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5 Buy-Ranked Financial Mutual Funds

Most of the recently released economic data, including encouraging job numbers, a flurry of positive housing market data and improving consumer sentiment, suggested that the economy is gradually gaining strength. This raised the possibility of a rate hike in the near future. It is speculated that the Fed will raise interest rates by the end of this year. The rate increase will expand margins for brokerage firms, insurance companies, banks, and money managers. Further, the increased interest rates would enable banks to earn more on the spread between interest rates for savings accounts and certificates of deposit. Meanwhile, the financial sector witnessed an encouraging first quarter earnings season. In this favorable environment, investors may find it profitable to invest in financial mutual funds that are poised to benefit from a possible rate hike. Below we will share with you 5 financial mutual funds . Each has earned either a Zacks #1 Rank (Strong Buy) or a Zacks #2 Rank (Buy) as we expect these mutual funds to outperform their peers in the future. Franklin Mutual Financial Services Fund A (MUTF: TFSIX ) seeks capital growth. TFSIX invests a lion’s share of its assets in undervalued companies that are involved in the financial services domain. TFSIX may also invest in merger arbitrage securities and securities of distressed companies. TFSIX may invest a significant portion of its assets in non-US securities. The Franklin Mutual Financial Services Fund A fund returned 15.4% in the last one year. As of March 2015, TFSIX held 88 issues with 3% of its assets invested in American International Group Inc. (NYSE: AIG ) Schwab Financial Services Fund (MUTF: SWFFX ) generally invests in equities of financial services companies. These companies may include asset management firms, brokerage companies, commercial banks, insurance companies and real estate investment trusts (REITs). The Schwab Financial Services Fund returned 12.6% in the last one year. SWFFX has an expense ratio of 0.90% as compared to the category average of 1.52%. Fidelity Select Insurance Portfolio (MUTF: FSPCX ) seeks capital growth over the long run. FSPCX invests a large chunk of its assets in companies that are involved in operations including underwriting, selling, distribution of insurances related to property, casualty, life, or health. FSPCX focuses on acquiring common stocks of companies throughout the globe. FSPCX considers factors including financial strength and economic conditions before investing in securities of a company. The Fidelity Select Insurance Portfolio fund is non-diversified and returned 10.8% in the last one year. Peter Deutsch is the fund manager and has managed FSPCX since 2013. T. Rowe Price Financial Services Fund (MUTF: PRISX ) invests a major portion of its assets in common stocks of companies from the financial services sector. PRISX may also invest in other companies that earn a minimum of half of its revenues from finance sector. PRISX uses bottom-up analysis to invest in companies that are believed to have an impressive growth potential. The T. Rowe Price Financial Services Fund returned 17.5% in the last one year. PRISX has an expense ratio of 0.87% as compared to the category average of 1.52%. Davis Financial Fund A (MUTF: RPFGX ) seeks long-term capital appreciation. The Davis Investment Discipline is utilized to invest a majority of RPFGX’s assets in companies involved in the financial services industry. Companies that have the majority of their assets related to financial services or derive a minimum of half of their revenues from the financial services domain are selected by RPFGX’s advisors for investment. Davis Financial Fund A returned 13.8% in the last one year. Christopher Cullom Davis is the fund manager and has managed RPFGX since 2014. Original Post

