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iShares MSCI New Zealand Capped ETF: The Other Down Under

Since the inception of the fund, the New Zealand economy has met some extraordinarily difficult obstacles. The dividends are above average, but the sustainability of some of the holdings seems questionable. New Zealand has a stable, well managed economy in a region experiencing a severe economic contraction. One would expect that a newly emerged economy such as New Zealand to eventually reorient itself towards domestic growth. To be sure, New Zealand is still heavily dependent on exports; up to 40% of GDP, in fact. New Zealand’s government is not letting any grass grow under its feet, however, making every effort to diversify its GDP sectors. According to the government’s promotional website, New Zealand Now , the World Bank ranks New Zealand as ” the easiest place in the world to start a business ” and ranks it third in economic freedom, after Hong Kong and Singapore. Even the well respected Forbes magazine has noted that “… Over the past 20 years, the government has transformed New Zealand from an agrarian economy dependent on concessionary British market access to a more industrialized, free market economy that can compete globally…” However, this growth has not come easily. New Zealand’s 21st century economy has been turbulent. During the boom years of the early 2000s, New Zealand began to experience increasing inflation, requiring the Reserve Bank of New Zealand to raise the benchmark lending rate several times. This led to an economic slowdown even before the economic crises of 2008 began! Then, as New Zealand wrestled to get its economy back on track, two devastating earthquakes struck the island nation. The first, Canterbury quake, struck in September of 2010 and the second, Christchurch quake , in February 2011, resulting in loss of life, injuries and damages totaling more than US$40 billion. New Zealand’s export economy is greatly dependent on trade in the Asia-Pacific region which caused the economy to suffer an unexpected double blow in late 2014 and early 2015. The first was the rather sudden economic contraction in the region greatly affecting strategic commodities, particularly metal ore and petroleum. The second was the European Union’s decision to end the EU dairy quota system. A global chain reaction followed, flooding the market with dairy products, thus collapsing dairy product prices. ‘Dairy’ happens to be New Zealand’s top export in the region. Data from OEC There’s one other little known fact about New Zealand’s commodities industry. New Zealand has recently discovered potentially large, very high quality oil reserves. These reserves (a major export to Australia at 16% of total, by the way) earned US$270 million in revenue for the government . Unfortunately, the very last thing global oil markets needed in 2015 was a brand new major oil field discovery. Data from OEC So is this a good time to have a stake in New Zealand’s economy? If so, there’s only one port of entry, found in BlackRock’s (NYSE: BLK ) portfolio of single focus country ETFs. It’s the iShares MSCI New Zealand Capped ETF (NYSEARCA: ENZL ) . The fund first listed on September 1, 2010; just three days before a devastating earthquake struck New Zealand’s South Island. The fund is not large, with approximately US$72.00 million of net assets. The expense ratio is 0.48%, reasonably in line with the industry average of 0.44%. The three-month average volume is adequate at approximately 25,000 per day; more than enough for a small position. The fund’s P/E ratio is 16.85 and the price to book multiple is 1.81 times. The volatility is a bit high at 1.37 times the S&P 500. The yield is a very attractive 5.44%; the trailing 12-month yield is 5.61% and the 30-day SEC yield is 3.62%, which is most likely why the fund is selling at a surprisingly high premium to NAV