Tag Archives: georgia

CMG Capital Launches Global Macro Strategy Fund

CMG hit the market last month with its third alternative mutual fund: The CMG Global Macro Strategy Fund (MUTF: PEGAX ). The fund pursues its investment objective of capital appreciation by investing in global currency, government bond and equity markets. CMG Capital Management’s President and Chief Compliance Officer PJ Grzywacz and Head of Due Diligence and Investment Research Michael Hee are responsible for the day-to-day operations of the fund as its portfolio managers. Multi-Factor Approach CMG’s new fund combines a global macro strategy with a fixed-income strategy. The global macro strategy uses multiple factors and quantitative techniques to analyze macroeconomic and financial indicators to determine long and short positions to capture returns related to trends in currency exchange rates, equity indices and government bonds. The fixed-income strategy invests in investment-grade bonds and is designed to generate interest income, capital appreciation, and diversify returns from those of the global macro strategy. The fund’s strategy is “global” in that, under normal circumstances, it invests at least 40% of its assets in companies domiciled outside the United States. While the global macro strategy seeks exposure to foreign currency, equity index and government bond-linked securities, funds, and/or derivatives, it achieves these exposures by investing in limited partnerships, limited liability companies, pooled investment vehicles, and underlying funds. These underlying funds may include currency-, equity-, and government-bond-linked ETFs, mutual funds, futures, and swap contracts. Fund Details The CMG Global Macro Strategy Fund is “non-diversified,” which means it can invest a greater percentage of its assets in one issuer than a “diversified” fund can. Shares of the CMG Global Macro Strategy Fund are available in A (PEGAX) and I (MUTF: PEGMX ) classes. Investment management fees are 1.00%. The A shares have a 2.85% net-expense ratio and a $5,000 minimum initial investment. The I shares have a 2.60% net-expense ratio and a $15,000 minimum initial investment. For more information, view the fund’s prospectus . Jason Seagraves contributed to this article.

A Fund Selection Case Study

Recently, we received an inquiry as to why we did not use more Fidelity funds for the 401(k) plans that we manage. Specifically, we were asked why we did not include the Fidelity Select Biotech Portfolio (MUTF: FBIOX ), which has done well recently. We’ve written about how to select securities , but in this article, we are going to apply those principles to the process of selecting a specific fund for a specific sector of the economy . The decision is which fund we should select to represent healthcare. We use the Vanguard Health Care Fund (MUTF: VGHAX ), which is comprised of 82 different stocks. FBIOX is made up of 262 holdings. This measure would favor the Fidelity fund. Having more holdings is a sign of diversification for the fund. There is no such thing as over diversified , more holdings is better. For both of these funds, the top ten holdings of each fund represent 41% of the fund’s assets. This is not as diversified as it could be, but they are comparable in this way. Foreign stocks represent about 10% of FBIOX and about 20% of VGHAX. Neither of these percentages matter to our definition of the Healthcare sector, but if we were specifically targeting or avoiding foreign stocks with the sector, it would be relevant. Both funds have a 14-year track record. Fourteen years may seem long but is still an insufficient time period for long-term investing statistics. Even the S&P 500 is flat or down for a decade about 6% of the time. The fact that both healthcare funds more than doubled the return of the S&P 500 over this time period is not an indication that they will perform this way going forward. With those caveats in mind, here is how each fund performed. VGHAX had a better return over the fund’s histories. The return was both smoother and superior. A $10,000 investment in VGHAX grew to $45,335 vs. $43,435 for the Fidelity fund. Click to enlarge We specifically do not use how many Morningstar stars a fund has received. Morningstar themselves have done the analysis to show that selecting funds with low expense ratios is a better method of predicting superior future performance. The Vanguard fund has an expense ratio of 0.29% while the Fidelity fund has an expense ratio of 0.74%. This 0.45% difference in expense ratio is a hurdle that the Fidelity fund has to work to overcome. Yet when you compare the average annualized return of the two funds, it appears that the Fidelity fund has simply underperformed the Vanguard fund by the difference in expense ratios. Click to enlarge A final measurement is to see if the Vanguard fund had a superior return by taking additional risks. Risk is usually measured by measuring the standard deviation of annual returns. For the Vanguard fund, the standard deviation of its annual returns was 15.34% while the Fidelity fund’s standard deviation was 22.75%. Click to enlarge The Fidelity fund’s greater volatility is probably a result of having a larger percentage of its investments in mid and small-cap funds. The Fidelity fund has 47% of its holdings in large cap funds while the Vanguard fund has 89% in large cap. Mid and small-cap companies exhibit greater volatility even when you are diversified among hundreds of smaller holdings. Even though these two funds have very similar long-term returns, in the short term, they can be very different. Every month the delta between the return of each fund can be 10% or more in either direction. Here is a graph showing how much VGHAX outperformed or underperformed FBIOX each month. Click to enlarge We do look at a fund ranking system put out by the Center for Fiduciary Studies at fi360.com . Fi360 ranks funds from zero (best) to 100 (worst) within each sector. VGHAX has a three-year average ranking of 10, and FBIOX has 26. One of the fi360 criteria is that the fund’s Sharpe ratio must score in the top 50% of its peer group. Sharpe ratio is a measure of the historical return per amount of risk taken. The Fidelity fund scores poorly for having taken additional risk but not achieve a sufficient return to justify the risk taken. Other criterion used by fi360 include having 80% of its assets actually being invested in the target sector or style, a three-year track history, 75-million under management, and most importantly a relatively low expense ratio. These criteria provide a simple short example of how we go about fund selection and why we selected VGHAS over FBIOX for the 401(k) plans we manage.

