Tag Archives: income

Best And Worst Q1’16: Large Cap Value ETFs, Mutual Funds And Key Holdings

The Large Cap Value style ranks second out of the twelve fund styles as detailed in our Q1’16 Style Ratings for ETFs and Mutual Funds report. Last quarter , the Large Cap Value style ranked first. It gets our Neutral rating, which is based on aggregation of ratings of 46 ETFs and 915 mutual funds in the Large Cap Value style. See a recap of our Q4’15 Style Ratings here. Figures 1 and 2 show the five best and worst-rated ETFs and mutual funds in the style. Not all Large Cap Value style ETFs and mutual funds are created the same. The number of holdings varies widely (from 8 to 1021). This variation creates drastically different investment implications and, therefore, ratings. Investors seeking exposure to the Large Cap Value style should buy one of the Attractive-or-better rated ETFs or mutual funds from Figures 1 and 2. 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 Four ETFs are excluded from Figure 1 because their total net assets are below $100 million and do not meet our liquidity minimums. 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 Legg Mason BW Dynamic Large Cap Value Fund ( LMBGX , LMBEX ) is excluded from Figure 2 because its total net assets are below $100 million and do not meet our liquidity minimums. The FlexShares Quality Dividend Index Fund (NYSEARCA: QDF ) is the top-rated Large Cap Value ETF and the Brown Advisory Equity Income Fund (MUTF: BAFDX ) is the top-rated Large Cap Value mutual fund. Both earn a Very Attractive rating. The Global X Super Dividend US ETF (NYSEARCA: DIV ) is the worst-rated Large Cap Value ETF and the Copeland International Risk Managed Dividend Growth Fund (MUTF: IDVGX ) is the worst-rated Large Cap Value mutual fund. DIV earns a Neutral rating and IDVGX earns a Very Dangerous rating. Eaton Corporation (NYSE: ETN ) is one of our favorite stocks held by KDHIX and earns an Attractive rating. Eaton was featured as a Long Idea in December 2015. Over the past decade, Eaton has grown after-tax profits ( NOPAT ) by 14% compounded annually. The company currently earns a 9% return on invested capital ( ROIC ), up from just 4% in 2009. Despite long-term improvement in fundamentals, ETN remains undervalued. At its current price of $57/share, ETN has a price to economic book value ( PEBV ) ratio of 0.9. This ratio means that the market expects Eaton’s NOPAT will permanently decline by 10% from current levels. If Eaton can grow NOPAT by just 7% compounded annually over the next decade , the stock is worth $70/share today – a 23% upside. Advance Auto Parts (NYSE: AAP ) is one of our least favorite stocks held by Large Cap Value ETFs and mutual funds. AAP earns a Very Dangerous rating and landed on February’s Most Dangerous Stocks list. From 2010 to the last twelve months, Advance Auto Parts’ NOPAT has declined by 2% compounded annually. Over this time, Advance Auto Parts’ ROIC has declined from 12% to 5%. With the continued deterioration of the business, AAP is overvalued. To justify its current price of $153/share, Advance Auto Parts must grow NOPAT by 10% compounded annually for the next 15 years . This expectation is at odds with Advance Auto Parts declining profitability over the past few years. Figures 3 and 4 show the rating landscape of all Large Cap Value ETFs and mutual funds. Figure 3: Separating the Best ETFs From the Worst Funds Click to enlarge Sources: New Constructs, LLC and company filings Figure 4: Separating the Best Mutual Funds From the Worst 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, 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.