of 1.13%. If the companies in the fund are stable and profitable, this looks worth holding even just for the distributions. The best way to tell is to take a closer look, starting with the sector allocation. Data From iShares The fund leads off with a very defensive sector, Utilities at 18.58% of the fund. Equally surprising were the payout ratios: each well over 100%. This is significant since by Investopedia ‘s definition, “. ..payout ratio is the proportion of earnings paid out as dividends to shareholders… ” There’s a likely reason for this and it’s worth noting here before examining the entire fund. Over the past two years, the New Zealand Dollar has lost a great deal of value relative to the US Dollar. The high payout ratios may be, in part, due to the devaluation of the NZ Dollar vs. the US Dollar; note, too, the negative 5-year earnings growth. To give a simple example of how the currency exchange factors in, the market cap of Contact Energy Ltd. ( OTC:COENF ) in New Zealand Dollars is $34.01 billion; in US Dollars it’s $23.03 billion. Both currencies use the same symbol ” $ ” and this may be causing confusing on some widely used financial media sites; the market cap is listed as $34.01 billion in both US Dollars and New Zealand Dollars , which is impossible. Hence, it isn’t as much the underlying metrics as it might be the currency exchange, or lack of it. (click to enlarge) On the other hand, the total debt to equity measures is a little more in line with Utility companies. There’s one exception: Infratil (IFT) ( OTC:IFUUF ) at over 100%. This is a diversified utility with energy, transportation and social infrastructure holdings. Recently, Infratil and the nation’s sovereign wealth fund, New Zealand Superannuation , sold their combined holdings in Z Energy ( OTC:ZNRGF ) . The high total debt to equity as well as the high P/E may be a temporary reflection of the sale of that large portion of that equity holding. So although the numbers look a bit alarming, they may be reflecting a currency translation. Utilities 18.5839% Exchange: Ticker Fund Weighting Market Cap (USD Billions) Yield 5-Year Dividend Growth Payout Ratio P/E 5-Year EPS Growth Total Debt to Equity Contact Energy Ltd. OTC: COENF 5.6117% $2.318 5.51% 13.18% 143.34% 26.00 -6.63% 55.19% Meridian Energy Ltd. NZ: MEL 4.5252% $4.026 5.54% NA 133.60% 24.05 -3.56% 23.76% Mighty River Power Ltd. OTC:MGHTF 3.4734% $2.531 5.15% NA 417.02% 79.35 -31.34% 35.27% Infratil Ltd. IFUUF 3.1813% $1.170 4.29% 14.87% 261.34% 100.82 -12.45% 140.25% Genesis Energy Ltd. NZ: GNE 1.7923% $1.297 8.33% 17.22% 152.58% 18.31 -3.95% 52.49% Averages 3.27% $2.27 5.76% 15.09 excluding MEL and MGHTF 221.58% 49.706 -11.59% 61.39% Data from Reuters and Yahoo! and others The second largest weighting is Health Care at 15.65%. If one of the companies’ name sound familiar, it’s because it is. Fisher & Paykel Healthcare ( OTCPK:FSPKF ) was spun off from the famous appliance manufacturer of the same name. The health care spinoff is a global provider, specializing in respiratory devices. Health Care 15.65% Exchange: Ticker Fund Weighting Market Cap (USD Billions) Yield 5-Year Dividend Growth Payout Ratio P/E 5-Year EPS Growth Total Debt to Equity Fisher & Paykel Healthcare Ltd. OTC: FSPKF 7.8125% $3.158 1.77% 2.16% 65.11% 41.83 8.00% 24.44% Ryman Healthcare Ltd. OTC:RHCGF 4.7019% $2.783 1.77% 17.39% 13.69% 15.47 25.15% 41.65% Summerset Group Holdings Ltd. NZ: SUM 1.7655% $0.588 0.99% NA 11.57% 11.61 151.06% 44.24% Metlifecare Ltd. NZ: MET 1.0516% $0.628 1.03% NA 7.79% 7.55 0.99% 123.56% Orion Health Group Ltd. NZ: OHE 0.3233% $0.342 0.00% 0.00% 0.00% NA NA 0.00% Averages 3.13% $1.50 1.11% 9.78% excluding SUM, MET 24.54% 19.12 excluding OHE 46.30% excluding OHE 46.78% Data from Reuters and YaHoo! and others The more cyclical industrial sector contains three companies which all tie in together: Air transportation, airport