Tag Archives: management

5 Best-Rated Large-Cap Growth Mutual Funds For High Returns

Growth funds become a natural choice for investors when capital appreciation over the long term takes precedence over dividend payouts. These funds focus on realizing an appreciable amount of capital growth by investing in stocks of firms whose values are projected to rise over the long term. However, a relatively higher tolerance to risk and the willingness to park funds for the longer term are necessary prerequisites of investing in these securities. This is because they may experience relatively more fluctuations than other fund classes. Meanwhile, large-cap funds are an ideal investment option for investors looking for high-return potential that comes with lower risk than small-cap and mid-cap funds. These funds have exposure to large-cap stocks, providing long-term performance history and assuring more stability than what mid caps or small caps offer. Below we will share with you 5 top-ranked large-cap growth mutual funds. Each has earned a Zacks Mutual Fund Rank #1 (Strong Buy) as we expect these mutual funds to outperform their peers in the future. Nationwide Growth A (MUTF: NMFAX ) seeks long-term capital appreciation. NMFAX invests in common stocks of large-cap and mid-cap companies. NMFAX invests in those companies whose earnings are anticipated to grow at a faster rate than those of other companies. NMFAX may get involved in frequent trading of portfolio securities. The Nationwide Growth A fund returned 10.1% in the last one year. As of September 2015, NMFAX held 82 issues with 7.07% of its assets invested in Apple Inc. (NASDAQ: AAPL ). Nuveen Growth A (MUTF: NSAGX ) invests a major portion of its assets in equity securities of companies having market capitalizations similar to companies listed in the Russell 1000 Index. NSAGX may invest up to 25% of net assets in non-US equity securities that are US dollar-denominated. The Nuveen Growth A fund returned 10.7% in the last one year. Robert C. Doll is the fund manager and has managed NSAGX since 2012. Goldman Sachs Large Cap Growth Insights A (MUTF: GLCGX ) seeks long-term capital appreciation. GLCGX invests a large portion of its assets in a broadly diversified portfolio of equity investments in large-cap US issuers and non-US issuers traded in the US. The Goldman Sachs Large Cap Growth Insights A fund returned 10.6% in the last one year. GLCGX has an expense ratio of 0.96% as compared to the category average of 1.19% T. Rowe Price Tax-Efficient Equity (MUTF: PREFX ) invests in high-quality companies that are believed to have impressive fundamentals, revenue growth, earnings and strong management. Though PREFX invests primarily in domestic companies, it may also invest in non-US companies. The T. Rowe Price Tax-Efficient Equity fund returned 13.6% in the last one year. Donald J. Peters is the fund manager and has managed PREFX since 2000. Vanguard US Growth Investor (MUTF: VWUSX ) seeks long-term growth of capital. VWUSX invests in large-capitalization stocks of seasoned US companies with records of superior growth. VWUSX chooses companies with strong positions in their markets and reasonable financial strength. The management invests in stocks of large capitalization companies that offer the best available combination of relative earnings growth and attractive valuation. VWUSX distributes dividends and capital gains in December. The Vanguard US Growth Investor fund returned 14.2% in the last one year. VWUSX has an expense ratio of 0.44% as compared to the category average of 1.19%. Original Post

