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6 Mutual Funds To Buy As Russell 2000 Outperforms

Over the past one-month period, the major U.S. benchmarks witnessed a positive trend that helped most of them to register gains. Among these, the Russell 2000, which tracks the performance of small-cap stocks, clearly emerged as the top performer in the last one month. While the Dow, the S&P 500 and the Nasdaq gained 2.6%, 2.7% and 2.6%, respectively, in the past one month, the Russell 2000 increased 6.5% during the same period. In line with the performance of the small-cap index, the small-cap mutual funds also registered healthy returns – higher than the large- and mid-cap ones. Small-cap mutual funds posted an average return of 6% in the last one month, while the large- and mid-cap funds registered average gains of 3.3% and 4.4%, respectively. Moreover, small-cap funds have gained 2.4% in the year-to-date frame, beating their large-cap counterparts, which gained only 1.7%. Against this backdrop, investing in small-cap funds may prove to be a profitable strategy for risk lovers. Factors Boosting Small-Cap Funds Oil Rally Despite the disappointment in the Doha meeting, crude prices continued their rally, which emerged as one of the major reasons for the impressive performance by the U.S. benchmarks. Though the much-vaunted meeting of the major oil producing countries in Doha on production freeze failed to produce favorable results, its impact on crude was lesser than expected. Continuing decline in the U.S. rig count and oil production helped oil prices to post gains for the third straight week. Recently, Baker Hughes (NYSE: BHI ) reported that U.S. oil rig count posted its fifth straight weekly drop, declining from 351 to 343. Meanwhile, the U.S. Energy Information Administration (EIA) reported that domestic crude output fell by 24,000 barrels per day (bpd) to 8.953 million bpd for the week ended April 15. U.S. crude output declined for the sixth consecutive week. Encouraging Economic Data Moreover, some of the encouraging economic data had a positive impact on investor sentiment. The ISM manufacturing index increased from 49.5% in February to 51.8% in March, surpassing the consensus estimate of 50.8%. The ISM Services Index increased from 53.4% in February to 54.5% in March, witnessing its highest level in the last three months. Meanwhile, better-than-expected jobs addition, rise in wages and falling initial claims point to continued improvement in the labor market. While the U.S. economy generated 215,000 jobs in March and average hourly earnings increased 0.3% last month to $25.39, initial claims for the week ending April 16 continued to decrease to reach a record low since 1973. Separately, the Consumer Confidence Index advanced to 96.2 in March from 92.2 in February and was also higher than the consensus estimate of 94.9. Meanwhile, each of the 12 districts indicated moderate growth in economic activity, according to the Fed’s Beige Book. These positive economic data indicate that the U.S. economy is on a path of recovery. 6 Small-Cap Funds to Buy Though small-cap funds are believed to have a higher level of volatility compared to their large- and mid-cap counterparts, they show greater growth potential when markets see an uptrend and continued domestic economic improvement. This is because small-cap stocks are closely tied to the domestic economy and have less international exposure, making them safer bets than their large- and mid-cap counterparts in a sluggish global growth environment. Hence, risk-loving investors can pick these funds to gain from the current encouraging environment. In this scenario, we highlight two mutual funds from each of the three small-cap categories – growth, blend and value – that either have 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. Besides having impressive one-month returns, these funds also have strong three-year annualized returns. The minimum initial investment is within $5000. Also, these funds have a low expense ratio and carry no sales load. Small-Cap Growth – One-month return of 6.9% Ivy Small Cap Growth Fund (MUTF: WSCYX ) invests a large chunk of its assets in common stocks of companies having market capitalization similar to those included in the Russell 2000 Growth Index. Currently, WSCYX carries a Zacks Mutual Fund Rank #2. The product has one-month and three-year annualized returns of 8% and 9.4%, respectively. Annual expense ratio of 1.30% is lower than the category average of 1.31%. Oppenheimer Discovery Fund (MUTF: ODIYX ) primarily focuses on acquiring common stocks of domestic companies having impressive growth prospects. Currently, ODIYX carries a Zacks Mutual Fund Rank #1. The product has one-month and three-year annualized returns of 7.2% and 9%, respectively. Annual expense ratio of 0.86% is lower than the category average of 1.31%. Small-Cap Blend – One-month return of 5.6% Fidelity Stock Selector Small Cap Fund (MUTF: FDSCX ) invests the lion’s share of its assets in common stocks of companies with market capitalization within the universe of the Russell 2000 Index or the S&P SmallCap 600 Index. Currently, FDSCX carries a Zacks Mutual Fund Rank #1. The product has one-month and three-year annualized returns of 5.5% and 8.3%, respectively. Annual expense ratio of 0.76% is lower than the category average of 1.22%. USAA Small Cap Stock Fund (MUTF: USCAX ) invests most of its assets in equity securities of domestic small-cap companies. Currently, USCAX carries a Zacks Mutual Fund Rank #2. The product has one-month and three-year annualized returns of 5.9% and 7.8%, respectively. Annual expense ratio of 1.15% is lower than the category average of 1.22%. Small-Cap Value – One-month return of 5.5% American Century Small Cap Value Fund (MUTF: ASVIX ) invests heavily in securities of companies having market capitalization identical to those listed in the S&P Small Cap 600 Index or the Russell 2000 Index. Currently, ASVIX carries a Zacks Mutual Fund Rank #2. The product has one-month and three-year annualized returns of 7.4% and 8.4%, respectively. Annual expense ratio of 1.24% is lower than the category average of 1.31%. CornerCap Small-Cap Value Fund (MUTF: CSCVX ) invests a major portion of its assets in equity securities of small-cap companies located in the U.S. Currently, CSCVX carries a Zacks Mutual Fund Rank #1. The product has one-month and three-year annualized returns of 7% and 13%, respectively. Annual expense ratio of 1.30% is lower than the category average of 1.31%. Original Post

