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Best And Worst Q3’15: Mid Cap Growth ETFs, Mutual Funds And Key Holdings

Summary The Mid Cap Growth style ranks eighth in Q3’15. Based on an aggregation of ratings of 11 ETFs and 382 mutual funds. MDYG is our top-rated Mid Cap Growth ETF and IMIDX is our top-rated Mid Cap Growth mutual fund. The Mid Cap Growth style ranks eighth out of the 12 fund styles as detailed in our Q3’15 Style Ratings for ETFs and Mutual Funds report. It gets our Neutral rating, which is based on an aggregation of ratings of 11 ETFs and 382 mutual funds in the Mid Cap Growth style. See a recap of our Q2’15 Style Ratings here. Figures 1 and 2 show the five best and worst-rated ETFs and mutual funds in the style. Not all Mid Cap Growth style ETFs and mutual funds are created the same. The number of holdings varies widely (from 23 to 626). This variation creates drastically different investment implications and, therefore, ratings. Investors seeking exposure to the Mid Cap Growth style should buy one of the Attractive-or-better rated ETFs or mutual funds from Figures 1 and 2. Figure 1: ETFs with the Best & Worst Ratings – Top 5 (click to enlarge) * Best ETFs exclude ETFs with TNAs less than $100 million for inadequate liquidity. Sources: New Constructs, LLC and company filings Figure 2: Mutual Funds with the Best & Worst Ratings – Top 5 (click to enlarge) * Best mutual funds exclude funds with TNAs less than $100 million for inadequate liquidity. Sources: New Constructs, LLC and company filings The State Street SPDR S&P 400 Mid Cap Growth ETF (NYSEARCA: MDYG ) is the top-rated Mid Cap Growth ETF and the Professionally Managed Portfolios Congress Mid Cap Growth Fund (MUTF: IMIDX ) is the top-rated Mid Cap Growth mutual fund. Both earn an Attractive rating. The QuantShares U.S. Market Neutral Momentum Fund ETF (NYSEARCA: MOM ) is the worst-rated Mid Cap Growth ETF and the Starboard Investment Goodwood SMID Cap Discovery Fund (MUTF: GAMAX ) is the worst-rated Mid Cap Growth mutual fund. MOM earns a Neutral Rating and GAMAX earns a Very Dangerous rating. The Buckle, Inc. (NYSE: BKE ) is one of our favorite stocks held by Mid Cap Growth funds and earns our Very Attractive rating. Over the past decade, the company has grown after-tax profit (NOPAT) by 14% compounded annually. The company currently earns a top-quintile return on invested capital ( ROIC ) of 32%, which is more than double the 15% earned in 2005. Furthermore, Buckle has maintained a steady NOPAT margin of 15% for the past six years. Despite the fundamental strength of the business, its stock remains undervalued. At the current price of $40/share, Buckle has a price to economic book value ( PEBV ) ratio of 0.0. This ratio implies that the market expects Buckle’s profits to permanently decline by 20%. While the retail sector has its ups and downs, this low expectation ignores the profitability Buckle has maintained over its lifetime. If the company can grow NOPAT by just 6% compounded annually for the next ten years , the stock is worth $74/share – an 85% upside. ServiceNow (NYSE: NOW ) is one of our least favorite stocks held by Mid Cap Growth funds and earns our Dangerous rating. Much like other cloud companies we have covered, ServiceNow has never turned a profit since going public. NOPAT declined from -$30 million in 2012 to -$141 million in 2014. On top of falling profits, the company earns a bottom-quintile ROIC of -74%. Investors are ignoring these fundamental issues in favor of misleading revenue growth, and the stock remains overvalued as a result. To justify the current price of $69/share, ServiceNow must immediately achieve a positive pre-tax (NOPBT) margin of 10% (compared to -21% in 2014) and grow revenue by 31% compounded annually for the next 15 years . We feel the expectations embedded in NOW are far too optimistic. Figures 3 and 4 show the rating landscape of all Mid Cap Growth ETFs and mutual funds. Figure 3: Separating the Best ETFs From the Worst Funds (click to enlarge) Sources: New Constructs, LLC and company filings Figure 4: Separating the Best Mutual Funds From the Worst Funds (click to enlarge) Sources: New Constructs, LLC and company filings D isclosure: David Trainer and Max Lee receive no compensation to write about any specific stock, style, style or theme. Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More…) I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Returning To Some Popular ETF Trades

