifting risk premia over time. Risk-based portfolio strategies attempt to achieve this and are designed to offer a liquid alternative approach to investing that is uncorrelated with traditional single-period MVO strategies. What’s the Problem to Solve? Whether assessing factor-based ETFs or risk-based ETF strategies, at best these new developments all seem very smart. At worst it’s just a bit different. However, as ETFs get smarter and the strategies that combine them become more sophisticated, there’s a risk that the key question in all of this gets lost in an incomprehensible barrage of Greek. The key question for portfolio managers nonetheless remains the same. What client outcome am I targeting? What client need am I trying to solve? For portfolio strategy, whether using a discretionary manager that relies on judgment, or a systematic rules-based approach that relies on quantitative inputs, the key client considerations remain return objective, time horizon, capacity for loss and diversification across asset classes and/or risk premia. Broadening the Toolkit A portfolio strategy has little meaning without an objective that focuses on client outcomes. Factor-based ETFs and risk-based ETF portfolio strategies offer an alternative or additional set of tools to help deliver on those outcomes, in a way that is systematic, liquid and efficient. 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. Additional disclosure: This article has been prepared for research purposes only.

Monday Morning Memo: Passive – Smart – Smarter – Active

By Detlef Glow Click to enlarge The Evolution of the European ETF Industry When the first exchange-traded fund (ETF) was introduced to the markets, it was clear that the aim of the portfolio manager was to track the returns of the underlying index of the fund as closely as possible. But since a fund faces some restrictions, such as transaction costs or limits on the maximum weighting of a single security in the portfolio, that are not applicable for the underlying index, the difference between the returns of the index and the ETF are in some cases quite significant. Since the investment industry (and therefore also the ETF industry) is always trying to optimize its processes, ETF promoters started to develop portfolio management techniques to minimize tracking error and the tracking differences of the ETFs. The Generation 2.0 ETFs not only aimed to track the performance of the underlying index as closely as possible, the managers also attempted to optimize the returns with modern portfolio management techniques to achieve additional income that contributed to their outperformance over the index. Looking at ETFs that try to generate outperformance the “old fashioned way,” the additional income must be seen as tracking error and therefore as a negative fact. These returns were, firstly, non regular returns. Secondly, modern portfolio management techniques such as securities lending or dividend optimization strategies added an additional layer of risk to the portfolio, for which the ETF investor might have not been compensated properly. Even though the quality of ETF returns has evolved significantly, there are still a number of critics around, since it seems in some cases to be easy to beat market-capitalization-weighted benchmarks. In other cases, such as with bond indices, critics say that market capitalization is the wrong way to build an index. These criticisms have led to the development of alternative weighted indices, ranging from simple equally weighted indices to highly complex methodologies that might employ quantitative and qualitative factors to determine the weighting of the securities in the index. But, even though some promoters offer ETFs that track an alternative weighted index, these kinds of products have not found their way into the portfolios of mainstream investors. But there was and still is scientific evidence that there are some factors in the markets-such as momentum, quality, size, and value-that investors can exploit to generate higher returns than those from a market-cap-weighted index. The introduction of these factors into the mainstream ETF industry started after the financial crisis of 2008 with the first minimum variance ETFs that suited the needs of investors looking for equity portfolios that don’t show as much volatility as their underlying markets. To make these products more appealing for investors, the ETF industry called these kinds of funds “smart beta funds.” The popularity of these products led to a race in the search for new factors that can be exploited by investors, since the index and ETF promoters wanted to offer new products to their clients. But the “new factors” found by the researchers were mainly market abnormalities that disappeared shortly after they were found, or the additional returns were too small to exploit in a profitable way, since transaction costs were eating away the premium. One of the major concerns of investors with regard to smart beta ETFs is that all the factors employed do not deliver consistent outperformance. In other words, smart beta ETFs show longer periods of underperformance that make it necessary for the investor to switch at the right time between different factors to avoid the longer periods of underperformance in their portfolio. But since the right timing is the hardest call in the portfolio management process, especially for retail investors, it seems likely that a number of investors shy away from these products. In the next product generation, the index and ETF industry are attempting to make the smart beta products even smarter by combining different factors. The products improve the common smart beta ETFs. In other words, they make the smart beta concept even smarter, since the factors described above do not deliver outperformance at any particular time. One of the aims of this approach is to build a portfolio that is either in different factors at the same time or that tries to switch between factors at the right time, i.e., to unburden the investor from the timing decision in order to capture as much premium from a single factor as possible. From these semi-actively managed portfolios it is only a small step to a fully active managed portfolio wrapped in an ETF structure. Even though some market observers would label this a scandal, the introduction of actively managed ETFs will be the next logical step for the industry. Even though the first ETF following an actively managed index in Europe wasn’t a success at all, a view to the other side of the Atlantic shows that actively managed ETFs can be successful. PIMCO was able to generate very high inflows when it launched its first actively managed ETF in the U.S. The success of PIMCO might be the reason more and more promoters of actively managed funds are preparing to enter the ETF market. From my point of view this makes a lot of sense, since the ETF wrapper is a very efficient structure that opens up new distribution methods for active managers. And, I don’t see a valid reason why promoters should not try to distribute their funds through all possible channels. But to be successful active ETF managers must not only have good products, they also must build the right infrastructure for trading their funds. To be successful in the ETF industry there needs to be more than a well-known name and the listing of products on an exchange. I strongly believe this introduction will work; we already see a number of active managed funds listed by market participants on the “Deutsche Börse” in Frankfurt. At the beginning the fund promoters did not support trading their funds on exchanges and in some cases tried to close down the trading, since they felt this distribution channel would offend their established distribution channels. Those times are over, but it is still not common to buy or sell a mutual fund on an exchange unless the fund has been closed for some reason. From my point of view the trading of actively managed ETFs will become a very common way to buy mutual funds for all kinds of investors, once fund promoters officially start to use this market as a distribution channel. It is not a question of if we will see actively managed funds traded as ETFs, it is only a question of when we will see this happen. The views expressed are the views of the author, not necessarily those of Thomson Reuters Lipper.