Find Businesses That Control Their Destinies

By Frank Caruso, James T. Tierney, Jr. In a volatile world, it often feels like companies are subject to forces beyond their control. Finding companies that can steer their own course is a good way to capture resilient growth through changing market conditions. Not all companies are equally vulnerable to unpredictable market forces. Some exercise a much greater degree of control over their fate by virtue of having fundamentally sounder businesses based on stronger people, better products, superior operating execution and more responsible financial behavior. Searching for companies that command their destinies is one of several ways that active investors can capture excess returns over long time horizons. Balance Sheets Matter Balance sheet health – and low earnings volatility – is a great indicator of resilience. Investors should always scrutinize a company’s balance sheet, but in times of stress, this is even more important. Companies with less debt to service will pay less of a penalty in their financing costs when interest rates rise. Low debt ratios also are good indicators of a company’s flexibility to execute its strategy without relying on banks or credit markets. And businesses that can generate the cash they need to fund and invest in their operations are less beholden to the demands of externally sourced capital, and less vulnerable to a potential tightening of credit markets. Solid balance sheets and sustainable sources of growth are a winning combination. Companies with both are much better equipped to reward shareholders by increasing their dividends or buying back shares – even in tough market conditions. Companies in the top quintile of share repurchases – especially those with attractive valuations – have outperformed the market historically ( Display ). Click to enlarge Focus on Pricing Power Pricing power is another indicator of a company’s ability to deliver sustainable growth. With China and emerging markets slowing down, and with anemic recoveries in countries from the US to Europe, it’s difficult to find sources of new demand. And with inflation stuck at very low levels, it’s not easy for companies to raise prices. So companies that demonstrate pricing power in their industries are better positioned to improve their earnings than are their competitors that lack it. We think there are three keys to pricing power: innovation, competition and cost and inflation dynamics. Innovative products and services are capable of commanding higher prices even in a tough economy and amid low inflation. For example, Apple (NASDAQ: AAPL ) commands premium prices for its smartphones because of its innovative features and an ecosystem that allows all the company’s devices to work together seamlessly. A highly competitive environment makes it much more difficult for companies to raise prices. And in a low-inflation world, cost dynamics are crucial. Given this reality, we believe that companies with strong market positions and relatively fixed cost businesses are better placed to increase revenues while leveraging costs. For example, Visa (NYSE: V ) and MasterCard (NYSE: MA ) are the two largest global card networks. As such, they have had the ability to modestly increase prices over time while competitors have seen price erosion. And the nature of their networks means that additional transactions or volumes are highly profitable from an incremental margin perspective. Understanding these dynamics can help underpin an investing plan for an unpredictable world. Investors in passive equity portfolios may be more exposed to capricious market forces because they will hold many benchmark stocks that are more vulnerable to instability. In contrast, in our view, active equity managers can target companies with clear advantages in confronting erratic headwinds – and controlling their destinies – which can lead to resilient long-term returns. The views expressed herein do not constitute research, investment advice or trade recommendations and do not necessarily represent the views of all AB portfolio-management teams. Frank Caruso, CFA, Chief Investment Officer – US Growth Equities James T. Tierney, Jr., Chief Investment Officer – Concentrated US Growth

