Tag Archives: utilities

Top ETF Stories Of First Quarter 2016

The start to the first quarter of 2016 was a nightmare, given the twin attacks from oil price slide and China turmoil that intensified fears of a global slowdown. However, these concerns started to fade in the back half of the quarter on continued signs of improvement in the domestic and international markets, pushing global stocks higher. Given this, several events have impacted the ETF world in either a positive or a negative way. Below, we have discussed some of them that dominated headlines and are worth watching in the next quarter: Fed Turned Dovish Again After pulling the trigger for the first rate hike in almost a decade in mid-December, the Fed turned dovish again this year. The cautious approach came on the heels of increased market volatility, global growth concerns, and softness in exports and business investments. In the March meeting, the Fed kept the short-term interest rates steady in the 0.25-0.50% band and dialed back its projection for this year’s hikes. The central bank now expects the federal funds rate to rise to 0.875% by the end of the year, implying two lift-offs, compared with 1.375% that signaled four rate hikes. Expectations of longer-than-expected lower rates have given a boost to the rate-sensitive sectors such as utilities and real estate and high-yield securities. In fact, many of the utility and dividend ETFs like the Vanguard Utilities ETF (NYSEARCA: VPU ) , the Utilities Select Sector SPDR ETF (NYSEARCA: XLU ) , the iShares U.S. Utilities ETF (NYSEARCA: IDU ) , the PowerShares S&P 500 High Dividend Portfolio ETF (NYSEARCA: SPHD ) , the First Trust Morningstar Dividend Leaders Index ETF (NYSEARCA: FDL ) and the ProShares S&P 500 Dividend Aristocrats ETF (NYSEARCA: NOBL ) have been hitting regular 52-week highs and are expected to move higher in the coming weeks (read: Dividend ETFs Hitting All-Time Highs Ahead of Fed Meet ). Though real estate ETFs have not made new highs, they are outperforming the broad market from a year-to-date look. Some of the top ranked funds are the Vanguard REIT Index ETF (NYSEARCA: VNQ ) , the iShares U.S. Real Estate ETF (NYSEARCA: IYR ) and the SPDR Dow Jones REIT ETF (NYSEARCA: RWR ) that are expected to continue their outperformance. Crazy Run of ‘The Oil’ Oil price has been seesawing between losses and gains touching 12-year lows in mid February and then spiraling back to the $40-per-barrel mark in mid March. This spectacular performance led to smooth trading in the overall energy space. In particular, stock-based energy ETFs like the PowerShares S&P SmallCap Energy Portfolio ETF (NASDAQ: PSCE ) , the SPDR S&P Oil & Gas Exploration & Production ETF (NYSEARCA: XOP ) and the First Trust ISE-Revere Natural Gas Index ETF (NYSEARCA: FCG ) surged at least 19% over the past one month. Futures-based energy ETFs like the United States Oil ETF (NYSEARCA: USO ) and the United States Brent Oil ETF (NYSEARCA: BNO ) gained 7% each (read: Crude Back to $40: Can Energy ETFs Sustain Their Rally? ). However, this impressive rally is too good to last as demand will not be enough to reduce the global supply glut. While U.S. producers have started to reduce output and OPEC is looking to freeze production at January levels, increased production from Kuwait, Saudi Arabia and Iran will continue to weigh on the price, thereby failing to rebalance the oil market at least in the short term. Further, PSCE and XOP have an unfavorable Zacks ETF Rank of 5 or ‘Strong Sell’ rating and 4 or ‘Sell’ rating, respectively, while FCG has a Zacks ETF Rank of 3. Japan Moves to Negative Rates In late January, Bank of Japan (BoJ) adopted measures similar to the European Central Bank (ECB) by pushing interest rates to the negative territory, minus 0.1%, for the first time. The aim is to revive growth in the world’s third-largest economy. The move sparked a rally in the Japanese ETFs while weakened the yen against the greenback. Some of the top ranked ETFs in this space are the WisdomTree Japan Hedged Equity ETF (NYSEARCA: DXJ ) , the Deutsche X-trackers MSCI Japan Hedged Equity ETF (NYSEARCA: DBJP ) , the WisdomTree Japan Hedged SmallCap Equity ETF (NASDAQ: DXJS ) and the iShares Currency Hedged MSCI Japan ETF (NYSEARCA: HEWJ ) . Negative interest rates in Japan had also accelerated the selling wave in the global banking sector in early February, which was already bearing the brunt of the tumultuous ride in the market. Nevertheless, the banking sector has been emerging from the crisis in recent weeks on a rebound in oil prices and improving global sentiments. Gold and Gold Miners Rocking After posting the third annual loss in 2015, gold has been on a tear this year as increased market volatility has perked up demand for the yellow metal as a store of value and a hedge against market turmoil. Additionally, the expectation for longer-than-expected low rates will continue to raise the appeal for the gold bullion. Notably, the SPDR Gold Trust ETF (NYSEARCA: GLD ) , the iShares Gold Trust ETF (NYSEARCA: IAU ) , the ETFS Physical Swiss Gold Trust ETF (NYSEARCA: SGOL ) and the Van Eck Merk Gold ETF (NYSEARCA: OUNZ ) are up about 17% each, from a year-to-date look. These funds have a Zacks ETF Rank of 3. Acting as a leveraged play on underlying metal prices, metal miners tend to experience more gains than their bullion cousins in a rising metal market. In particular, the iShares MSCI Global Gold Miners ETF (NYSEARCA: RING ) stole the show in terms of performance, surging 59.3%. This was followed by gains of 52.8% for the ALPS Sprott Junior Gold Miners ETF (NYSEARCA: SGDJ ) , 50.5% for the PowerShares Global Gold and Precious Metals Portfolio ETF (NASDAQ: PSAU ) and 50.3% for the Sprott Gold Miners ETF (NYSEARCA: SGDM ). Bottom Line Investors should closely watch the developments in these spaces as we head into the next quarter and should tap opportunities as and when they come. Link to the original post on Zacks.com

