Tag Archives: energy

Lipper U.S. Fund Flows: Risk-On Despite Uncertainties

By Tom Roseen During the fund-flows week ended October 21, 2015, investors pushed the markets back and forth without strong conviction either way. Third quarter earnings news was hit and miss, with growth fears at the back of investors’ minds. Mixed economic reports kept many on the sidelines, with the Federal Reserve’s Beige Book and the October Philadelphia Fed manufacturing index magnifying fears about the economic recovery. Offsetting those worries during the week, the number people applying for first-time jobless benefits fell for the most recent week, coming in below expectations. Gains in defensive sectors during the flows week helped prop up the major indices to highs not seen since August, sending them to their third straight week (Friday to Friday) of gains. The Shanghai composite posted a 6.5% weekly return as some investors looked to Beijing to continue to provide more stimuli to the Chinese economy. Nonetheless, expectations of a slowing global economy kept oil prices in the cellar. On Monday, October 19, global markets reacted cautiously to news that Chinese economic growth slowed to 6.9% for Q3, beating expectations but missing Beijing’s target. The reported slowdown in fixed-asset investments and industrial production weighed heavily on the price of oil, pushing it down to $45.89 per barrel. This sharp decline pressured oil stocks as well. Despite reports coming out during the latter portion of the flows week of a jump in home builder confidence in October and housing starts being near eight-year highs, mixed corporate results, China’s slowing growth, the EIA’s report of a big jump in crude oil supplies, and the Fed’s inaction kept some investors wary. Nonetheless, investors were net purchases of fund assets (including those of conventional funds and exchange-traded funds (ETFs), injecting a net $6.3 billion for the fund-flows week ended October 21, 2015. Investors turned their back on money market funds, redeeming $2.6 billion for the week, but they were net purchasers of the other three fund macro-groups, injecting some $4.4 billion into taxable bond funds, $4.3 billion into equity funds, and $0.2 billion into municipal bond funds for the week. For the second week in a row equity ETFs witnessed net inflows, taking in $4.5 billion. Despite continued concerns about the Q3 earnings season, authorized participants (APs) were net purchasers of domestic equity ETFs (+$3.2 billion), injecting money into the group for a second consecutive week. They also padded the coffers of nondomestic equity ETFs (to the tune of +$1.3 billion) for the sixth week running. As a result of the relative increase in risk-seeking behavior at the beginning of the week, APs turned their attention to a broad spectrum of domestic equity offerings, with the iShares Russell 2000 ETF (NYSEARCA: IWM ) (+$0.6 billion), the SPDR S&P MidCap 400 ETF (NYSEARCA: MDY ) (+$0.4 billion), and surprisingly-given the slide in oil prices for the week – the Energy Select Sector SPDR ETF (NYSEARCA: XLE ) (+$0.4 billion) attracting the largest amounts of net new money of all individual domestic equity ETFs. At the other end of the spectrum the SPDR S&P 500 ETF (NYSEARCA: SPY ) (-$424 million) experienced the largest net redemptions, while the Industrial Select Sector SPDR ETF (NYSEARCA: XLI ) (-$423 billion) suffered the second largest redemptions for the week. Once again, in contrast to equity ETF investors, for the fourth week in a row conventional fund (ex-ETF) investors were net redeemers of equity funds, redeeming $0.2 billion from the group. Domestic equity funds, handing back $0.8 billion, witnessed their fourth consecutive week of net outflows. Meanwhile, their nondomestic equity fund counterparts witnessed $646 million of net inflows-attracting money for the first week in four. On the domestic side investors lightened up on equity income funds and real estate funds, redeeming a net $0.9 billion and $0.3 billion, respectively, for the week. On the nondomestic side international equity funds witnessed $0.6 billion of net inflows, while emerging market equity funds handed back some $187 million. For the second consecutive week taxable bond funds (ex-ETFs) witnessed net inflows, taking in a little less than $2.3 billion for the week, for their second largest weekly inflows since the week ended May 20, 2015. Corporate investment-grade debt funds suffered the largest redemptions for the week, witnessing net outflows of $0.8 billion (for their thirteenth consecutive week of redemptions), while corporate high-yield funds attracted the largest net new money for the week, taking in $2.3 million (their third largest weekly net inflows on record). For the third week in a row municipal bond funds (ex-ETFs) witnessed net inflows, taking in $148 million this past week.

