Tag Archives: top-ten

Robotics Fund Faceoff: ROBO Vs. TDPNX

Summary Automation and robotics are poised to breakout from factories and drive growth in a multitude of industries. Many pure play companies in the field are small or listed overseas, making a fund approach attractive. With lower costs and a more diversified portfolio, ROBO has the edge in this nascent investment arena. Advances in technology as well as economic and social factors are making automation and robotics more feasible for a growing number of companies in a wide assortment of industries. Self-driving cars, drone package deliveries, 3D printing and robot-assisted surgery were once the purview of science fiction. Today, these scenarios are becoming a reality. While industrial automation has been commonplace for decades in developed economies, reduced costs are now making it a viable option in the developing world as well. Once used to replace dangerous, dirty and labor-intensive jobs, automation and robots are being integrated into more aspects of an increasing number of jobs due to advances in tracking sensors, machine controls, nanotechnology and programming. In addition to industrial applications, automation and robotics are also used to deliver needed social services and help people live independent lives. Social, economic and technological trends are pushing advances in the development and integration of automation and robotics. While still in its infancy, the automation and robotics sector offers long-term investment potential. One way to invest in this burgeoning sector is the Robo-Stox Global Robotics And Automation Index ETF (NASDAQ: ROBO ). Another option is the 3D Printing, Robotics and Technology Fund Inv which has two classes of shares. The fund’s institutional class shares trade under the ticker symbol TDPIX while the investor class utilizes the ticker symbol TDPNX . Robo-Stox Global Robotics and Automation Exchange Traded Fund ROBO is a Science and Technology Fund that seeks to replicate the price and yield performance, before fees and expenses, of the ROBO-STOX Global Robotics and Automation Index. The ETF normally invests at least 80 percent of assets in securities contained within the index, which is formulated to measure the performance of companies primarily engaged in or supporting robotics and automation. Securities within the index have a market capitalization in excess of $200 million and a 1-year trailing daily trading average volume of $200,000. The index is divided into four basic categories. This include industrial robots, service robots for government and corporate use, personal- and private-use robotics and firms engaged in supporting robotics and automation. The weight of each category may vary. Managers determine which stocks are deemed bellwether due to their ability to indicate or lead trends for the market segment. The fund maintains a 40 percent weighting in these bellwether securities and 60 percent in non-bellwether shares. The non-diversified ETF utilizes a passive investment philosophy. Of the $100 million in assets in the fund, 38 percent are invested in and 62 percent is invested in foreign issues. In addition to the U.S. and Japan, the ETF has exposure to Developed Europe and Developed Asia. The fund is heavily weighted toward industrial, information technology and healthcare sectors. With an average market cap of $2.7 billion, the fund has 9.9 percent exposure to giant cap companies as well as an 11 percent and 45 percent exposure to large and mid-cap stocks. The fund also holds 17.41 percent and 16.56 percent allocations in small- and micro-cap shares respectively. As of October 15, ROBO had a P/E ratio of 18.05 and a price-to-book of 1.74. The largest holding in ROBO has only 2 percent of assets, making for a well-diversified portfolio. Many holdings in the fund are familiar names that may not make one think of automation, such as Deere (NYSE: DE ), but thanks to the fund’s small allocation in each holding, there’s a lot of pure play exposure to companies such as Mobileye (NYSE: MBLY ), a company working on driverless vehicles. 3D Printing, Robotics and Technology Fund TDPNX seeks long-term capital appreciation by investing at least 80 percent of assets in securities issued by domestic and foreign companies in developed as well as emerging markets engaged in 3D printing, robotics and automation regardless of their market cap. Fund advisers use a top down approach to determine potential candidates for inclusion in the portfolio. A bottom up approach is then utilized to select the stocks for actual investment within the portfolio focusing on factors like company fundamentals and growth prospects within the industry. TDPNX changed its mandate and name in July 2015 due to losses in 3D printing shares, which it was its exclusive focus until then. The fund’s new name and portfolio reflect its branching out into robotics as the 3D printing stocks dipped into a bear market. The new focus is designed to capitalize on the growth in both of these fast growing segments, while avoiding concentration in the narrow slice of the economy. The fund holds 47 percent of assets in domestic stocks and 44 percent in foreign shares. In addition to the U.S., TDPNX has significant exposure to Developed Europe and Greater Asia, primarily Japan. The portfolio has a 16 percent weighting in giant cap stocks as well as 17, 21, 22 and 24 percent weightings in large-, medium-, small- and micro-cap stocks respectively. The fund’s average market cap is $4 billion. The portfolio has a P/E ratio of 25.3 and a price-to-book of 2.21. Fund Comparison ROBO has outperformed TDPNX since the inception of the latter in April 2014. TDPIX has declined 23 percent over its life, while ROBO is down approximately 11 percent over the same period. Since changing its mandate in July, TDPNX has outperformed ROBO, losing 6.5 percent versus ROBO’s 11 percent decline-but it’s much too short a period to draw a conclusion from. ROBO is a fund that delivers on its name. The fund’s extensive holdings include companies involved in robotics, from traditional companies within the industry to those new in emerging sectors, such as unmanned vehicles and medical fields. The top holding in ROBO has barely more than 2 percent of the fund’s assets, and the top 10 have less than 22 percent of total assets. The top 10 in TDPNX accounted for 47 percent of assets as of June 30. TDPNX is a broad fund but makes more concentrated investments. The 3D Printing Fund has only 46 holdings compared to the 82 separate investments within the ROBO portfolio. TDPNX also counts large caps such as Hewlett-Packard (NYSE: HPQ ) and General Electric (NYSE: GE ) among its top ten, diluting some of the pure play exposure (the fund reports it has 46 percent pure play exposure ), but this explains why the fund outperformed ROBO over the past three volatile months. (click to enlarge) TDPNX is the more expensive fund. The Institutional Class has a net expense ratio of 1.25 percent while the investor class’ net expense ratio is 1.50 percent. The fund’s adviser has contractually agreed to waive management fees and/or reimburse expenses through April 15, 2016. Shares are subject to a fee of 2 percent when redeemed within 60 days of purchase. ROBO charges 0.95 percent and is subject to brokerage trading fees like most other ETFs. Conclusion The long-term prospects for automation are better than ever as automated software and hardware are ready to move off the factory floor and into the home, office and highways. Investors who take an aggressive approach can achieve broad exposure with the aforementioned funds. The mandate shift by TDPNX is a good one and makes for a more conservative fund, but this niche segment of the economy will be highly volatile even with some exposure to a Dow component such as GE. ROBO is therefore the more attractive fund for now, in addition to being cheaper and offering broader exposure, but the ETF suffers from low volume. The risk isn’t so much in getting in, but in getting out in the event investors rush to the exits. We saw ETFs suffer flash crashes in August and ROBO was among them. Investors can make ROBO a small niche holding in a diversified portfolio, but be prepared for rollercoaster rides during periods of high market volatility.

