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4 Utility ETFs Gaining Despite Lackluster Q4

At the tail end of the earnings season, the retail and utility sectors are the only ones with a number of companies yet to report results. As per Earnings Trend report, earnings of all the utility companies that have reported so far are down 5% year over year for the fourth quarter of 2015, with 21.4% of the companies beating the Zacks Consensus Estimate. Meanwhile, revenues are down nearly 13.3% for the quarter, with none of them surpassing the Zacks Consensus Estimate. The utility sector failed to impress in its fourth-quarter results with earnings and revenue miss from some of the major players in the space, including Duke Energy Corporation (NYSE: DUK ) and Dominion Resources Inc. (NYSE: D ). Although some companies like NextEra Energy (NYSE: NEE ) managed to beat on earnings, revenues came short of expectations. However, the slowdown in U.S. economic growth, Chinese market turbulence and plunging oil prices along with other factors resulted in a bearish environment, which led to demand for securities from sectors that provide a safer option. Thus, the utility sector, which is considered to be one of the safer options when the market is exhibiting a high level of volatility, managed to remain in the green over the last one month despite lackluster results (read: 3 Utility ETFs in Focus on Market Downturn ). Below we have highlighted the quarterly results of the aforementioned utility companies in detail. Duke Energy Duke Energy reported adjusted earnings of 87 cents per share for the quarter that fell short of the Zacks Consensus Estimate of 94 cents by 7.4%. However, quarterly earnings increased by a penny year over year on the back of higher retail pricing and wholesale margins in the regulated business. Total revenue was $5,351 million, lagging the Zacks Consensus Estimate of $5,709 million by 6.3%. The company has provided 2016 earnings guidance in the range of $4.50 to $4.70 per share. Shares of the company declined 1.4% (as of February 19, 2016) since its earnings release. NextEra Energy NextEra Energy’s quarterly adjusted earnings of $1.17 per share beat the Zacks Consensus Estimate of $1.11 by 5.4%. Earnings climbed 13.6% year over year on the back of higher revenues from Florida Power & Light Company. However, revenues of $4,069 million missed the Zacks Consensus Estimate by 2.6% and decreased 12.8% from the year-ago level. NextEra reiterated its earnings guidance of $5.85-$6.35 for 2016. Shares of the company went up 7.5% since its earnings release (as of February 19, 2016). Dominion Resources Dominion Resources’ quarterly earnings of 70 cents per share lagged the Zacks Consensus Estimate of 87 cents by 19.5%. Earnings decreased 16.7% from 84 cents per share in the prior-year quarter due to mild weather conditions in its service territories, absence of a farmout transaction and the impact of bonus depreciation. The company’s operating revenues of $2,556 million also missed the Zacks Consensus Estimate of $4,092 million by 37.5% and declined about 13.1% year over year. Dominion expects to earn 90 cents to $1.05 per share for the first-quarter 2016 compared with 99 cents per share in the year-ago period. The company expects earnings for 2016 in the range of $3.60 to $4.00 per share. Shares of the company fell 3.8% since its earnings release (as of February 19, 2016). ETFs in Focus Mixed results notwithstanding, many utility stocks managed to hold up gains over the past one month, sending the related ETFs higher. This has put the spotlight on utility ETFs. Below we discuss four of these ETFs having a sizeable exposure to the above stocks, holding Zacks ETF Rank #3 (Hold) with a Medium risk outlook (see all Utilities/Infrastructure ETFs here ). Utilities Select Sector SPDR (NYSEARCA: XLU ) XLU is one of the most popular products in the space with nearly $7.6 billion in AUM and average daily volume of roughly 14 million shares. The fund tracks the Utilities Select Sector Index and holds 31 stocks with NextEra Energy, Duke Energy and Dominion Resources among the top five spots with a combined exposure of nearly one-fourth of its total assets. Sector-wise, Electric Utilities (57.82%) dominates the fund followed by Multi-Utilities (38.85%). The fund charges 14 bps in investor fees per year. The ETF has posted gains of 7.3% in the past month (read: 4 Utilities to Buy in a Bear Market ). Vanguard Utilities ETF (NYSEARCA: VPU ) This ETF tracks the MSCI US Investable Market Utilities 25/50 Index. The fund holds 82 stocks in its basket. Duke Energy, NextEra Energy and Dominion Resources occupy the top four positions in the fund with a combined exposure of a little more than 20%. More than half of the fund’s assets are invested in Electric Utilities followed by Multi-Utilities (33.8%). The fund has amassed almost $2 billion in its asset base and trades in a moderate volume of 175,000 shares per day. The fund has a low expense ratio of 0.10%. The ETF has surged 7.6% in the last one-month period. iShares Dow Jones US Utilities (NYSEARCA: IDU ) The fund follows the Dow Jones U.S. Utilities Sector Index and holds 59 stocks in its basket. Duke Energy, NextEra Energy and Dominion Resources are placed among the top five stocks in the fund, together accounting for a share of more than 21% of total assets. On a sectoral basis, Electric Utilities (53.28%) and Multi-Utilities (34.51%) hold the top two positions in the fund. The fund manages an asset base of around $764 million and exchanges about 199,000 shares per day. It is a bit expensive with 44 bps in annual fees. IDU was up 7.5% in the last one-month period. Fidelity MSCI Utilities ETF (NYSEARCA: FUTY ) This ETF tracks the MSCI USA IMI Utilities Index. The fund holds 83 stocks in its basket. Duke Energy, NextEra Energy and Dominion Resources are among the top four in the fund with a combined exposure of a little more than 20%. More than half of the fund’s assets are invested in Electric Utilities followed by Multi-Utilities (33.8%). The fund has amassed almost $231 million in its asset base and trades in a moderate volume of 140,000 shares per day. The fund has an expense ratio of 0.12%. FUTY was up 7.5% in the last one-month period. Original Post