The WisdomTree Japan Hedged Equity ETF is still among the top 10 asset gatherers. It might be easy to assume some of this year’s most popular ETF trades among professional investors are losing momentum. Recently slowing momentum for currency hedged ETFs does not mean investors should abandon the asset class altogether. By Todd Shriber, ETF Professor The WisdomTree Europe Hedged Equity ETF (NYSEARCA: HEDJ ) and the Deutsche X-trackers MSCI EAFE Hedged Equity ETF (NYSEARCA: DBEF ) , are still the top two asset-gathering exchange traded funds on a year-to-date basis, having hauled in more than $28.6 billion combined. Additionally, the WisdomTree Japan Hedged Equity ETF (NYSEARCA: DXJ ) is still among the top 10 asset gatherers as well. However, with the dollar recently faltering as traders pare back expectations that the Federal Reserve will raise interest rates next month and with the euro and yen seeing safe-haven buying in the midst of turmoil across global financial markets, it might be easy to assume some of this year’s most popular ETF trades among professional investors are losing momentum. ‘Just’ $5.9 Billion “ETFs that hedge against currency risk have attracted just $5.9 billion since the end of June as a rally in the greenback slowed. That compares with the $41 billion they lured in the first six months of the year, when a surging dollar imperiled international returns for U.S. investors,” according to Bloomberg as of August 19. “Just” $5.9 billion is no small sum and it bears noting that DBEF, a currency hedged play on the widely followed MSCI EAFE Index, and HEDJ have added over $3.8 billion combined in the current quarter. Only the Vanguard S&P 500 ETF (NYSEARCA: VOO ) has added more new money this quarter than DBEF. The Currency-Hedged Asset Class Recently slowing momentum for currency hedged ETFs does not mean investors should abandon the asset class altogether. In fact, some market observers see opportunity with some of these funds, even as some professional investors get skittish about the dollar rally. “The trades everyone had on at the beginning of the year, and have either since abandoned or plan to this week, are likely the trades that work into year-end-that is, a steeper curve in fixed income, strong U.S. dollar, long Japanese and European equities currency hedged, etc.,” said Rareview Macro founder Neil Azous in a recent note. A German Example Azous highlighted the iShares Currency Hedged MSCI Germany ETF (NYSEARCA: HEWG ) , as a potential area of opportunity following the savage correction endured by Germany’s benchmark DAX. There is a DAX-tracking ETF here in the U.S., the Recon Capital DAX Germany ETF (NASDAQ: DAX ) . Even with Tuesday’s 3.1 percent gain, DAX is still down more than 5 percent over the past month. Azous noted that German stocks are further along in their correction phase than their broader European and U.S. counterparts. Perhaps the green light on the hedged Germany trade, at least for contrarians, is this anecdote: Investors are abandoning the trade. Including HEWG, there are three euro-hedged Germany ETFs trading in New York and all three have lost assets this quarter to the tune of over $55 million. Disclaimer: Neither Benzinga nor its staff recommend that you buy, sell, or hold any security. We do not offer investment advice, personalized or otherwise. Benzinga recommends that you conduct your own due diligence and consult a certified financial professional for personalized advice about your financial situation. Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More…) I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Why American Electric Power’s Recent Rally Will Continue, In 4 Charts

Summary Oversupply in the natural gas market will keep prices under pressure, and this will act as a catalyst for AEP since it is increasingly using the fuel for power generation. The company’s increasing usage of natural gas and other renewable sources will help it reduce costs by 13% this year and 28% next year as compared to 2014 levels. American Electric will benefit from an increase in retail electricity prices and an increase in electricity consumption going forward, which will allow it to arrest the decline in its top line. AEP’s valuation indicates bottom-line growth going forward while its payout ratio of 59% and aggressive cost reductions will allow it to sustain its dividend. Utility company American Electric Power (NYSE: AEP ) has gained some momentum in