How To Find The Best Sector Mutual Funds: Q1’16

Finding the best mutual funds is an increasingly difficult task in a world with so many to choose from. How can you pick with so many choices available? Don’t Trust Mutual Fund Labels There are at least 242 different Financials mutual funds and at least 647 mutual funds across ten sectors. Do investors need 64+ choices on average per sector? How different can the mutual funds be? Those 242 Financials mutual funds are very different. With anywhere from 22 to 571 holdings, many of these Financials mutual funds have drastically different portfolios, creating drastically different investment implications. The same is true for the mutual funds in any other sector, as each offers a very different mix of good and bad stocks. Consumer Staples ranks first for stock selection. Utilities ranks last. Details on the Best & Worst mutual funds in each sector are here . A Recipe for Paralysis By Analysis We think the large number of Financials (or any other) sector mutual funds hurts investors more than it helps because too many options can be paralyzing. It is simply not possible for the majority of investors to properly assess the quality of so many mutual funds. Analyzing mutual funds, done with the proper diligence, is far more difficult than analyzing stocks because it means analyzing all the stocks within each mutual fund. As stated above, that can be as many as 571 stocks, and sometimes even more, for one mutual fund. Any investor focused on fulfilling fiduciary duties recognizes that analyzing the holdings of a mutual fund is critical to finding the best mutual fund. Figure 1 shows our top rated mutual fund for each sector. Figure 1: The Best Mutual Fund in Each Sector Click to enlarge Sources: New Constructs, LLC and company filings The Fidelity Select Communications Equipment Portfolio (MUTF: FSDCX ) ranks first, the Davis Financial Fund (MUTF: DVFYX ) ranks second, and the Fidelity Select Health Care Services Portfolio (MUTF: FSHCX ) ranks third. The ICON Natural Resources Fund (MUTF: ICBMX ) ranks last. How to Avoid “The Danger Within” Why do you need to know the holdings of mutual funds before you buy? You need to be sure you do not buy a fund that might blow up. Buying a fund without analyzing its holdings is like buying a stock without analyzing its business and finances. No matter how cheap, if it holds bad stocks, the mutual fund’s performance will be bad. Don’t just take my word for it, see what Barron’s says on this matter. PERFORMANCE OF FUND’S HOLDINGS = PERFORMANCE OF FUND If Only Investors Could Find Funds Rated by Their Holdings… The Davis Financial Fund (DFVYX) is the top-rated Financials mutual fund and the overall best fund of the 571 sector mutual funds that we cover. The worst mutual fund in Figure 1 is the American Century Quantitative Equity Utilities Fund (MUTF: BULIX ), which gets a Dangerous rating. One would think mutual fund providers could do better for this sector. Disclosure: 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.

Should I Sell My First Energy Stock?

