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Relevance Of Portfolio Holdings: 3 Concentrated Funds To Buy And Sell

In our previous article, we discussed how concentrated mutual funds rely on the limited numbers of stock holdings that they own. Focused funds invest in a limited number of companies, rather than having a diversified portfolio. In this context, we showed how Sequoia Fund (MUTF: SEQUX ), which has slumped nearly 70% since Oct. 18, has learnt a lesson for its nearly 30% exposure to Valeant Pharmaceuticals (NYSE: VRX ). We also spoke of funds such as Fairholme Allocation (MUTF: FAAFX ) and Fidelity Select Computers Portfolio (MUTF: FDCPX ) that have gained on the strong performance of its core holdings. However, both FAAFX and FDCPX had a relatively higher number of total issues in stock holdings. The number of holdings in a portfolio may be considered one of the measures of portfolio risk. A lower number of total issues will indicate that the fund is more concentrated and is thus more vulnerable to fluctuations in these holdings. So, if a fund invests in just five stocks, it is highly susceptible to fluctuations in them. Though northward bound stock holdings brighten the prospects of concentrated funds, the advantage of portfolio diversity is denied. In case of a well-diversified portfolio, losses in some stocks may be offset by gains in others. In addition to the number of holdings in a portfolio, the percentage of assets invested in stocks is also crucial. A fund with the bulk of its assets invested in a particular stock is most likely to be guided by the performance of that stock. This time, let’s look at three Sell-ranked concentrated mutual funds that have total issues in the stock holdings below 30 and have underperformed in recent times. For investors ready to gamble, we will also pick three Buy-ranked concentrated mutual funds that have outperformed broader markets despite holding a limited variety of stocks in its portfolio. 3 Sell-Ranked Concentrated Funds These mutual funds either carry a Zacks Mutual Fund Rank #4 (Sell) or Zacks Mutual Fund Rank #5 (Strong Sell) and have total issues in the stock holdings below 30. These funds have underperformed over the year to date and 1-year periods. The minimum initial investment for these funds is below $5000. Fidelity Select Utilities Portfolio (MUTF: FSUTX ) seeks capital growth over the long run. FSUTX invests the lion’s share of its assets in common stocks of companies primarily involved in the utilities sector, and companies that derive the major portion of its revenues from operations related to this sector. FSUTX invests in both U.S. and non-U.S. firms. FSUTX currently carries a Zacks Mutual Fund Rank #5. The number of holdings in FSUTX’s portfolio is 24. FSUTX has lost 11.3% year to date and is down 10.6% over the last 1-year period. FSUTX’s top 3 holdings include NextEra Energy (NYSE: NEE ), Exelon (NYSE: EXC ) and Sempra Energy (NYSE: SRE ) and the fund has invested respectively 15.7%, 12.8% and 10.5% in them. NextEra Energy, Exelon and Sempra Energy have lost 4%, 20.8% and 7.3%, respectively, so far this year. Tocqueville Select (MUTF: TSELX ) invests in a focused number of small and mid-sized domestic companies. TSELX normally invests in a focused group of 30 stocks. A maximum of 25% of its assets may be invested in non-US securities. TSELX currently carries a Zacks Mutual Fund Rank #4. The number of holdings in TSELX’s portfolio is 27. TSELX has lost 10% year to date and is down 8.2% over the 1-year period. TSELX’s top 3 holdings include Web.com Group, j2 Global (NASDAQ: JCOM ) and Minerals Technologies (NYSE: MTX ) and the fund has invested 6.2%, 5% and 4.8% in them, respectively. While Web.com Group and j2 Global have gained respectively 29.6% and 32.4% year to date, Minerals Technologies has lost 12.1%. AMG SouthernSun Small Cap Investor (MUTF: SSSFX ) invests in common stocks of small cap US firms. Market capitalizations of these companies (at the time of purchase) are within the capitalization range of firms listed in the Russell 2000 Index. SSSFX currently carries a Zacks Mutual Fund Rank #5. The number of holdings in SSSFX’s portfolio is 26. SSSFX has lost 12% year to date and is down 15.3% over the 1-year period. SSSFX’s top 3 holdings include AGCO Corp. (NYSE: AGCO ), Darling International (NYSE: DAR ) and Centene Corporation (NYSE: CNC ) and the fund has invested 5.7%, 5.3% and 5.2% in them, respectively. So far this year, while AGCO and Centene have gained a respective 7.5% and 14.5%, Darling International has lost 48.6%. 