management, and mail, parcel and freight transportation. The yields, payout ratio, P/E and debt to equity are well in line for this sector. Industrials 13.3491% Exchange: Ticker Fund Weighting Market Cap (USD Billions) Yield 5-Year Dividend Growth Payout Ratio P/E 5-Year EPS Growth Total Debt to Equity Auckland International Airport Ltd. OTCPK:AUKNY 8.5518% $4.301 2.73% 9.89% 77.76% 28.46 48.24% 56.61% Air New Zealand Ltd. OTC:ANZFF 2.9468% $2.160 5.61% 17.98% 55.05% 9.81 30.72% 118.17% Freightways Ltd. OTC:FTWYF 1.8505% $0.653 3.92% 11.84% 87.33% 22.33 13.02% 85.20% Averages 4.45% $2.37 4.09% 13.24% 73.38% 20.20 30.66% 86.66% Data from Reuters and Yahoo! and others New Zealand has a small consumer population and this is reflected in the fund’s telecom services holdings. Spark New Zealand ( OTCPK:NZTCF ) is the fund’s largest holding. Spark offers all telecom services, nationwide 3G and 4G Wi-Fi, fiber broadband, content, data and more. Chorus Ltd. ( OTC:CRRLF ) focuses on telecom infrastructure and provides 90% of all New Zealand’s fixed network connections to service providers. In short, both companies complement each other. Again, the data is scarce, but might indicate the two companies are still in a growth/buildout phase. Telecom Services 12.2952% Exchange: Ticker Fund Weighting Market Cap (USD Billions) Yield 5-Year Dividend Growth Payout Ratio P/E 5-Year EPS Growth Total Debt to Equity Spark New Zealand Ltd OTC: NZTCF 9.7968% $3.937 6.28% 3.86% 98.12% 15.67 149.11% 38.92% Chorus Ltd OTC: CRRLF 2.4984% $0.830 0.00% 0.00% 0.00% 15.80 NA 295.85% Averages 6.15% $2.38 3.14% 1.93% 49.06% 15.74 74.55% (excluding CRRLF) 167.39% Data from Reuters and Yahoo! and others ” SkyCity Auckland ” is the nation’s premier entertainment and convention center. Sky City Entertainment Group ( OTCPK:SKYZF ) manages property assets in SkyCity, Auckland . However, the interesting holding in the consumer discretionary sector is Trade Me Group ( OTC:TRMEF ) , an online marketplace which, except in size, is not too unlike eBay (NASDAQ: EBAY ). The sector yields are good, average payout ratio high but still well below 100%, as well as average debt to equity. Consumer Discretionary 11.1946% Exchange: Ticker Fund Weighting Market Cap (USD Billions) Yield 5-Year Dividend Growth Payout Ratio P/E 5-Year EPS Growth Total Debt to Equity Sky City Entertainment Group Ltd. OTC: SKYZF 4.3633% $1.703 4.71% 3.00% 90.71% 19.34 8.37% 85.58% Trade Me Group Ltd. OTC: TRMEF 3.1684% $1.562 3.73% NA 80.20% 21.08 4.69% 24.01% Sky Network Television Ltd. OTC:SKKTY , OTC:SYKWF 2.9325% $1.135 6.94% 16.47% 34.09% (of EPS) 9.80 10.77% 26.26% Warehouse Group OTC:WHGPF 0.7304% $0.609 6.15% -7.79% 105.84% 17.28 -4.93% 61.23% Averages 2.80% $1.25 5.38% 3.89% 77.71% 16.88 4.73% 49.27% Data from Reuters and Yahoo! and others The financials are dominated completely by REITS or property investment groups. The yields look really good and are well sustainable. Financials 10.0932% Exchange: Ticker Fund Weighting Market Cap (USD Billions) Yield 5-Year Dividend Growth Payout Ratio P/E 5-Year EPS Growth Total Debt to Equity Kiwi Property Group Ltd OTC: KWIPF 3.1954% $1.172 4.66% -3.84% 58.32% 12.65 NA 47.78% Goodman Property Trust REIT NZ: GMT 2.5863% $1.060 5.16% -1.05% 23.59% 9.62 112.29% 57.00% Precinct Properties New Zealand OTC:AOTUF 2.5743% $1.022 4.32% -2.34% 13.36% 11.43 NA 25.41% Argosy Property Ltd OTC:IGPYF 1.7381% $0.632 5.17% NA 66.30% 12.77 NA 68.66 Averages 2.52% $0.97 4.83% -2.41% (excluding IGPYF) 40.39% 11.62 ———- 49.71% Data from Reuters and Yahoo! and others It seems that, for any fund these days, the two weakest sectors in the entire Asia-Pacific region would be Materials and Energy. It’s a simply a matter of too much supply and too little demand. One of the problems of a smaller economy fund is that one or two companies may dominate the fund. Hence, when the domestic sector weakens, there