Author Archives: Scalper1

Can October Turnaround Heal Q3 Scars? 3 Leading Fund Categories

Third-quarter 2015 turned out to be a stock market bloodbath. However, much to investors’ relief, markets have rebounded sharply from the beginning of October. Key benchmarks are up significantly since October 1, shrugging off the horrid third-quarter performance. In the third quarter, most mutual fund categories struggled to post gains. In fact our Mutual Fund Commentaries will show how certain fund categories like Energy, Health and Technology failed to have even one mutual fund scoring gains. However, the rebound now has changed the story. Technology and Health are now leading the one-month gains among the mutual fund categories. Since October 1 and till November 15, the Dow Jones Industrial Average, Standard & Poor’s 500 and the Nasdaq Composite Index gained 8.7%, 7.4% and 8.1%, respectively, and the mutual funds will not be exempted from growth. Thus, let’s look at the top 3 fund category gainers and pick one mutual fund from each that carries a favorable Zacks Mutual Fund Rank and is a leading gainer. Third-Quarter Rout China-led global growth fears, uncertainty about the Fed rate hike followed by the no liftoff decision, sell-off in biotech stocks and tumbling commodity prices among other factors resulted in the worst quarter in four years. Like a pack of cards, markets from Beijing to Berlin came tumbling down. Eventually, the quarter ended in massive losses, wherein the performance of mutual funds worsened from the dismal second quarter. In the third quarter, just 17% of mutual funds managed to finish in the green. This is a slump from 41% in the second quarter, which was again a sharp fall from 87% of the funds ending in positive territory in the first quarter. Separately, a JPMorgan (NYSE: JPM ) equity strategy note revealed that 67% of mutual funds underperformed their benchmark in the third quarter. Around 34% of funds underperformed their peers by a minimum of 250 basis points. The Dow, S&P 500 and Nasdaq declined 7.6%, 7% and 7.4%, respectively. The Dow registered its third-consecutive quarter of losses and the S&P 500 slumped for the second straight quarter. To term the third quarter of 2015 as a “bloodbath” would not be too off the mark. October Rebound Markets posted their best monthly performance in four years in October. For the month, the S&P 500, the Dow and the Nasdaq soared 8.1%, 8.6% and 9.2%, respectively. Investors largely ignored weak economic data to focus on positive external signals. In a surprise move, China’s central bank cut key rates, leading to further optimism. Additionally, the European Central Bank (ECB) said it would further boost the region’s economy. Tech and healthcare sectors staged a strong rebound, boosting the broader markets. Finally, the Federal Reserve refrained from hiking rates but indicated that such a move was likely in December. Earnings numbers were mixed, once again reflecting weakness in revenues. However, impressive results from the tech sector and resurgence in healthcare stocks boosted the broader markets. November So Far During the first week, the Dow, S&P 500 and Nasdaq gained 1.4%, 1% and 1.9%, respectively. Benchmarks registered weekly gains for the sixth-consecutive week. Merger and acquisition news including that between Dyax (NASDAQ: DYAX ) and Shire plc (NASDAQ: SHPG ), and Treehouse Foods, Inc. (NYSE: THS ) and ConAgra Foods, Inc.’s (NYSE: CAG ) spread cheer. Meanwhile, encouraging third-quarter earnings from companies like The Clorox Company (NYSE: CLX ), Michael Kors Holdings Limited (NYSE: KORS ), Facebook, Inc. (NASDAQ: FB ) and Ralph Lauren Corporation (NYSE: RL ) lifted the benchmarks. Also, strong auto sales data and a better-than-expected reading of the ISM Services Index helped benchmarks to finish the week in the green. Meanwhile, energy shares registered gains despite continued decline in oil prices. However, benchmarks lost some sheen in the second week following a sell-off in retail and energy shares. Nonetheless, markets are expected to continue the positive momentum. 3 Leading Mutual Fund Category Gainers It is not that every fund category is in the green over the past one month. Surprisingly, the Municipal Bond funds, including sub categories like Muni California Long and Muni New Jersey are in the negative territory. These funds were among the few to have posted gains in the third quarter. (Data source: Morningstar) On the contrary, key fund sectors that ended in the red last quarter are now leading one-month gains. Technology and Health are standing out. Let’s look at the top 3 fund categories, and one fund from each that is a leading gainer carries either a Zacks Mutual Fund Rank #1 (Strong Buy), Zacks Mutual Fund Rank #2 (Buy) or Zacks Mutual Fund Rank #3 (Hold), and have a minimum initial investment within $5000 . Technology The technology sector’s mutual funds were far from enjoying encouraging trends in the third quarter. Morningstar data revealed that the Technology fund category lost 7.7%. None of the technology mutual funds we studied could post gains in the quarter. The average loss for these 199 funds was 8%. Now, with a nearly 5% jump over the past one month, the Technology mutual fund category is the leading gainer. The technology stocks impressed with their third-quarter earnings at a time when the overall growth picture was challenged. The tech sector’s stock-price performance reflects strength as its S&P 500 members outperformed the index over the trailing 4-week period. BlackRock Science & Technology Opportunities Investor A (MUTF: BGSAX ) is a leading gainer in the technology sector. BGSAX’s one-month gain is 4.3%. Since October 1, BGSAX has returned 7.6%. BGSAX invests the majority of its assets in equity securities issued by domestic and foreign science and technology companies. BGSAX may invest a maximum 25% of its net assets in emerging economies and generally invests in common stocks, with preferred stocks and convertible securities also considered. BGSAX currently carries a Zacks Mutual Fund Rank #1. Health The robust rally by the Healthcare mutual fund category ended somewhat brutally in the third quarter. After finishing 2014, and the first and second quarters of 2015 as the top gainer among the sector equity funds, healthcare mutual funds finished in the bottom 10 in the third quarter. According to Morningstar, the Healthcare mutual fund category slumped 13.7% and surprisingly, not a single healthcare mutual fund could finish in the positive territory in the July-September period. Over the past one month, Healthcare has gained 3.7%. Growth prospects for the sector are strong thanks to strong fundamentals and an overestimation of the impact of recent events. Encouraging earnings results from several companies such as UnitedHealth Group Inc. (NYSE: UNH ) and Amgen Inc. (NASDAQ: AMGN ) helped the health care sector to stage a rebound in October. BlackRock Health Sciences Opportunities R (MUTF: BHSRX ) gained 2.4% over the past one month. Since October 1, BHSRX has improved 2.8%. BHSRX invests most of its assets in health sciences and related sectors such as health care equipment and supplies, health care providers and services, biotechnology, and pharmaceuticals. BlackRock Health Sciences Opportunities R currently carries a Zacks Mutual Fund Rank #3. Japan Stock Expectations of additional stimulus, rising corporate profitability and attractive valuations are driving the Japan mutual funds. Japan’s benchmark Nikkei 3000 confirmed the momentum with a 10.9% surge since October 1. Japanese companies’ earnings have improved a lot since the launch of Abenomics courtesy of the declining Yen. Nominal GDP has actually turned upward since 2013, after 20 years of sideways movement. Many are expecting Bank of Japan to come up with higher asset purchases in the coming months. Over the past one month, the Japan category has gained 3.7%. Commonwealth Japan (MUTF: CNJFX ) boasts one-month gain of 2.5%. Since Oct 1, CNJFX has jumped 8.5%. CNJFX invests the majority of its assets in securities and depositary receipts that include American Depositary Receipts, Global Depositary Receipts and European Depositary Receipts. The securities are issued by Japanese firms and are economically tied to the country. Commonwealth Japan currently carries a Zacks Mutual Fund Rank #3. Original post .

