Tag Archives: events

3 Mutual Funds To Buy As Consumer Spending Boost GDP

According to the “third estimate” of the U.S. Department of Commerce, the economy expanded at a rate of 1.4% in the fourth quarter of 2015 compared with the earlier estimate of a 1% rise. Moreover, the growth rate was above the consensus estimate of 1% gain. For the full year, GDP rose at an annual rate of 2.4%, in line with the 2014 growth rate. Thanks to consumer spending, which constitutes roughly 75% of the U.S. economy, GDP grew at a moderate pace in the fourth quarter despite weaknesses in the other major components of the economy. Steady growth in consumer spending is likely to have a positive impact on the retail sector, which attracts a major portion of consumer expenditure. Given this scenario, mutual funds having significant exposure to this sector may provide an excellent investment opportunity to seeking returns from this positive trend. Consumer Spending Boosting Economy According to the GDP report, personal consumption expenditure grew at a pace of 2.4% in the fourth quarter, preceded by a 3% rise in the third. In 2015, consumer spending rose 3.1% – the highest rate of increase since 2005. While spending on goods rose at a rate of 3.7% in 2015, the same on services increased 2.8% during the same time frame. Personal consumption expenditure contributed nearly 1.7% and 2.1% to GDP during the fourth quarter and last year, respectively. Consistent improvement in labor market conditions remained one of the key drivers of consumer spending. According to the latest data, the economy got a boost from 242,000 job additions in February, which exceeded January’s revised figure of 172,000 by a wide margin. Unemployment remained in line with January’s rate of 4.9%. Meanwhile, the GDP report showed that disposable personal income increased 2.3% in the fourth quarter, preceded by a 3.2% increase in the previous quarter. Also, it rose at a rate of 3.4% last year – the highest since 2006. The low inflation rate also gave a significant boost to consumer spending. According to the report, the personal consumption expenditure index (PCE) rose at a six-year low pace of 0.3% in 2015. Excluding food and energy prices, the index rose 1.3% – the lowest since 2011. Lingering Concerns A massive slump in business profits emerged as one of the main concerns in the fourth quarter. After-tax profits plunged 8.4% during the quarter, witnessing the largest decline since the first quarter of 2014. This was preceded by third quarter’s decline of 1.7%. After-tax profits slumped 5.1% last year, marking the biggest drop in the last seven years. Profits from current production plunged $159.6 billion last quarter, followed by a $33 billion decline in the third. Moreover, business investment declined 2.1% during the fourth quarter, in contrast to a 2.6% rise in the previous quarter. It subtracted nearly 0.3 percentage points from GDP figure. It is speculated that rising wages and an improving labor market will have a negative impact on the profit margin. Separately, exports declined 2.1% in the fourth quarter compared with a 0.7% rise in the third. Imports declined 0.7% in the last quarter. This is why net exports had a negative impact of more than 0.1% on the GDP number. Meanwhile, businesses witnessed a stock pile of $78.3 billion last quarter followed by $81.7 billion accumulated in the third quarter. This affected the GDP rate by more than 0.2 percentage points. 3 Mutual Funds to Buy Despite these concerns, the consumer-driven U.S. economy managed to register a moderate rate of growth on the back of positive factors including favorable labor market conditions, a low inflation rate and the low interest rate environment. The Fed recently reduced its forecast for the number of rate hikes this year from four to two. In this favorable environment, the retail sector is expected to benefit from steady growth in consumer spending as it attracts a major portion of the total spending. Against this backdrop, we highlight three retail focused mutual funds that carry either a Zacks Mutual Fund Rank #1 (Strong Buy) or #2 (Buy). We expect these funds to outperform their peers in the future. Remember, the goal of the Zacks Mutual Fund Rank is to guide investors to identify potential winners and losers. Unlike most of the fund-rating systems, the Zacks Mutual Fund Rank is not just focused on past performance, but also on the likely future success of the fund. These funds have encouraging one-month and three-year annualized returns. The minimum initial investment is within $5000. Also, these funds have a low expense ratio. Fidelity Select Consumer Discretionary Portfolio (MUTF: FSCPX ) seeks growth of capital. This fund invests a large portion of its assets in securities of companies involved in the manufacture and distribution of consumer discretionary products and services. Currently, FSCPX carries a Zacks Mutual Fund Rank #1. The product has one-month and three-year annualized returns of 3.9% and 13.5%, respectively. Annual expense ratio of 0.79% is lower than the category average of 1.41%. Putnam Global Consumer A (MUTF: PGCOX ) invests a large portion of its assets in securities of companies involved in the manufacture and distribution of consumer discretionary products and services. Currently, PGCOX carries a Zacks Mutual Fund Rank #1. The product has one-month and three-year annualized returns of 5.4% and 10.7%, respectively. Annual expense ratio of 1.26% is lower than the category average of 1.43%. Fidelity Select Retailing (MUTF: FSRPX ) seeks capital growth. FSRPX invests a major portion of its assets in securities of firms involved in merchandising finished goods and services to consumers. Currently, FSRPX carries a Zacks Mutual Fund Rank #2. The product has one-month and three-year annualized returns of 3.8% and 20.3%, respectively. Annual expense ratio of 0.81% is lower than the category average of 1.41%. About Zacks Mutual Fund Rank By applying the Zacks Rank to mutual funds, investors can find funds that not only outpaced the market in the past but are also expected to outperform going forward. Pick the best mutual funds with the help of Zacks Rank. Original Post