3 Buy-Ranked Concentrated Funds A counter argument in case of concentrated funds is that well-chosen stock picks that are surging can also translate into significant gains for mutual funds. So, for investors ready to bet, below are 3 mutual funds that either carry a Zacks Mutual Fund Rank #1 (Strong Buy) or Zacks Mutual Fund Rank #2 (Buy) and have total issues in the stock holdings below 30. These funds have garnered decent gains over the year to date and 1-year periods. The minimum initial investment in these funds is below $5000. Davis Financial A (MUTF: RPFGX ) uses Davis Investment Discipline to invest a minimum of 80% of its net assets in securities issued by companies engaged in the financial services sector. These companies own financial services-related assets that are at least 50% of the value of total assets or earn a minimum of 50% of revenues from offering financial services. RPFGX currently carries a Zacks Mutual Fund Rank #2. The number of holdings in RPFGX’s portfolio is 28. RPFGX has gained 3.8% year to date and is up 5.6% over the 1-year period. RPFGX’s top 3 holdings include Wells Fargo & Co. (NYSE: WFC ), Markel Corporation (NYSE: MKL ) and American Express (NYSE: AXP ) and the fund has invested 8.9%, 6.9% and 6.6% in them, respectively. While Wells Fargo and Markel have gained 4.8% and 31.8% respectively year to date, American Express has lost 20.6%. ICON Consumer Staples A (MUTF: ICRAX ) invests most of its assets in equities of companies belonging to the Consumer Staples sector. ICRAX may invest in common stocks and preferred stocks of companies of all sizes. ICRAX currently carries a Zacks Mutual Fund Rank #2. The number of holdings in ICRAX’s portfolio is 23. ICRAX has gained 2.6% year to date and is up 5% over the 1-year period. ICRAX’s top 3 holdings include CVS Health (NYSE: CVS ), Reynolds American (NYSE: RAI ) and Tyson Foods (NYSE: TSN ) and the fund has invested 8.3%, 7.3% and 7% in them, respectively. Year to date, Reynolds American and Tyson Foods have gained 46.7% and 11.7%, while CVS Health has lost 2.5%. Smead Value Investor (MUTF: SMVLX ) keeps roughly 25-30 firms in its portfolio and invests in common stocks of large-cap firms. SMVLX currently carries a Zacks Mutual Fund Rank #2. The number of holdings in SMVLX’s portfolio is 26. SMVLX has gained 4.9% year to date and is up 7.9% over the 1-year period. SMVLX’s top 3 holdings include NVR Inc. (NYSE: NVR ), Amgen (NASDAQ: AMGN ) and Tegna (NYSE: TGNA ) and the fund has invested 6%, 5.9% and 5.8% in them, respectively. NVR, Amgen and Tegna have gained 29.6%, 2.1% and 10.6% respectively year to date. Original Post

11 Most Popular Currency-Hedged ETFs

Currency hedging strategies have been in vogue since the start of this year given the ultra-loose monetary policy across the globe in stark contrast to the U.S. Fed policy of tightening its stimulus program. The popularity saw a rise last month when the Fed hinted at a modest hike in interest rates in December. The diverging policies have been pushing the U.S. dollar higher and other currencies lower. While monetary easing is making international investment a compelling opportunity in the U.S., a strong dollar could wipe out gains when repatriated in U.S. dollar terms, pushing international investment into the red even when international stocks performed well. As a result, investors flocked to currency-hedged ETFs to tap bullish international fundamentals, dodging the effects of a strong greenback. This is especially true as the currency-hedged funds look to strip out currency exposure to a foreign economy via the use of currency forwards or other instruments that bet against the non-dollar currency, while at the same time, offering exposure to foreign stocks. Given this, we have highlighted 11 currency-hedged ETFs for investors that are extremely popular in the market: WisdomTree Europe Hedged Equity ETF (NYSEARCA: HEDJ ) The ETF tracks the WisdomTree Europe Hedged Equity Index holding 129 securities with moderate concentration on the top 10 holdings at 25.5%. It is pretty well spread across a number of sectors, with consumer staples, industrials, consumer discretionary, healthcare and financials taking double-digit exposure each. Among countries, Germany (25.9%), France (24.3%), the Netherlands (17.2%) and Spain (16.4%) dominate the holdings list. The fund has AUM of $21.3 billion, and sees an average daily volume of about 4.9 million shares. It charges 58 bps in annual fees and gained 13.5% in the year-to-date time frame. The product has a Zacks ETF Rank of 3 or a “Hold” rating with a Medium risk outlook. WisdomTree Japan Hedged Equity ETF (NYSEARCA: DXJ ) With AUM of $17.1 billion, this ETF targets