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5 ETFs Losing Half Or More Of Its Value In 2015

Overall, 2015 has not been good for the U.S. equity market, caught up as it was in a vicious circle of never-ending woes. It all started with Fed uncertainty, a strong dollar and slumping commodities, and then extended to geopolitical tensions and global growth concerns, especially in China. Additionally, the U.S. economy, which was growing at a faster rate in over a decade in 2014, has cooled off substantially this year. While healing labor market, a gradual recovery in the housing market, robust auto industry, and cheap fuel are driving growth, persistent weakness in manufacturing activity, plunging oil prices, and shaky consumer confidence are posing threats to economic expansion (read: 5 ETFs for Loads of Holiday Shopping Delight ). As a result, the major indices – the S&P 500 and Dow Jones – are in the red territory from a year-to-date look, losing 0.3% and 1.4%, respectively. In fact, a number of products have been crushed, piling up huge losses for many ETFs. Below, we have highlighted five ETFs that have been hit badly so far in 2015 and might continue their rough trading in the months ahead if the trends persist unabated. First Trust ISE-Revere Natural Gas Index ETF (NYSEARCA: FCG ) – Down 56.5% Natural gas producers have been the biggest laggard this year on falling natural gas price. This trend is likely to continue in the months ahead given declining demand, increasing production, and growing global glut. Additionally, the expectation of a milder weather for late December – the key period that drives heating demand – will push the natural gas price lower. The Energy Information Administration (NYSEMKT: EIA ) expects heating bill to decline 13% this winter (read: No Winter Cheer for Natural Gas ETFs? ). Consequently, FCG, which offers exposure to U.S. stocks that derive a substantial portion of their revenues from the exploration and production of natural gas, is down 56.5% in the year-to-date time frame. It follows the ISE-REVERE Natural Gas Index and holds 30 stocks in its basket, which are well spread out across components with none holding more than a 7.1% share. The fund has amassed $172 million in its asset base while charging 60 bps in annual fees. Volume is good with more than 1.7 million shares exchanged per day on average. The ETF has a Zacks ETF Rank of 5 or ‘Strong Sell’ rating with a High risk outlook. First Trust ISE Global Platinum Index ETF (NASDAQ: PLTM ) – Down 54.3% The precious metal space has been hit by the double whammy of the broad market commodity rout and rate hike concerns. Robust supply and dwindling demand are weighing on the price of platinum since the start of the year. Additionally, the prospect of a rate hike backed by solid job numbers and moderate inflation has dampened the appeal for platinum. As such, PPLT has fallen 54.3% so far this year. The fund provides exposure to the companies that are active in platinum group metals mining by tracking the ISE Global Platinum. In total, it holds 18 securities in its basket with double-digit concentration in the top three firms. Other firms do not hold more than an 8.07% share. South African firms take the largest share in the basket at 27.6% followed by double-digit exposure each in Australia, United Kingdom, United States, Russia and Canada. Market Vectors Coal ETF (NYSEARCA: KOL ) – Down 54.0% Coal has fallen completely out of favor over the past few years due to the thriving alternative energy space and weak global industry fundamentals. The depletion of fossil fuel reserves, global warming and high fuel emission issues, new and advanced technologies as well as more efficient applications are making clean power more feasible, reducing the demand for the black diamond. These are making it difficult for the coal miners to sustain their profitability and margins. As a result, the ETF targeting the global coal industry has seen a wild ride and was off nearly 54% so far this year. KOL tracks the Market Vectors Global Coal Index. Holding 27 securities in the basket, the fund is concentrated in the top 10 holdings at 64.6% of total assets. It has a Chinese focus accounting for 28.4% of the portfolio while U.S., Australia and Canada round off the next three. The fund has amassed $42.5 million in its asset base and trades in average daily volume of 71,000 shares. Expense ratio came in at 0.59%. KOL has a Zacks ETF Rank of 4 or ‘Sell’ rating with a High risk outlook. Yorkville High Income MLP ETF (NYSEARCA: YMLP ) – Down 52.7% MLP was the worst hit corner from the oil price carnage with YMLP shedding the most – 52.7% in the year-to-date time frame. Being an interest rate sensitive sector, these securities will be further impacted by rising rates. This bearish trend is likely to continue as the Fed is on track to increase rates as early as next week. The fund follows the Solactive High Income MLP Index, charging investors 82 bps in annual fees. Holding 26 stocks in its basket, it is highly concentrated in the top 10 holdings at 58.3%, suggesting higher concentration risk. Oil & gas pipeline products take the top spot from a sector look at 40%, followed by oil refining & marketing (12%), and oil & gas drilling (10%). The product has managed $101.3 million in AUM and trades in moderate volume of 137,000 shares. SPDR S&P Metals & Mining ETF (NYSEARCA: XME ) – Down 50.0% Thanks to plunging metal prices and weak global trends, this broad metal & mining ETF has also lost half of its value. Acting as leveraged plays on underlying metal prices, metal miners tend to experience huge losses than their bullion cousins in the slumping metal market. In particular, a strong U.S. currency is making dollar-denominated assets more expensive for foreign investors, thereby dulling the appeal for these commodities. The ETF offers a broad exposure to the U.S. metal and mining industry by tracking the S&P Metals & Mining Select Industry Index. Holding 30 stocks in its basket, it uses an equal weight methodology and does not put more than 6.8% of assets in a single security. In terms of industrial exposure, steel makes up a large chunk at 49.3%, while diversified metals and mining, and gold round out the next two spots with double-digit allocation each. The product has $242.4 million in AUM and trades in solid trading volumes of more than 2.6 million shares per day on average. It charges 35 bps in fees and expenses. Link to the original post on Zacks.com

