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Retail Investors Pull Back From Equity And Bond Funds

For the fund flows week ended November 11, the benchmark Dow Jones Industrial Average lost 165 points to settle at 17,702. Equity mutual fund investors made net redemptions of $1.7 billion for the week (of which $765 million was from large-cap funds), while equity exchange-traded funds saw net inflows of $643 million. A sour market in bonds (a decline of 0.64% for the week) may have led bond mutual fund investors to redeem shares. Overall, taxable bond mutual funds saw net outflows of $875 million for the week, which was the first outflow after four previous weeks of inflow activity. Money market funds saw net inflows of $6.5 billion, of which institutional investors added $11.3 billion and retail investors cashed out $4.8 billion. By Jeff Tjornehoj For the fund flows week ended November 11, the benchmark Dow Jones Industrial Average lost 165 points to settle at 17,702. Equity mutual fund investors made net redemptions of $1.7 billion for the week (of which $765 million was from large-cap funds), while equity exchange-traded funds (ETFs) saw net inflows of $643 million; investors backed out of the SPDR S&P 500 Trust ETF ( SPY , -$1.5 billion) and made modest contributions to the iShares Russell 2000 ETF ( IWM , +$1.6 billion) and the iShares MSCI EAFE ETF ( EFA , +$1.3 billion). A sour market in bonds (a decline of 0.64% for the week) may have led bond mutual fund investors to redeem shares. Overall, taxable bond mutual funds saw net outflows of $875 million for the week, which was the first outflow after four previous weeks of inflow activity. With no end in sight to the asset bleeding, Lipper’s Loan Participation Funds classification (-$213 million) marked 16 weeks of outflows by retail investors. Like their equity counterparts, high yield funds suffered outflows (-$543 million) among mutual fund investors, but unlike equities also saw net outflows on the ETF side (-$1.3 billion). Overall, bond ETFs saw $2.8 billion of net outflows. The week’s biggest bond ETF net outflows belonged to the SPDR Barclays Capital High Yield Bond ETF ( JNK , -$1.2 billion), while the iShares Core Total US Bond Market ETF ( AGG , +1.3 billion) led the net inflows list. Municipal bond mutual fund investors added $229 million net to their accounts, and those funds now have had inflows for six straight weeks – for their best showing since March. Money market funds saw net inflows of $6.5 billion, of which institutional investors added $11.3 billion and retail investors cashed out $4.8 billion. For more analysis please watch this video:

Buy Dominion Resources For A Nice Dividend And High Analyst Price Targets

Merrill Lynch has a price target 17% above current price of $67.9. Analysts are getting generally more positive on utilities after a year of relative underperformance. The company is one of the safest investments in the market right now. In his now legendary book, The Intelligent Investor, Benjamin Graham writes that the goal of a conservative investor is to look for investments that are likely to provide safety of principle and an adequate return. His disciple, Warren Buffett has put it slightly differently saying, “The first rule of investing is don’t lose money. The second rule is don’t forget the first rule.” Utility companies in general are a good place to look for this type of conservative investment, and it doesn’t get any safer than Dominion Resources, Inc. (NYSE: D ). D is one of the nation’s largest utilities with a market cap of over $40 billion and rock solid fundamentals. In addition to the company’s great fundamentals is the fact that analysts are lining up with price targets higher than the current price across the board. Merrill Lynch recently set a price target of $80 a share. While this is one of the higher targets, the mean target among a relatively large sample of 17 brokers isn’t far off at $78. Both of these figures provide generous upside to the stock, especially for a utility company that usually trades within a tight range. Research firm Guggenhiem also rates the stock a “buy”. D recently posted quarterly YoY earnings growth of 12% with a profit margin of almost 15%. This is a much higher margin than the industry average of 8-10%. With a forward P/E of 17, the company looks fairly valued. While 17 is slightly higher than average for a utilities company, in this case the higher multiple reflects the high quality of the company. As mentioned above, there aren’t very many utility companies that have 12% margins are growing the bottom line by 15%. This helps to make the 3.7% dividend sustainable. The company’s ROE of 14.54% is also quite strong for a utilities company, so it appears as if D is outperforming the industry pretty much across the board. As if all of the above weren’t enough to convince the conservative investor in the value of D as a safe long term bet, the stock has been picked as a top dividend stock by the Dividend Channel’s “DividendRank” report . The lowest the stock has traded in the last 52 weeks is $64 a share, which is only $4 below the current price, which is a technical indicator that points to short term upside. So by almost any measurement the stock is either fairly valued or undervalued. I rank the stock a strong “buy” for the investor looking for long term safety of principle and an adequate return. And of course we can collect the nice dividend while we wait.

