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5 ETFs To Buy For Q2

After a terrible start to the year, the U.S. stock market made a stunning comeback in the last six weeks of the first quarter. This is especially true as the major U.S. bourses recouped all the losses after falling more than 14% (as of February 11) from their recent peak levels. Notably, both the S&P 500 and Dow Jones were in the green at the end of the quarter, having logged in 0.8% and 1.5% gains, respectively. The impressive rally was driven by a rebound in oil prices, a spate of upbeat U.S. economic data, extra easing policies in Europe and Japan, and stabilization in the Chinese economy. Additionally, the Fed’s dovish comments infused more optimism in the stock markets lately. The bullish trend is likely to continue at least in the second quarter given the substantial improvement in the economy, an accelerating job market, pick-up in inflation as well as increasing consumer confidence. Further, the Fed is not expected to raise interest rates anytime soon given the global growth concerns that should drive the U.S. stocks higher. Nevertheless, bouts of volatility will keep threatening the bulls. Some of the headwinds include relatively higher valuations, risk of earnings weakness like what we saw in the fourth quarter, and oil price instability. As the U.S. economy is leading the way amid global uncertainty, investors should focus on the domestic market. We have highlighted five picks for 2Q that should outperform and cost less than many other products. These funds have either a Zacks Rank of 1 (Strong Buy) or 2 (Buy). iShares MSCI USA Minimum Volatility ETF (NYSEARCA: USMV ) Low volatility products generate impressive returns or often outperform in an uncertain or a crumbling market while providing significant protection. This is because these funds include more stable stocks that have experienced the least price movement in their portfolio. As a result, low-volatility strategies appear safe in a turbulent market, and reduce losses in declining markets while generating decent returns when the markets rise. As such, USMV could be a great pick with an AUM of $11.3 billion and an expense ratio of 0.15%. It offers exposure to 168 U.S. stocks having lower volatility characteristics than the broader U.S. equity market by tracking the MSCI USA Minimum Volatility Index. The fund is well spread across a number of securities with none holding more than 1.71% of assets. From a sector look, financials, health care, information technology and consumer staples take the top four spots with a double-digit allocation each. The fund trades in solid volume of 3 million shares a day and has gained 6.4% in the year-to-date time frame. It has a Zacks ETF Rank of 2. SPDR S&P Dividend ETF (NYSEARCA: SDY ) Dividend-focused ETFs have been riding high this year on investors’ drive for income amid heightened uncertainty in the stock market. This is because dividend paying securities are the major sources of consistent income when returns from the equity market are at risk. Dividend-focused products offer safety in the form of payouts and stability in the form of mature companies that are less immune to the large swings in stock prices. Further, longer-than-expected interest rates have made this corner a hot investment area. As a result, SDY seems an interesting choice for the second quarter. This is one of the popular and liquid ETFs in the dividend space with AUM of $13.2 billion and average daily volume of about 940,000 shares. This fund provides exposure to the 109 U.S. stocks that have been consistently increasing their dividend every year for at least 25 years. This can be done by tracking the S&P High Yield Dividend Aristocrats Index. Though the fund is slightly skewed toward the financial sector with 22.7% share, industrials, utilities, consumer staples, and materials make up for a nice mix in the portfolio with a double-digit allocation each. The fund charges 35 bps in fees per year and yields 2.51% in annual dividend. It has added 9.9% so far this year and has a Zacks ETF Rank of 2. Consumer Discretionary Select Sector SPDR Fund (NYSEARCA: XLY ) With the U.S. economy on a modest growth path and the spring season underway, the consumer discretionary sector is expected to get a boost. The auto industry is booming, the manufacturing industry seems to be stabilizing having ended a five-month declining streak with accelerated production and rising new orders, and the housing market is geared up for the spring buying fervor. Further, cheap financing will continue to entice consumers to buy more homes and avail auto loans, thereby propelling the stocks of this sector higher. While there are several options to play the surge in the sector, the ultra-popular XLY having AUM of $10.7 billion and average daily volume of around 8.2 million shares looks attractive. It tracks the Consumer Discretionary Select Sector Index and holds 88 securities with higher concentration on the top four firms at 30%. Other firms hold less than 4.9% share each. In terms of industrial exposure, media takes one-fourth share while specialty retail, internet retail, and hotels, restaurants & leisure round off the next three spots with a double-digit exposure each. The fund charges 14 bps in fees per year and has added 2% so far this year. It has a Zacks ETF Rank of 1. SPDR S&P Homebuilders ETF (NYSEARCA: XHB ) A solid labor market along with affordable mortgage rates will continue to fuel growth in a recovering homebuilding sector, creating a buying opportunity in homebuilders and housing-related stocks. In addition, slower and gradual rate hikes will not impede the growth prospect of the sector, at least in the second quarter. The most popular choice in the homebuilding space, XHB, follows the S&P Homebuilders Select Industry Index. In total, the fund holds about 37 securities in its basket with none accounting for more than 5.73% share. The product focuses on mid-cap securities with 65% share, followed by 27% in small caps. The fund has amassed about $1.5 billion in its asset base and trades in heavy volume of about 3.6 million shares. Expense ratio comes in at 0.35%. XHB has lost modestly 0.1% in the year-to-date timeframe and has a Zacks ETF Rank of 2. iShares 20+ Year Treasury Bond ETF (NYSEARCA: TLT ) Treasury bonds, in particular the long-term ones, are the biggest beneficiaries of lower interest rates. The longer the duration, the more sensitive the fund is to the changes in interest rates. As such, bonds having a higher duration will experience significant gains for as long as interest rates remain low. Additionally, long-term bonds will continue to get an impetus from the negative interest rates in the other developed world like Europe and Japan that made the U.S. bonds attractive to foreign investors. Given this, the ultra-popular long-term Treasury ETF – TLT – looks exciting for the second quarter. It tracks the Barclays Capital U.S. 20+ Year Treasury Bond Index, holding 32 securities in its basket. The fund focuses on the top credit rating bonds with average maturity of 26.61 years and effective duration of 17.77 years. It charges 15 bps in annual fees and exchanges about 8.7 million shares in hand per day. With AUM of $8.1 billion, TLT has gained 8.6% so far this year and has a Zacks ETF Rank of 2. Original Post