are few ways for the fund to be diversified enough to offset it. Nuplex Industries ( OTC:NPXIY ) , although in the weak materials sector, is a company with good global reach; it produces polyester, vinyl-esters and coating resins. Operations are located in Germany, Russia, Netherlands, the UK and the Americas as well as the Asia-Pacific. Materials 9.9369% Exchange: Ticker Fund Weighting Market Cap (USD Billions) Yield 5-Year Dividend Growth Payout Ratio P/E 5-Year EPS Growth Total Debt to Equity Fletcher Building Ltd. OTC:FRCEF 8.0959% $2.205 6.15% 25.15% 209.57% 18.13 -2.50% 53.05% Nuplex Industries Ltd. NPXIY 1.841% $0.567 6.07% 12.47% 89.71% 15.16 -2.02% 40.68% Averages 4.97% $1.39 6.11% 18.81% 149.64% 16.65 -2.26% 46.87% Data from Reuters and Yahoo! and others In the energy holdings, Z Energy ( OTC:ZNRGF ) distributes a full range of fuels; NZ Refining ( OTC:NZRFF ) is a refiner of raw petroleum and ‘pipeline’ distributer. The investor should make careful note again that New Zealand may have some of the largest, untapped high quality oil reserves on the planet. Light Sweet Crude is the easiest grade to refine and has the most desirable qualities of all extracted oils. Right now, supplies of oil are so abundant that it simply wouldn’t be worth a major extraction investment. However, the potential cannot be ignored, especially as new technologies come to market which greatly reduce emissions from fossil fuels. Energy 5.2033% Exchange: Ticker Fund Weighting Market Cap (USD Billions) Yield 5-Year Dividend Growth Payout Ratio P/E 5-Year EPS Growth Total Debt to Equity Z Energy Ltd OTC: ZNRGF 4.2524% $1.835 3.68% NA 192.31% 50.16 NA 86.93% New Zealand Refining Ltd OTC: NZRFF 0.9509% $0.777 1.36% NA 19.02% 13.87 -17.36% 37.77% Averages 2.60% $1.31 2.52% ——— 105.67% 32.02 ———- 62.35% The IT holdings are pretty much standard, offering accounting and business services, mobile tablet device software particular for ‘B2B’. Information Technology 3.172% Exchange: Ticker Fund Weighting Market Cap (USD Billions) Yield 5-Year Dividend Growth Payout Ratio P/E 5-Year EPS Growth Total Debt to Equity Xero Ltd. OTCPK:XROLF 2.2816% $1.661 NA NA NA NA NA 0.00% Dilligent Corp. NZ: DIL 0.8904% $0.353 NA NA 0.00 61.21 NA 0.36% Data from Reuters and Yahoo! and others To sum up, much of the data may be distorted by currency translation. Further, the data gathered when going from sector to sector was inconsistent. This, again, may be due to currency adjusted data vs. unadjusted data. The New Zealand economy is in fact experiencing a slowdown, much in part due to the economic contraction of the two major ‘import economies’: Japan and China. However, New Zealand maintains a triple top credit rating: S&P, AA stable; Moody’s, Aaa stable; and Fitch, AAA stable. Lastly, is the interest in the fund itself. The full chart clearly demonstrates continued interest even as the relative value of the currency declined. Compare the chart below with the currency chart above. (click to enlarge) Some metrics of some of the fund’s holdings may give the impression that they are far more risky than they actually are. If the fund was currency hedged and the data more consistent, it would look far better. Over a long period of time, say in a retirement account, it might be well worth the risk to dollar cost average over time, reinvest dividends and use any market corrections as buying opportunities. The end result, especially in a tax deferred retirement fund, just might end up being a top performing portfolio asset. As always, the investor must weigh the risk to the region in general which is heavily dependent on the Chinese and Japanese economies and the demand for Australian raw commodities. Editor’s Note: This article covers one or more stocks trading at less than $1 per share and/or with less than a $100 million market cap. Please be aware of the risks associated with these stocks.