the Japanese equity stock market without the currency risk by tracking the WisdomTree Japan Hedged Equity Index. Holding 314 stocks in its basket, the product is moderately concentrated across securities, with none holding more than 4.84% share. Consumer discretionary and industrials take the top two spots with 24.6% and 23.2% share, respectively, while information technology and financials round off the top four. The fund trades in solid volume of more than 6 million shares per day, and charges 48 bps in annual fees. It has risen nearly 14% so far this year, and has a Zacks ETF Rank of 2 or a “Buy” rating with a Medium risk outlook. Deutsche X-trackers MSCI EAFE Hedged Equity ETF (NYSEARCA: DBEF ) This fund targets the developed international stock market with no currency risk, and tracks the MSCI EAFE US Dollar Hedged Index. In total, the product holds 920 securities in its basket, with none holding more than 1.95% share, and charges 35 bps in fees. It is skewed toward the financials sector, which makes up one-fourth of the portfolio, while consumer discretionary, industrials, consumer staples and healthcare round off the top five with double-digit exposure each. Among countries, Japan takes the top spot at 23%, closely followed by United Kingdom (17%), France (10%) and Switzerland (10%). With an asset base of around $13.9 billion and average daily volume of about 4 million shares, the fund has gained 7.5% so far this year and has a Zacks ETF Rank of 3 with a Medium risk outlook. Deutsche X-trackers MSCI Europe Hedged Equity ETF (NYSEARCA: DBEU ) This product is the second popular European play that follows the MSCI Europe US Dollar Hedged Index. It holds 445 securities in its basket, which are widely spread out across components, with each holding less than 3% of assets. United Kingdom takes the top spot at 27%, while France, Switzerland and Germany round off the next three spots. From a sector look, financials accounts for the largest share at 22.5%, closely followed by consumer staples (14.9%) and healthcare (13.7%). The fund has amassed $3.8 billion in its asset base and trades in solid volume of more than 1.3 million shares a day. It charges 45 bps in fees per year, and has returned about 8% so far this year. The fund has a Zacks ETF Rank of 3 with a Medium risk outlook. iShares Currency Hedged MSCI EAFE ETF (NYSEARCA: HEFA ) This fund provides a broad foreign market play without currency risks. It focuses on the EAFE region – Europe, Australasia, Far East – for exposure, and follows the MSCI EAFE 100% Hedged to USD index. It is basically a holding of the iShares MSCI EAFE ETF (NYSEARCA: EFA ) with currency hedge tacked on. Financials dominates the fund’s return with one-fourth share, while consumer discretionary, industrials, consumer staples and healthcare also get double-digit allocation each. Top nations include Japan and United Kingdom, with double-digit exposure, while France, Switzerland and Germany round out the top five. The fund has AUM of $3.1 billion and average daily volume of roughly 1.4 million shares. It charges 35 bps in annual fees and has gained about 8% in the year-to-date time frame. HEFA has a Zacks ETF Rank of 3 with a Medium risk outlook. iShares Currency Hedged MSCI EMU ETF (NYSEARCA: HEZU ) This ETF is appropriate for investors looking invest in euro zone stocks. It follows the MSCI EMU 100% USD Hedged Index, and is a play on the popular unhedged fund iShares MSCI EMU ETF (NYSEARCA: EZU ) with a hedge to strip out the euro currency exposure. The fund holds 245 well-diversified securities in its basket, dominated by financials at 22.4% and followed by consumer discretionary (13.9%), industrials (12.7%) and consumer staples (11.1%). The ETF has amassed $1.9 billion in its asset base, and trades in solid volumes of more than 1.3 million shares a day. The fund charges 50 bps in annual fees from investors and has delivered impressive returns of nearly 14% so far this year. It has a Zacks ETF Rank of 3 with a Medium risk outlook. Deutsche X-trackers MSCI Japan Hedged Equity ETF (NYSEARCA: DBJP ) This product tracks the MSCI Japan US Dollar Hedged Index, which provides exposure to the Japanese equity markets and hedges the Japanese yen to the U.S. dollar by selling Japanese yen forwards. The fund holds 319 securities in its basket, with the largest allocation going to Toyota Motor (NYSE: TM ), while other firms make up less than 3% of its assets. From a sector look, the ETF is well diversified, with consumer discretionary, financials, industrials and information technology accounting for double-digit allocation each. The fund has AUM of $1.9 billion and