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Best And Worst Q1’16: Telecom Services ETFs, Mutual Funds And Key Holdings

The Telecom Services sector ranks eighth out of the ten sectors as detailed in our Q1’16 Sector Ratings for ETFs and Mutual Funds report. Last quarter , the Telecom Services sector ranked eighth as well. It gets our Dangerous rating, which is based on aggregation of ratings of six ETFs and 13 mutual funds in the Telecom Services sector. See a recap of our Q4’15 Sector Ratings here . Figure 1 ranks from best to worst all six Telecom Services ETFs and Figure 2 shows the five best and worst-rated Telecom Services mutual funds. Not all Telecom Services sector ETFs and mutual funds are created the same. The number of holdings varies widely (from 24 to 56). This variation creates drastically different investment implications and, therefore, ratings. Investors seeking exposure to the Telecom Services sector should buy one of the Attractive-or-better rated ETFs from Figure 1. 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 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 Rydex Telecommunications Fund (MUTF: RYMIX ) is excluded from Figure 2 because its total net assets are below $100 million and do not meet our liquidity minimums. The iShares North American Tech-Multimedia Networking ETF (NYSEARCA: IGN ) is the top-rated Telecom Services ETF and the Fidelity Wireless Portfolio (MUTF: FWRLX ) is the top-rated Telecom Services mutual fund. IGN earns an Attractive rating and FWRLX earns a Neutral rating. The iShares U.S. Telecommunications ETF (NYSEARCA: IYZ ) is the worst-rated Telecom Services ETF and the Rydex Telecommunications Fund (MUTF: RYTLX ) is the worst-rated Telecom Services mutual fund. Both earn a Very Dangerous rating. 45 stocks of the 3000+ we cover are classified as Telecom Services stocks, but due to style drift, Telecom Services ETFs and mutual funds hold 56 stocks. China Mobile Limited (NYSE: CHL ) is one of our favorite stocks held by Telecom Services ETFs and mutual funds and earns a Very Attractive rating. Since 2012, China Mobile has generated positive economic earnings , maintained a top quintile return on invested capital ( ROIC ) of 20% or higher, and generated a cumulative $22.9 billion in free cash flow. However, CHL remains significantly undervalued. At its current price of $54/share China Mobile has a price to economic book value ( PEBV ) ratio of 0.6. This ratio implies that the market expects China Mobile’s profits to permanently decline by 40% from current levels. If China Mobile can grow profits by just 10% compounded annually for the next five years , the stock is worth $123/share – a 127% upside. Telephone & Data Systems (NYSE: TDS ) is one of our least favorite stocks held by FTUAX and earns a Dangerous rating. Since 2009, Telephone & Data systems after-tax profit ( NOPAT ) has declined by 21% compounded annually. At the same time, its ROIC has fallen from 5% to a bottom quintile 1%. Shares of Telephone & Data remains significantly overvalued given the clear deterioration of its business operations. To justify its current price of $23/share, TDS must immediately achieve pre-tax margins of 3% (0% in 2014) and grow revenue by 10% compounded annually for the next 16 years . Figures 3 and 4 show the rating landscape of all Telecom Services 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.