The 4 Horsemen Of Southern Utilities, Revisited

Combined, these four utilities service over 22.8 million customers in 11 states. These states represent some of the best for regulatory friendliness to utilities, an important fundamental for all utility investors. The Southeast’s economic growth has lagged the national average, but the recent growth curve appears to be favoring this region. In March 2013, I penned an article that suggested owning four utilities servicing the southern states. These were Southern Company (NYSE: SO ), Dominion Resources (NYSE: D ), Duke Energy (NYSE: DUK ), and SCANA Corp. (NYSE: SCG ). There is still good reason to implement this strategy. The first is the geographical territory covered by these. Combined, the geography stretches from Virginia to Mississippi and from Florida to Indiana and Ohio. A basic concept for utility investing is: It’s all about location, location, location. After SO gobbles up AGL Resources (NYSE: GAS ), these four will service a combined 22.8 million customers. Below is a list of states covered by each firm: Southern Co.: Mississippi, Alabama, Florida, Georgia, and soon to add Arkansas with the AGL merger Dominion Resources : Virginia, West Virginia, and Ohio Duke Energy : Florida, South Carolina, North Carolina, and Indiana SCANA Corp. : South Carolina, North Carolina, and Georgia These states represent areas of improving economic growth. Over the past four years, the Bureau of Economic Analysis has pegged the average annual growth in the Southeast at 1.3%, after getting a slow start in 2011 at a sub-par growth of 0.6%, or less than half the 2011 national average. In 2014, the percent change in GDP for the Southeast was 1.7%, still slightly worse than the national average of 2.2%. However, the percentage growth trend line is one of the best in the country. From a regional growth perspective, the Southeast has improved from last in 2011 to fourth out of eight in 2014. Continuing regional and national outperformance in key service states of Georgia, Florida, South Carolina, West Virginia, and Ohio will offer better organic opportunities for these utilities. Personal income annual growth has been approximately the same as the national level at a four-year average of 3.75%. Population growth has been strong at 12% above the national average at 0.9% a year. Below is a graph of GDP growth by state offered by the BEA. (click to enlarge) These four utilities cover states that are usually considered healthier for regulatory oversight. The credit side of S&P offers an assessment of the regulatory environment as their friendliness, or lack thereof, has an impact on the credit worthiness of regulated utilities. Pre-2014, S&P offered a four-category grouping (More Credit Supportive, Credit Supportive, Less Credit Supportive, Least Credit Supportive), but since changed to a three-category grouping (Strong, Strong/Adequate, Adequate), which is a bit less precise. However, it is still a meaningful comparison of the 10 states listed above. Southern Co.: Mississippi (Adequate, Credit Supportive), Alabama (Strong, More Supportive), Florida (Strong, More Supportive), Georgia (Strong/Adequate, More Supportive), and Arkansas (Strong/Adequate, Credit Supportive) Dominion Resources: Virginia (Strong/Adequate, Credit Supportive), West Virginia (Strong/Adequate, Less Supportive), and Ohio (Strong/Adequate, Credit Supportive) Duke Energy: Florida (Strong, More Supportive), South Carolina (Strong, More Supportive), North Carolina (Strong, Credit Supportive), and Indiana (Strong/Adequate, More Supportive) SCANA Corp.: South Carolina (Strong, More Supportive), North Carolina (Strong, Credit Supportive), and Georgia (Strong/Adequate, More Supportive). On average, Duke and SCANA have better regulatory profiles than Southern and Dominion. Below are S&P Credit post- and pre-2014 utility regulatory assessments by state: (click to enlarge) Source: S&P Credit (click to enlarge) Source: S&P Credit Below is a table comparing various stock fundamentals for each of the four horsemen: Source: Guiding Mast Investments, reuters.com, morningstar.com Since 2013, Dominion’s equity rating fell one notch while SCANA’s increased one notch. Southern Company’s credit rating fell by one notch and Duke’s increased by the same amount. From the table above, the PEG ratio indicates the better value seems to be Dominion and SCANA while Southern and Duke have the highest yields. Dominion and SCANA’s trailing 12-month return on invested capital, ROIC, is higher than their respective five-year averages, indicating improving capital management. Below are fastgraph.com presentation of each of these stock’s 20-year history and current valuations: (click to enlarge) (click to enlarge) (click to enlarge) (click to enlarge) Below are total return performance charts of the four utilities, as offered by Morningstar.com, starting with a graph of total return of a $10,000 investment five years ago: Source: morningstar.com However, each utility has some issues. Southern Co. and SCANA share similar concerns with large nuclear power construction projects in progress. Dominion is spinning off natural gas assets into its drop-down MLP. Duke may have paid a high price for its latest acquisition as it continues to move towards a higher exposure to regulated returns. Both Duke and Southern Company are expanding their regulated businesses by buying more natural gas customers in existing service territories. Within the realm of underlying consolidation trend in the utility sector, three of the four should remain the acquiring companies while SCANA could be an acquired company, especially after its large construction exposure diminishes over the next few years. For example, with an enterprise value of $15 billion, SCANA could be absorbed by any of the other three. Overall, utility investors looking to expand their horizons should consider any or all of these four horsemen of the southern utilities. Author’s note: Please review disclosure in author’s profile.