U.S. Factory Activity Rebounds: 3 Mutual Fund Picks

Manufacturing in the U.S. expanded for the first time in six months in March, fueled by a surge in new orders. The outlook for manufacturing looks encouraging, thanks to a tempering strength of the dollar and a recent rise in oil prices. Industrial production in the U.S. had been under intense pressure for quite some time after a stronger dollar increasing prices of export-oriented goods compared to those priced in other currencies, which eventually weighed on sales. A continuous decline in oil prices also had a negative impact on the energy sector. Energy companies had to trim spending on big-ticket factory goods including drilling equipment. But, as these headwinds are no longer strong enough, The Goldman Sachs Group, Inc. (NYSE: GS ) believes that the manufacturing recession in the U.S. may be over. Regional surveys on factory activities in Philadelphia, New York, Richmond, Kansas City and Chicago also showed marked progress in March. Record factory orders data in January too showed a release from the slump. Banking on this buoyancy, it will be prudent to invest in funds that are exposed to the industrial sector. These funds not only boast strong fundamentals but also provide stellar returns over a long investment horizon. Before we handpick some good funds, let’s take a look at the latest data: Manufacturing Outlook Improves The Institute of Supply Management said that its manufacturing index increased to 51.8% in March from 49.5% in February, indicating growth in manufacturing for the first time since Aug. 2015. Any reading above 50 is a positive indicator to customers’ orders and factory production. Twelve out of 18 industries surveyed by the index posted growth. Additionally, new orders were strongest since 2014, while a measure of production activity reached a 10-month high. The ISM’s New Orders Index rose to 58.3% in March compared with 51.5% reported for February, which showed growth in new orders for the third successive month. The ISM’s Production Index also went up to 55.3% in March from 52.8% in February, indicating growth in production last month for the third straight month. Bradley Holcomb, chairman of the ISM factory survey, said that these readings showed that manufacturing is “moving in the right direction” and there is “every reason to be confident” about the manufacturing sector in the next few months. He added that customer inventories are low and exports are improving. Export orders in March rose to 52% from 46.5% in February, the highest reading since Dec. 2014. Regional Data Looks Solid According to Morgan Stanley (NYSE: MS ), on an ISM-weighted basis, the average of the Philadelphia Fed, Empire State, Richmond Fed and Kansas City Fed manufacturing surveys rose to 51.5 in March from 47 in February. Separately, manufacturing activity in the Philadelphia area turned positive in March for the first time in seven months, while factory activity in the New York region expanded for the first time since last July. Meanwhile, manufacturing activity in the Chicago area rebounded last month, another sign that manufacturing is starting to recover from difficult times. The Chicago PMI gained 6 points to 53.6 in March banking on an uptick in production and employment. 3 Mutual Funds to Ride the Manufacturing Wave Economic activity at U.S. manufacturing companies grew in March for the first time since last summer as indicated by the ISM manufacturing index. The economy was able to shake off the adverse effects of a stronger dollar and slump in oil prices. While a stronger dollar had made export-oriented goods expensive, lower oil prices hindered growth in energy sectors. Based on encouraging readings on factory activity, it seems that manufacturing is on resurgence. Harm Bandholz, chief U.S. economist at UniCredit Bank AG, said that “the rebound in the sentiment data avoids a self-fulfilling negative spiral” and it means “manufacturing will be less of a drag on the economy.” Add to this factory orders’ advance of 1.6% in January, its strongest increase since last June and you know why the manufacturing collapse is now over. In this scenario, it will be wise to invest in mutual funds that have significant holdings in the industrial sector. Here we have selected three industrial mutual funds that boast a Zacks Mutual Fund Rank #1 (Strong Buy) or #2 (Buy), have given positive 3-year and 5-year annualized returns, offer minimum initial investment within $5000, carry a low expense ratio and possess no-sales load. Fidelity Select Defense & Aerospace Portfolio (MUTF: FSDAX ) invests the majority of its assets in securities of companies involved in the manufacture and sale of products or services related to the defense or aerospace industries. FSDAX has 96.97% of its holdings in the Industrials sector. FSDAX’s 3-year and 5-year annualized returns are both at 11.7%. FSDAX carries a Zacks Mutual Fund Rank #1 and the annual expense ratio of 0.79% is lower than the category average of 1.33%. Fidelity Select Industrial Equipment Portfolio (MUTF: FSCGX ) invests a major portion of its assets in securities of companies principally engaged in the manufacture or service of products for the industrial sector. FSCGX has 95.94% of its holdings in the Industrials sector. FSCGX’s 3-year and 5-year annualized returns are 9.1% and 7.7%, respectively. FSCGX carries a Zacks Mutual Fund Rank #1 and the annual expense ratio of 0.77% is lower than the category average of 1.33%. Fidelity Select Industrials (MUTF: FCYIX ) invests a large portion of its assets in securities of companies primarily involved in the development, distribution or sale of industrial products or equipment. FCYIX has 94.37% of its holdings in the Industrials sector. FCYIX’s 3-year and 5-year annualized returns are 10.1% and 9.5%, respectively. FCYIX carries a Zacks Mutual Fund Rank #2 and the annual expense ratio of 0.78% is lower than the category average of 1.33%. About Zacks Mutual Fund Rank By applying the Zacks Rank to mutual funds, investors can find funds that not only outpaced the market in the past, but are also expected to outperform going forward. Pick the best mutual funds with the help of Zacks Rank. Original Post