the past one month after releasing its second-quarter results at the end of July, with the stock gaining almost 3%. This is despite the fact that American Electric had posted mixed results , as its top line declined year over year and missed the consensus estimate by a wide margin. However, the company’s bottom-line performance was stronger than expected, which can be attributed to costs of electricity generation. Looking ahead, I believe that the company will be able to sustain its recent momentum going into the remainder of the year. Let’s see why. Lower natural gas prices will lead to better margins On account of massive oversupply in the U.S. natural gas market, the price of the fuel is not expected to rise anytime soon. There is news that the U.S. is considering increasing the exports of LNG, which could lead to higher prices. But, in the short run, the oversupply in the market will keep prices down. For example, on July 31, natural gas inventory stood at 2,912 Bcf, which is 23% higher than the prior-year period. The EIA believes that this level of inventory will go up to 3,867 Bcf at the end of October, up 1.8% as compared to the five-year average. Thus, higher inventory will keep natural gas prices, which are already down 11% in 2015, under more pressure. This will help American Electric to improve its margins going forward, as natural gas has turned into the largest source of electricity generation in the U.S. Given the dynamics in the natural gas market, it is not surprising to see why American Electric will increase the use of the fuel in electricity generation. As shown in the following chart, apart from natural gas, American Electric will use more renewable resources to eliminate extra costs associated with coal. (click to enlarge) Source: Investor relations As a result, by reducing its dependence on coal and using more of natural gas along with other energy sources, American Electric’s costs are expected to decline 13% this year and 28% next year as compared to 2014 levels, as shown below. Source: American Electric Higher electricity retail prices and demand will aid revenue growth The EIA expects the retail price of electricity in the U.S. for the residential sector to average 12.8 cents per kilowatt hour in fiscal 2015. This is approximately 2.5% higher than the average price in fiscal 2014. Also, it is expected that the retail price for commercial as well as industrial sectors will grow by 2% and 0.4%, respectively, in fiscal 2015. More importantly, the trend is expected to continue going into 2016 as well, with prices in all three sectors expected to rise. This is shown in the following chart: Source: EIA Along with the improvement in electricity rates, consumption is also slated to increase this year. For instance, residential consumption is expected to average 1,044 killowatthours per month during June, July, and August. This is about 3.7% higher than the consumption level last year. The increase in the consumption level will be driven by an expected 14% increase in summer cooling degree days in 2015. All in all, retail sales of electricity to the residential sector during 2015 are expected to grow by 0.4% from 2014 levels. In addition, American Electric expects reasonable sales growth for its commercial as well as industrial retail classes. The following illustrates its sales estimates for the fiscal-year 2015: (click to enlarge) Source: Investor presentation Hence, American Electric is well positioned to benefit from both an increase in electricity consumption and higher pricing. This will allow the company to improve its financial performance going forward. Valuation and takeaway Apart from strong end-market prospects, American Electric also has an impressive valuation that indicates earnings growth in the future. Its forward P/E of 15.4 is lower than the trailing P/E of 16.1, indicating positive bottom-line growth going forward. Additionally, the company carries a strong dividend yield of 3.60% at a payout ratio of 59%. Now, American Electric Power is reducing its costs by using natural gas while it will also benefit from better demand and pricing conditions. As a result, the company should be able to sustain its dividend in the future. Thus, according to me, investors should continue holding American Electric Power as the stock’s recent run will continue going forward. Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More…) I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.