America’s Retirement Crisis: Financial Advisors’ Daily Digest

SA Dividends, Income & Retirement Editor Robyn Conti here, subbing in for Gil, who’s observing Passover this week. I’ll do my best to fill his very talented and knowledgeable shoes and continue to keep you up to date daily on the latest FA analysis and news here on Seeking Alpha. It’s no secret that America’s retirement system is in crisis. We are well aware that Social Security and Medicare need shoring up, and that workers today aren’t saving enough to create the financially secure and comfortable retirements most of us dream about. SA contributor Kevin Wilson presents a rather gloomy picture of how truly dire the circumstances of our nation’s retirees and near-retirees are in Of Mice And Men: The Retirement Crisis In America . He aptly points out that traditional retirement planning assumptions have broken down over the past few years, and that savers can no longer rely on tried-and-true investment methods like asset allocation because expected returns across all asset classes are bunk due to central banks’ insistence on ZIRP and NIRP policies across the globe. So what does that mean for the best laid plans of retirees and near-retirees? Wilson writes: The crux of the problem then is the low expected returns on all types of investments, as discussed briefly above and mentioned by many other analysts. As a consequence, the average person must either withdraw much less from their investments in retirement than they actually will need (i.e., accept a lower standard of living), or as mentioned above, retire significantly later than planned or save a multiple of what was assumed above. National data suggest that the average investor has been chasing yield in a vain attempt to make up the difference through investment magic. Unfortunately, yield chasing doesn’t end well historically, and there are already signs that it is failing now… Wilson then goes on to cite programs that desperately need reform at the government level, i.e., Social Security and Medicare — which he calls the “bedrock” of retirement planning — and discusses strategies for addressing the problem of low investment returns. It’s an interesting read, and Wilson makes several valid points that, in this author’s humble opinion, hold a lot of water, and are definitely worthy of consideration by our lawmakers and others with the power to affect the changes we all want to see in the retirement world. In defiance of reliance on Social Security and Medicare, self-proclaimed “geezer” George Schneider summons the wisdom of the Oracle of Omaha Warren Buffett in his piece, How Greedy Retirees Steal Candy From Fearful Babies , touting the old adage investors know so well: “be greedy when others are fearful.” Schneider touts interest rate-sensitive stocks, especially REITs, advising that now is the time for the income-oriented and dividend-hungry to jump in while prices are down and investors are fearful, to reap those profits when markets “normalize.” Here are a few more posts from the day that contain items of interest for financial advisors: What are your thoughts? Are recession fears overblown? Comment below.