Tag Archives: china

FSCLX – A Fund That Would Be Appreciated By Growth-Oriented Investors

Summary Is this a good time to invest in a growth-oriented fund? What are some risks in the current financial environment? What is the future outlook for U.S. corporations? Investors come in different categories. Some are willing to take high risk and hope to get high returns – these investors would gravitate towards hedge funds, short selling, and high yield junk bonds. There are some others who are risk averse and their primary goal is the preservation of capital. For these investors, the natural choice would be bank CDs, bonds with AAA ratings and money market funds. The Fidelity Spartan Mid Cap Index Fund Investor Class (MUTF: FSCLX ) offered by Fidelity would be ideally suited for growth-oriented investors who are willing to assume a higher level of risk for higher returns. FSCLX replicates the Russell Midcap Index which measures the performance of the mid-cap segment of the U.S. equity market. The fund provides investors with a broad diversification to the mid-cap sector of the U.S. equity market. Typically, mid-cap companies outperform large cap stocks and experience a higher level of revenue and earnings growth rate. These companies have transitioned from being small-capitalization firms to becoming medium caps with an average market capitalization of $12 billion and the highest being $29 billion. They have proven themselves with established products, seasoned management and a track record of increasing revenues and profits. As these mid-cap companies continue to gain market share in the U.S. and globally, they are more likely to generate higher returns to investors than large companies with saturated markets. According to the Fidelity Chart, an investment of $10,000 in FSCLX in September 2011 would be worth $19,110 during July 2015. This represents a return of 17.5% during approximately a time frame of four years. The following are some key statistics for FSCLX NAV Gross Exp Ratio Turnover Net Assets 52-week High/Low $16.43 .33 8% $ 1.4 B $ $15.79 – $18.40 This fund was created during 2011 and the performance measures are as follows for FSCLX and the Russell Midcap fund: (click to enlarge) Data Source: Fidelity Data Source: Russell.com FSCLX – Sector Diversification: (click to enlarge) Data Source: Fidelity Risk Measures: The standard deviation which measures the variability of returns is 10.08% for this fund. The companies within the fund face myriad risks such as increased competition, operating and financial leverage, regulatory/political risk, strikes, lawsuits, etc. Most of the company specific risks would be diversified away since the fund is well diversified in 10 sectors with a total of 831 holdings. The losses sustained by some companies would be offset by the strong financial performance of other companies within the fund. However, the market risk is high and the fund will react unfavorably to any news regarding U.S./global economic slowdown, inflation, oil prices, currency risk, interest rates, etc., with possibly double digit declines in the Net Asset Value (NAV) of the fund. The Sharpe ratio is 1.94 which indicates the fund is able to generate higher returns relative to the risk. Impact of Chinese economic slowdown: The stock market has been very volatile during the last few weeks, with the share prices of stocks and most of the funds and ETFs going down significantly. This deep loss in investments has been primarily attributed to the Chinese economic slowdown. The biggest fear is that this slowdown might adversely impact the U.S. economy which will have a domino effect on U.S. corporate profits. Some interesting excerpts on this subject from Ben Stein, a CBS contributor: “August is the cruelest month. A good chunk of my savings disappeared as the stock market convulsed, and we’re down at some points by well over 10 percent. Why did it happen? The pundits and analysts appeared and said it was because of the Chinese devaluation and possible serious weakness in China. This, in turn, would devastate U.S. exports, supposedly, to China and sink the ship of our prosperity.That was, and is, nonsense. The U.S. economy’s output is roughly $18.4 trillion per year. Total exports to China are very roughly $120 billion per year. That’s a lot of hamburgers, but it’s roughly seven-tenths of one percent of the U.S. economy. If our exports to China fell by 20 percent – a large number – that would have only trifling effect on the U.S. economy – very roughly one-tenth of one percent of U.S. output, trivial even for an economy as big as ours”. Future Outlook: In summary, for the next few weeks the markets will continue to be volatile. The Federal Open Market Committee (FOMC) will have a meeting on September 16/17 to determine the direction of interest rates. The markets will be closely watching the Fed’s decision on interest rates as well as any new developments on the global economic front. The stock market will continue to experience wide fluctuations in share prices, NAVs of mutual funds and ETF prices in the near term. FSCLX will be more volatile as mid-cap funds have historically experienced greater variations in NAVs than large cap stocks. However, the good news is that the U.S. economy has been showing signs of strength, with an increase of 3.7% in the GDP growth rate in the most recent quarter, a booming housing market and a reduction in unemployment levels. It is hoped that all these factors will stabilize our financial markets which would perform well in the long run. FSCLX would be a good investment choice for investors who hold a well-diversified portfolio. The NAV is around $16 and is attractively priced and affordable for investors who would like to buy a round lot of 100 shares. The minimum investment is $2,500. The fund has low expense and turnover ratios. The Russell Midcap fund has a PE ratio of 21 and has sustained an average earnings per share (EPS) growth rate of 12% during the last five years. The dividend yield for the fund is around 1.64%. It is well diversified in 10 sectors with more exposure to the financial sector which constitutes 21% of total holdings. The future outlook for U.S. financial companies and non-financial corporations looks promising. According to a recent report by the U.S. Department of Commerce on U.S. Corporate profits: ” Profits from current production increased $47.5 billion in the second quarter of 2015, in contrast to a decrease of $123.0 billion in the first. Profits of domestic Financial Corporations increased $33.9 billion in the second quarter of 2015, in contrast to a decrease of $23.4 billion in the first. Profits of domestic Non-Financial Corporations increased $16.5 billion this quarter, in contrast to a decrease of $70.5 billion last quarter”. On a final note, it takes a lot of courage to invest in the stock market during turbulent times, especially high-risk, growth-oriented funds like FSCLX when everyone is selling and markets are continuously going down. FSCLX is trading at 11% below its all-time high and this could possibly be a buying opportunity for investors who felt disappointed they missed the boat when markets were at trading at the peak at the beginning of this year. As the U.S. economy continues to show signs of strength, this fund will likely provide higher rewards to investors who can tolerate price fluctuations and have the forbearance to hold on to the investment for a longer time frame. Disclosure: I am/we are long FSCLX. (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. Additional disclosure: Disclaimer: The article represents the opinion of the author and does not constitute investment advice to buy or sell. Check with your financial advisor before you buy or sell funds.

