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Buy Europe Without Euro Risk With This New ETF

Euro zone’s celebration of the end of a prolonged recession last year was really short-lived as the region again got itself entrapped in a slowdown and deflation worries from mid 2014. Most of the foremost nations of the continent are presently dragging their feet in terms of economic growth, with some slipping into another recession. To fight these issues, the European Central Bank (ECB) is resorting to every possible step including ultra-low policy rates, negative deposit rates and launch of a program to buy back asset-backed securities and covered bonds. If this was not enough, the ECB indicated that it would implement a broad-based QE measure should the region need it (read: Euro Zone Gets QE Hints, 3 ETFs to Buy on Stimulus Hopes ). While these measures should boost the stock market rally, a flush of liquidity is having an adverse impact on the currency, the Euro. The currency lost about 8% (as of December 12, 2014) against the greenback in the last six months. The plunge was more prevalent given the dollar’s strength during the said phase. Thanks to the Euro slide and the possibility of a strong dollar following the probable hike in interest rates next year, investors are starting to embrace currency-hedged ETFs in droves. There isn’t anything more unfortunate than seeing one’s otherwise impressive portfolio choices fail because of soft foreign currency (read: Hedged European ETFs in Focus: Best Choice for Europe Now? ). Bearing this sentiment, Deutsche Asset & Wealth Management recently rolled out a hedged version focused on Europe recently, DBEZ . Let’s discuss the fund in greater detail below: DBEZ in Detail The fund looks to follow the MSCI EMU IMI U.S. Dollar Hedged Index to provide exposure to more than 600 of the largest European companies. As of November 5, 2014, the index includes 682 securities with an average market cap ranging from about $6.09 billion to about $23.96 million. The product is highly diversified with no stock accounting for more than 2.78% of the portfolio. Among individual holdings, Bayer AG-Reg takes the top spot, followed by Total SA and Sanofi with, respectively, 2.62% and 2.56% exposure. Sector wise, Financials gets the highest exposure with 22.8% of the portfolio. Consumer Discretionary, Industrials, Materials and Consumer Staples also get double-digit investments, while Health Care gets the least exposure with only 4.8% of the basket. As far as country exposure is concerned, Germany (29.55%) gets the top priority while France (29.65%), Spain (11.57%) and Italy (7.86%) take up the next three positions. The fund charges 45 bps in fees. How Does it Fit in a Portfolio? The fund is a good choice for investors seeking exposure to the Euro zone. At the same time, it is a tool to safeguard investors from negative currency translations. Health of the Euro zone companies also appears stable as evident by impressive corporate earnings in Q3. As per Reuters , net earnings for 36% of total market capitalization reported so far are up 7.1% on almost flat revenues with beat ratios of 67% and 59%, respectively. If this was not enough, about 80% of ECB banks cleared the latest stress test. This, coupled with an accommodative central bank, undoubtedly warrants a look at the Euro zone to earn some quick gains. However, this return can be curtailed on repatriation as the U.S. dollar is hovering at multi-year highs on QE taper and rising rate risk for next year. In such a scenario, possessing DBEZ, which is protected from currency translation, in one’s portfolio might be a wise decision (read: 3 European ETFs Worth Considering on ECB Measures ). Competition The European ETF space is pretty competitive, so it could be slightly tough for the new entrant to build up assets. However, we are hopeful as the hedged ETFs space still has room to grow. The issuer itself has a product in the name of Deutsche X-trackers MSCI Europe Hedged Equity ETF (NYSEARCA: DBEU ) which offers exposure to more than 400 European stocks in developed markets while at the same time providing a hedge against any fall in a number of currencies in the region including the Euro, the British pound, and the Swiss franc to name a few. Making a debut last year, DBEU has become a $680 million fund. However, the topper among the hedged ETFs list is WisdomTree Europe Hedged Equity Index Fund (NYSEARCA: HEDJ ) which has generated about $5.2 billion in assets so far. Moreover, there is a flurry of single-country hedged ETFs in this space including ones targeting Germany, which could offer up some competition. However, investors should note that Deutsche Bank has proven its skills in offering successful hedged ETFs lately in different markets. So, the profound knowledge of the issuer on this subject might help the new entrant to garner considerable investor assets.

