The broader U.S. market has been in a tight spot since the beginning of 2016 due to a host of global issues and uncertainty about the rate hike. Amid these concerns, mid-cap funds offer the best of both worlds, growth and stability when compared to small-cap and large-cap counterparts. Mid-cap funds are believed to provide higher returns than their large-cap counterparts, while witnessing a lower level of volatility than small-cap ones. Given the swings in the broader market segment so far this year, mid-cap funds have garnered a lot of attention as they are not very susceptible to volatility (read: 5 Mid Cap Value ETFs Are Top Picks Now–Here is Why ). Recently, one of the renowned ETF issuers, JPMorgan, introduced a product in the U.S. targeting the mid-cap space. The new product – JPMorgan Diversified Return U.S. Mid Cap Equity ETF (NYSEARCA: JPME ) – hit the market on May 11. Below, we highlight the product in detail: JPME in Focus The fund seeks to track the performance of the Russell Midcap Diversified Factor Index. JPME does not seek to outperform the underlying index nor does it seek temporary defensive positions when markets decline or appear overvalued. Its sole intention is to replicate the constituent securities of the underlying index as closely as possible. JPME is a well-diversified fund, where Westar Energy Inc. (NYSE: WR ) takes the top spot with 0.61% weight. Other stocks in the fund have less than 0.60% exposure individually. In total, the fund holds about 602 stocks. Sector-wise, Consumer Goods gets the highest exposure with 15.5% of the portfolio. Utilities, Financials, Consumer Services, Health Care, Industrials and Technology also get double-digit exposure in the basket. The fund has an expense ratio of 0.34%. How Does it Fit in a Portfolio? The fund is a good choice for investors seeking high return potential that comes with lower risk than their small-cap counterparts. With the tone of the minutes from the April FOMC meeting, released last week, being more hawkish than expected, chances of a rate hike in the June meeting have gone up. This could be due to a series of recently released upbeat U.S. economic data (read more: Fed to Hike in June? Expected ETF Moves ). Meanwhile, global growth worries are still at large. So, mid-cap stocks with higher exposure to the U.S. markets than their large-cap counterparts look attractive at this point. Thus, the launch of the new ETF targeting the U.S. mid-cap market seems well timed. ETF Competition The newly launched ETF will have to face competition from mid cap-focused ETFs like the iShares Core S&P Mid-Cap ETF (NYSEARCA: IJH ) . IJH is one of the most popular ETFs in the space with an asset base of $26.3 billion and average trading volume of 1.3 million shares. The fund tracks the S&P MidCap 400 index and charges 12 basis points as fees which is much lower than the aforementioned product. The SPDR S&P MidCap 400 ETF (NYSEARCA: MDY ) is another popular fund in the space with an asset base of $15.3 billion and trades in a good volume of more than 2.1 million shares a day. The fund tracks the S&P MidCap 400 Index. The fund charges 25 basis points as fees. Apart from these, JPME could also face competition from the iShares Russell Mid-Cap ETF (NYSEARCA: IWR ) tracking the Russell MidCap Index. The fund has an asset base of $12 billion and volume of almost 359,000 shares a day. It has an expense ratio of 20 bps. Thus, the newly launched fund is costlier than the popular ETFs in the space. So, the path ahead can be challenging for JPME. Link to the original post on Zacks.com
While U.S.-based stock funds continued to witness significant outflows, real estate funds emerged as one of the few bright spots in terms of inflows, according to Lipper. The stock funds registered an outflow of $3.9 billion for the week ending May 18, raising the total withdrawals in the year-to-date frame to $45 billion. Moreover, stock funds have not seen inflows for two consecutive weeks since November. However, real estate funds are the ones that emerged as one of the few sectors that attracted significant investor sentiment during the week. These funds registered an inflow of $750 million, the biggest inflow witnessed since November 2015. Encouraging data related to the sector and a bright outlook may have boosted investor sentiment. Against this backdrop, investing in mutual funds and ETFs from this sector may prove profitable for investors in the coming months. Concerns Affecting Stocks Weak first-quarter earnings and intensified rate hike fears affected financial markets. As of May 18, total earnings for 466 S&P 500 members were down 7.0% from the same period last year on 1.2% lower revenues. Like the last few quarters, disappointing results from energy companies marred the first-quarter earnings season. Without energy earnings results, total earnings of the S&P 500 members would have been down 1.3% from the year-ago quarter. Also, minutes of the Federal Reserve’s two-day policy meeting in April indicated that most of its officials remain optimist for a rate hike in the June meeting. Moreover, New York Fed President William Dudley said that he is “quite pleased” to see strong possibilities of a rate hike in June-July. Dudley also said that the Fed is “on track to satisfy a lot of the conditions” for a rate rise. Also, Richmond Fed President Jeffrey Lacker