8 Questions That Should Be Keeping Buy-And-Holders Up At Night

By Rob Bennett Set forth below are eight questions that should be keeping Buy-and-Holders up at night. 1) What are the top ten changes that have been made in the Buy-and-Hold strategy as a result of Shiller’s “revolutionary” findings? Yale Economics Professor Robert Shiller showed in peer-reviewed research published in 1981 that valuations affect long-term returns. That “revolutionary” (Shiller’s word) finding changed everything we thought we knew about how stock investing works. If valuations affect long-term returns, stock risk is variable rather than fixed; that means that we can reduce risk by taking valuations into account when setting our stock allocations. Shiller’s book exploring this finding in depth was a national bestseller. He was awarded a Nobel prize for his work. Given the importance of this advance in our understanding of how stock investing works, one would have expected that the Buy-and-Holders would have made scores of changes to their strategy to reflect the new understanding. Can the Buy-and-Holders identify even ten changes? Can they identify even one? 2) Why was there no reaction from the lead promoters of Buy-and-Hold when Brett Arends of the Wall Street Journal wrote that they are “leaving out half the story” of how stock investing works? I have been writing about the dangers of Buy-and-Hold for 13 years now. So I was encouraged when I saw the Arends article saying that to ignore the effect of valuations on long-term returns is to leave out half the story of how stock investing works. I was amazed to see the article go down the memory hole without generating comment (except by me). Arends could be wrong. But, if he were, it would be in the interests of the Buy-and-Hold advocates to point out his mistake. Why did no one do this? 3) Why has there been no clear explanation of the errors that were made in the Old School safe-withdrawal-rate studies? I pointed out the error in the famous “4 percent rule” in May 2002. I got a lot of flak from Buy-and-Holders for doing so. But 13 years later just about every major publication in the field has run an article noting that the 4 percent rule is not backed by the historical data and that it would be dangerous for retirees to continue to follow it. How was this mistake made? Why did it take so long to discover it? What can we learn from the mistake? 4) How was Shiller able to predict an economic crisis that began in September 2008 in a book published in March 2000? I am the only person in this field who has blamed the economic crisis on the heavy promotion of Buy-and-Hold strategies (the idea that investors don’t need to lower their stock allocations when prices reach insanely dangerous levels caused the out-of-control bull market of the late 1990s and the loss of the $12 trillion of pretend wealth created by the bull market caused consumer buying power to constrict enough to cause hundreds of thousands of businesses to fail). Except for Shiller. Shiller has not said in the wake of the 2008 crash that Buy-and-Hold caused the economic crisis. But he did predict the loss of trillions in pretend wealth in Irrational Exuberance , a loss that he suggested would likely take place late in the first decade of the new century. How did he know? And why have others not drawn the obvious conclusion that, since Shiller’s investing model was the one that predicted the crash and the economic crisis, it has earned credibility in the eyes of fair-minded people? 5) How did Bogle come up with his rule that investors never need to lower their stock allocations by more than 15 percentage points no matter how high stock prices go? A regression analysis shows that the most likely 10-year annualized return for an index-fund purchase made in 1981 was 15 percent real. In 2000, it was a negative 1 percent real. An 80 percent stock allocation makes sense in the former circumstance. A 20 percent stock allocation makes sense in the latter circumstance. That’s a change of 60 percentage points, not 15. Bogle’s number is off by 400 percent. 6) Why do Buy-and-Holders become so emotional when their claims are challenged? I have been banned at over 20 investing discussion boards and blogs. It is a common experience for me to receive apologies from the site owners who ban me in which they note that they believe that my work has great value and that they consider me one of the most polite and warm posters on the internet. They say that they are banning me solely because their Buy-and-Hold readers demand it and because they don’t want to lose the business brought by these followers of a purportedly research-based strategy. Huh? Why would followers of a research-based strategy be upset by challenges to their beliefs? Wouldn’t they see such challenges as a way to confirm and thereby strengthen their convictions? 7) Why was Wade Pfau not able to find a single peer-reviewed study showing that long-term timing doesn’t work or isn’t required? I worked with Academic Researcher Wade Pfau for 16 months. Wade holds a Ph.D. from Princeton. He performed an in-depth search of the academic literature trying to identify a single study showing either that long-term timing (changing one’s stock allocation in response to big valuation shifts with the understanding that it might not produce benefits for ten years or longer) doesn’t work or isn’t required without success. Could it be that, contrary to the core belief of the Buy-and-Holders, one form of market timing always works and is always 100 percent required for investors seeking to keep their risk profiles roughly constant? 8) Is there any reason to believe that price matters any less in the stock market than it does in every other market known to humankind? Price is what makes the car market run. Price is what makes the banana market run. Price is what makes the sweater market run. Price is what makes the grass-seed market run. How can we be so sure that price does not matter when buying stocks? If large numbers of the participants in these other markets became convinced that it was not necessary to take price into consideration when making purchases, it would cause them to collapse. Could that be why we have been seeing so much turmoil in the stock market in recent years? Disclosure: None