Fund Liquidations: TeaLeaf, Fortress, Ramius And Redmont

In this edition of Fund Liquidations, we note four funds that have recently liquidated or filed for liquidation. The four funds cut across four investment categories: Long/short equity, long/short credit, event driven and multi-alternative. TeaLeaf Long/Short Deep Value Fund (MUTF: LEFIX ) Fortress Long/Short Credit Fund (MUTF: LPLIX ) Ramius Event Driven Fund Redmont Resolute Fund (MUTF: RMRGX ) TeaLeaf Long/Short Deep Value Fund In a January 25 filing with the Securities and Exchange Commission (“SEC”), the Board of Trustees of Tea Leaf Management Investment Trust decided to close the TeaLeaf Long/Short Deep Value Fund. The reason cited by the board was its relatively small size. For the year of 2015, the A shares of the fund returned -1.14%, which while not spectacular was still enough to rank the fund in the top half of its category. Nevertheless, the Board decided to terminate the fund, and its shares were entirely liquidated by January 29 – one month shy of the fund’s 3-year anniversary. Fortress Long/Short Credit Fund In a February 12 filing with the SEC, the Fortress Long/Short Credit Fund’s Board of Trustees voted to terminate the fund. This news comes just shortly after reaching the 5-year anniversary of the fund, which was launched in December 2010. Any shareholders who have not sold their shares by March 12 will have them automatically redeemed, according to the filing. The fund’s original Advisor share class returned -4.83% in 2015, ranking in the bottom 10% of its category. The fund is sub-advised by Logan Circle Partners. Ramius Event Driven Fund The Ramius Event Driven Fund’s Board made the decision to terminate the fund on December 28, 2015, just three months after the fund’s second anniversary. Any outstanding shares that hadn’t been redeemed by February 2 were automatically retired, with holdout shareholders receiving their proportion of the fund’s remaining net assets, according to the filing . The fund’s A shares returned -7.68% in 2015, ranking in the bottom 14% of Morningstar’s Long/Short Equity category. Redmont Resolute Fund I The Board of Trustees for the Redmont Resolute Fund I voted to liquidate it on December 17. The fund was launched on December 30, 2011. According to the SEC filing , the liquidation was expected to be completed by January 29. The A-class shares of the Redmont Resolute Fund, a multi-alternative fund, returned +0.15% in 2015, which was enough to rank it in the top 15% of funds in its category. Nevertheless, the fund’s Board determined it was in the best interests of shareholders to liquidate. The fund was advised by Highland Associates and sub-advised by PineBridge Investments. Past performance does not necessarily predict future results. Jason Seagraves contributed to this article.

The Best And Worst Of January: Managed Futures

Managed futures mutual funds and ETFs bounced back in January after having a tough month in December. In the first month of 2016, managed futures funds, including “CTAs” (commodity trading advisors), averaged gains of 2.05%. This, in a month when U.S. stocks, commodities and high-yield bonds all saw large drawdowns. Managed futures strategies have often been referred to as “crisis alpha”, and January’s performance shows why they have been labeled as such. Over the three years ending January 31, funds in the category generated average annualized returns of +3.36%. These returns were comprised of -1.79% annualized alpha and 0.58 beta relative to Credit Suisse Managed Futures Liquid TR USD Index. Top Performers in January The three best-performing managed futures mutual funds in January were: Equinox Funds dominated the managed futures category in January, occupying all three of the top spots. EBCIX, EQIPX, and MHFAX generated respective one-month gains of 6.81%, 6.17%, and 6.09% in January, greatly outperforming the category average of 2.05% Of the three funds, only MHFAX has been around for at least three years, and its three-year annualized returns through January 31 stood at +4.64%, ranking in the top 30% of the category. The fund’s three-year Sharpe ratio, a measure of risk-adjusted returns, was 0.51, compared to 0.34 for the category. Its three-year standard deviation, measuring volatility, stood at 9.69%, compared to the category average of 9.01%. MHFAX’s three-year alpha of -1.79% was equal to the category average, while its beta of 0.73 was higher than the category’s 0.58. Category leader EBCIX and #2 fund EQIPX launched in June 2014 and July 2015, respectively. EBCIX had one-year returns of 6.02% through January 31, ranking in the top 8% of the category. EQIPX was launched too recently for annual returns, but its six-month gains through January 31 stood at 4.69%, ranking in the top 6% of the category. Worst Performers in January The three worst-performing managed futures mutual funds in January were: TVTAX was by far January’s worst-performing managed futures fund, returning -7.02%. The fund, which launched in November 2014, had one-year returns of -13.93% through January 31, ranking in the bottom 7% of the category. Although they were the second- and third-worst performers in the category, FCMLX and DNASX’s January losses were considerably lighter than that of TVTAX, at 2.95% and 2.96%, respectively. Both FCMLX and DNASX launched long enough ago to have three-year returns, alphas, betas, Sharpe ratios, and standard deviations: FCMLX had three-year annualized losses of 2.61%, with a three-year alpha of -5.99%, beta of -0.03, a Sharpe ratio of -0.19, and standard deviation of 11.03%. DNASX’s respective stats were -1.42%, -1.09%, 0.42, -0.24, and 5.54%. Past performance does not necessarily predict future results. Jason Seagraves contributed to this article.