Did Restaurant Earnings Impact This New ETF?

With the introduction of the new Restaurant ETF (NASDAQ: BITE ) at the end of last month, time has come to evaluate the impact of the recent spate of restaurant industry earnings on it. Most of the restaurant stocks delivered better-than-expected earnings and rising same-store sales (comps) in the last reported quarter. The upbeat results definitely speak about the strong fundamentals of the industry. Low fuel cost, an improving U.S. economy, rising consumer confidence, higher consumer spending and better job prospects all bode well for the restaurant industry. Let us take a quick glance at some of these results. Restaurant Earnings in Detail McDonald’s Corporation (NYSE: MCD ) posted earnings per share of $1.40 for the third quarter that beat the Zacks Consensus Estimate of $1.27 by 10%. Earnings, in constant currencies, grew 44% year over year driven by decline in total costs and expenses and a lower share count. Revenues of $6.62 billion declined 5% year over year due to currency headwinds but grew 7% in constant currencies, beating the Zacks Consensus Estimate by 2.7%. This was driven by comps growth at all its segments. The maker of hamburgers and fries expects comps to grow in the fourth quarter as well. Starbucks Corporation’s (NASDAQ: SBUX ) adjusted earnings of 43 cents per share in the fourth quarter of fiscal 2015 missed the Zacks Consensus Estimate of 44 cents by 2.3%. However, earnings were on the higher end of management’s guided range and grew 16% year over year as solid top-line growth offset lower margins. Sales rose 18% to $4.91 billion, outpacing the Zacks Consensus Estimate of $4.89 billion by 0.5% driven by robust comps. Global comps growth of 8% was higher than a 7% rise in the previous quarter, driven by increased traffic trends. The company expects revenues to grow more than 10% in fiscal 2016, excluding the extra 53rd week. Comps are expected to grow somewhat above the mid-single-digit range. Buffalo Wild Wings Inc.’s (NASDAQ: BWLD ) third-quarter results were disappointing. The restaurant operator’s adjusted earnings of $1.00 per share fell 12.2% year over year and were short of the Zacks Consensus Estimate of $1.28 by 22% owing to higher food and labor costs. Despite a 22% increase, the company’s revenues of $455.5 million missed the consensus estimate by roughly 1.8%. It also expects single-digit net earnings growth for 2015 compared with 13% growth expected previously. The Wendy’s Company’s (NASDAQ: WEN ) adjusted earnings came in at 9 cents per share, exceeding the Zacks Consensus Estimate by 12.5% and year-ago earnings by 28.6% driven by lower expenses and improved margins. Total revenue of $464.6 million beat the consensus mark of $442.0 million by 5% but declined 6.5% from the prior year. The company marginally revised its earnings, EBITDA and comps guidance for 2015 on the basis of strong year-to-date operating results and encouraging response to the 4 for $4 promotion that began in October. ETF Impact Strong results notwithstanding, the performance of restaurant stocks has not been commensurate due to several headwinds like the threat of higher labor costs due to demand for rising minimum wages, price wars, strong currency and a slowdown in the Chinese economy. This found a reflection in the performance of BITE, which exclusively focuses on this industry. The fund has tumbled 5.8% since its launch (as of November 12, 2015). Except McDonald’s and Starbucks, nearly all the stocks in the fund’s top 10 holdings nosedived in the past one month. Investors, therefore, should exercise caution before hopping into this niche ETF and closely monitor its price movements in the coming days. Let us take a look at this ETF in greater detail. BITE tracks the BITE Index, which is an equal-weighted index comprising 45 publicly-traded companies in the U.S. The fund’s holdings include some of the renowned companies in the restaurant industry that operates a broad variety of restaurant formats raging from quick serve and fast casual to casual dining and fine dining. The fund’s top five holdings include McDonald’s, Starbucks, Carrols Restaurant Group Inc. (NASDAQ: TAST ), Chuy’s Holdings, Inc. (NASDAQ: CHUY ) and Ruth’s Hospitality Group Inc. (NASDAQ: RUTH ). Together, the top 10 holdings occupy 27.6% of the fund’s assets. BITE has net assets worth $2.4 million and is thinly traded with an average volume of around 5,000 shares per day. The fund is a bit expensive with 0.75% in expense ratio. Original Post

