Tag Archives: investing

FSRPX: Just How Good Are Amazon And Home Depot, Inc.

Summary High expense ratio, but good reference point for diversification. The fund has shown strong growth over the last decade. FSRPX is invested in the retail market. There are several industries that make up the consumer cyclical category. Retail is one of these industries and has seen some changes over the last decade. There’s more to come with new generations wanting convenience in their shopping experience. Malls are an example of retail that is becoming outdated and starting to have vacancy problems. Online retail has been one of the major factors in people not leaving their house to shop. It’s says a lot when you can go to a mall with over one hundred stores and still have to travel to another location to get your grocery shopping done. Retail starting to see some changes brings great potential to any companies who can adapt to the future. The Fidelity® Select Retailing Portfolio (MUTF: FSRPX ) has succeeded in choosing companies that have done will with the changing retail market. FSRPX mostly invests in companies that deal with merchandising finished goods and services primarily to individual customers. Expense Ratio The expense ratio is .81% which I would like to see lower much lower. If I wanted exposure to the retail market based on FSRPX’s performance I would only use it as a reference point for what stocks to invest in. The ratio is quite a bit lower than the category average, but that’s rarely ever a good comparison with how high some funds like to charge. With how well the fund has performed I believe the ratio wouldn’t deter me from investing if I wasn’t able to directly invest in the stocks. High ratios are always a major annoyance in a down market and why I tend to stay away from them. There was a management change in 2014. The fund continues to beat the S&P 500, but it’s hard to tell if that has anything to do with management or just how well Amazon (NASDAQ: AMZN ) has performed. Amazon is 15.7% of the fund’s holdings and has exploded this last year which could explain the continued performance of FSRPX. Diversification Here are the top ten holdings in the company: It’s daunting to see so much equity in not only the top ten holdings, but also 22.1% being in the top 2 companies out of 48. With 67.6% being in ten companies there is a lot of volatility risk. Management has done a good job in choosing stocks that have potential earnings growth compared to the benchmark: MSCI IMI Retailing 25/50. I was also excited to see that many of the holdings have good international potential. International exposure is always a great way for companies to grow when the domestic market is showing some stagnation. With how much equity this fund has in the top two holdings it’s a good idea to see how they are doing. Home Depot, Inc. (NYSE: HD ) has been performing extremely well and especially over the last several years beating the S&P by a large amount. HD is not only in a good retail market, but also has been a solid growing company. Analysts have been bullish on HD which could slow gains down, especially over a short period of time. I’m bullish on HD for a long term investment but wouldn’t expect a lot of growth over a short time horizon unless they exceed analysts’ current bullish forecasts. The housing market is looking steady for the time being, but keep in mind a hit to housing is a direct hit to HD. Amazon has been on a massive run lately and I like to think of it as a cube instead of a bubble. Their actions mimic the Star Trek’s Borg more than it does a bubble about to burst. While their PE ratio may scare many, it excites me that Amazon just floats around assimilating everything. Amazon has done a lot to help retail go in the right direction. Online retail is extremely convenient for customers. Amazon Prime is a great resource for people and those who have it are generally content. AWS, Amazon Web Services, is just another way Amazon has taken something clunky and made it into something flexible and easy to use. The cloud computing services offered by Amazon is not only inexpensive, but also has great scalability. There’s probably a plethora of hoops AMZN will have to jump through, but Amazon Prime Air is another great idea that will move shipping in the right directions for customers. Performance (click to enlarge) The fund has outperformed the S&P and its benchmark. There isn’t as much diversification which causes the potential for more volatility, but there is a track record for investing in companies that have done well over a long period of time. The two most notable years were the fund taking only a -29.58% hit in 2008, but still having the most growth in 2009 with 57.82%. Do note without these two years there isn’t much different than compared to the market. Retail as a whole has done better than the S&P 500 in 2015.