AT&T, T-Mobile Step Up Prepaid Wireless Battle Amid Economy Worries

The one-fifth of U.S. mobile phone users that buy prepaid wireless services stand to get much better data deals as AT&T ( T ), T-Mobile US ( TMUS ), and Sprint slug it out. “The prepaid market is heating up with surprising deals,” said Roger Entner, chief analyst at consulting firm Recon Analytics. So-called postpaid wireless subscribers historically got the most bang for their money. Postpaid subscribers had two-year service contracts and were billed monthly. Service contracts have been phased out recently along with retail subsidies for Apple ( AAPL ) iPhones and other high-end smartphones. Most postpaid subscribers now buy phones in monthly installment plans. Prepaid customers, who typically bought less pricey phones upfront, generally were provided slower data services. But that’s changing. “Prepaid users are getting more 4G data at cheaper rates than ever,” Entner said. “When you look at the fighter brands (Cricket and MetroPCS, the most aggressive), you see the old days of prepaid being more expensive (per megabyte) than postpaid are gone.” Entner says MetroPCS customers get unlimited voice calls, texting and 3 gigabytes of 4G data for $40. A similar deal at Cricket provides 2.5GB of data. T-Mobile sells prepaid services under the MetroPCS brand, while AT&T has Cricket. AT&T acquired Leap Wireless and its Cricket brand for $1.2 billion in March 2014. Since then, AT&T has stepped up Cricket advertising while opening more retail stores. AT&T has expanded Cricket’s marketing reach through deals with Wal-Mart ( WMT ), Target ( TGT ) and GameStop ( GME ). T-Mobile acquired prepaid specialist MetroPCS in 2013 and has kept the brand alive. Both T-Mobile and AT&T, by coincidence, said they added 469,000 prepaid subscribers in the December quarter, while Verizon Communications ( VZ ) shed 157,000 and Sprint ( S ) lost 491,000. Some of Sprint’s prepaid subscribers upgraded to postpaid plans. On T-Mobile’s Q4 earnings conference call Feb. 10, CEO John Legere said that he expects the prepaid battle to heat up. “We’re killing it in prepaid,” Legere said. T-Mobile also sells prepaid services under the Boost Mobile and Virgin Mobile brands. “The majority of our growth is on MetroPCS, as opposed to our other brands,” Legere said. “Cricket has had some success, but AT&T is bleeding postpaid subscribers. We see MetroPCS’ main target not to be Cricket per se but to be Sprint. And I think you’ll see a lot more competition between MetroPCS and Sprint.” AT&T has lost postpaid phone subscribers for five quarters in a row, including 256,000 shed in Q4. Prepaid, Postpaid Wireless Lines Blur Marketing lines have blurred between the prepaid and postpaid customer segments, analysts say. Many prepaid plans renew automatically every month. Phone financing plans still lock in postpaid subscribers, though it’s easier for consumers to exit deals. “We’ve seen a shift in consumers from low-end, pay-as-you-go type (prepaid) plans to higher-quality plans,” Legere said. Prepaid plans start at around $25. America Movil ’s ( AMX ) TracFone subsidiary, with 25.6 million U.S. customers, focuses on the lower-spending part of the prepaid market. TracFone’s growth has stalled, though. Analysts say the prepaid market could be more important strategically if the U.S. economy slows down. Most economists do not forecast a recession in 2016. Some of T-Mobile’s postpaid subscriber growth has come from prepaid users converted to postpaid plans, with monthly installment plans for phone upgrades. Sprint in the second half of 2015 began adding postpaid phone subscribers for the first time in five years, including its Nextel brand. Some of Sprint’s prepaid subscribers also have migrated to postpaid plans. One concern among investors, said Oppenheimer analyst Tim Horan in a 2016 outlook research report, “remains that T-Mobile and Sprint are financing low-credit-quality customers and will get hurt in any potential economic weakness.” In Q4, T-Mobile reported “bad debt expense” of $228 million, up 52% from the year-earlier period. But Craig Moffett, an analyst at MoffettNathanson, says that worries could be overblown. “T-Mobile has never been able to fully shake the perception that its subscriber base is of lower credit quality than that of its peers,” said Moffett in a report. “Those customers would be hard hit in a recession. “The counter-argument is equally compelling. (It) holds that in a recession price sensitivity generally rises and that T-Mobile would actually benefit.” T-Mobile has gained share with its Uncarrier-branded marketing and price cutting. In November, T-Mobile launched “Binge On Demand,” which offers free video streaming. In Q4, T-Mobile added 917,000 postpaid phone subscribers. Verizon added 449,000, while Sprint added 366,000. In 2015, T-Mobile added 4.5 million postpaid subscribers, including about 1 million tablet users, and it added 1.3 million prepaid customers. AT&T lost 1.27 million postpaid phone subscribers, while gaining 1.36 million prepaid subscribers in 2015. “We expect AT&T will continue to be active with prepaid Cricket promotions while focusing on profitable, high-value customers in postpaid,” said UBS analyst John Hodulik in a report. Image provided by Shutterstock .