Are There Dangers In Not Diversifying Your Portfolio?

Originally published on March 15, 2016 When it comes to investing, the key for most people to make money is to avoid as much risk as possible. In order to accomplish this, it’s best that all investors decide to diversify their portfolios in all possible ways. However, while it may sound simple, diversification is anything but that. However, by following a few simple rules it’s possible to diversify one’s portfolio in such a way that avoids huge losses. Just What Is Diversification? Diversifying a portfolio is just as it sounds. Rather than put all their money into a particular stock, investors should always look to invest their money in as many different avenues as available. By doing so, they greatly reduce the risk of losses occurring due to their money being tied up in only one industry. While diversification does not completely guarantee against financial losses happening, it has proven to be the most useful tactic when it comes to making a person’s money grow. Various Types of Risk When investing in stocks , bonds, or other financial instruments, there is always a certain level of risk involved with the venture. However, by having a good understanding of these risks, investors greatly increase their chances of minimizing losses or having none at all. There are two major types of diversification, which are known as diversifiable and non-diversifiable. Non-diversifiable risk is that which is associated with any type of company or industry, such as inflation, cost-of-living, and political instability. This is considered the type of risk that cannot be avoided, so it must be weighed in relation to other risks as to how it will affect a portfolio. However, diversifiable risk is directly tied to an industry, company, or even a particular country. To avoid having issues due to this type of risk, investors should have various assets within their portfolios that all have different reactions to the same situation, which in turn will lead to a safer investment strategy. Be Open to New Strategies One of the biggest mistakes many investors make is having tunnel vision when it comes to their investing strategies. When this happens, they often experience larger losses in their portfolios than other people who have spread their money around to many different places. Not only should a person not invest solely in one company, but they should also be careful not to invest in companies or industries that have a strong correlation to one another. If this happens, the likelihood of losses increases substantially. Opposites Attract Not only do opposites attract when it comes to love, but to diversifying as well. Along with being open to new strategies, it’s also advantageous for investors to look for various asset classes that tend to move in opposite directions. A great example of this is stocks and bonds, which while related tend to go in opposite directions almost daily. This allows them to offset the unpleasant moves of one asset class with the positive ones of another, which over time will keep a portfolio far less vulnerable to market swings. As a general rule, investors who are just beginning to put together their portfolios are almost always advised to include bonds, which tend to offset any losses sustained with stocks. There Are No Guarantees While diversifying a portfolio does not automatically guarantee investment success, it has been shown to increase the likelihood of positive returns over time. However, it’s important to note that even if your portfolio is correctly diversified, some risk can never be eliminated . This is where we talk about over diversification. This is a big problem that big investors, and experts warn others about, because it has the potential to undo all your efforts. It’s common consensus that wide diversification within your portfolio can cause investing to be more confusing than it normally would be, since you have so many eggs in so many baskets. Understanding that there is a point at which the benefits of diversification stop reducing risk, and instead start eating away at investment returns is crucial, otherwise, you’re just stuck with a hodgepodge mess of a portfolio. When it comes to reaching one’s financial goals, virtually every investor has their own set of unique plans. Most financial planners agree that investors who don’t let themselves get too high or too low depending on the market conditions will always do best, while others who invest too heavily in one direction often run into problems. By taking diversification seriously and taking the time to learn about the benefits associated with it, investment success can be had. This guest article was written and provided by Accuplan Benefits Services, a self-directed IRA administrator.