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Small-Cap Value ETFs: The Right Play Now?

The ominous clouds that have been hanging over the U.S. small-cap ETFs space since the start of the year seem to be dispersing now. The space came under pressure at the beginning of 2016 due to a raft of downbeat U.S. economic readings, weaker greenback and risk-off trade sentiments in the market (owing to global growth worries as well as oil price turmoil) and threw U.S. small-cap ETFs out of investors’ favor. However, things are turning around lately with a volley of improving U.S. economic data, be it labor market, retail and manufacturing. Though the Fed reduced its forecasts for rate hikes in 2016 from four to just two hikes, a few hawkish comments from some Fed officials revived the rate hike talks. As per these officials, the reduced rate hike projection mainly reflected the tantrums thrown by the global financial market, which are now showing signs of cooling off. The two important indicators to measure the timing of another rate hike – labor market and inflation – are both stabilizing. San Francisco Fed president even said that he would promote a hike as early as April. Meanwhile, Q4 2015 U.S. GDP was adjusted higher, from the advanced estimate of 0.7% to 1.0% in the second estimate and then finally to 1.4% in the third reading. This is the reason that small-cap stocks could arguably be better plays in today’s economy. Small caps perform better when the domestic economy is marching higher as these pint-sized stocks generate most of their revenues from the domestic market, turning out to be safer bets than their large and mid-cap cousins. As these are less exposed to foreign markets, these stocks remain less scathed by the stronger greenback. Having said this, we would like to note that uncertainties in the economy still persist. The latest data which showed that the U.S. consumer spending grew slightly in February and overall inflation moved back gave us some reasons to doubt the possibility of an April rate hike. Also, small caps normally experience higher levels of volatility. That is why investors intending to bet on small-cap ETFs may also need some amount of safety or value quotient in their portfolio. This strategy may prove fruitful for investors as the chances of the market going wild are higher next month. Analysts noted that, “during the periods when the Fed was raising interest rates, the value stocks had an average return of 1.2% a month, or 14.4% a year, versus the growth index’s 0.7% a month, or 8.3% a year.” Below we highlight three such ETFs which could be in focus in the coming days. SmallCap Dividend Fund (NYSEARCA: DES ) DES looks to track the performance of the WisdomTree SmallCap Dividend Index. The fund is one of the popular choices in the small-cap value space with about $1.17 billion in AUM. It charges 38 bps in fees. Holding more than 700 stocks in its basket, the product puts about 10% of its total assets in the top 10 holdings, suggesting low concentration risk. Sector wise, this ETF is heavy on financials (24.6%) followed by consumer discretionary (18.3%), industrials (16.5%) and utilities (10.0%). The fund has a yield of 2.94% per annum. The fund carries a Medium risk outlook along with a Zacks ETF Rank #3 (Hold). Vanguard Small-Cap Value ETF (NYSEARCA: VBR ) This fund provides exposure to the value segment of the U.S. small cap market by tracking the CRSP US Small Cap Value Index. It holds a large basket of 856 stocks, which is widely spread across individual securities as none of these has more than 0.6% of assets. In terms of sector exposure, financials dominates the portfolio at 30.4%, followed by industrials (20.2%) and consumer services (12.2%). The ETF is quite popular with AUM of more than $6.01 billion. It charges 9 bps in fees per year from investors. The fund has a dividend yield of 2.30% (as of March 28, 2016). VBR has a Zacks ETF Rank #3 with a Medium risk outlook. S&P Small Cap 600 Value Index Fund (NYSEARCA: IJS ) The fund looks to provide exposure to U.S. small-cap value stocks by tracking the S&P SmallCap 600 Value Index. The $3.23-billion fund holds a total of 453 small cap stocks. The fund appears diversified as no stock accounts for more than 1.07% of the basket. Among the different sectors, Financials, Industrials, Consumer Discretionary and IT occupy the top four positions with 21.7%, 18.9%, 16.4% and 16% of weight, respectively. The fund charges a premium of 25 basis points annually. This Zacks Rank #3 ETF yields 1.52% annually (as of March 28, 2016). Original Post