When Picking Mutual Funds, Don’t Be The Dumb Money

For the typical retail investor, mutual fund research reveals an uncanny ability to pick the worst fund categories at the worst possible times. The reason has to do with the tendency to base these types of decisions on “gut feeling” or emotion, rather than careful analysis. Investors feel most comfortable climbing aboard overvalued sectors of the fund universe towards the tail end of bull markets, only to flee to safety when stock prices are closer to their lowest. First identified by researchers Andrea Frazzini from NYU and Owen Lamont from Harvard, the poor timing ability of fund investors has come to be referred to as the “dumb money” effect. Emotion, limited attention, misguided perceptions and inexperience lead retail investors to make questionable decisions. This tendency to invest more in funds with high positive sentiment (for example tech stocks in the 1990s), and to pull out of funds with high negative sentiment (for example liquidating stock funds in 2008 and moving to bond funds), has led retail investors to lose on average about 1.5% annually, according to a 2007 analysis by Geoffrey Friesen of the University of Nebraska and Travis Sapp of Iowa State. Understanding investor behavior provides insight into why retail investors underperform the market. It also reveals how an investor, with a modest amount of additional effort, can improve their performance by avoiding common decision mistakes. Recent performance is the force that drives dumb money losses for many retail investors. This isn’t surprising since mutual fund advertisements and fund prospectuses tend to emphasize how well the mutual fund has performed in the past. Most investors shop for mutual funds the way they would for a toaster or microwave oven. Instead of researching the quality and durability of the product, they use shortcuts – cues of quality such as brand name recognition, an appealing marketing campaign, or a recommendation from a friend or family member. Yale researcher James Choi and his co-authors David Laibson and Brigitte Madrian of Harvard investigated how an average investor uses information on a mutual fund prospectus using identical S&P 500 index funds with different fund initiation dates. In addition to the prospectus, they gave respondents in different groups a “cheat sheet” that summarized differences in fund fees, and another that spelled out how the objective of all funds was to mimic the S&P 500. Samples of both employees and Wharton MBA students (with average SAT score at the 98th percentile) consistently focused on the obviously irrelevant fund performance rather than on fund fees even when presented with information that should have helped them make better choices. Brad Barber of UC Davis and Terrance Odean of Berkeley blame return chasing on the limited attention span of individual investors. According to their investor attention hypothesis, most of us have limited time to devote to researching mutual funds. We can either invest a huge amount of time and effort into learning how to evaluate and select funds, or we can simply invest in ones that capture our attention. The fact that mutual fund investors are attracted by the shiny funds does not serve them well in a market where sentiment can drive the value of securities too high or too low. A simple way to break the cycle of mutual fund underperformance is to develop an investment policy in which the investor maintains a diversified portfolio that reallocates periodically as market values change. This naturally works against investor sentiment by increasing investment in bonds when stock prices are rising and reducing one’s bond allocation when stock prices have fallen. Azi Ben-Rephael of Indiana University and his co-authors estimate monthly shifts between bond and stock mutual funds and find that investors consistently do the opposite-they shift to bond funds when equity values drop and back toward stock funds when equities rise in value. I use the monthly calculated shift in equity funds during the two significant equity bear markets of 2001-2002 and 2007-2009. In both cases, mutual fund investors move sharply toward bonds after stock prices have fallen. Investors appear to be unwilling to follow a disciplined long-run investment strategy by maintaining their portfolio risk exposure in a down market. Since poorly timed mutual fund sales are more harmful than poorly timed purchases, these flights to safety can have a significant impact on long-run portfolio performance. Including an investment policy statement inevitably leads to a discussion of the importance of rebalancing during good times and bad, allowing a client to anticipate portfolio volatility and follow a smart money strategy. Friesen and Sapp found that sentiment-driven underperformance on load funds was twice as large (1.92% per year) as the performance gap on no-load funds (0.96%). Incubated funds are also significantly more likely to be load funds. This is consistent with other studies that suggest that the mutual fund universe can be split between funds that are sold through the broker channel and funds that are bought through a direct channel. It is far easier to sell a privately incubated fund with significant recent excess performance, than it is to sell a fund with average performance. This is so even if neither fund is actually more likely to outperform in the future. It would be tempting to conclude that bad investor timing is primarily the result of inexperienced investors making bad choices, but a recent study by Ilia Dichev of Emory University and Gwen Yu of Harvard found that dollar-weighted returns on hedge funds are between 3% and 7% lower than time weighted returns. This is more than twice the dumb money difference observed in mutual fund investments. Since hedge fund investors are primarily institutions and extremely wealthy individuals, apparently even the professionals can get caught up in the excitement of investing in hot funds. Whether novice or professional, it is easy for an investor to fall into the trap of chasing returns of attention-grabbing funds. The good news is that investors who avoid relying on their emotions are much more likely to succeed in the long run. And a skilled investment advisor can help a client tune out the noise.