average daily volume of around 487,000 shares. Its expense ratio came in at 0.45%. The product is up about 14.8% so far this year, and has a Zacks ETF Rank of 2 with a Medium risk outlook. iShares Currency Hedged MSCI Germany ETF (NYSEARCA: HEWG ) This ETF targets the German equity market without the currency risk. It follows the MSCI Germany 100% Hedged to USD Index, and is basically a holding of the iShares MSCI Germany ETF (NYSEARCA: EWG ) with currency hedge tacked on. Consumer discretionary, financials, healthcare, materials and industrials are the top five sectors of the fund. The fund has accumulated $1.5 billion in AUM and charges 53 bps in annual fees. Volume is good, as it exchanges more than 1.2 million shares, on average, on a daily basis. It has added 11% this year, and has a Zacks ETF Rank of 2 with a Medium risk outlook. iShares Currency Hedged MSCI Japan ETF (NYSEARCA: HEWJ ) This is another currency-hedged option to play Japanese equity, and is a hedged version of the popular iShares MSCI Japan ETF (NYSEARCA: EWJ ). Holding 320 stocks in its basket, consumer discretionary takes the top spot at 21.3%, closely followed by financials and industrials. The ETF has AUM of $712 million and sees volume of more than 593,000 shares a day. The expense ratio came in at 0.48%. The fund has gained 14.5% so far in the year and has a Zacks ETF Rank of 2 with a Medium risk outlook. WisdomTree International Hedged Quality Dividend Growth ETF (NYSEARCA: IHDG ) This product provides exposure to the dividend-paying companies with growth characteristics in the developed world ex U.S. and Canada and hedge exposure to fluctuations in the U.S. dollar and foreign currencies. This can be easily done by tracking the WisdomTree International Hedged Quality Dividend Growth Index. In total, the fund holds 213 stocks in the basket, with consumer staples and consumer discretionary as the top two sectors. In terms of country profile, United Kingdom takes the top spot at 20.2%, while Japan and Switzerland round off the next two spots with 13.3% and 10.2% share, respectively. WisdomTree Germany Hedged Equity ETF (NASDAQ: DXGE ) This German ETF follows the WisdomTree Germany Hedged Equity Index, holding 75 securities in its basket. It has a slight tilt toward the consumer discretionary sector with 21.6% share, followed by double-digit exposures in financials, industrials, materials and healthcare. It has managed assets worth $305.4 million and trades in good volume of 202,000 shares a day, on average. The fund charges 48 bps in annual fees, and is up 11.4% so far this year. DXGE has a Zacks ETF Rank of 2 with a Medium risk outlook. Original Post

Do Covered Call ETFs Deserve A Look?

Covered Call ETFs (or Buy-Write ETFs as they’re known to some) are an intriguing option for investors looking to generate a little extra portfolio income. But you have to have some sense of where the market is heading in order to really profit from them. Covered Call ETFs are generally known for their high yields. One of the largest covered call ETFs – the PowerShares S&P 500 BuyWrite Portfolio (NYSEARCA: PBP ) – sports a trailing 12 month dividend yield of just over 4%. That number is actually low in the covered call ETF universe as smaller funds like the Recon Capital NASDAQ 100 Covered Call ETF (NASDAQ: QYLD ) offer yields in the 8-9% range. Here’s how they work. In a typical equity ETF the fund’s managers buy individual stocks and hold them within the portfolio. In a covered call ETF, managers take the same stock positions but simultaneously write call options on those positions (thus the name “buy-write”). The goal is to benefit from the equity position while at the same time generating an income on the side. While the yields are nice, the overall performance of the buy-write ETF really depends on the direction of the market. In up markets, buy-write ETFs tend to underperform as the written calls start getting exercised limiting an individual stock’s upside potential. Conversely, these funds tend to outperform in sideways or down markets as many of the written calls expire worthless leaving the fund to simply collect the option premiums. The PowerShares S&P 500 BuyWrite Portfolio has historically performed about as would be expected. It outperformed the S&P 500 during the time right after the financial crisis as stock prices were dropping and subsequently lagged the index for much of the last four years. However, the fund has returned roughly 5% year-to-date outpacing the S&P 500’s return of almost 2%. If global economic weakness would be expected to continue, covered call ETFs could begin outperforming again.