3 Mutual Funds To Buy As Consumer Spending Boost GDP

According to the “third estimate” of the U.S. Department of Commerce, the economy expanded at a rate of 1.4% in the fourth quarter of 2015 compared with the earlier estimate of a 1% rise. Moreover, the growth rate was above the consensus estimate of 1% gain. For the full year, GDP rose at an annual rate of 2.4%, in line with the 2014 growth rate. Thanks to consumer spending, which constitutes roughly 75% of the U.S. economy, GDP grew at a moderate pace in the fourth quarter despite weaknesses in the other major components of the economy. Steady growth in consumer spending is likely to have a positive impact on the retail sector, which attracts a major portion of consumer expenditure. Given this scenario, mutual funds having significant exposure to this sector may provide an excellent investment opportunity to seeking returns from this positive trend. Consumer Spending Boosting Economy According to the GDP report, personal consumption expenditure grew at a pace of 2.4% in the fourth quarter, preceded by a 3% rise in the third. In 2015, consumer spending rose 3.1% – the highest rate of increase since 2005. While spending on goods rose at a rate of 3.7% in 2015, the same on services increased 2.8% during the same time frame. Personal consumption expenditure contributed nearly 1.7% and 2.1% to GDP during the fourth quarter and last year, respectively. Consistent improvement in labor market conditions remained one of the key drivers of consumer spending. According to the latest data, the economy got a boost from 242,000 job additions in February, which exceeded January’s revised figure of 172,000 by a wide margin. Unemployment remained in line with January’s rate of 4.9%. Meanwhile, the GDP report showed that disposable personal income increased 2.3% in the fourth quarter, preceded by a 3.2% increase in the previous quarter. Also, it rose at a rate of 3.4% last year – the highest since 2006. The low inflation rate also gave a significant boost to consumer spending. According to the report, the personal consumption expenditure index (PCE) rose at a six-year low pace of 0.3% in 2015. Excluding food and energy prices, the index rose 1.3% – the lowest since 2011. Lingering Concerns A massive slump in business profits emerged as one of the main concerns in the fourth quarter. After-tax profits plunged 8.4% during the quarter, witnessing the largest decline since the first quarter of 2014. This was preceded by third quarter’s decline of 1.7%. After-tax profits slumped 5.1% last year, marking the biggest drop in the last seven years. Profits from current production plunged $159.6 billion last quarter, followed by a $33 billion decline in the third. Moreover, business investment declined 2.1% during the fourth quarter, in contrast to a 2.6% rise in the previous quarter. It subtracted nearly 0.3 percentage points from GDP figure. It is speculated that rising wages and an improving labor market will have a negative impact on the profit margin. Separately, exports declined 2.1% in the fourth quarter compared with a 0.7% rise in the third. Imports declined 0.7% in the last quarter. This is why net exports had a negative impact of more than 0.1% on the GDP number. Meanwhile, businesses witnessed a stock pile of $78.3 billion last quarter followed by $81.7 billion accumulated in the third quarter. This affected the GDP rate by more than 0.2 percentage points. 3 Mutual Funds to Buy Despite these concerns, the consumer-driven U.S. economy managed to register a moderate rate of growth on the back of positive factors including favorable labor market conditions, a low inflation rate and the low interest rate environment. The Fed recently reduced its forecast for the number of rate hikes this year from four to two. In this favorable environment, the retail sector is expected to benefit from steady growth in consumer spending as it attracts a major portion of the total spending. Against this backdrop, we highlight three retail focused mutual funds that carry either a Zacks Mutual Fund Rank #1 (Strong Buy) or #2 (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. These funds have encouraging one-month and three-year annualized returns. The minimum initial investment is within $5000. Also, these funds have a low expense ratio. Fidelity Select Consumer Discretionary Portfolio (MUTF: FSCPX ) seeks growth of capital. This fund invests a large portion of its assets in securities of companies involved in the manufacture and distribution of consumer discretionary products and services. Currently, FSCPX carries a Zacks Mutual Fund Rank #1. The product has one-month and three-year annualized returns of 3.9% and 13.5%, respectively. Annual expense ratio of 0.79% is lower than the category average of 1.41%. Putnam Global Consumer A (MUTF: PGCOX ) invests a large portion of its assets in securities of companies involved in the manufacture and distribution of consumer discretionary products and services. Currently, PGCOX carries a Zacks Mutual Fund Rank #1. The product has one-month and three-year annualized returns of 5.4% and 10.7%, respectively. Annual expense ratio of 1.26% is lower than the category average of 1.43%. Fidelity Select Retailing (MUTF: FSRPX ) seeks capital growth. FSRPX invests a major portion of its assets in securities of firms involved in merchandising finished goods and services to consumers. Currently, FSRPX carries a Zacks Mutual Fund Rank #2. The product has one-month and three-year annualized returns of 3.8% and 20.3%, respectively. Annual expense ratio of 0.81% is lower than the category average of 1.41%. 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