Clean Energy Fuels – Expect A Turnaround In 2016

Summary A closer look at CLNE indicates that despite the drop in natural gas prices this year, its volumes delivered have increased as fleet operators are adding more natural gas vehicles. Low natural gas prices have been CLNE’s bane, but this should improve as marketed production in the U.S. declines, consumption increases, and exports begin. CLNE’s volumes will continue increasing as its customers have increased their fleets, while products such as the Redeem renewable natural gas fuel are gaining traction due to environmental benefits. Redeem is made from organic waste and is up to 90% cleaner on carbon emissions, making it the cleanest automobile fuel available commercially, leading to higher adoption by fleet operators. Technological improvements, such as the Cummins-Westport Low NOx 9-litre engine that can cut NOx emissions by 90%, are improving CLNE’s addressable market by gaining adoption due to their environment-friendliness. The rapid drop in oil and gas prices this year has created a lot of pressure on Clean Energy Fuels (NASDAQ: CLNE ) for two reasons. First, the decline in diesel prices has hurt the conversion of diesel vehicles to natural gas, and second, low natural gas prices have hurt Clean Energy’s financial performance. As a result of these two headwinds, Clean Energy shares trade near the lower end of their 52-week band, having lost over a quarter of their value this year. Looking past the weakness When Clean Energy Fuels had announced its third-quarter 2015 results, its revenue went down 11% year-over-year. Also, for the first nine months of the year, Clean Energy’s top line performance has diminished, as shown in the chart below: Source: Press release But, as we take a closer look at the distribution of revenue, we find that in the third quarter, Clean Energy’s revenue from the sale of fuel has actually increased by 6.7% despite a 40% decline in the natural gas price. This can be attributed to the fact that Clean Energy saw a 17% increase in gallons delivered last quarter, though weak natural gas pricing took out $5.7 million in revenue from its top line. More importantly, in the first nine months of the year, Clean Energy’s gallons delivered have increased over 19%, indicating that the company is still finding traction despite the drop in diesel prices. The following chart shows the improvement in Clean Energy’s volumes this year: Source: Press release Thus, the only problem that Clean Energy is facing currently is in terms of natural gas pricing, as a result of which its financials have taken a beating. However, over the long run, the conditions in the natural gas market should improve due to a few reasons, as stated below. Gauging a recovery in natural gas pricing There are two factors that could lead to an improvement in natural gas prices going forward – lower production and the start-up of exports from the U.S. As far as the first point is concerned, marketed natural gas production in 2016 is anticipated to grow at just 1.9% after rising 6.3% this year. At the same time, natural gas consumption is expected to rise from 76.5 billion cubic feet/day this year to 76.7 Bcf/d in 2016. As a result, a slight increase in consumption and a slowdown in marketed production will ease the oversupply in the end-market to some extent. Concurrently, as the U.S. is anticipated to start with its LNG shipments in the coming year, more supply will go out of the market and have a positive impact on prices. As such, it is not surprising that the EIA expects Henry Hub Natural Gas prices are expected to increase from $2.09/MMBtu in November to $2.88/MMBtu in 2016. The following chart shows the gradual increase in natural gas prices going forward: Source: EIA So, going forward, there might be respite for Clean Energy on the natural gas pricing front that will allow it to improve its financial performance. At the same time, Clean Energy will continue seeing an increase in its volumes delivered due to the benefits of using natural gas as fuel and the increasing fleet size of its customers. Why Clean Energy’s volumes will continue increasing As already discussed earlier in the article, Clean Energy is seeing an increase in its volumes, and the trend will continue going forward. During the third quarter, Clean Energy Fuels’ customers increased their gas-powered fleets. For example , Raven Transport’s natural gas fleet has increased by 40 LNG trucks recently and it now has a total of 223 LNG trucks in its fleet. Similarly, Saddle Creek Logistics hit the 50 million mile mark of its CNG fleet and announced that it will add 50 more CNG trucks soon to the existing 200 CNG tractor