Best And Worst Q4’15: Energy ETFs, Mutual Funds And Key Holdings

Summary The Energy sector ranks last in Q4’15. Based on an aggregation of ratings of 21 ETFs and 59 mutual funds. OIH is our top-rated Energy ETF and FSESX is our top-rated Energy mutual fund. The Energy sector ranks last out of the 10 sectors as detailed in our Q4’15 Sector Ratings for ETFs and Mutual Funds report. The Energy sector funds won last place in the prior quarter as well. It gets our Dangerous rating, which is based on aggregation of ratings of 21 ETFs and 59 mutual funds in the Energy sector. See a recap of our Q3’15 Sector Ratings here . Figures 1 and 2 show the five best and worst-rated ETFs and mutual funds in the sector. Not all Energy sector ETFs and mutual funds are created the same. The number of holdings varies widely (from 25 to 150). This variation creates drastically different investment implications and, therefore, ratings. Investors seeking exposure to the Energy sector 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 The PowerShares Dynamic Oil Services ETF (NYSEARCA: PXJ ) is excluded from Figure 1 because its total net assets are below $100 million and do not meet our liquidity minimums. 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 Van Eck Market Vectors Oil Services ETF (NYSEARCA: OIH ) is the top-rated Energy ETF and the Fidelity Select Energy Service Portfolio (MUTF: FSESX ) is the top-rated Energy mutual fund. OIH earns an Attractive rating while FSESX earns a Neutral rating. The PowerShares DWA Energy Momentum Portfolio ETF (NYSEARCA: PXI ) is the worst-rated Energy ETF and the BP Capital TwinLine Energy Fund (MUTF: BPEAX ) is the worst-rated Energy mutual fund. Both earn a Very Dangerous rating. National Oilwell Varco (NYSE: NOV ) is one of our favorite stocks held by Energy ETFs and mutual funds. It earns our Attractive rating. Over the past four years, National Oilwell has grown after-tax profits ( NOPAT ) by 11% compounded annually. The company earns a return on invested capital ( ROIC ) of 8% and has generated over $1.1 billion in free cash flow on a trailing twelve-month basis. Across the energy industry, share prices have been collapsing over the past year, but National Oilwell’s business does not deserve the decline in its shares. At its current price of $38/share, NOV has a price to economic book value ( PEBV ) ratio of 0.6. This ratio implies that the market expects National Oilwell’s profits to permanently decline by 40% from current levels. If National Oilwell can grow NOPAT by just 1% compounded annually over the next five years , the stock is worth $80/share today – a 110% upside. It’s easy to see just how low the expectations baked into NOV have become. Tesoro Corporation (NYSE: TSO ) is one of our least favorite stocks held by Energy ETFs and mutual funds and earns our Very Dangerous rating. Since 2011, Tesoro’s NOPAT has declined by 1% compounded annually despite the oil industry witnessing high growth rates prior to 2014. Over the same timeframe, Tesoro’s ROIC has fallen to 6% from 12%. Despite the deterioration of the business, TSO has increased nearly 400% since 2011, which has left shares greatly overvalued. To justify its current price of $102/share, Tesoro must grow NOPAT by 10% compounded annually for the next 11 years. This scenario seems rather unlikely given that NOPAT has only declined lately. With such lofty expectations embedded in the stock price, it’s easy to see why Tesoro is one of our least favorite Energy stocks. Figures 3 and 4 show the rating landscape of all Energy ETFs and mutual funds. Figure 3: Separating the Best ETFs From the Worst ETFs (click to enlarge) Sources: New Constructs, LLC and company filings Figure 4: Separating the Best Mutual Funds From the Worst Mutual Funds (click to enlarge) Sources: New Constructs, LLC and company filings D isclosure: David Trainer and Thaxston McKee receive no compensation to write about any specific stock, sector or theme.