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Natixis CGM Advisor Targeted Equity Fund: An End Of An Era

Summary Natixis Asset Management, the fund’s distributor, has recently announced the closure of the CGM Advisor Targeted Equity Fund to new investors, and plans to liquidate the fund on 2/17/2016. The fund is managed by CGM’s Kenneth Heebner and has been active since 1968. Fund has significantly underperformed the market over the last 8 to 10 years. One of the oldest mutual funds is about to shut the doors. Natixis has just sent out a letter to financial advisor informing them of the board’s decision to liquidate the CGM Advisor Targeted Equity Fund (MUTF: NEFGX ) (MUTF: NEBGX ) (MUTF: NEGCX ) (MUTF: NEGYX ) on February 17th, 2016. As per the letter… The Board considered a number of factors in making this decision. Natixis Funds are managed solely by firms in which Natixis Global Asset Management has an ownership interest. In early January 2016 Natixis will no longer hold any ownership interest in Capital Growth Management (CGM). The Board determined that, since there is no other manager or fund within the Natixis Funds complex that has a similar investment style, it would not be in the best interest of shareholders to have another portfolio manager assume responsibility for managing the Fund or to merge it into another fund. If you are currently an investor, what are you to do? The Basics Originally launched in 1968, the fund has been managed over the last 39 years by Kenneth Heebner. Fund Basics : Sponsor: Natixis Global Asset Management Managers: Sub-Advised by CGM, Kenneth Heebner AUM: $448.53 Million across share classes Historical Style : Large Blend Investment Objectives: Seeks long-term growth of capital through investment in equity securities of companies whose earnings are expected to grow at a faster rate than that of the overall United States economy. Number of Holdings: 21 Current Yield: 0%, Annual Distributions Inception Date: 11-27-1968 Fees: A Share : 1.15%, I Share: .89% Source: Natixis Global Asset Management The fund’s special sauce is twofold. First, the fund is concentrated and typically holds between 20 and 30 securities. The reasoning for this being, if you hold 100 names or more and many funds do, you might as well own an index fund as you are in a quasi index fund with higher fees. As a concentrated fund, you are able to make specific investment bets. The second part to the special sauce is selecting “aggressive large-cap” holdings with a competitive long-term track record. The Numbers Pre 2007 the fund was a shining example that active management can work. 2007 in particular was a stand out year where the fund returned 34.42%, beating the S&P 500 by over 28%. Yes, the fund was concentrated and had a higher beta, it certainly brought alpha to the portfolio. Unfortunately, since 2008, the fund has been mediocre at best. (click to enlarge) Source: YCharts Even over the last 10 years, the fund has still not gotten its mojo back. (click to enlarge) Source: YCharts Putting this into perspective, we can take a look at the Risk Reward Scatterplot and MPT statistics for the fund compared to the S&P 500. (click to enlarge) Source: Morningstar While the fund has returned positive numbers, it has done so with both a higher beta to the market, and a lower alpha, not keeping up with the market. This trend holds true for both the 3, 5 and 10 year numbers. Our Take & Bottom Line This was a great fund Pre 2008, however during the great financial melt UP inspired by zero interest rate policy, active managers have been left behind as the entire markets went up. All you heard for the last 8 years has been index funds, ETFs, etc. Only this year have you started seeing a return to good active managers in a market that has gone nowhere for the year. The question is…. what does the future hold? Unfortunately, no one knows how CGM will manage in the future. The fund has typically had very active turnover in the portfolio with very little to show for it. It would not be prudent to invest in the funds right now, so this discussion focuses for those that are current investors. Even though Natixis will be liquidating the funds, CGM does have 3 mutual funds that are no load funds, as opposed to the Natixis CGM funds that were sold primarily through financial advisors. For investors who still believe in CGM and Kenneth Heebner, your choice would be to invest in the CGM Focus Fund (MUTF: CGMFX ) which mimics the Natixis fund very well. Unfortunately, the performance has been just as tepid. Perhaps this fund closing is just an opportunity to take a moment and reevaluate your options. In any case, it would be prudent to process your sell order now, rather than wait for the fund liquidation to happen by itself and hope to avoid any other special distributions & 1099s.