fleet. Additionally, Clean Energy has signed contracts for supplying to more than 300 new heavy-duty trucks, representing a fuel volume of 4.5 million gallons annually. Going forward, the U.S. should see an increase in natural gas-powered fleets as companies take steps to reduce emissions. Companies such as Unilever, Procter & Gamble, Anheuser-Busch, and others are considering the use of clean natural gas by the trucking companies as an important plus point while signing contracts. As a result, more and more fleet and individual vehicle owners are making this transition from oil to natural gas, which is simpler and economic than other available green options like oil to electric or even hybrid. Clean Energy is able to capitalize on this trend with products such as the Redeem renewable natural gas fuel. This is the “first commercially available renewable natural gas made from organic waste and is up to 90% cleaner on carbon emissions,” which makes it the cleanest automobile fuel available on a commercial basis. As a result of the qualities of this fuel, the sales volume of Redeem has almost tripled from 13 million gallons to 36 million gallons on a year-over-year basis last quarter. In the case of electricity generation too, natural gas is among the cleanest and safest fuels. Technological improvements such as the Cummins-Westport Low NOx 9-liter engine are aiding operators’ decision to adopt natural gas as a fuel. This engine, as mentioned during the Q3 earnings call, is able to cut NOx emissions by as much as 90% as compared to current EPA standards from 0.2 gm to 0.02 gm. Thus, given the environmental benefits of using natural gas engines and fuel, their demand should increase as the U.S. is looking to reduce pollution under the Clean Energy Plan . Conclusion One would think that low oil prices would have reversed the trend of increasing demand for natural gas. But, the reason for adopting natural gas for almost all users may not be solely the economics. Environmental safety is playing a big part in that decision, which is why Clean Energy has continued to see an increase in gallons delivered. Thus, going forward, Clean Energy Fuels should be able to come out of its slump as it will benefit from both an increase in volumes and better natural gas pricing, making it a good investment opportunity.

Can Airlines Funds Take Off On Profit Outlook, Low Fuel Cost?

The Airline sector is witnessing improving trends right now, and the momentum is much needed to ensure profits for investors in this space. While much of the encouragement comes from fundamentals within the airline space, another key catalyst for the sector’s growth is the slumping oil price. Airline stocks will likely continue their bull run into 2016 as recently reinforced by the encouraging outlook provided by the International Air Transport Association (IATA). Separately, weakness in oil prices, which has lasted for well over a year now, is nothing short of a godsend for the airline space. Airline profits depend largely on fuel prices, which form nearly 30% of operating expenses and are also the major variable component in the industry. Operating expenses of airline companies have gone down considerably as fuel accounts for one of the major input costs for air carriers. Thus, it is time to focus on funds that have investments in the airline space. Please note that there is hardly any fund that focuses solely on airline stocks. However, the sector attracts heavy investments from many mutual funds that focus on the transportation sector. The funds we discuss may not carry a favorable Zacks Mutual Fund Rank at the moment, but an improving trend in the airline space demands attention on them. Airliners Fly High as Crude Hits Ground Stocks in the airline space soared following the Dec 4 decision by the Organization of the Petroleum Exporting Countries (OPEC) – the international cartel of oil producers – to not curb output of crude. A blip came thereafter as Southwest Airlines (NYSE: LUV ) revealed a disappointing outlook with respect to its operating revenue per available seat miles (RASM) for the fourth quarter of 2015. Nonetheless, the low oil price environment makes airline stocks attractive. The drop in oil prices has reduced airline companies’ operating expenses significantly, thereby boosting the bottom line. OPEC’s decision not to curb output despite the slump in prices means that the oversupply will continue to haunt the energy space. This implies good times ahead for airline carriers. Weak oil prices have resulted in tremendous savings and improved bottom lines for carriers in the past quarters. The massive savings have certainly supported the financial health of carriers