Author Archives: Scalper1

Q1 Earnings Trend Spells Trouble For Bank ETFs

The financial sector has been on a rough ride since the start of the year even though the broader market sentiments have shown recovery. Most of the pain came from the banking sector, which had a worst start to the year since the financial crisis in 2007-2008, as lower interest rates continued to restrict profitability by shrinking the interest rate spread. This is because banks seek to borrow money at short-term rates and lend at long-term rates. Now, if short-term rates do not rise and long-term rates fall, banks will earn less on lending and pay more on deposits, thereby leading to a tighter spread. Additionally, concerns about slow growth in China and the impact of persistently low oil prices on the energy sector have put pressure on investment banking and trading activities as well as loan growth. According to Dealogic, global investment banking revenues (fees paid for advice on mergers and acquisitions, debt and equity underwriting and syndicated loans) plunged 36% year over year in the first quarter to $12.8 billion. This represents the lowest quarterly number since the height of the financial crisis. The continued market turmoil has pushed down trading activities across the globe with banks witnessing a drop of as much as 56% in their trading businesses. Further, banks that are highly exposed to the energy sector have increased their loan reserves due to a prolonged decline in crude oil prices. The higher provisioning to cover the bad loans of the energy companies are weighing on the overall banking earnings picture and could result in deteriorating credit quality. Given the spiral of woes, analysts expect an average decline of 20% in earnings from the six largest U.S. banks, according to Reuters . In particular, Goldman Sachs (NYSE: GS ) is expected to post the largest decline of 54.2% when it releases its results before the market opens on April 19, as per the Zacks Estimate. This is followed by expected earnings decline of 41.68% for Morgan Stanley (NYSE: MS ), 31.43% for Citigroup (NYSE: C ), 18.52% for Bank of America (NYSE: BAC ), 13.29% for JPMorgan (NYSE: JPM ) and 5.45% for Wells Fargo (NYSE: WFC ) when they report in the coming days. Further, these banks have an unfavorable Zacks Rank of #4 (Sell) or #5 (Strong Sell) with VGM Score of D or F, suggesting that they will underperform the market when the results are released. Moreover, the downside in this corner can be confirmed by the Zacks Industry Rank, as five out of seven banking industries actually have a negative rank in the bottom 40% at the time of writing. All these indicate significant weakness in the broad financial sector given that the banks are the major contributors to its growth (see: all the Financial ETFs here ). As a result, investors should avoid bank ETFs heading into the earnings season. Below, we take a closer look at four bank ETFs that have lost in double digits so far this year. Though these funds might have a Zacks ETF Rank of 3 or ‘Hold’ rating, the weakness is expected to continue given the bearish earnings outlook. PowerShares KBW Bank Fund (NYSEARCA: KBWB ) This fund provides exposure to 24 stocks by tracking the KBW Nasdaq Bank Index. It is moderately concentrated across various components with each holding no more than 8.05% share. Though banks account for 84% share, consumer finance and investment companies also take minor allocations in the basket. The fund has amassed $297 million and trades in solid volumes of 387,000 shares per day on average. Expense ratio came in at 0.35%. The ETF has shed 13.6% in the year-to-date time frame. SPDR S&P Bank ETF (NYSEARCA: KBE ) This fund tracks the S&P Banks Select Industry Index and has an AUM of $2.2 billion. Volume is heavy as it exchanges nearly 3 million shares a day while the expense ratio is 0.35%. The product holds a diversified basket of 64 stocks with none holding more than 2.18% of total assets. From a sector look, about three-fourths of the portfolio is allotted to regional banks while diversified banks, thrifts & mortgage finance, asset management & custody banks and other diversified financial services take the remainder. The fund has lost about 12% so far this year. SPDR S&P Regional Banking ETF (NYSEARCA: KRE ) With AUM of nearly $1.7 billion and average daily volume of around 6.3 million shares, this product follows the S&P Regional Banks Select Industry Index, charging investors 35 bps a year in fees. Holding 100 securities in its basket, the fund is widely spread out across each security, with none holding more than 2.77% of assets. The fund is down 11.6% in the year-to-date time frame. iShares U.S. Regional Banks ETF (NYSEARCA: IAT ) This ETF offers exposure to 54 regional bank stocks by tracking the Dow Jones U.S. Select Regional Banks Index. The top two firms – U.S. Bancorp (NYSE: USB ) and PNC Financial Services (NYSE: PNC ) – dominate the fund’s return with a combined 29.5% of assets. Other firms hold less than 7.4% share. The fund has amassed $390.5 million in its asset base while sees good volume of 308,000 shares a day. It charges 44 bps in annual fees and has shed 10.7% so far this year. Original Post