The Best And Worst Of January: Multialternative Funds

Multialternative mutual funds and ETFs averaged losses of 1.60% in January, bringing their average one-year returns through the end of the month to -4.23%. Over the longer three- and five-year periods, multialternative funds have generated positive annualized returns, but at just +0.87% (three-year) and +1.66% (five-year), those returns have delivered negative alpha of 0.81 and 0.99, respectively, relative to Morningstar’s long-only Moderate Target Risk Index. As a whole, the category is host to 163 funds with combined assets of $62.5 billion. At $8.9 billion, the John Hancock Global Absolute Return Strategies Fund (MUTF: JHAIX ) is the largest fund in the category with a 14.2% market share, while the top 10 funds hold a total of $31.7 billion in assets – just over 50% of the category’s total assets. Top Performers in January January’s top-performing multialternative fund was able to generate big gains of 7%, while the second- and third best funds added between 2-3%. The three best-performing multialternative funds in January were: CMG Global Macro Strategy Fund (MUTF: PEGAX ) Absolute Strategies Fund (MUTF: ASFIX ) Vanguard Alternative Strategies Fund (MUTF: VASFX ) PEGAX, the top-performing fund of January, only launched in December 2015. In its first full calendar month, PEGAX returned an impressive +7.00%. According to Morningstar, $10,000 invested in the fund at its inception would have grown by $120 as of February 17 – not bad for just over two months. ASFIX (one of the oldest funds in the category) and VASFX produced gains of 2.87% and 2.83%, respectively, in what was a volatile January for the markets. Of the two funds, only ASFIX has been trading at least a year, and it returned +0.31% for the 12 months ending January 31. The fund’s one-year alpha and beta numbers were -2.25% and -0.65 (relative to the Morningstar Moderate Target Risk Index), through that date, with a Sharpe ratio of 0.07 and volatility of 5.49%. These numbers compare somewhat favorably to the category averages of -2.29%, 0.49, -0.82, and 5.76%. Worst Performers in January While the bottom three funds struggled as equity markets sold off in January, there is a silver lining – the month’s worst-performing fund was solidly in the black for the year ending January 31. The three worst-performing multialternative funds in January were: Catalyst Macro Strategy Fund (MUTF: MCXAX ) Quantified STF Fund (MUTF: QSTAX ) Tocqueville Alternative Strategies Fund (MUTF: TALSX ) Although MCXAX was January’s worst-performing fund by a long shot at -10.24%, the fund was actually the category’s top performer for the year ending January 31, with gains of 32.05%! With a beta of 2.71 to the Morningstar Moderate Target Risk Index, these one-year gains produced an alpha of 42.08% and a Sharpe ratio of 1.19. However, volatility came in at a whopping 26.03% – numbers that are somewhat reminiscent of Barry Bonds’ late-career stats. QSTAX saw its shares fall by 8.05% in January. The fund, which only launched in November 2015, doesn’t have a long enough track record for further analysis. Finally, TALSX was the third-worst performing multialternative fund in January, with one-month losses of 6.53%. For the year ending January 31, TALSX lost 9.45%, thanks to an alpha of -5.30%. Its beta over the time period was 1.05, while its one-year Sharpe ratio stood at -1.00, and its annual volatility was 9.53%. Past performance does not necessarily predict future results. Jason Seagraves contributed to this article.