X-Raying CEFL (Part 2): Geographical Distribution

Summary A previous article in this series investigated the leverage and expense ratio statistics of CEFL, a 2X leveraged CEF fund-of-funds. This article presents the geographical breakdown of CEFL. How much international exposure does CEFL contain? Introduction The ETRACS Monthly Pay 2xLeveraged Closed-End Fund ETN (NYSEARCA: CEFL ) is a 2x leveraged ETN offered by UBS. CEFL tracks twice the monthly return of the ISE High Income Index [YLDA], an index that is comprised of high-yielding close-ended funds [CEFs]. The methodology used to construct YLDA has been summarized here . The YieldShares High Income ETF (NYSEARCA: YYY ) tracks the same index as CEFL. While many investors are attracted solely by CEFL’s high yield (currently 20.39% ttm), I believe that it is also important to look “under the hood” of the fund and to understand its characteristics. In a previous article , we delved into the holdings of CEFL to derive relevant leverage and expense ratio statistics regarding this fund. From that analysis, we found that CEFL is approximately comprised of one-third equity and two-thirds debt, CEFL is effectively leveraged by 240%, and CEFL exhibits a total expense ratio of 4.92% per dollar invested in the fund (or 2.05% per dollar of assets controlled), after accounting for acquired fund expenses. This article seeks to present the geographical distribution of CEFL in terms of its overall holdings, or in terms of equity and debt components. Methodology The geographical distribution of the component funds was obtained from CEFConnect , Morningstar or the fund websites. As some CEFs only report their allocation by region rather than by country, it was decided to present the data in terms of region only. The five regions are North America (includes Canada), Europe (includes Russia), Asia Pacific (includes Japan and Australia), Latin American and Middle East/Africa (includes Turkey). There is also a sixth category of “other” due to the fact that some funds do not report beyond their top 10 country holdings. The funds The following table shows the fund name, ticker symbol, % assets, and % of assets in region. Fund Ticker Assets North America Europe Asia Pacific Latin America Middle East/Africa Other GAMCO GLBL GOLD NAT RES (NYSEMKT: GGN ) 4.52% 77.9 11.5 2.1 6.0 2.5 0.0 DOUBLELINE INCOME SOLUTIO (NYSE: DSL ) 4.38% 47.4 13.0 0.0 14.6 0.0 24.9 EATON VANCE TM GL DIV EQ (NYSE: EXG ) 4.28% 55.6 36.2 8.1 0.0 0.0 0.0 FIRST TRUST INTERMEDIATE (NYSE: FPF ) 4.28% 49.2 39.7 0.0 1.2 0.0 9.9 ALPINE TOTAL DYNAMIC DIVD (NYSE: AOD ) 4.27% 53.2 29.0 5.6 0.0 0.0 12.3 EATON VANCE LIMITED DURAT (NYSEMKT: EVV ) 4.26% 90.5 5.4 0.0 0.0 0.0 4.1 MFS CHARTER INCOME TRUST (NYSE: MCR ) 4.24% 67.6 11.8 2.3 0.0 0.0 18.3 CLOUGH GLBL OPPORTUNITIES (NYSEMKT: GLO ) 4.24% 88.9 3.6 12.3 0.0 0.0 -4.7 BLACKROCK CORPORATE HIGH (NYSE: HYT ) 4.20% 100.0 0.0 0.0 0.0 0.0 0.0 ALPINE GLOBAL PREMIER PRO (NYSE: AWP ) 4.19% 31.8 26.9 28.5 3.7 2.2 6.9 WESTERN ASSET EMG MKT DBT (NYSE: ESD ) 4.18% 0.0 25.4 4.5 57.3 0.0 12.8 VOYA GLBL EQTY DIVD FUND (NYSE: IGD ) 4.12% 45.8 39.3 8.7 0.0 0.0 6.2 PRUDENTIAL GL SH DUR HI Y (NYSE: GHY ) 4.11% 69.4 20.0 0.0 2.0 0.0 8.6 PIMCO DYNAMIC CREDIT INCO (NYSE: PCI ) 4.11% 76.1 6.5 12.0 5.5 0.0 0.0 BLACKROCK INTL GROWTH&INC (NYSE: BGY ) 3.91% 11.7 54.5 28.0 1.3 2.1 2.4 MORGAN STANLEY EMERGING M (NYSE: EDD ) 3.88% 0.0 33.3 23.3 43.2 26.6 0.0 EATON VANCE TAX-MGD DV EQ (NYSE: ETY ) 3.81% 92.9 6.6 0.0 0.0 0.5 0.0 ABERDEEN ASIA-PAC INCOME (NYSEMKT: FAX ) 3.43% 2.7 3.2 94.1 0.0 0.0 0.0 PRUDENTIAL SHORT DURATION (NYSE: ISD ) 3.15% 100.0 0.0 0.0 0.0 0.0 0.0 CALAMOS GLOBAL DYNAMIC IN (NASDAQ: CHW ) 3.11% 57.8 24.0 11.5 