Tag Archives: etf

Are Fund Awards Only Showtime For Mutual Funds?

By Detlef Glow Not only the film industry has glamorous events such as the Academy Awards (better known as the “Oscars”) and the “Golden Globe Awards,” where juries select and reward the best movies from their point of view. The mutual fund industry also celebrates its best performing funds with fund awards ceremonies at the beginning of the year. As with movies, these fund awards are determined by a jury (a qualitative screening) or with a quantitative screening on a global basis by the likes of Morningstar and Thomson Reuters Lipper, who use a similar quantitative methodology for their awards all around the world. Or the funds are selected by local players, who award funds only in a single country or region according to their definition of the best funds. Are awards useful tools for fund selection? Fund awards reward the past performance achieved by a portfolio manager. Since past performance is the only way to evaluate the achievement potential of a fund manager, fund awards-like fund ratings-can be used as a tool to support a quantitative fund selection process. Opposite to fund ratings, where normally a group of funds gets the highest score, there is only one winner in each peer group for a fund award. In this regard, one can assume that an award can be used as guidance for fund selectors. But this is only true if the methodology on which the award is calculated suits the expectations and requirements of the investor, especially with regard to risk-adjusted returns. It is key for investors who want to use awards as tools in their fund selection process to know the methodology and/or selection process employed in the determination of the award winners. Unfortunately, the majority of funds are not able to maintain their top position for the succeeding year. Even though some observers see this as a big disadvantage of fund awards, it is the nature of the beast; not all investment approaches such as value or growth work well in any given market environment. But, unlike for movies, there are funds/fund managers that are able to win the categories year after year, and these might be the funds an investor should examine more closely. Fund flows as an indicator of future performance Another issue that can’t be neglected is the impact of high inflows and outflows on a mutual fund. As shown in the study “The Kiss of Death” by Matthew R. Morey , a good rating can have a massive impact on the flows into a fund, which can at some point have negative impacts on its performance. Even though the author analyzed only the impacts from one rating and the negative effects do not apply to every fund, investors need to monitor the flows of all funds in their portfolio regularly, so they can act appropriately if a fund becomes too small or too large. Summary Fund awards, like fund ratings, are an additional tool that can be used by investors to support their fund selection process, as long as the criteria used to nominate the award winners suit the needs of the investors. It can be concluded that fund awards ceremonies, which are typically held over the first quarter of any year, are not only a show event where the employees of the mutual funds industry enjoy a glamorous evening and the organizers do their marketing bit; the funds also get a lot media attention at these ceremonies. But a fund award can’t replace a full fund analysis process; investors still need to invest a lot of work in their fund selection process even if they may use awards as guidance. At the end of the day, as it is for the movies, not everybody likes all the winners; everyone is looking for different funds that may be the winners the next year. The views expressed are the views of the author, not necessarily those of Thomson Reuters