pointed to a June rate hike, after “risks from global and financial developments having virtually entirely dissipated.” Lacker previously wanted a rate hike in April, and now agrees that “the case would be very strong for raising rates in June.” These have intensified rate hike fears among investors, which in turn affected the major benchmarks recently. What is Boosting Real Estate Funds? Despite these concerns, real estate mutual funds registered a return of 8.5% over the past three months, banking on optimism in the sector, according to Morningstar. While most of the broader sector found it difficult to post encouraging first-quarter earnings results, total earnings for S&P 500 construction companies jumped 27.5% from the same period last year on 3.9% higher revenues. Encouraging first-quarter results from the sector indicated that it is on a track for impressive growth at least in the near future. Along with the upbeat earnings results, the sector also got a boost from recently released housing data and a positive outlook. Encouraging Housing Data Among the recent encouraging data, a 1.5% uptick in residential construction spending led expenditure on construction to rise 0.3% from February to a seasonally adjusted annual rate of $1,137.5 billion in March. Over the last 12 months, construction spending has gained 8%. During this period, non-residential construction has increased by 8.3%. Also, the National Association of Home Builders (NAHB) reported that the home builder sentiment index (HMI) remained flat at 58 in May for the fourth consecutive month. This also indicates that the sector continues to experience steady growth, fueled by an improving job market and low mortgage rates. Moreover, the National Association of Realtors reported that existing homes sales gained 1.7% last month to a seasonally adjusted annual rate of 5.45 million, higher than the consensus estimate of 5.38 million. Existing homes sales rose for the second consecutive month. Meanwhile, housing starts increased 6.6% from March to an annual rate of 1,172,000 in April. Housing starts increased by 10.2% during the first four months of 2016, compared with the year-ago period. Significantly, single-family housing starts increased 16.8% year over year during this period. Also, building permits increased 3.6% from March to 1,116,000 last month. Bright Outlook Recently, economists in the NAHB Spring Construction Forecast Webinar predicted that single-family construction may jump 14% from 2015 to 812,000 units this year. Moreover, single-family construction is expected to surge another 19% next year. They also projected 3.3% and 1.3% gains in residential remodeling activity in 2016 and 2017, respectively. Separately, as per the Freddie Mac forecast, total home sales may hit the highest level of 5.9 million units in 2016 in nearly a decade. Sales were estimated to increase further to 6.2 million units next year. Mutual Funds and ETFs to Buy Banking on this encouraging scenario, we have highlighted three mutual funds and three ETFs from the real estate sector that carry favorable Zacks Ranks. Mutual Funds Each of these real estate mutual funds carries a Zacks Mutual Fund Rank #1 (Strong Buy). We expect these funds to outperform their peers in the future. Remember, the goal of the Zacks Mutual Fund Rank is to guide investors to identify potential winners and losers. Unlike most of the fund-rating systems, the Zacks Mutual Fund Rank is not just focused on past performance, but also on the likely future success of the fund. Moreover, these funds have encouraging year-to-date and one-year returns. The minimum initial investment is within $5000. Also, these funds have a low expense ratio and carry no sales load. Fidelity Real Estate Investment Portfolio No Load (MUTF: FRESX ) primarily focuses on acquiring common stocks of companies involved in operations related to the real estate domain. FRESX has year-to-date and one-year returns of 3.6% and 9.5%, respectively. Its annual expense ratio of 0.78% is lower than the category average of 1.29%. John Hancock II Real Estate Securities Fund (MUTF: JIREX ) invests a large chunk of its assets in equity securities of companies from the real estate sector and REITs. JIREX has year-to-date and one-year returns of 2.8% and 6.5%, respectively. The annual expense ratio of 0.79% is lower than the category average of 1.29%. VY Clarion Real Estate Portfolio S (MUTF: IVRSX ) invests the lion’s share of its assets in equity securities, including common and preferred stocks of domestic real estate companies, including REITs. IVRSX has year-to-date and one-year returns of 1.4% and 4.7%, respectively. The annual expense ratio of 0.96% is lower than the category average of 1.29%. ETFs The three popular real estate ETFs carry a Zacks Mutual Fund Rank #2 (Buy) each and have Medium risk outlook. These ETFs have also attracted significant inflows in the month-to-date period and gained significantly in recent times. Vanguard REIT Index ETF (NYSEARCA: VNQ ) provides exposure across 150 stocks of REITs by tracking the MSCI US REIT Index. With $30.6 billion assets under management (AUM) and a strong daily average volume of around 4 million shares, VNQ is the most popular ETF in its category. The ETF has 0.12% in expense ratio, compared with the category average of 0.45%. The fund has returned 7.7% and 2.9% over the three-month