Oddly, this isn’t the first time this thought has popped in to my mind. Last year I wrote a piece titled ” 3 Reasons I Would Sell a Stock .” The listing was created to help me identify holdings that have fallen out of favor in my portfolio or have not performed. After elaborating on the 3 reasons I would sell, I reviewed my portfolio for any stocks that met the criteria. Any takers on guessing which one of the stocks that was discussed in the article? First Energy! Shocker, right? After one heck of a run by the stock that has brought me close to break even, I now find myself asking the question again. Is it finally time to sell my stake in First Energy? First Energy (NYSE: FE ) has been a problem child for me from the beginning. Unfortunately, it sometimes works out like that. Historically, FE has been a stock that pays a high stagnant dividend yield. It is an electric utility after all. Despite the fact that the company’s recent dividend growth rate was non-existent, I was willing to overlook this fact due to the high yield (Which was above 5% at the if I recall). First big mistake right there; I was caught chasing yield and boy did I learn the hard way. Months after I purchased the stock, FE slashed their quarterly dividend from $.55/share to $.36/share. Ugh! That decrease caused a massive sell-off and my position turned red really fast. Isn’t the phrase dividend cut becoming too common on this website? Especially after what happened with KMI and then BBL over the last few months? Finally, after over two long, painful years, my position is at the breakeven point due to dividend re-investment and I have the opportunity to potentially re-coup my initial investment. To determine if I should sell the stock, I want to be able to answer one simple question. If I did not own a stake in the company and had extra capital lying around, would I purchase stock and initiate a position in First Energy? If FE does not pass our stock screener and I would not purchase shares, then why on earth am I holding on to them? Especially considering the fact that I own a small stake in another electric utility that happens to be one of our 5 foundation dividend stocks . Outside of the fact that I am being really stubborn here and don’t want to realize a loss. To answer this question, I decided to run FE through the Dividend Diplomats Dividend Stock Screener to see if FE would pass this daunting test. Let’s see how FE performed. Price to Earnings Ratio Below the S&P 500 – Using FE’s forward EPS per TheStreet.com of $2.84, FE is currently trading at a forward PE multiple of 12.6X, which is well below the PE ratio of the S&P 500. For comparison sake, ED is trading at a multiple of 18.71X. So FE is trading at both a discount to the market and one of the major players in the industry. Payout Ratio below 60% – Using the forward EPS from the line above, FE’s payout ratio is 50% while ED has a payout ratio of 66%. Again, FE passes our metric and shows a better figure than ED. Paying an Increasing Dividend – As I already mentioned earlier, FE cut their dividend to $.36/share per quarter in 2013 and has not increased their dividend since. So this point represents a big negative as my stagnant dividend stream is losing purchasing power each year. For comparison sake, ED is a Dividend Aristocrat and has a 5 year average dividend growth rate of 1.9%. This really isn’t much better; however, at least their dividend is growing at a rate near inflation. Dividend Yield – This isn’t one of the metrics on our stock screener, but it is worth pointing out. FE’s current dividend yield is about 4% while ED has a current yield of about 3.56%. Debt to Equity Ratio – Again, this metric is not a part of our initial stock screener. I began focusing on the impact of debt on a company when my KMI dividend was slashed significantly. However, I really should have begun looking at a company’s debt burden when I purchased stock in First Energy. Per finviz.com, FE has a Debt to Equity Ratio of 1.78X and ED has a Debt to Equity ratio of 1.09X. I understand that debt is not always a necessarily a bad thing, but I am a little “debt averse” after my recent experiences. So much so that I even created a Top 5 list to identify Dividend Aristocrats with low debt to equity ratios. We all have flavors of the month and mine is currently LOW DEBT! Now that I have run some numbers, let’s get back to my original question. Would I purchase shares in First Energy today based on the information above. The answer is…..no. So why am I not logging into Capital One Investing now and selling my stock? Where is my hesitation and why am I struggling to make a decision here? What has me torn is that while the stock may not have passed all metrics in our screener, it didn’t fail all of the screeners. In fact, when compared to another company in its industry, the company appears to be trading at a significant discount while sporting a higher dividend yield. The fact the company is trading at a discount makes perfect sense to me when you consider some of the negative factors I mentioned above. Is the dividend growth rate terrible? Yes. Do they have a lot of debt? Yes. However, their payout ratio is well below our 60% threshold. So the answer isn’t as clear as I was hoping it would be by the time I reached the end of this article. So all of you, I am asking you for your help here. You offered Lanny some great advice about his internet package this week and I have loved reading your responses as they have come in. So I would love to get your take on my dilemma. If you were me, would you sell your stake in First Energy? If so, what other companies would you recommend? I am thinking I would go the ultra safe route and purchase a foundation stock or one of the stocks on my “Always Buy” list with the proceeds. Are there other utilities I should consider as well? Please everyone, help me out here! -Bert