Best And Worst Q1’16: Information Technology ETFs, Mutual Funds And Key Holdings

The Information Technology sector ranks third out of the ten sectors as detailed in our Q1’16 Sector Ratings for ETFs and Mutual Funds report. Last quarter , the Information Technology sector ranked second. It gets our Neutral rating, which is based on aggregation of ratings of 28 ETFs and 109 mutual funds in the Information Technology. See a recap of our Q4’15 Sector Ratings here . Figures 1 and 2 show the five best and worst-rated ETFs and mutual funds in the sector. Not all Information Technology sector ETFs and mutual funds are created the same. The number of holdings varies widely (from 25 to 397). This variation creates drastically different investment implications and, therefore, ratings. Investors seeking exposure to the Information Technology 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 Semiconductors Portfolio (NYSEARCA: PSI ) 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 Fidelity Advisor Communications Equipment Fund (MUTF: FDMIX ) is excluded from Figure 2 because its total net assets are below $100 million and do not meet our liquidity minimums. The Market Vectors Semiconductor ETF (NYSEARCA: SMH ) is the top-rated Information Technology ETF and the Vanguard Information Technology Index Fund (MUTF: VITAX ) is the top-rated Information Technology mutual fund. Both earn a Very Attractive rating. The ARK Innovation ETF (NYSEARCA: ARKK ) is the worst-rated Information Technology ETF and the Rydex Internet Fund (MUTF: RYINX ) is the worst-rated Information Technology mutual fund. ARKK earns a Dangerous rating and RYINX earns a Very Dangerous rating. 511 stocks of the 3000+ we cover are classified as Information Technology stocks. Applied Materials (NASDAQ: AMAT ) is one of our favorite stocks held by SMH and earns an Attractive rating. Going back to 1998, the earliest year in our model, Applied Materials has grown after-tax profit ( NOPAT ) by 10% compounded annually. AMAT currently earns a 12% return on invested capital ( ROIC ) and has generated over $2.8 billion in free cash flow over the last three years. Despite the nearly two decades of strong business operations, AMAT shares are significantly undervalued. At its current price of $16/share, AMAT has a price to economic book value ( PEBV ) ratio of 1.1. This ratio means that the market expects Applied Materials to grow profits by only 10% over its remaining corporate life. If Applied Materials can grow NOPAT by just 5% compounded annually (half its historical rate) over the next decade , the stock is worth $20/share today – a 25% upside. Trimble Navigation (NASDAQ: TRMB ) is one of our least favorite stocks held by ARKK and earns a Dangerous rating. In five of the past six years Trimble has generated negative economic earnings . In fact, the only time TRMB generated consecutive years of positive economic earnings was during the economic boom from 2004-2008. Since then, the company’s ability to create shareholder valued has deteriorated. Since 2008, the company’s ROIC has declined from 10% to 6%. Investors have taken notice of the downward trend in Trimble’s operations as the stock has fallen 26% over the past year, but shares remain overvalued. To justify its current price of $21/share, Trimble must grow NOPAT by 15% compounded annually for the next 17 years . This expectation seems highly optimistic given the recent history of deteriorating business operations at Trimble. Figures 3 and 4 show the rating landscape of all Information Technology 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 Kyle Guske II receive no compensation to write about any specific stock, sector or theme. Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. 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.

Time To Buy Cyber Security ETFs On Decent Q4 Results?