5 ETFs To Watch In March

After a horrendous sell-off in the first two months of 2016, the third month started on a solid footing with Wall Street seeing the best day in a month . Losers turned leaders as the downtrodden financial and tech stocks ricocheted on cues of an improving U.S. economy. Impressive U.S. factory and construction data were behind this newfound optimism. While the S&P 500 gained about 2.4% and Dow Jones Industrial Average added over 2.1%, about a 4% spike in Apple (NASDAQ: AAPL ) shares led the Nasdaq Composite to return about 2.9%, making March 1 the best day on the bourses since August 2015. So far this year, both the S&P 500 and the Dow Jones indices are down 3.2% each while the Nasdaq Composite is off 6.4%. In any case, March is historically known for stellar returns. The average return of the S&P 500 was 1.06% in March, from 1950 to 2015. There were 42 years of a green March while returns were in the red only in 24 years. As per moneychimp.com , only December, April and November beat out March in terms of returns. Of course, deep-rooted concerns over global growth worries and oil price declines can’t be ignored. But with such a heavy sell-offs suffered year to date, chances are high that this March will finally see some relief and end in the green. Whatever be the case, investors might want to know about the ETF areas that are best suited for the month. For them, below we highlight a few ETFs – some that offer safety and others that have the potential to grow in this rocky environment. Market Vectors Preferred Securities ex Financials ETF (NYSEARCA: PFXF ) Since a flight to safety has put a lid on bond yields, investors’ thirst for yield can be satiated by investing in preferred stock ETFs. These are hybrid securities having the characteristics of both debt and equity. The preferred stocks pay stockholders a fixed, agreed-upon dividend at regular intervals, like bonds. Even if rates rise, an extremely strong yield will allow investors to beat out the benchmark Treasury yields. The preferred stock fund – PFXF – is heavy on REITs (33.5%) and Electric (22.5%) industries. The fund is up 2.2% year to date (as of March 1, 2016) while its 30-Day SEC yield is 6.26%. PowerShares Dynamic Building & Construction Portfolio ETF (NYSEARCA: PKB ) The industrial sector enjoys a seasonal benefit in March. Also, the space gained investors’ attention afresh after a reading of the U.S. manufacturing sector impressed investors to start the month. If this was not enough, U.S. construction spending expanded to the highest level since October 2007 . All these put this construction ETF in focus. The fund has considerable exposure in homebuilding, which is another surging sector. PKB is down 4.2% so far this year, but added over 6.8% in the last one month. PKB has a Zacks ETF Rank #2 (Buy). PowerShares KBW Property & Casualty Insurance ETF (NYSEARCA: KBWP ) Since upbeat U.S. data once again sparked off rate hike talks, 10-year Treasury bond yields jumped 9 bps in a single day to 1.83% on March 1. If the trend continues, financial and insurance ETFs would benefit. While the financial sector is presently facing issues with the potential default in the energy sector, we are banking on this insurance ETF. KBWP with a Zacks #2 ETF is down 2% year to date, but added 2.7% in the last one month. WisdomTree Emerging Markets Equity Income ETF (NYSEARCA: DEM ) Investors should note that the emerging markets are making a comeback. Though their fundamentals are not too sound, cheaper valuation is probably the key to their recent success. Via DEM, investors will get exposure to the emerging markets and simultaneously enjoy strong dividend income of about 5.36% annually. Even if the fund succumbs to a sell-off, this market-beating yield would make up for the capital losses to a large extent. The fund is heavy on Taiwan (24.7%) and China (14.1%). DEM is up 1.2% so far this year. The fund has a Zacks ETF Rank #3 (Hold) with a Medium risk. Victory CEMP US Small Cap High Dividend Volatility Weighted Index ETF (CSB) Risk-on sentiments, though still to be full-fledged, are back in the market. Hence, U.S. small-cap equities and ETFs are likely to gain ground. However, we would suggest investors to practice a defensive approach even in this segment. It’s better to go for an ETF like CSB, which consists of the highest 100 dividend yielding stocks of the CEMP US Small Cap 500 Volatility Weighted Index. After choosing the highest dividend yielding stocks, these are weighted on their standard deviation (volatility). Probably due to this quality exposure, this small-cap ETF has lost just 0.6% in the year-to-date frame (when small-caps are being thrashed). In the last one month, the fund added 5.4%. Original Post

Robo Rise Barred By High Client Acquisition Cost

Robo-advisors need clients to operate and the cost of acquiring clients in financial services is high. To us, this is the elephant in the robo-advisor room that is seldom discussed – which we believe is a strategic failure of the highest order. It is an overriding concern that hangs over all other discussions about robo-advisors. Acquisition costs include the costs of initially finding a prospect and then converting those prospects into clients, with the inevitable attrition rate that those conversions incur. When total costs are compared to clients gained, the results can be surprisingly high. Lucian Camp calculates the cost of acquiring a client in the UK to be around £200 (US$312). This cost is beyond the means of many advisory firms, which is why they grow rather slowly – largely through word of mouth referral. In the past, they might have relied on product manufacturers and distributors to provide them with marketing support. Under new regulations in the UK, such supports are now largely no longer possible, but they continue to thrive in the US marketplace. In a world where former specialties have become commoditized, being able to make a financial product or service no longer makes you special as it once did. Where, in the past, you may have been able to extract an economic rent because you occupied a position of advantage, market forces have now equalized you. Today, the ability (knowledge) and capacity (cash flow) to quickly market financial products to scale is what separates successful financial services businesses from the ‘also-rans’. It does not matter if you arrive at the marketplace with a better mousetrap if that trap is hidden where the mice cannot find it. Cheese – in the form of marketing, advertising and promotion – will help to attract them. But cheese isn’t cheap. We return, once again, to our initial caution – robo-advisors are very good at servicing customers, but do nothing to attract customers. Putting a robo-adviser to work effectively requires considerable investment in marketing and promotions, with no guarantee of success. Vitamins and supplements are equally generic. Yet, a family business in Australia figured out how to create a brand that made generic inputs ‘special’. In late 2015, a Chinese firm acquired the vitamin and supplement company, Swisse, for A$1.5 billion (US$1.05 billion). Swisse is a marketing machine – it is constantly in the news, through its sponsorship of high-profile ambassadors and it spends a lot of money on advertising. It is rumored that its annual marketing budget is A$50 million (US$35 million) when the cost of the raw materials for all of the products it makes is less than A$5 million (US$3.5 million). Vitamin C is not special – being part of the brand image and lifestyle Swisse promotes is special. More than US$1 billion worth of special! 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. Additional disclosure: For FA audience/ Gil Weinreich