Defensive Expectations

Any fund can do very well, attract a lot of assets, then do poorly and lose the assets. For many years, I have been writing about the idea that diversifiers often do not trade like the stock market and so can offer a zigzag effect to equity holdings. A fund that can make narrow bets on a specific outcome with a large percentage of assets lends itself to being very right or very wrong. By Roger Nusbaum, AdvisorShares ETF Strategist Last week there was an article in the WSJ noting the performance struggles of one of the larger liquid alternative mutual funds. I am not going to link to the article or name the fund because any fund can do very well, attract a lot of assets, then do poorly and lose the assets – which is the arc of this fund’s story. Instead, I want to focus on avoiding that sort of loop or at least recognizing the potential for that sort of loop, so that no one is surprised if/when it happens. For many years, I have been writing about the idea that diversifiers, as I have previously called them, often do not trade like the stock market and so can offer a zigzag effect to equity holdings that can matter during periods like now. There is no guarantee of this of course, but just as was the case with the previous bear market, some diversifiers will deliver and some will not. The fund featured in the above-mentioned article had problems that included a large bet on China that went poorly and was a drag on returns. One of the fund’s objectives is lower volatility than the broad market, yet based on stale holdings reported on Google Finance, three of its top-ten holdings totaling about 13% were in China. The fund did very well for a time early in the current decade, tracking the equity market closely, but started to trail off still moving higher in 2013 and then starting to go negative in early 2014 and has been in a downtrend for the majority of the time since then. Obviously, if Chinese equities had rocketed higher, then some or maybe all of the downturn could have been offset. This places an important emphasis to not just glance at the holdings but actually understand the pros and cons of any larger exposures. Are there a lot of longer-dated bonds in your liquid alternative? If so, are you concerned about rising rates, or can the fund change that exposure? What about commodity exposures or foreign currency? None of these are bad but they need to be understood and followed closely. Additionally, it is crucial to spend time understanding what the fund can and cannot do to change exposures and the process behind portfolio changes. A fund that can make narrow bets on a specific outcome with a large percentage of assets lends itself to being very right or very wrong. Very wrong in a bull market for everything else is probably not a big deal, but during a decline like this, then it is unfortunate. Gold has taken a beating from a sentiment standpoint for how poorly it has performed for the last few years. Throughout, I noted that it was doing exactly what investors should hope; looking nothing like the equity market, which created the reasonable expectation of not looking like equities in a downturn and that is how it has played out over the last month, as the S&P 500 is down mid-single digits and gold is up mid-single digits. It is not a perfect, negative correlation but has helped. The bigger context with a post like this has always been to try to soften the blow of a large decline, not completely miss it (completely missing it would be more about luck than strategy). I continue to be a believer in this approach, as a little bit can go a long way to reduce the extent to which the portfolio trades in line with the broad market. 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. Additional disclosure: To the extent that this content includes references to securities, those references do not constitute an offer or solicitation to buy, sell or hold such security. AdvisorShares is a sponsor of actively managed exchange-traded funds (ETFs) and holds positions in all of its ETFs. This document should not be considered investment advice and the information contain within should not be relied upon in assessing whether or not to invest in any products mentioned. Investment in securities carries a high degree of risk which may result in investors losing all of their invested capital. Please keep in mind that a company’s past financial performance, including the performance of its share price, does not guarantee future results. To learn more about the risks with actively managed ETFs visit our website AdvisorShares.com . AdvisorShares is an SEC registered RIA, which advises to actively managed exchange traded funds (Active ETFs). The article has been written by Roger Nusbaum, AdvisorShares ETF Strategist. We are not receiving compensation for this article, and have no business relationship with any company whose stock is mentioned in this article.