Beat Weak Q1 Earnings With Revenue-Weighted ETFs

The overall Q1 earnings picture looks bleak, with projected earnings growth deep in the negative territory for the fourth consecutive quarter. In fact, the magnitude of negative revisions over the last three months has been the highest among the recent quarters. Q1 earnings are expected to decline 11.1% versus the 6.4% drop in Q4, as per the Zacks Earnings Trend . However, the projected revenue decline of 2.3% for Q1 is much better than the Q4 revenue decline of 6.6%. Against this backdrop, revenue-weighted ETFs will likely take the lead over earnings-weighted strategies and could be the potential outperformer this earnings season. Why Revenue-Weighted ETFs? First, while a series of headwinds have been weighing on the profitability of companies, the depreciation in the dollar could offer some relief to the top line. As such, many companies could come up with an unexpected growth in revenues in their quarterly reports, giving a boost to the revenue-weighted ETFs. Notably, the ICE U.S. Dollar index, a measure of the dollar’s strength against a basket of currencies, fell to the lowest level in nearly eight months. Second, revenue-weighted funds have outperformed the earnings counterparts in both the short and long-term periods, proving the credibility of the superior weighting methodology. This is because revenues are a better indicator of a company’s financial health. The top line is harder to manipulate or alter on a quarter-by-quarter basis, as opposed to earnings, which can easily be fattened using accounting tricks, thereby leading to inaccuracy. The earnings-weighted ETFs do not reflect the true picture of the company and raise the risk in the portfolio. As a result, tilting toward the revenue metric is a more sensible choice. For investors seeking to do this, there is a small lineup of U.S.-focused ETFs that accomplish this task. Below, we have highlighted the funds that could be great choices for investors seeking to make money from the weak earnings season, while at the same time focus on one of the most important aspects of stock investing. RevenueShares Large Cap ETF (NYSEARCA: RWL ) This fund provides exposure to the top revenue-generating companies within the large-cap segment of the broad U.S. stock market. It consists of the same securities as the S&P 500 Index. Holding 500 stocks in its basket, the fund is concentrated on the top firm – Wal-Mart (NYSE: WMT ) – at 4.7% of total assets, while other firms hold no more than 2.4% share. However, the product has a diverse exposure to a number of sectors, with consumer staples, consumer discretionary and financial occupying the top three positions. The ETF has amassed $320.7 million in its asset base and charges 49 bps in annual fees. Volume is light, trading in about 33,000 shares a day. The fund is up 0.8% in the year-to-date time frame. RevenueShares Mid Cap ETF (NYSEARCA: RWK ) This ETF tracks the S&P MidCap 400 Index, providing exposure to the 400 top revenue generators. It is widely spread across components, with none holding more than 3.26% share in the basket. From a sector look, consumer discretionary, industrial and consumer staples take the top three spots with double-digit exposure each. The fund charges 54 bps in fees per year, while it trades in average daily volume of nearly 22,000 shares. It has accumulated $187.7 million in AUM and has added 3.7% so far in the year. RevenueShares Small Cap ETF (NYSEARCA: RWJ ) This fund targets the small-cap segment of the U.S. equity market. It follows the S&P SmallCap 600 Index and holds 600 stocks. RWJ provides a nice balance across a number of components, with each holding less than 2% share in the basket. However, it is slightly tilted toward industrials and the consumer discretionary sector at nearly 22% each, while consumer staples and financials round off the top four. The product has managed assets worth $276.6 million and sees a light volume of about 30,000 shares per day. It charges 54 bps in expense ratio and is up 2.1% year to date. RevenueShares Navellier Overall A-100 ETF (NYSEARCA: RWV ) This ETF is unpopular and illiquid in this space, with AUM of just $7 million and average daily volume of under 1,000 shares. It tracks the Navellier Overall A-100 Index and weighs securities by the top line. The product holds a basket of 100 stocks, which are concentrated on the top 10 holdings at 54.43% of assets. ADRs make up for 23.9% share, while consumer discretionary and consumer staples round off the top three in terms of sector allocation. Unlike the other three, RWV is pretty spread across various market caps, though large caps account for the largest share at 65% of the total. It charges 60 bps in fees per year from investors and gained 0.4% in the year-to-date time frame. Bottom Line Based on the historical performance, the strategy to weigh stocks by revenue seems one of the most effective factors for weighting the index holdings. Though revenue-weighted ETFs cost more, these have the potential to generate higher returns than their earnings counterpart. Original Post

3 Best-Rated Diversified Bond Mutual Funds To Keep An Eye On

Diversified bond mutual funds provide excellent opportunities to investors looking for steady returns with a relatively low level of risk. These funds provide exposure to a wide range of market sectors, thus reducing sector-specific risks. A relatively higher level of liquidity also makes diversified bond funds more attractive. Meanwhile, investing in diversified bond funds is preferred to investing in individual bonds, as building a portfolio of the second type may prove more expensive than the former. Below, we share with you three best-ranked diversified bond 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 diversified bond mutual funds, investors can click here . PIMCO Income Fund A (MUTF: PONAX ) seeks maximum current income. The fund invests a minimum of 65% of its assets in fixed-income securities from a wide range of sectors. These securities may include options, futures contracts and swap agreements. PONAX may invest not more than half of its assets in securities that are rated below investment grade. It has a three-year annualized return of almost 4%. As of December 2015, the fund held 4022 issues, with 7.76% of its total assets invested in Irs Usd 2.75000 06/17/15-10y Cme. Nuveen Preferred Securities Fund A (MUTF: NPSAX ) invests a major portion of its assets in preferred securities. The advisor invests a minimum 25% of its assets in the preferred securities of companies primarily involved in financial services. NPSAX invests a minimum of half of its assets in securities rated investment grade. It is a non-diversified fund and has a three-year annualized return of 4.3%. The fund has an expense ratio of 1.06%, as compared to the category average of 1.37%. PIMCO Fixed Income Shares C (MUTF: FXICX ) seeks to maximize total return with preservation of capital. It invests the majority of its assets in fixed-income securities, including corporate debt obligations, inflation-indexed securities of corporate bodies and structured notes. The fund allocates its assets throughout the globe. It has a three-year annualized return of 0.9%. Curtis A. Mewbourne has been the fund manager of FXICX since 2009. Original Post