A Year-End Review Of ROBO, The Robotics And Automation ETF

Summary The ETF’s percentage of large-cap holdings has declined by 9% since February 2014. Since February 2014, there has been an increase in riskier mid-cap, small-cap and micro-cap holdings within this ETF. Kuka AG and Krones AG are leading performers of the Robo Global Robotics and Automation Index ETF while Omron Corporation and Oceaneering International Inc. are leading laggards. The Robo Global Robotics and Automation Index ETF’s high expense ratio and increased exposure to riskier stocks makes the fund a risky investment. Just like Robin Roberts performs a year-end wrap-up of the year 2015, it is only appropriate that I perform a year-end analysis of the Robo-Stox Global Robotics And Automation Index ETF (NASDAQ: ROBO ) This exchange-traded fund was fortunate enough not to suffer the same fate as the now liquidated 3D Printing, Robotics and Technology Fund (MUTF: TDPIX ). As of the date of this article, the Robo Global Robotics and Automation Index ETF’s total YTD Performance was -4.73%. However, the funds has picked up momentum over the past three months with a gain of 10.54% over that span. Without further ado, it is time for me to perform an in-depth dissection of this fund. The Robo Global Robotics and Automation Index ETF has a high expense ratio of 0.95%. This is 0.30% higher than the expense ratio category average . The following chart illustrates the fund’s weight in terms of giant, large, mid, small and micro-cap stocks when I analyzed this fund in February 2014 . Size % of Portfolio Benchmark Category Average Giant 12.02 56.05 46.73 Large 17.80 21.14 13.74 Medium 40.85 17.44 25.91 Small 13.39 5.24 10.90 Micro 15.94 0.13 2.73 As you can see by the following chart, the percentage of large-cap holdings in the fund has declined by over 9% from nearly two years ago and is well below its category average. Meanwhile, you can see that there has been a percentage increase in the mid-cap, small cap and micro-cap stocks of this fund. These statistics are as of 12/23/2015. Size % of Portfolio Benchmark Category Average Giant 11.22 42.29 3.56 Large 8.79 31.26 28.17 Medium 44.89 19.80 52.11 Small 18.09 6.24 12.66 Micro 17.01 0.41 3.50 LEADERS OF ROBO GLOBAL ROBOTICS AND AUTOMATION INDEX ETF In terms of coming up with the top performers in the fund, I took into account both the portfolio weight and YTD Return of the holdings. KUKA AG ( OTCPK:KUKAF ) = KUKA AG is an automation firm that develops and gives sells robotic systems internationally under the KUKA brand. KUKA AG has the 8th best portfolio weight at 2.14%, yet had an YTD return of 37.10%. Currently, KUKA AG is trading at $87.74 and is coming off of a solid third quarter performance . KUKA AG’s garnered a 25% in orders received and a 34% increase in sales revenues. These increases included totals from the Swisslog division, which was not consolidated in the previous year. The firm’s robotics division increased by 20% in terms of orders received, yet its sales revenues declined by 7% for the quarter. According to its report, KUKA AG have benefited from increased car sales in its three biggest markets, Western Europe, China and the U.S. Car sales in Western Europe, China and The U.S grew by 8.7%, 5.5% and 5% respectively for the first nine months in 2015. KUKA expects to benefit from further growth in these markets. KRONES AG ( OTC:KRNNF ) – Krones AG is responsible for the planning, developing and manufacturing machinery and systems for the process technologies and intralogistics arena in Germany as well as worldwide. Krones AG has a 2.06% portfolio weight and has an YTD return of 34.35%. Krones is trading at $108.25. Its latest report revealed that Krones AG was right on target in terms of meeting its target objectives. Krones AG’s revenue and net orders has increased by 4.9% and 5.2% respectively. The firm’s EBIT, EBT and Net Income increased by 14.8%, 14.2% and 13.9% respectively. LAGGARDS OF ROBO GLOBAL ROBOTICS AND AUTOMATION INDEX ETF It would be easy for me to point the finger at the struggling 3-D Printing stalwarts of 3D Systems Corp (NYSE: DDD ) and Stratasys (NASDAQ: SSYS ). Both have YTD Returns of -69.29% and -69.12%. However, both holdings hold portfolio weights of less than 1%. Thus, both holdings do not hold enough significance to the fund at this point. However, Omron Corporation (OMR) has a hefty portfolio weight of 2.12% and has a negative YTD Return of -22.50%. In their latest half-year report, Omron Corporation’s revenue increased year-over-year by 2.2%. Yet, the company’s net income declined by -27.3% to $24.5 million dollars. Omron’s operating income was dragged down by a mix of increased SG&A and R&D and lower added value. Oceaneering International Inc. (NYSE: OII ) has a sizable portfolio weight of 1.74% and has a YTD return of -33.79%. Oceaneering International Inc. just hit a new one-year low on Dec 21st. This came on the heels of Oceaneering International Inc. being downgraded to a Strong Sell by Zacks. In the company’s latest report, Oceaneering International Inc’s reported a 31% decrease in net revenues and an 81% decline in net income. BOTTOM LINE: I still cannot give this ETF my full endorsement as an investment as it is still overly exposed to riskier stocks as shown by the chart comparisons above. In addition, Morningstar rates this fund zero stars and has an F rating by ETF.com. The fund’s high expense ratio of 0.95% is an even bigger turnoff. Editor’s Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.

Is Now The Time To Look At Floating Rate Bonds?

Summary Now that the Fed has begun raising rates, investors should refocus on risk minimization over yield maximization. Investors reaching for yield in securities like MLPs and high yield bonds have been hurt badly since the beginning of 2014. The iShares Floating Rate Bond ETF focuses on short term investment grade floating rate notes and carries an effective duration of just 0.14 years. In light of the Federal Reserve’s persistent zero interest rate policy, many investors have traveled further down the risk/return spectrum in order to improve yields on their portfolios. Anybody that’s dabbled in MLPs or high yield bonds over the past two years probably knows very well the risks that come with reaching for yields. The ALPS Alerian MLP ETF (NYSEARCA: AMLP ) is 40% off of its recent high while the high yield bond index is down over 20%. AMLP Total Return Price data by YCharts Now that the Federal Reserve has finally begun moving away from its zero interest rate policy and rates are slowly on their way back up, it might be time to focus more on principal preservation instead of yield maximization. Staying on the short end of the yield curve can certainly help accomplish that task but floating rate bonds should also be a consideration. The iShares Floating Rate Bond ETF (NYSEARCA: FLOT ) is the biggest floating rate note ETF out there at nearly $3.5B in assets. Its current yield of 0.5% won’t necessarily get income investors excited right now but its risk mitigation characteristics will once rates begin moving significantly higher. This ETF is benchmarked to the Barclays US Floating Rate Note