4 Strong Buy Small-Cap Blend Mutual Funds

Those with a high risk appetite as well as an interest in growth and value investing, may choose small-cap blend mutual funds to boost their portfolio. While blend funds, also known as “hybrid funds,” aim for value appreciation by capital gains, small-cap funds are expected to have higher growth prospects than their large and medium counterparts. Blend funds provide significant exposure to both growth and value stocks and owe their origin to a graphical representation of a fund’s equity style box. Meanwhile, funds investing the majority of their assets in securities of companies with market capitalization lower than $2 billion are generally considered small-cap mutual funds. Though funds investing in small-cap stocks are believed to have more exposure to market volatility than large or medium ones, they are also expected to provide diversification across sectors and companies. Moreover, small-cap companies are believed to be less affected by a global downturn – thanks to less international exposure. Below we share with you four top-rated, small-cap blend mutual funds. Each has earned a Zacks Mutual Fund Rank #1 (Strong Buy) and is expected to outperform its peers in the future. Vanguard Strategic Small-Cap Equity Investor (MUTF: VSTCX ) invests the lion’s share of its assets in equity securities of small-cap companies with a domestic focus. VSTCX invests in companies that are belied to have impressive growth potential and favorable valuations. VSTCX is expected to maintain a risk level identical to the MSCI US Small Cap 1750 Index. The Vanguard Strategic Small-Cap Equity Investor fund has a three-year annualized return of 17.8%. VSTCX has an expense ratio of 0.38% as compared to the category average of 1.23%. Fidelity Advisor Small Cap A (MUTF: FSCDX ) seeks capital appreciation over the long run. FSCDX invests a large chunk of its assets in companies having market capitalization within the range of either the Russell 2000 Index or the S&P SmallCap 600 Index. FSCDX uses the “blend” strategy to invest in common stocks of companies. The Fidelity Advisor Small Cap A fund has a three-year annualized return of 16.4%. James M. Harmon is the fund manager of FSCDX since 2005. Principal SmallCap S&P 600 Index R3 (MUTF: PSSMX ) invests the majority of its assets in firms listed in the Standard & Poor’s SmallCap 600 Index. PSSMX also invests in index futures and equity ETFs in order to reduce tracking error by gaining exposure to the index. The Principal SmallCap S&P 600 Index R3 fund has a three-year annualized return of 15.7%. As of September 2015, PSSMX held 606 issues, with 3.05% of its assets invested in Russell 2000 Mini Dec15. QS Batterymarch US Capitalization Equity Portfolio FI (MUTF: LGSCX ) seeks long-term growth of capital. LGSCX invests the major portion of its assets in securities of small-cap companies. LGSCX primarily invests in domestic companies or those which operate predominantly in the U.S. LGSCX may also invest in non-US firms through ADRs. The QS Batterymarch US Small Cap Equity FI fund has a three-year annualized return of 16.4%. LGSCX has an expense ratio of 1.20% as compared to the category average of 1.23%. Original Post