VHDYX: Fantastic Equity Mutual Fund For Long Term Investing

Summary VHDYX has great sector exposure with a low expense ratio. Well created equity index for anyone planning for long term retirement. Fund is focused on a high dividend and invested in the large companies in the U.S. market. Saving for retirement can be a daunting task when choosing where to invest money. If the ability to save for the long haul is available use it to your advantage. Some portfolios may look too volatile and risky but time is often a great answer. The fund we will be looking at for long term investing is the Vanguard High Dividend Yield Index Fund Investor Shares (MUTF: VHDYX ). Expense Ratio The expense ratio for VHDYX is .18%, which looks great for a mutual fund. Diversification The following chart shows the top ten holdings and also gives a good idea of what we’re looking at in this fund: I would like to see an index with 436 stocks have less than 30% of its holdings in the top ten. That being said, I still like the broad range of sector exposure. The index does invest 98.94% into domestic companies. There are some global giants among the holdings so there will be some international exposure. I stress some because if international exposure is really important for a portfolio I don’t think this index will be enough. Great diversification here with no sector being over 15%. Technology and health care are the two equity sectors that I would look into investing more in. With the advancement and cost effectiveness of automating jobs I tend to favor having technology around 14%. Health care should be a strong sector with the rising age of the population for the next couple of decades. Beyond baby boomers, people are also living longer which is magnifying poor health habits. With a pure equity index I was glad to see telecommunications and basic materials so low. Telecommunications does have the ability for some serious upside but the problem is knowing where it will come from. Everyone wants to sell you their new phone. The competition is rising and causing the sector to really buckle down and intelligently decide what to do next. We have seen some major flops even by the telecommunication giants and now would be a bad time to fall behind. There are plenty of good arguments for who will come out on top but I’m sure we’re all in for a few surprises. With companies working on snazzy new features and trying to be the first one to market breaking technology it’s not a position I want to be heavily invested in. Risk Even though there are hundreds of stocks in this index it is still an equity fund. There is going to be quite a bit of volatility with the market and therefore a lot of risk on a short term basis and there is a chance that a handful of years could take rough swings. There is a high correlation between VHDYX and the S&P 500 and I would invest in them both the same way – long term. Below is a comparison with VHDYX and its benchmark: These returns do look good but I would not use this information to invest if I wanted to retire in five years and could not handle losses. There is the option of diversifying the risk to your liking but if it were me I would make sure I could invest for at least ten years. Yield The yield at 3.29% is what makes this index a winner for me. So many investors plan on a long term goal which involves taking some money out of their portfolio. Where many mistakes happen is watching an index drop and then deciding to pull their position. The high yield here allows you to invest and leave it alone for years while collecting dividends. Conclusion There is a lot to be positive about when looking at this mutual fund. There’s ten sectors to be diversified in and the amount allocated is well thought out. The high yield allows investors to put the money in the index and then leave it alone. The correlation to the S&P 500 should continue with the funds current holdings of only large U.S. companies. On the flip side there is some risk involved; especially if your goals aren’t long term. There is very little international exposure and almost 31% of the holdings in the top ten companies. I would like to see heavier weights for the smaller holdings while maintaining similar sector allocations. I’m heavily debating making it a part of my portfolio. I would want to invest with a long time horizon, such as 15 years, so that I could ride out any bumps in the economy while reinvesting dividends to grow the position