Though the cyber security industry has lost its momentum in the past several months, partially due to the weakness in the broad technology sector, it is poised for exponential growth in the coming years in the face of increasing cybercrime and the need to protect against these threats. According to Gartner, global security spending will increase 4.7% year over year to $75.4 billion in 2015 with some analysts projecting the global market to grow from $77 billion in 2015 to $170 billion by 2020 . The Q4 earnings reports of several industry players reflect this trend as most of them have beaten our earnings and revenue estimates with an encouraging outlook. Yet, they failed to drive the space and its ETFs higher that might suggest an attractive entry point at the current level. Let’s dig into the earnings results of some of the cyber security firms that have the largest allocation to the ETFs in this industry: Cyber Security Earnings in Focus CyberArk Software (NASDAQ: CYBR ) reported earnings per share of 30 cents and revenues of $51.5 million, outpacing the Zacks Consensus Estimate of 13 cents and $44 million, respectively. The company projects earnings per share in the range of 15-16 cents on revenues of $42.5-$43.5 million, up 29-32% year over year, for the ongoing first quarter. The lower-end of both the guidance was well above the Zacks Consensus Estimate of 12 cents for earnings and $42 billion for revenue. For 2016, revenues are expected to grow 27%-29% to $205-$207 million and earnings per share are projected in a band of 83-86 cents. The lower-end of both the full year guidance was also well above the Zacks Consensus Estimate of $203 million for revenue and 67 cents for earnings. However, analysts were expecting earnings per share of 17 cents and 91 cents for the ongoing quarter and fiscal year, respectively, which sent shares of CYBR tumbling following the earnings announcement on February 11 after the closing bell. The stock lost 10.8% on February 12. FireEye (NASDAQ: FEYE ) beat our earnings estimate but missed on revenues. Net loss per share came in at 73 cents, narrower than the Zacks Consensus Estimate of 76 cents loss but revenues of $185 million fell shy of our estimate of $187 million. FireEye expects revenues of $167-$177 million for the first quarter and $815-$845 million for the full year. The midpoint of the range was in line with the Zacks Consensus Estimate for the quarter and above our estimate of $824 million for the year at the time of earnings release. Net loss per share is projected in a range of 49-53 cents for the first quarter and $1.25-$1.32 for the full year. The midpoint of both projections was better than the Zacks Consensus Estimate of a loss of 81 cents and $3.00, respectively. Shares of FEYE fell 3.3% in the normal trading session following its earnings announcement on February 11 after the closing bell. Check Point Software Technologies (NASDAQ: CHKP ) topped our estimates on both the top and the bottom lines by $2 million and 6 cents, respectively. It expects earnings per share of 99 cents to $1.05 on revenues of $395-$410 million for Q1. The midpoint was well above our estimate of 93 cents for earnings but below our estimate of $403 million for revenues at the time of the earnings release. For the fiscal year, revenues and earnings are expected in the range of $1.72-$1.79 billion and $4.45-$4.60, respectively. The midpoints of both are well ahead of the Zacks Consensus Estimate of $1.75 billion and $4.08, respectively. The stock has risen nearly 4.6% since its earnings announcement on January 28 before the opening bell. Fortinet (NASDAQ: FTNT ) missed our earnings estimates by 6 cents but outpaced the same on the revenue front by $1 million. Fortinet sees revenues in the range of $270-275 million and earnings per share of 8-9 cents for the ongoing third quarter; the midpoints of both were lower than our estimates of $277 million and 9 cents, respectively, at the time of the earnings release. For 2016, the company expects revenues to grow more than 24% to $1.25-$1.26 billion and earnings per share to come in the range of 67-69 cents. The upper end of both the projections was above our estimate of $1.24 billion and 23 cents, respectively. The stock has plunged nearly 8.5% following the Q4 earnings announcement on January 28 after the closing bell. Last but not the least, Juniper Networks Inc. (NYSE: JNPR ) outpaced on both the bottom and the top lines by 3 cents and $0.22 billion, respectively. For the first quarter, the company expects earnings per share in the range of 42-46 cents and revenues in the range of $1.15-$1.19 billion. The Zacks Consensus at the time of earnings release was pegged at 37 cents for earnings and $1.201 billion for revenues. Shares of JNPR are down nearly 17.7% since its earnings announcement on January 27 after the closing bell. ETFs in Focus The string of earnings beat but rough stock performances have put this niche area of the technology sector in focus for the days ahead. Currently, there are a couple of cyber security ETFs that investors could stock up on beaten down prices: PureFunds ISE Cyber Security ETF (NYSEARCA: HACK ) The fund offers global exposure to those companies that ensure safety to computer hardware, software and networks, and fight against any sort of cyber malpractice. It tracks the ISE Cyber Security Index, holding 34 securities in its basket. It is well spread out across components, as each security holds less than 4.9% of total assets. From an industrial look, software and programming accounts for nearly 66% of the portfolio while communication equipment and IT consulting & data services round off the top three. In terms of country exposure, U.S. firms take the top spot at 68%, followed by Israel (12%), the Netherlands (6%), Japan (4%), United Kingdom (4%), South Korea (3%), Finland (2%), and Canada (1%). The fund has amassed $636.6 million in AUM and charges 75 bps in fees per year from investors. Volume is solid as it exchanges 495,000 shares in hand per day. HACK has lost 17% over the past one month. First Trust NASDAQ CEA Cybersecurity ETF (NASDAQ: CIBR ) This ETF has accumulated over $105 million in its asset base within eight months of its debut. It charges 60 bps in annual fees and trades in moderate average daily volume of more than 68,000 shares. The fund follows the Nasdaq CTA Cybersecurity Index, which measures the performance of companies engaged in the cyber security segment of the technology and industrials sectors. In total, the product holds 34 stocks in its basket with Cisco Systems (NASDAQ: CSCO ) taking the largest allocation of 7.14% share while other firms account for less than 5.7% of the assets. Further, it is skewed towards the software industry at 46.2%, while communications equipment rounds off the next spot with a double-digit allocation. Like HACK, American firms account for 69% of CIBR while the Netherlands, China, Israel and many others make up for a single-digit allocation. The ETF has shed 13.3% in the same period. Original Post