Rate Hike Fears Rise, Time For Taper ETF?

The moment the China-induced stock market gyrations cooled a bit, the U.S. market started gaining ground. Meanwhile, the U.S. economy grew at 3.7% in Q2, which breezed past the initial reading of 2.3% growth and 0.6% expansion recorded in the seasonally weak Q1. Other data points including housing and job came on the stronger side at the home front. As a result, the bet on a September timeline of the Fed lift-off – which took a backseat in mid-August as global market rout took an upper hand – is back on the table on now. If this was not enough, Stanley Fischer who happens to be the Fed’s vice-Chairman flared up the rising rate worries even more. So, inflation was the main hindrance en route to Fed policy tightening as inflation is short of the Fed’s longer-term target on extremely muted energy prices. Also, the emerging Chinese market volatility prompted some to hope for a later-than-expected hike in rates. But, the Fed’s vice chairman expects inflation to inch up eventually. So waiting for a 2% inflation goal could be a pricey option. Though he added “we’ve got time to wait and see the incoming data and see what is going on now in the economy” before deciding on hiking rates, the jittery nerves ignited the rate hike bet all over again. There will be a set of data to be released and looked at before this historic decision is taken after nine long years, but the September lift-off timeline is now a possible option. This sent the yield on 10-year Treasury note to 2.20% (on September 2, 2015) from 2.01% recorded on August 24. In such a situation, the U.S. market will likely see a slump in the bond bull market next year and investors can make the most of it by shorting treasuries. Though the inverse U.S. Treasury space has only a handful of products, Barclays Inverse US Treasury Aggregate ETN (NASDAQ: TAPR ) could be an intriguing play for investors already preparing for the impending rate hike. TAPR in Focus The note provides investors a unique strategy to hedge against or benefit from the rising U.S. dollar interest rates by tracking the Barclays Inverse US Treasury Futures Aggregate Index. This benchmark employs a strategy, which follows the sum of the returns of the periodically rebalanced short positions in equal face values of each of the 2-year, 5-year, 10-year, long-bond and ultra-long U.S. Treasury futures contracts. If the price of each Treasury futures contract increases or decreases by 1% of its face value, the value of the index would decrease or increase by 5% over the same period. The ETN has about $22 million in net assets. It charges 43 bps in annual fees and trades in a light volume of about 5,000 shares per day on average, ensuring additional cost in the form of a wide bid/ask spread. The note added about 5.3% in last one month (as of September 2, 2015) thanks to the ascent of the benchmark treasury yield. Bottom Line TAPR offers investors positions against all five tenures on the U.S. Treasury futures curve and provides an interesting hedging strategy between short-term, intermediate-term and the long-term bonds. Investors should note that short-term bonds are less interest-rate sensitive and low yield in nature while long-term bonds act differently. Thus, focus on every part of the yield curve makes this product worthwhile. Original Post