How To Avoid The Worst Style ETFs: Q1’16

Question: Why are there so many ETFs? Answer: ETF providers tend to make lots of money on each ETF so they create more products to sell. The large number of ETFs has little to do with serving your best interests. Below are three red flags you can use to avoid the worst ETFs: Inadequate Liquidity This issue is the easiest issue to avoid, and our advice is simple. Avoid all ETFs with less than $100 million in assets. Low levels of liquidity can lead to a discrepancy between the price of the ETF and the underlying value of the securities it holds. Plus, low asset levels tend to mean lower volume in the ETF and larger bid-ask spreads. High Fees ETFs should be cheap, but not all of them are. The first step here is to know what is cheap and expensive. To ensure you are paying at or below average fees, invest only in ETFs with total annual costs below 0.48%, which is the average total annual cost of the 298 U.S. equity Style ETFs we cover. The weighted average is slightly lower at 0.17%, which highlights how investors tend to put their money in ETFs with low fees . Figure 1 shows that the AdvisorShares Madrona Domestic ETF (NYSEARCA: FWDD ) is the most expensive style ETF and the Schwab U.S. Large Cap (NYSEARCA: SCHX ) is the least expensive. Absolute Shares Trust ( WBIB , WBID , WBIC , and WBIG ) provides four of the most expensive ETFs while Schwab ( SCHX and SCHB ) and Vanguard ( VOO and VTI ) ETFs are among the cheapest. Figure 1: 5 Least and Most Expensive Style ETFs Click to enlarge Sources: New Constructs, LLC and company filings Investors need not pay high fees for quality holdings. The State Street SPDR S&P 500 Buyback ETF (NYSEARCA: SPYB ) earns our Very Attractive rating and has low total annual costs of only 0.39%. On the other hand, a fund such as the iShares Core U.S. Growth ETF (NYSEARCA: IUSV ) holds poor stocks. No matter how cheap an ETF (0.08% TAC), if it holds bad stocks, its performance will be bad. The quality of an ETFs holdings matters more than its price. Poor Holdings Avoiding poor holdings is by far the hardest part of avoid bad ETFs, but it is also the most important because an ETFs performance is determined more by its holdings than its costs. Figure 2 shows the ETFs within each style with the worst holdings or portfolio management ratings . Figure 2: Style ETFs with the Worst Holdings Click to enlarge Sources: New Constructs, LLC and company filings PowerShares ( EQAL , PXMV , and EQWS ) appears more often than any other providers in Figure 2, which means that they offer the most ETFs with the worst holdings. The ProShares Ultra Telecommunications ETF (NYSEARCA: LTL ) is the worst rated ETF in Figure 2. The PowerShares Russell MidCap Pure Value ETF (NYSEARCA: PXMV ), the PowerShares Russell 2000 Equal Weight ETF ( EQWS ), the Vanguard Russell 2000 Growth Index Fund (NASDAQ: VTWG ), the Global X Super Dividend U.S. ETF (NYSEARCA: DIV ), and the Guggenheim S&P Small Cap 600 Pure Value ETF (NYSEARCA: RZV ) also earn a Dangerous predictive overall rating, which means not only do they hold poor stocks, they charge high total annual costs. Our overall ratings on ETFs are based primarily on our stock ratings of their holdings. The Danger Within Buying an ETF without analyzing its holdings is like buying a stock without analyzing its business and finances. Put another way, research on ETF holdings is necessary due diligence because an ETF’s performance is only as good as its holdings’ performance. PERFORMANCE OF ETFs HOLDINGs = PERFORMANCE OF ETF Disclosure: David Trainer and Kyle Guske II receive no compensation to write about any specific stock, style, 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.