1.0 1.3 4.4 MFS MULTIMARKET INC TRUST (NYSE: MMT ) 2.84% 100.0 0.0 0.0 0.0 0.0 0.0 BLACKSTONE/GSO STRATEGIC (NYSE: BGB ) 2.65% 100.0 0.0 0.0 0.0 0.0 0.0 ALLIANZGI CONVERTIBLE & I (NYSE: NCV ) 2.42% 100.0 0.0 0.0 0.0 0.0 0.0 WESTERN ASSET HIGH INC FD (NYSE: HIX ) 2.19% 98.2 0.0 0.0 0.0 0.0 1.8 BLACKROCK MULTI-SECTR INC (NYSE: BIT ) 1.89% 84.7 12.6 1.2 0.0 0.0 1.6 WELLS FARGO ADV MULTISECT (NYSEMKT: ERC ) 1.56% 78.8 4.6 2.2 4.5 2.3 7.6 ALLIANZGI CONV & INCOME I (NYSE: NCZ ) 1.35% 84.2 15.8 0.0 0.0 0.0 0.0 WELLS FARGO ADVANTAGE INC (NYSEMKT: EAD ) 1.33% 94.9 4.4 0.1 0.0 0.0 0.6 NUVEEN PFD INC OPP FD (NYSE: JPC ) 1.12% 57.6 35.4 0.0 0.0 0.0 7.0 INVESCO DYNAMIC CREDIT OP (NYSE: VTA ) 0.96% 70.1 19.8 0.0 0.0 0.0 10.1( The following chart shows the frequency distribution of CEFs at different percentages of North American assets, the vast majority of which are U.S. assets. Geographical distribution The respective regions shown in the table above were, after accounting for the leverage of each fund, summed to determine the overall geographical distribution of CEFL. The results are presented in the graph below. We can see from the chart above that North America accounts for just over two-thirds (68.2%) of the assets of CEFL. The second-largest region is Europe, at 14.8%, followed by Asia Pacific, at 8.3%. Latin American and Middle East/Africa represent relatively minor regions at 3.9% and 0.4%, respectively. Finally, 4.4% of the assets were unaccounted for in this analysis. The next chart shows the geographical breakdown for the equity and debt components of CEFL. Recall that CEFL is comprised of approximately one-third equity and two-thirds debt. Note that for hybrid funds, I have made the assumption that the region distribution is the same for the equity and debt components of the fund. We can see from the chart above that the debt portion of CEFL contains more North American exposure (71.6%) compared to the equity portion (57.1%). On the other hand, the equity portion of CEFL contains more European exposure (25.9%) compared to the debt portion (11.4%). Discussion and conclusion This article sought to evaluate the geographical exposure of CEFL. The main conclusion from this analysis was that CEFL contained around two-thirds of North American (primarily U.S.) assets, meaning that the fund has around one-third of international exposure. What does this mean for investors? Obviously, investors who are uncomfortable with any level of international exposure should avoid CEFL, as around one-third of the fund is in foreign assets. However, other investors may be attracted to the diversification benefits offered by the international exposure of CEFL. For example, a portfolio of 70% U.S. stocks and 30% international stocks (close to the geographic allocation of CEFL) has returned 11.4% a year since 1950, which is about 2% more than S&P500, but with about 10% less risk. Additionally, I like that the North American component of CEFL contains a higher allocation to debt vs. equity than the European component of CEFL. European debt is currently low-yielding and hence expensive, with struggling countries like Spain (2.26%) and Italy (2.28%) having the same 10-year bond yields as the U.S. (2.26%), and even lower yields for Germany (0.75%) and France (1.16%). On the other hand, European stocks are a lot cheaper than U.S. stocks, with CAPE ratios of 8.6 and 16.5 for emerging and developed Europe, respectively, compared to 26.0 for the U.S. Therefore, value investors like myself would be especially pleased with CEFL’s higher allocation towards European equities compared to European debt. I hope this information will be useful for investors in or considering investing in the fund. Disclosure: I am/we are long CEFL. (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.