The Safest Stocks And ETFs For Momentum Investors Right Now

A momentum strategy is a favorite approach for many investors out there. Who doesn’t like the idea of buying a surging stock or ETF and riding it to even bigger gains? However, in uncertain market environments, like we find ourselves in today, you need to consider safety too. Equities have been extremely volatile as of late and many times momentum can be going against you. That is why investors who like the momentum style of investing may want to look to securities that are seeing positive price activity, but can provide investors with a margin of safety too. This approach may be the way to go for momentum investors in this uncertain time, and especially if markets remain shaky and prone to volatile negative moves in the weeks ahead. How to Invest Investors have a few ways to play this trend at their disposal. One way is by looking at securities that are in safer sectors like utilities or consumer staples. This approach will find safer stocks in general, and securities that aren’t as prone to big negative moves when the market is sliding lower. Another technique is to look at stocks that have great momentum scores, but are still trading at great values too. This can help investors to find the best-positioned stocks to surge that still have compelling valuations, which can give investors a nice margin of safety if broad markets turn south again. No matter which approach suits you, we have a few picks below, which fit the bill. There are two ETFs and two stocks, which either have strong momentum prospects, or utilize momentum-based strategies when selecting securities for inclusion in their benchmark. Take a look at this list for a few investments that should appease even the most discerning momentum investor out there for today’s market: Bob Evans Farms (NASDAQ: BOBE ) BOBE owns and operates a series of full-service restaurants around the United States including over 500 in 19 states, mostly in the Midwest. As a stock in the restaurant industry, the company is well positioned to take advantage of broad macro trends such as a better jobs market and lower gas prices. However, unlike others in the space, it is a low beta stock with a beta below 0.65. Earnings estimates have been rising as of late for this company, and it has a nice history in earnings season. The company has actually beaten in each of the last four quarters, including a 27% average beat in the past four reports. In terms of momentum, the security is easily trouncing its industry counterparts thanks to a 12-week price change of 17.66%. The stock has also seen some nice momentum on the earnings estimate revision front including a 4.2% increase over the past quarter in the full year EPS estimate and it has earned a momentum grade of ‘A’ too. However, not just momentum investors will like this security, as it has Value and Growth grades of ‘A’ as well. The stock actually has a VGM score of ‘A’ along with a Zacks Rank #2 (Buy) making it a compelling choice for investors in this market environment. PowerShares DWA Consumer Staples Momentum ETF (NYSEARCA: PSL ) In times of market uncertainty, staples can be a safe haven. So momentum investors who want to focus in on this sector can definitely consider PSL for their portfolios. PSL follows the Dorsey Wright Consumer Staples Technical Leaders Index, which looks to find about 30 stocks in the consumer staples universe with strong relative strength characteristics. The fund is a little on the pricey side with a 60 basis-point fee, but it does a great job of giving momentum investors access to this safe segment of the market. Current exposure is tilted towards the food product, beverages, and household products segment, while tobacco rounds out the industries that receive at least 10% of the total assets. Large caps do account for roughly 40% of the total assets, while mid cap securities receive a similar weight, leaving the rest for small cap securities. The beta on this segment is pretty low, coming in at just about 0.75. The fund has shown a nice alpha as of late, and this ETF can definitely be considered a relative safe haven for momentum investors in this rocky market. Shoe Carnival (NASDAQ: SCVL ) Retail remains an intriguing area of the market, though investors can’t just buy any consumer-focused stock out there. The shoe-retail market is a top area to watch right now thanks to a high industry rank that is in the top third overall and solid trends for U.S. consumer discretionary purchases. Shoe Carnival is well positioned to take advantage of these trends thanks to its wide network of over 400 stores across the nation, as well as its website. The company is expected to see double-digit EPS growth for this year, while it is expected to keep this trend up for the next year too. Earnings estimates have actually been rising as of late for this stock, and we haven’t seen any fresh estimates go lower for either the current quarter or the full year time frame. SCVL does have a pretty good track record at earnings season too, including a four-quarter average beat of 20%. Momentum investors will definitely like this stock thanks to its 14% gain over the past three months, which easily crushes the industry. The stock has also seen a full-year estimate increase of about 0.9%, which isn’t spectacular, but is great compared to an industry trend that is moving in the other direction. It is also worth pointing out that this stock also receives a Value and Growth Score of ‘A’, in addition to a VGM score of ‘A’ too. SCVL actually has a P/S and P/B ratio less than the industry at large, while it still has projected sales growth and cash flow growth better than the industry average. No wonder this is a Zacks Rank #2 (Buy) stock along with earning a momentum grade of ‘A’. Clearly, investors searching for values in this top ranked corner of the market would be well served by giving SCVL a closer look for their portfolios. First Trust Dorsey Wright Dynamic Focus 5 ETF (NASDAQ: FVC ) This brand-new ETF is based off of the ultra popular First Trust Dorsey Wright Focus 5 ETF (NASDAQ: FV ) which is also from First Trust. FV uses the DWA momentum model and applies it to the First Trust sector ETF lineup. It takes the five best-positioned sector funds (by relative strength) and invests in those for the portfolio. Well, FVC does the same thing, but with a twist on the methodology. The difference is that FVC includes investments in a cash equivalent, as represented by 1-3 month U.S. Treasury bills. The fund partially goes to this cash component when at least one third of funds in the universe have relative strength levels, which diminish compared to the cash index. This is evaluated on a bi-monthly basis and it can go from 0-95% of the fund. However, on each evaluation, 33% is the most that can be increased or decreased from the cash component. You can think of this as a safer or multi-asset version of FV. This will be great in markets that are trending lower or those that are even moving sideways. This makes the fund perfect for momentum investors who like the idea of buying sectors with the best relative strength characteristics, but with the option of moving into cash if the market isn’t favorable. Bottom Line Markets are rocky right now, but that doesn’t mean that investors need to give up. There are still plenty of ways that momentum-centric investors can buy securities in this market, you just need to go a little bit below the surface. Any of the picks highlighted above are definitely ones to consider for this situation, as they either focus on safe sectors, or look at securities that have the potential to surge, though they remain decent values for now. So if you are a momentum investor, there is no need to stick your head in the sand, just look to picks that can still satisfy your urge for momentum but will not be quite so volatile in today’s choppy market. Original Post