Best And Worst Q4’15: Small Cap Blend ETFs, Mutual Funds And Key Holdings

Summary The Small Cap Blend style ranks last in Q4’15. Based on an aggregation of ratings of 28 ETFs and 642 mutual funds. VB is our top-rated Small Cap Blend style ETF and PCOEX is our top-rated Small Cap Blend style mutual fund. The Small Cap Blend style ranks twelfth out of the twelve fund styles as detailed in our Q4’15 Style Ratings for ETFs and Mutual Funds report. Last quarter , the Small Cap Blend style ranked last as well. It gets our Dangerous rating, which is based on an aggregation of ratings of 28 ETFs and 642 mutual funds in the Small Cap Blend style. See a recap of our Q3’15 Style Ratings here. Figures 1 and 2 show the five best and worst-rated ETFs and mutual funds in the style. Not all Small Cap Blend style ETFs and mutual funds are created the same. The number of holdings varies widely (from 23 to 2053). This variation creates drastically different investment implications and, therefore, ratings. Investors seeking exposure to the Small Cap Blend style should buy one of the Attractive-or-better rated mutual funds from Figures 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 5 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 Boston Trust & Walden Funds Mid Cap Fund (MUTF: WAMFX ) and the Boston Trust & Walden Funds SMID Cap Innovations Fund (MUTF: WASMX ) are excluded from Figure 2 because their total net assets are below $100 million and do not meet our liquidity minimums. The Vanguard Small-Cap ETF (NYSEARCA: VB ) is the top-rated Small Cap Blend ETF and the Putnam Capital Opportunities Fund (MUTF: PCOEX ) is the top-rated Small Cap Blend mutual fund. VB earns a Neutral rating and PCOEX earns a Very Attractive rating. The State Street SPDR Russell 2000 Low Volatility ETF (NYSEARCA: SMLV ) is the worst-rated Small Cap Blend ETF and the ProFunds Small Cap Fund (MUTF: SLPSX ) is the worst-rated Small Cap Blend mutual fund. SMLV earns a Dangerous rating and SLPSX earns a Very Dangerous Rating. The Goodyear Tire & Rubber Company (NASDAQ: GT ) is one of our favorite stocks held by VB and earns our Very Attractive rating. Since 2010, the company has grown after-tax profits (NOPAT) by 18% compounded annually and doubled its NOPAT margin. Goodyear has also improved its return on invested capital ( ROIC ) from 5% to 9% over the same timeframe. Despite the impressive profit growth, GT remains undervalued. At its current price of $35/share, GT has a price to economic book value ( PEBV ) ratio of 1.0. This ratio means that the market expects Goodyear to never meaningfully grow NOPAT over the remaining life of the corporation. If Goodyear can grow NOPAT by 7% compounded annually for the next five years , which is well below the historic growth rate, the company is worth $49/share today – a 40% upside. Ruby Tuesday (NYSE: RT ) is one of our least favorite stocks held by Small Cap Blend ETFs and mutual funds and earns our Dangerous rating. Since 2010, Ruby Tuesday’s NOPAT has declined by 11% compounded annually while its NOPAT margins have fallen from 9% in 2010 to 3% on a trailing-twelve-month basis. Ruby Tuesday’s ROIC has followed this downward trend and is currently a bottom quintile 3%, down from 6% in 2011. To justify the current price of $5/share, Ruby Tuesday must grow NOPAT by 5% compounded annually for the next 12 years . This expectation is awfully optimistic for a business that has failed to grow profits at all over the past five years. Figures 3 and 4 show the rating landscape of all Small Cap Blend 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 Funds (click to enlarge) Sources: New Constructs, LLC and company filings D isclosure: David Trainer and Thaxston McKee receive no compensation to write about any specific stock, style, or theme.