Better-Than-Expected Q3 Earnings Lift Industrial ETFs

Despite global growth slowdown, most of the major industrial players managed to beat earnings estimates in the past one week. This along with better-than-expected U.S. jobless claims and dovish comments from the European Central Bank President Mario Draghi has led the Dow Jones Industrial Average to record its best point and percentage gain in yesterday’s (October 22, 2015) trading session since September 8. However, revenue weakness was widespread among the industrial players. The blame goes largely to the stronger dollar as most of these companies have significant international exposure resulting in an unfavorable currency impact. Industrial Earnings in Focus General Electric Company (NYSE: GE ) Diversified industrial conglomerate General Electric posted stellar third quarter performance as it was able to surpass expectations for both earnings and revenues. The company’s operating earnings rose year over year to $3.3 billion or 32 cents a share in the quarter owing to stringent cost-cutting and simplification initiatives. Operating earnings exceeded the Zacks Consensus Estimate by 6 cents (read: Industrial ETFs in Focus on GE Restructuring Plans ). Revenues fell slightly to $31,680 million from $32,107 million in the year-earlier quarter due to lower Industrial segment and GE Capital revenues. However, total revenue topped the Zacks Consensus Estimate of $28,666 million. Organic revenue growth for the Industrial segment was 4% for the quarter. Shares of GE rose 2.6% since its earnings release on October 16 (as of October 22, 2015) (read: 3 Industrial ETFs to Play on GE Q3 Earnings Beat ). 3M Company (NYSE: MMM ) Another major conglomerate, 3M Company reported earnings of $2.05 per share for third-quarter 2015, beating the Zacks Consensus Estimate of $2.01 and increasing 3.5% year over year. The decline in shares outstanding for the latest quarter boosted earnings per share Net sales during the quarter were $7,712 million, down 5.2% year over year and short of the Zacks Consensus Estimate of $7,895 million. The year-over-year decrease in sales was largely due to a significant negative foreign currency translation impact. However, the company achieved organic local-currency sales growth of 1.2%. 3M shares went up 4.1% in yesterday’s trading session post earnings release. Honeywell International Inc. (NYSE: HON ) Honeywell International’s adjusted earnings per share escalated 9.8% to $1.57 in the reported quarter, beating the Zacks Consensus Estimate of $1.55. The uptick in earnings was driven by improved cost management and margins. Revenues in third-quarter 2015 decreased 5% year over year to $9,611 million, missing the Zacks Consensus Estimate of $9,884 million. The decrease in revenues was due to the unfavorable foreign currency impact and divestiture of Friction Material. However, Honeywell delivered 1% core organic sales growth. Shares of the company rose 3.8% since its earnings release on October 16. Caterpillar Inc. (NYSE: CAT ) Mining and equipment behemoth Caterpillar posted disappointing results compared to its peers. The company’s third-quarter 2015 adjusted earnings plunged 56% to 75 cents per share, reflecting the ongoing weakness in mining and oil and gas industries. Earnings, however, came in line with the Zacks Consensus Estimate. Revenues declined 19% year over year to $10.96 billion in the quarter, failing to match the Zacks Consensus Estimate of $11.11 billion due to the unfavorable currency impact along with lower volumes. Nevertheless, shares of Caterpillar rose 2.9% following the earnings release in yesterday’s trading session. Union Pacific Corporation (NYSE: UNP ) The rail transportation operator, Union Pacific reported third-quarter 2015 earnings of $1.50 per share, which came in well above the Zacks Consensus Estimate of $1.43. Earnings, however, declined 2% on a year-over-year basis. Revenues decreased 10% year over year to $5.56 billion in the third quarter, falling short of the Zacks Consensus Estimate of $5.65 billion. A 10% decline in freight revenues hurt the top line. Further, declining coal shipments weighed on the railroad operator’s results yet again. However, shares of the company rose 3.8% following its results in yesterday’s trading session. ETF Impact The upward movement in major industrial stocks caused the shares of industrial ETFs to trade in the green in the past five days (as of October 22, 2015). Below we discuss three of these ETFs having a sizeable exposure to the above stocks. The Industrial Select Sector SPDR ETF (NYSEARCA: XLI ) This product provides exposure to 66 industrial stocks by tracking the Industrial Select Sector Index. General Electric occupies the top spot with 11.5% allocation, while 3M, Caterpillar, Honeywell and Union Pacific have a combined exposure of roughly 16.7% in the fund. XLI has garnered $7 billion in assets and trades in a heavy volume of 10.9 million shares per day. It has a low expense ratio of 0.15%. The product gained 3.4% in the past five days and currently has a Zacks ETF Rank #3 (Hold) with a Medium risk outlook. The Vanguard Industrials ETF (NYSEARCA: VIS ) This fund follows the MSCI US IMI Industrials 25/50 index and holds about 345 securities in its basket. Of these firms, GE occupies the top position with 11.5% share, while 3M, Honeywell and Union Pacific together comprise 10.8% of the fund’s assets. The fund manages nearly $2 billion in its asset base and charges only 12 bps in annual fees. Volume is moderate as it exchanges roughly 105,000 shares a day on average. The product returned 2.6% in the past five days and currently has a Zacks ETF Rank #3 with a Medium risk outlook. The iShares U.S. Industrials ETF (NYSEARCA: IYJ ) IYJ tracks the Dow Jones U.S. Industrials Index to provide exposure to 213 U.S. companies that produce goods used in construction and manufacturing. General Electric occupies the top spot in the fund with 11.4% share while 3M, Caterpillar, Honeywell and Union Pacific have a combined exposure of roughly 11.5%. The ETF manages an asset base of $587 million and trades in an average volume of 82,000 shares. The fund is slightly expensive with 43 basis points as fees. It rose 2.5% in the last five days and currently has a Zacks ETF Rank #2 (Buy) with a Medium risk outlook. Link to the original post on Zacks.com