Bet On European Economic Recovery With This New ETF

Ongoing policy easing and hopes for further stimulus (if need be) have put the spotlight on the Euro zone stocks and related ETFs. Since available funds are tacking on gains and assets on a potential economic recovery, issuers are putting out all the stops in rolling out more and more innovative Europe-based funds. Most recently, WishdomTree launched the WisdomTree Europe Local Recovery Fund (BATS: EZR ) , which better reflects the European growth prospects on corporate profile. Let’s dig a little deeper and find how one can wager on the potential bounce in the European economy by this ETF (read: ETF Strategies for 2H ). EZR in Focus The fund seeks to provide exposure to the European companies susceptible to economic growth prospects in the Euro zone and that generate over 50% of their revenues from Europe. Thus the fund may benefit from the ongoing economic recovery and rising purchasing power in the Euro zone. By tracking the WisdomTree Europe Local Recovery Index, the fund fulfills its objective. This strategy results in the fund holding 212 stocks in its basket, which are quite well diversified across the portfolio. The top 10 names form roughly 15% of total assets, with just 2.22% allocated to the top fund holding – Total SA. (NYSE: TOT ), BASF SE ( OTCQX:BASFY ), Allianz SE ( OTCQX:AZSEY ) and BNP Paribas ( OTCQX:BNPQY ) are some of the other top holdings of the fund. However, there seems to be some sector concentration in the fund as the top three sectors – Financials, Industrials and Consumer Discretionary- alone occupy four-fifth of total fund assets. Energy and Information Technology have the lowest allocations in the fund. Capitalization-wise, the fund has a mixed approach with about 35% of weight invested in small and mid caps each, while the remaining 30% goes to large-cap stocks. While France and Germany have roughly 25% allocation each in the fund, Italy occupies about 16% and Spain has 9.42%. The fund charges 48 basis points as fees making it a relatively middle-of-the-road product in terms of costs in the European ETFs space. How Does It Fit in the Portfolio? The newly launched ETF can be a good choice for investors looking to gain exposure to the pure possibilities of the Euro zone. This is especially true given that these companies are closely tied to the European economy and generate a huge bulk of their revenues from the domestic market and thus remain less susceptible to euro depreciation (read: 3 European ETFs Rebounding Sharply ). Notably, Euro zone is presently undergoing a QE stimulus and the European central bank has recently hinted at the beefing up of the ongoing monetary policy, if growth slackens further. These measures are expected to spur bank lending, boost activities and battle low inflation within the Euro zone. ETF Competition The broad European equities fund space is teeming with a number of ETFs such as the Vanguard FTSE Europe ETF (NYSEARCA: VGK ) , the SPDR Euro Stoxx 50 ETF (NYSEARCA: FEZ ) , the iShares MSCI EMU ETF (NYSEARCA: EZU ) and the iShares Europe ETF (NYSEARCA: IEV ) . However, aforementioned ETFs are mostly large-cap in nature and thus can’t be direct competitors to this newbie ETF EZR. Since large-caps only take about one-third of its portfolio, small-cap Europe ETFs including the SPDR STOXX Small Cap ETF (NYSEARCA: SMEZ ) and the WisdomTree Europe SmallCap Dividend Fund (NYSEARCA: DFE ) are likely to pose as threats. In fact, country and sector specification-wise, EZR and SMEZ share many similarities. The newly launched fund is cheaper than DFE – which charges 58 basis points as fees but it is slightly costlier than SMEZ which charges 45 bps in fees. Also, given the greenback strength in the wake of looming policy tightening and euro depreciation, this un-hedged ETF might see tough times ahead. Otherwise, we expect EZR to be successful among risk-averse investors as capitalization-wise, its spectrum is diversified. So, several risk-fearing investors who seek to gain true exposure to the Euro zone but dread the volatile nature of the smaller-capitalization might find EZR’s midway approach lucrative. Link to the original post on Zacks.com