and prompted them to launch share buyback programs, hike dividend payments and significantly reduce their debt levels. Buoyed by their sound financial health, several carriers intend to invest heavily in upgrading overall facilities for better customer satisfaction. This is likely to result in greater travel demand, improved goodwill and eventually, a higher top line. Although it is true that most carriers struggled to post meaningful revenue growth in the third quarter of 2015 courtesy of a strong US dollar, their bottom lines benefited owing to low fuel costs. IATA’s Outlook Buoys Airliners Further The International Air Transport Association now expects profits in the aviation industry to touch $36.3 billion in 2016 with a net profit margin of 5.1%. IATA also projects profits of around $33 billion in 2015 with net profit margin of 4.6%, marking an improvement from the previous guidance of $29.3 billion, which was released in June 2015. Christmas holidays and summer vacations will contribute to traffic. IATA projects 6.7% and 6.9% growth in air traffic in 2015 and 2016, respectively, with load factor or percentage of seats filled by passengers pegged at 80.7%. IATA also believes that 3.8 billion passengers will travel in 2016. Moreover, increased fleet restructuring programs, retiring older and less efficient aircraft and new aircraft orders are anticipated to enhance the performance level of the company by trimming fuel and operating costs, and rendering a comfortable flying experience. Moreover, most carriers are focused on augmenting ancillary revenues by launching value-added services at affordable rates. Funds In Need of a Turnaround Although there is no airline-specific mutual fund category, the space represents a substantial portion of the transportation sector. Mutual funds from the transportation sector with significant focus on airliners are the ones to watch out for. Not all of them may be carrying a favorable rank right now, but the positives are much needed to turn the tide for them. Fidelity Select Transportation (MUTF: FSRFX ) seeks growth of capital. FSRFX invests the majority of its assets in common stocks of firms mostly involved in providing transportation services or ones that design, manufacture and sell transportation equipment. FSRFX is the only fund that carries a Zacks Mutual Fund Rank #2 (Buy). FSRFX has not been able to stay in the green in recent times, as its year to date and 1-year returns are -16.7% and -13.7%, respectively. The 3- and 5-year annualized returns are, however, respectively 19.2% and 11.8%. Annual expense ratio of 0.81% is lower than the category average of 1.14%. FSRFX carries no sales load. Among the top 10 holdings, FSRFX holds airline companies such as Southwest Airlines, American Airlines Group Inc (NASDAQ: AAL ) and Delta Air Lines Inc. (NYSE: DAL ). Rydex Transportation Fund Investor (MUTF: RYPIX ) invests a large chunk of its assets in domestically traded companies from the transportation sector and in other securities including futures contracts and options. RYPIX may allocate a notable portion of its assets in companies having market capitalization within the range of small to medium size. RYPIX may also invest in ADRs in order to gain exposure to non-US companies and may also invest in US government securities. RYPIX currently carries a Zacks Mutual Fund Rank #4 (Sell). The year to date and 1-year losses of RYPIX are 12.4% and 8.6%, respectively. The 3- and 5-year annualized gains are 19.4% and 11%, respectively. Annual expense ratio of 1.35% is higher than the category average of 1.14%. RYPIX carries no sales load. Among the top 10 holdings, RYPIX holds airline companies such as Delta Air Lines, Southwest Airlines and American Airlines Group. Fidelity Select Air Transportation Portfolio (MUTF: FSAIX ) seeks long-term capital growth. FSAIX invests the major portion of its assets in companies primarily engaged in providing air transport services all over the world. FSAIX focuses on acquiring common stocks of companies depending on factors such as financial strength and economic condition. FSAIX currently carries a Zacks Mutual Fund Rank #4 (Sell). The year to date and 1-year losses of FSAIX are 6.5% and 3.2%, respectively. The 3- and 5-year annualized gains are 23.1% and 15%, respectively. Annual expense ratio of 0.83% is lower than the category average of 1.14%. FSAIX carries no sales load. Among the top 10 holdings, FSAIX has airline companies such as Southwest Airlines, American Airlines Group, Delta Air Lines and Spirit AeroSystems Holdings (NYSE: SPR ), which is one of the largest independent suppliers of commercial airplane assemblies and components. Original Post