The Vanguard Utilities ETF Is On My Holiday Shopping List

Summary The expense ratio and dividend yield are both great. The dividend yield could be further enhanced by changing the weighting structure to emphasize utility companies with stronger yields. The Federal Reserve meeting on December 16th may include a rate increase that could create some nice sale opportunities on utilities. As we prepare for the holidays, I’m getting my shopping list ready. One of the additions to my list is the Vanguard Utilities ETF (NYSEARCA: VPU ). I’ll take investors through my reasoning for putting this on the list as a potential acquisition for the middle of December or later. Expense Ratio The ETF is posting .12% for an expense ratio. What else is there to say? That is a solid expense ratio and makes this fund one of the cheapest options for exposure here. Largest Holdings The diversification within the ETF is pretty weak. For a very long term holder it might make sense to replicate the ETF by just buying the underlying securities and taking higher trading costs to eliminate the expense ratio. However, an expense ratio of only .12% would be difficult to beat without a fairly long time horizon or a large volume of commission free trades in the account. (click to enlarge) The major holdings here are the same ones I would expect to see. Duke Energy Corporation (NYSE: DUK ) is a fairly huge utility company and frequently at the top of the list for utility ETFs. All around this appears to be a reasonable portfolio for an investor that wants to get more utility companies into their portfolio without having to buy the companies individually. Top Dividend Yields The following chart demonstrates the top 10 utilities for dividend yield that have increased their dividend for at least the last 5 consecutive years: Symbol Company Name Yield Years CNP CenterPoint Energy 5.34% 10 SO Southern Company 4.81% 15 DUK Duke Energy Corp. 4.62% 11 PPL PPL Corp. 4.39% 14 STR Questar Corp. 4.07% 36 ALE Allete Inc. 4.02% 5 DGAS Delta Natural Gas 4.01% 11 ED Consolidated Edison 3.95% 41 AEP American Electric Power Co. 3.95% 6 NWN Northwest Natural Gas 3.91% 60 There is quite a bit of cross over between the list as DUK, PPL, AEP are on the top 10 holdings and the 10 utilities for high yields. Because VPU is using a market capitalization weighting scheme, their top holdings are dominated by the largest capitalization utility companies. Using a market capitalization weighting scheme is great for keeping expenses low and maintaining a passive style, but the strategy does nothing to boost the dividend yield of the portfolio. If the price of shares in a utility is increasing but their dividend is not, that utility will see their ranking within the portfolio increase. While I’d prefer to see a focus on utility companies that offer a strong combination of high yields and expected growth in their dividends over the next several years, I’m still consider VPU as a potential holding due to the very low expense ratio and desire to maintain diversification in my portfolio. Looking For Utilities With the Federal Reserve poised to raise rates in December, it seems like a great time to be fishing for good prices on utility companies with an eye to keep buying as long as rates are going up and prices are going down. Utilities tend to have a significant correlation with bonds and an increase in rates will generally send share prices lower. To put that a different way, an increase in bond yields will drive an increase in utility yields. If the price of the utility is falling simply because bond yields are moving higher and the utility yield needs to move in a similar fashion, that is a fine buying reason for me. VPU or Individual Utilities If my portfolio was large enough to plan on buying 10 individual utilities with material allocations to each, I’d be treating individual utilities as being a superior plan to simply buying into VPU. However, going into December I am also looking to beef up my position in equity REITs with the Schwab U.S. REIT ETF (NYSEARCA: SCHH ), and my international positions with the Schwab International Small-Cap Equity ETF (NYSEARCA: SCHC ) or the Schwab International Equity ETF (NYSEARCA: SCHF ). Since I won’t have a great deal of cash left over, I would be more likely to look at taking VPU rather than buying up the individual securities. Conclusion Utility companies can act as a form of income investment because of their strong dividend yields. Unlike buying into a bond portfolio investors can expect that the level of dividends will be increasing over time which makes up for the portfolio having more risk than a simple bond portfolio. I’ve added VPU to my list of ETFs to keep an eye going through December and into early 2016 as a possible candidate. I won’t make those moves in the next few days, but I’ll be looking to see if shares fall hard after the Federal Reserve meeting on December 16th.