The Fed Provided A Short-Term Boost To SLV

Summary The FOMC meeting concluded with a dovish statement and press conference. The silver market benefits from a dovish Federal Reserve. A potential rate hike could have a modest, negative impact on the price of SLV. The FOMC, as expected, didn’t raise rates and presented a dovish statement without dissenters. This news provided some backwind to the iShares Silver Trust ETF (NYSEARCA: SLV ) that came up in the last few days, albeit it’s still down by 8.5% over the past month. Let’s examine the recent FOMC meeting and its possible implications on SLV. Following the recent FOMC statement and press conference, the market revised down its outlook of the Fed’s rate “lift off”: The implied probabilities dropped to a 17% chance of a rate hike in September and 57% in December. In January 2016, the odds are 72% – nearly the same odds for a December rate hike only a week ago. The statement, which wasn’t changed much and didn’t offer any major headlines, still led to a modest rally in the price of SLV, as presented below. The dovish tone in the statement and Yellen’s press conference that followed suggested that even after the inaugural “lift off”, the FOMC will keep rates low – conditions that benefit the silver market. (click to enlarge) Source of data taken from FOMC and Google Finance The FOMC revised down its projections for the 2015 U.S. GDP growth rate from 2.5% in March to 1.9%. The rate of unemployment slightly increased to 5.25%. There weren’t any other major changes in the FOMC’s economic projections. Since Yellen reiterated that the first rate hike will still be data dependent, this means that if in the next few months the economic data show a stable recovery, e.g. NFP reports keep showing steady growth in jobs, lower unemployment, faster growth in wages, better GDP figures, higher inflation (just to name a few), the FOMC could decide to raise rates this year. As long as the FOMC keeps rates low, the silver market in general and SLV in particular benefit from it. Also, even if the FOMC were to start raising rates, the cash rate is likely to remain low, as Yellen suggested in the press conference, for a while. After all she tried, yet again, to diverge the attention from the historic first rate raise to the pace of subsequent rate hikes. She emphasized that rates will rise gradually; as such, this means the normalization policy is likely to have a modest adverse impact on SLV. In terms of the dot plots, FOMC members are still incline to raise rates this year, perhaps by September – this will allow for at least two rate hikes of 0.25% and bring the cash rate to 0.5% by the end of the year. For 2015, the median target range of the Federal Reserve hasn’t changed – it’s at 0.625% – albeit fewer FOMC members have picked higher rates and the projections are now more concentrated around lower interest rates, as you can see below: Source: FOMC’s website For 2016 and 2017, members slightly lowered their projections so that the median point declined by 0.25 percentage points for each year. This is another dovish indication that the trajectory of the future rate hikes could be more moderate than previously projected. Source: FOMC’s website In a CNBC interview, Richard Fisher, who is considered a hawk and was former president of the Federal Reserve Bank of Dallas and FOMC voting member, stated the dot plot outlook for the coming years is less relevant since the current members may not be there to make rate decisions in 2016-2017. This may be right, but since Yellen will remain at the Fed, we are still likely to see additional dovish FOMC decisions in the coming years. The market’s reaction to the dovish statement also included a depreciation of the U.S. dollar against leading currencies, which also contributed to the modest rise in shares of SLV. Nonetheless, the U.S. dollar could start to rise again especially against the euro – the ECB’s QE program and the ongoing Greek debt crisis are likely to drag down the currency – and yen. A stronger U.S. dollar could play against the price of SLV. The silver market isn’t out of the woods, but the FOMC provided a short-term boost to SLV. The market doesn’t seem convinced that the Fed will raise rates this year. As such, if and once it will occur, it could result in a modest drop in SLV prices. Until such time, as long as the FOMC produces dovish statements, silver will benefit over the short run. For more see: Will Higher Physical Demand for Silver Drive Up SLV? 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.