How To Find The Best Style Mutual Funds: Q4’15

Summary The large number of mutual funds hurts investors more than it helps as too many options become paralyzing. Performance of a mutual funds holdings are equal to the performance of a mutual fund. Our coverage of mutual funds leverages the diligence we do on each stock by rating mutual funds based on the aggregated ratings of their holdings. Finding the best mutual funds is an increasingly difficult task in a world with so many to choose from. How can you pick with so many choices available? Don’t Trust Mutual Fund Labels There are at least 806 different Large Cap Value mutual funds and at least 5514 mutual funds across all styles. Do investors need 459+ choices on average per style? How different can the mutual funds be? Those 806 Large Cap Value mutual funds are very different. With anywhere from 15 to 735 holdings, many of these Large Cap Value mutual funds have drastically different portfolios, creating drastically different investment implications. The same is true for the mutual funds in any other style, as each offers a very different mix of good and bad stocks. Large Cap Value ranks first for stock selection. Small Cap Blend ranks last. Details on the Best & Worst mutual funds in each style are here . A Recipe for Paralysis By Analysis We firmly believe mutual funds for a given style should not all be that different. We think the large number of Large Cap Value (or any other) style mutual funds hurts investors more than it helps because too many options can be paralyzing. It is simply not possible for the majority of investors to properly assess the quality of so many mutual funds. Analyzing mutual funds, done with the proper diligence, is far more difficult than analyzing stocks because it means analyzing all the stocks within each mutual fund. As stated above, that can be as many as 735 stocks, and sometimes even more, for one mutual fund. Any investor worth his salt recognizes that analyzing the holdings of a mutual fund is critical to finding the best mutual fund. Figure 1 shows our top rated mutual fund for each style. Figure 1: The Best Mutual Fund in Each Style (click to enlarge) Sources: New Constructs, LLC and company filings How To Avoid “The Danger Within” Why do you need to know the holdings of mutual funds before you buy? You need to be sure you do not buy a fund that might blow up. Buying a fund without analyzing its holdings is like buying a stock without analyzing its business and finances. No matter how cheap, if it holds bad stocks, the mutual fund’s performance will be bad. Don’t just take my word for it, see what Barron’s says on this matter. PERFORMANCE OF FUND’S HOLDINGS = PERFORMANCE OF FUND If Only Investors Could Find Funds Rated by Their Holdings… The Calvert Social Investment Fund: Calvert Large Cap Core Portfolio (MUTF: CMIIX ) is the top-rated Large Cap Blend mutual fund and the overall top-rated fund of the 5514 style mutual funds that we cover. The mutual funds in Figure 1 all receive an Attractive-or-better rating. However, with so few assets in some, it is clear investors haven’t identified these quality funds. Disclosure: David Trainer and Kyle Guske II receive no compensation to write about any specific stock, style, or theme.