and year-to-date frame, respectively. VNQ has seen an inflow of $535.17 million in the month-to-date period. iShares U.S. Real Estate ETF (NYSEARCA: IYR ) provides exposure across 117 domestic real estate securities by tracking the Dow Jones U.S. Real Estate Index. With $4.6 billion AUM and strong daily average volume of around 9 million shares, it is the second most popular ETF in its category. The ETF has 0.43% in expense ratio, compared with the category average of 0.45%. The fund has returned 8.6% and 2.2% over the three-month and year-to-date frame, respectively. IYR has seen an inflow of $557.95 million in the month-to-date period. iShares Cohen & Steers REIT ETF (NYSEARCA: ICF ) provides exposure across 30 securities large-cap real estate companies by tracking the Cohen & Steers Realty Majors Index. It has $3.7 billion AUM and moderate daily average volume of around 220,000 shares, and is currently the third largest ETF in its category in terms of AUM. The ETF has 0.35% in expense ratio, compared with the category average of 0.45%. The fund has returned 6.9% and 1.2% over the three-month and year-to-date frame, respectively. ICF has seen an inflow of $26.35 million in the month-to-date period. Original Post
The All Cap Blend style ranks third out of the twelve fund styles as detailed in our Q2’16 Style Ratings for ETFs and Mutual Funds report. Last quarter , the All Cap Blend style ranked third as well. It gets our Neutral rating, which is based on aggregation of ratings of 71 ETFs and 684 mutual funds in the All Cap Blend style. See a recap of our Q1’16 Style Ratings here. Figures 1 and 2 show the five best and worst rated ETFs and mutual funds in the style. Not all All Cap Blend style ETFs and mutual funds are created the same. The number of holdings varies widely (from 4 to 3694). This variation creates drastically different investment implications and, therefore, ratings. Investors seeking exposure to the All Cap Blend style should buy one of the Attractive-or-better rated ETFs or mutual funds from Figures 1 and 2. Figure 1: ETFs with the Best & Worst Ratings – Top 5 Click to enlarge * Best ETFs exclude ETFs with TNAs less than $100 million for inadequate liquidity. Sources: New Constructs, LLC and company filings State Street SPDR S&P 5000 Buyback ETF (NYSEARCA: SPYB ), iShares Enhanced U.S. Large Cap ETF (NYSEARCA: IELG ), and ProShares Ultra Semiconductors (NYSEARCA: USD ) are excluded from Figure 1 because their total net assets are below $100 million and do not meet our liquidity minimums. Figure 2: Mutual Funds with the Best & Worst Ratings – Top 5 Click to enlarge * Best mutual funds exclude funds with TNAs less than $100 million for inadequate liquidity. Sources: New Constructs, LLC and company filings AMG Renaissance Large Cap Growth Fund ( MRLIX , MRLSX , MRLTX ), Jensen Quality Value Fund ( JNVIX , JNVSX ), and Hays U.S. Opportunity Fund (MUTF: HUOIX ) are excluded from Figure 2 because their total net assets are below $100 million and do not meet our liquidity minimums. ProShares UltraPro Dow30 (NYSEARCA: UDOW ) is the top-rated All Cap Blend ETF and Royce Special Equity Multi-Cap Fund (MUTF: RMUIX ) is the top-rated All Cap Blend mutual fund. Both earn a Very Attractive rating. ProShares Ultra Oil & Gas (NYSEARCA: DIG ) is the worst rated All Cap Blend ETF and Rydex Series Russell 2000 1.5x Strategy Fund (MUTF: RYAKX ) is the worst rated All Cap Blend mutual fund. Both earn a Very Dangerous rating. Nordstrom (NYSE: JWN ) is one of our favorite stocks held by RMUIX and earns a Very Attractive rating. Over the past decade, Nordstrom has grown after-tax profit ( NOPAT ) by 9% compounded annually. Over this time, the company has improved its return on invested capital ( ROIC ) from 9% in 2005 to 11% over the last twelve months. Nordstrom has also generated a cumulative $2.3 billion in free cash flow over the past five years. Despite the underlying fundamentals, JWN remains undervalued. At its current price of $51/share, JWN has a price-to-economic book value ( PEBV ) ratio of 0.9. This ratio means that the market expects Nordstrom’s NOPAT to permanently decline by 10%. If Nordstrom can grow NOPAT by just 5% compounded annually for the next decade , the stock is worth $94/share today – an 84% upside. Molson Coors Brewing Company (NYSE: TAP ) is one of our least favorite stocks held by VGPAX and earns a Dangerous rating. Since 2010, Molson Coors’ NOPAT has declined by 2% compounded annually. The company’s ROIC has fallen from 8% to 6% over this same time frame. Molson Coors has failed to generate positive economic earnings in any year of our model, which dates back to 1998. To justify its current price of $96/share, Molson Coors must grow NOPAT by 10% compounded annually for the next 11 years . This expectation seems overly optimistic given the company’s profit decline since 2010. Figures 3 and 4 show the rating landscape of all All Cap Blend ETFs and mutual funds. Figure 3: Separating the Best ETFs From the Worst Funds Click to enlarge Sources: New Constructs, LLC and company filings Figure 4: Separating the Best Mutual Funds From the Worst Funds Click to enlarge Sources: New Constructs, LLC and company filings D isclosure: David Trainer and Kyle Guske II receive no compensation to write about any specific stock, style, 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.