A Sneak Peek Inside Ray Dalio’s Portfolio

Following the lead of top investors is a time proven way to earn wealth in the financial markets. The path to wealth in the markets is already well marked by the proven footsteps of great investors. One of the most iconic leading names in today’s financial market is a hedge fund manager named Ray Dalio. The average investor may not have even heard of Mr. Dalio but he is a well-known figure in the hedge fund world. He has earned a place as one of the top 100 wealthiest investors on earth by managing the $140 billion Bridgewater Associates hedge fund. Bridgewater is the largest hedge fund on earth. What I like most about Mr. Dalio is that he is far from the typical hedge fund manager. He is a big game bow hunter, a meditation practitioner, and a firm believer in radical honesty. I learned a tremendous amount by studying his writings and firmly believe that all investors can learn important lessons from this one of a kind billionaire. This article will serve as a brief introduction to Ray Dalio’s background, philosophy, as well as providing a sneak peek into his top portfolio holdings.Ray was not born wealthy. The son of a jazz musician and stay at home mom, he knew he wanted money to spend. His first job was the typical employment of suburban youth, a newspaper route. When he turned 12 years old, he started working as a golf caddy. It was this job that would place him on the road to vast wealth. Carrying the golf clubs of businessmen from hole to hole, he overheard much talk about the stock market and investing. This first exposure to the markets lit a fire in him that burns brightly to this day! Acting on his curiosity, he purchased his initial shares of stock in Northeast Airlines. His investment thesis was a common one among undercapitalized stock traders. He just looked for a company trading for under $5.00 per share so he could afford more shares! Believe it or not, the airline was soon targeted with a buyout offer resulting in his shares tripling in value. As you might imagine, this early victory hooked him on the market for life. He fed his passion by attending Harvard Business School. During the summers at Harvard, Ray traded commodities while being employed as an assistant to Merrill Lynch’s Director of Commodities. He soon moved to Wall Street where he toiled for 2 years learning the ins and outs of the financial business from the trenches. In 1975, launched Bridgewater Associates from his New York City brownstone apartment. How Ray Dalio Picks Investments Ray Dalio is best known as a macro investor who follows a stringent sense of ethical ideas that create the foundation for his investing and the way Bridgewater is operated. Unlike most secretive hedge fund managers, Ray makes his ideas available to the public via a treatise called, Principles . This 123-page manifesto is required reading for all Bridgewater employees and he was kind enough to publish it for every investor. It is very unique for such a hyper-successful hedge fund manager to share his inner motivations and life rules so freely. Everyone should make it a point to read Dalio’s Principles in its entirety at least one time. As a brief overview, Principles teaches to always think for yourself and that “Truth, more precisely an accurate understanding of reality is the essential foundation for producing good results.” In other words, understanding reality for what it is, not what you think or wish it is, is the fundamental core for living a successful life. The Nitty Gritty Ray’s practical advice includes the following. He stresses that every investment portfolio should consist of fifteen uncorrelated return stream. Dalio believes that at exactly fifteen uncorrelated investments, an investor’s risk factor is reduced by 80%. In addition, he likes to balance his portfolio to inflation risk and growth. He doesn’t just blindly follow the data but rather observes the data through the prism of knowing the economic environment. All potential environments are illustrated in this diagram from Bridgewater: The ideal portfolio is one that does not rely on predicting deflationary shifts yet provides balance. He explains it this way. Bonds will perform best during times of disinflationary recession, stocks will perform best during periods of growth, and cash will be the most attractive when money is tight. Translation: all asset classes have environmental biases. They do well in certain environments and poorly in others. As a result, owning the traditional, equity heavy portfolio is akin to taking a huge bet on stocks and, at a more fundamental level, that growth will be above expectations.” The Most Critical Thing Ray firmly believes that diversification is the key to long-term success in the financial markets. In his own words, “you’re not going to win by trying to get what the next tip is – what’s going to be good and what’s going to be bad. You’re definitely going to lose. So, what the investor needs to do is have a balanced, structured portfolio – a portfolio that does well in different environments.” Click to enlarge Most interesting is his belief that despite having all the researchers, market experts, and spending $100s of millions, Bridgewater still doesn’t know what’s going to win and what’s going to lose. Spreading the risk is the key to success no matter what resources you can access. Ray Dalio’s Current Portfolio Bridgewater is a macro-oriented fund. It holds over 90% of its assets in ETFs of emerging markets and the S&P 500 index. This breaks down to 31% allocated to Vanguard International Equity Index Funds (NYSEARCA: VWO ), 28% in the S&P 500 ETF Trust (NYSEARCA: SPY ), and 17% in the iShares MSCI Emerging Markets Index Fund (NYSEARCA: EEM ). The remainder of the 90% is allocated to a bond ETF and a Core S&P 500 ETF. Bridgewater’s largest single stock holding is Apple (NASDAQ: AAPL ) with 0.47% of the portfolio. This equates to 327452 shares and the holdings have increased by 2% from last reporting period, a 19% increase. Ray first purchased Apple in the fourth quarter of 2010. Taking a closer look at the stock, shares are trading lower by 14.65% over the last 52 weeks, but are slightly higher by 0.07% in 2016. The next biggest holdings is Bed, Bath & Beyond (NASDAQ: BBBY ) taking up 0.41% of the portfolio with 647054 shares. Ray has been adding to this position with it jumping from just 0.25% of his holdings last reporting period to 0.41% today. A 96% increase in the holding size. He first purchases the shares in the second quarter of 2014. The share plunged 34.80% over the last 52 weeks, but are higher by 1.97% in 2016. The mighty Microsoft (NASDAQ: MSFT ) is Mr. Dalio’s third largest single stock holding. His portfolio boasts 647054 shares representing 0.28% of the total and the 7th largest holding overall. MSFT has been a part of his portfolio since the fourth quarter of 2013. The holding has been increased by 14% since last reporting period. This stock has been a big winner for Ray’s fund having climbed 30.68% over the last 52 weeks. However, it is important to note, shares are lower by about 3.5% this year.