A Bullish Case For Dominion Resources

Dominion is down more than 8% over the past one year and 13.9% YTD. Energy Information Administration expects that generation from natural gas will increase from 27.5% in 2014 to 31.6% in 2016. Utility sector forward P/E valuation has dropped to 14.9x, very close to its historical average of 14.1x. The utility stocks have remained the favorite choice for regular income seeking investors with less risk appetite. The utility stocks have posted some impressive gains over the past several years, and valuations expanded significantly. However, Fed’s indication to hike the interest rate has changed the ground and utility in S&P 500 index is now the second worst performing sector, so far this year. Dominion Resources (NYSE: D ), one of the largest utilities in the U.S., has significantly underperformed, just like other utility stocks, as investors adopted a defensive strategy. As a result, Dominion is down more than 8% over the past one year and 13.9% YTD. (click to enlarge) Source: Yardeni Research Dominion’s portfolio mix is well diversified, and it has the generation capacity of approximately 24,400 megawatts along with 12,200 miles of natural gas transmission. However, the largest natural gas storage system capacity of 928 billion cubic feet distinct Dominion from other utility companies. Dominion’s gas storage and transportation operating revenues have surged 7.3% to $1,221 million, or 13.4% of total revenue, so far this year. The storage and transportation revenue will continue to rise in the fourth quarter and next year as demand for U.S. gas in 2015 is estimated to increase by 4.6%. Coal-fired electricity generation has remained the largest component of power generation in the U.S., but the industry dynamics have changed dramatically in the recent past. In April, gas-fired power generation surpassed coal for the first time. In the near-term, Energy Information Administration (NYSEMKT: EIA ) expects that generation from natural gas will increase from 27.5% in 2014 to 31.6% in 2016 amid low natural gas prices. It bodes well for the company as low natural gas prices will reduce the fuel costs and will help Dominion to deliver 5% – 6% earnings growth in 2016. On the other hand, the significant increase in gas demand will fuel Dominion’s gas storage revenue, which will mute the unfavorable impact from the unregulated business. Currently, Dominion produces approximately 34% electricity from natural gas, and coal generation is 27%. Dominion’s 1,358-megawatt combined-cycle plant in Brunswick County, which is expected to become operational in mid-2016 and three-on-one combined-cycle plant with production capacity of 1,588-megawatt Greensville County will increase the share of natural gas generation to approximately 45% by the end of 2018. The declining cost of generation from natural gas and advanced technology will further strengthen the operating margins in the coming years. Moreover, the anticipated contribution from ongoing growth projects including The Cove Point LNG export facility will start fueling earnings growth from 2018 onwards. Thus, these factors completely justify that Dominion’s earnings will grow at an estimated 3-year CAGR of 7.3%, and growth will pick the pace in 2018 due to the addition to major growth projects. Source: NASDAQ With the low natural gas and power prices, the unregulated utility sector’s revenue stream may tumble in the coming quarters. However, Dominion is pretty secure against this headwind as it generates approximately 68.7% of total operating revenue from regulated business and only 16.5% is unregulated. It bodes well for the company as the supportive regulatory environment will enable Dominion to maintain the profit margins while generating steady cash flows. Thus, the growing gas storage business and stable outlook of regulated business will protect the operating margins on stable operating revenues, and will also improve the cash flow to debt ratio from its current level of 15.5%. However, Dominion’s cash flow to debt ratio may remain lower as compared to estimated industry average of 21% for 2016 primarily due to $8.6 billion CAPEX in 2015 and 2016. Dominion’s management is pretty confident to sustain organic growth as the company is deploying quality assets and major projects are on time and budget. The combined-cycle plants and plan for 400-megawatt utility-scale solar generation will pave the way for achieving 80% to 90% operating revenue from regulated business, which will further stabilize revenue stream. Moreover, the management has indicated the there is no need for a big merger deal as the company is well-positioned to meet the future demand while continuing profitable growth. It is a good sign from investors’ perspective because the leverage ratio will remain in its current range of 1.68 times and shareholders will receive 8% annual dividend increase over the next five years. The dynamics are quite favorable for Dominion except the slight drop in electricity demand in the U.S. Moreover, the industry-wide initiatives to reduce the nuclear power production costs by 30% by 2018 also suggests some margin gains for the major utilities. However, the rising yield on 10-year U.S. Treasury note is putting downward pressure on utility stocks, and the interest rate hike is pending yet. The Philadelphia Utility Index (UTY) is already down approximately 16% from its peak at the start of 2015 and Dominion followed the decline. Resultantly, utility sector forward P/E valuation has dropped to 14.9x , very close to its historical average of 14.1x and significantly lower than S&P 500 index forward PE of 15.6x. It is quite an aggressive reaction from investors. Fed has hinted several times that it will follow the gradual and cautious strategy to hike the rate. That said, if it happens, the rate will start increasing from a very low level that Dominion’s yield will still be attractive. Moreover, the interest rate will also increase the ROE, which will partially offset the additional finance cost burden. (click to enlarge) Source: NASDAQ The drop in stock price has pushed Dominion’s dividend yield to a very attractive level of 3.97%. And, now Dominion is trading at trading at a forward PE of 17.1x, significantly less than the 5-year historical average of 36.2x. Thus, it seems that the market has already incorporated the impact of interest rate hike and Dominion may perform well in 2016 as earnings of the company will sustain long-term growth owing to margin expansions and aggregate growth CAPEX of $14.9 billion from 2016 to 2020. That said, Dominion is still a very attractive dividend stock capable of providing upside potential once the dust settles.