The ABCs Of Mutual Fund Share Classes

Originally published on Nov. 19, 2014 You don’t need to read a prospectus to benefit from knowing the basics about mutual fund share classes. It will help you uncover your actual investing costs (especially when dealing with a broker), avoid unnecessary fees, and boost long-term performance. As you will see, even after you select a fund, it is crucial that you choose the most appropriate share class of that fund. Bringing Funds to the Marketplace Just like a farmer needs to get their crops to market, mutual fund companies work through multiple distribution channels to sell their products. These could include direct sales via online brokerages, sales to pension plans, through a broker, a registered investment advisor, and so forth. Each of these channels has different end clients and associated costs; and because of this, companies have developed different versions (share classes) of the same mutual fund to suit each situation. Typical Mutual Fund Fees Annual Expense Ratio – The ongoing fee to manage and administer the fund. Most investors will never notice this cost since it’s a tiny fraction taken from the share price (NAV) each day. Trading fee – A fee charged by the executing brokerage company/custodian, typically $0 to $50 per buy or sell order. Front-end Load – A sales charge applied when a fund is bought; it typically declines for larger purchase amounts. Back-end Load – A sales charge applied when a fund is sold; it typically declines over several years. Fund Share Classes with an Example “A” shares have a front-end load. “B” shares have a back-end load, but have a lower expense ratio if held long enough. “C” shares have no load after a short time, but have a higher expense ratio. Other shares such as “D” or “Institutional” exist. These shares typically have no load, but may have limited availability. The well-known Pimco Total Return Fund (MUTF: PTRAX ) provides a great illustration of how one mutual fund offers many different share classes of the same fund. Broker Assisted Investors After considering the overall costs from the table above, you will see where the costs are built into the mutual fund structure and sales channels. Brokers are typically compensated by the A, B, or C share classes, but also can get residual compensation via fees built into the mutual fund expense ratio (e.g. 12b-1 fees). Remember, brokers do not have a legal obligation to put you in the “right” share class. So if you are using a broker, be sure to give them more information on how you plan to invest or you could end up paying them larger fees than you should. With a broker for example, if you knew you were going to buy $10,000 of the Pimco Total Return fund, but sell it within 3 years, you will probably be better off with the “C” shares. However, if you have no idea how long you will hold the fund, the “B” shares may be a better bet – since the costs to own will decrease over time. If you had a substantial amount to invest for a long time, the “A” shares may ultimately be the cheapest option even though you are paying the 3.75% front-end load. Advisor Clients Registered Investment Advisors like us typically have “Institutional” share classes available to them. At our firm, we pay close attention to fund expenses and transactions costs for our clients. Because of this, we will frequently use more than one share class of the same fund, or two slightly different funds in the same asset class – all in order to minimize the long-term costs for our clients. It is certainly more complex to juggle the various share classes in a portfolio, but we believe you can use them to your distinct advantage.

3 Top Performing Utilities Mutual Funds In 2014 – Mutual Fund Commentary

Even during a market downturn, the demand for essential services such as those provided by utilities, remains virtually unchanged. Utilities funds are therefore an excellent choice for investors seeking a steady income flow through consistent yields from dividends. This is also why they are primarily considered to be a relatively more conservative investment option. In recent times their forays into emerging markets have led to appreciably higher returns and they offer superior returns at a relatively lower level of risk. The US equities have enjoyed another year of strong gains this year. The Dow, S&P 500 and the Nasdaq are up 8.7%, 12.3% and 14.1%, respectively so far this year. Fortunately, the momentum is evident in the Utilities mutual funds as well. With 16.9% gains (as of Dec 23), the Utilities sector is the third highest sector equity mutual fund gainer so far this year. Also, among the S&P industry groups, Utilities Select Sector (NYSEARCA: XLU ) is the second highest gainer this year as it boasts year-to-date return of 24.1%. We will be picking the top 3 Utilities mutual funds this year based on their year-to-date returns and favorable Zacks Mutual Fund Rank among others. However, before doing so, let’s look at the positives for the sector. Keep reading our Mutual Fund Commentary section, where we are reporting on performances and best picks from fund families and other categories. YTD Sector Performance Sector Equity Funds Returns YTD (%) 1 Year (%) Real Estate 29.48 29.51 Health 24.45 25.53 Utilities 16.94 18.07 Technology 13.95 15.12 Global Real Estate 12.22 13.31 Consumer Defensive 11.81 13.22 Industrials 9.02 10.5 Energy Limited Partnership 7.04 8.95 Financial 6.35 7.06 Consumer Cyclical 6.17 7.56 Communications 2.77 4.52 Miscellaneous Sector 0.19 1.97 Natural Resources -11.68 -9.9 Equity Energy -15.39 -14.39 Equity Precious Metals -15.58 -12.19 Source: Morningstar Strength in Utilities Sector The biggest positive as well as the fundamental strength of the utilities is that there is hardly any viable substitute for their services. The global invasion of electrical gadgets and therefore the endless need for electricity and utility services is an added advantage. The utility operators generate more or less stable earnings unless there are severe factors disrupting their operations. These operators likewise reward their shareholders through the payment of stable and growing dividends. In their pursuit to improve the standard of services, utility operators have relentlessly pursued research and development work. Keeping the rise in demand and efficient use of power in mind, the operators have brought new smart meters, transmission and distribution lines, and gas pipelines into operation. Utility operators are also benefiting from ongoing research work in the solar photovoltaic (PV) sector. Solar energy is a growing alternate energy source and the new solar cells with higher conversion rates allow operators to generate more power with fewer solar panels. This enables the operators to lower the cost of generating power from alternate sources as these are generally more expensive than fossil fuel sources. Apart from spreading business organically, the players in the utility space make strategic mergers and acquisitions, which lead to cost synergies and better utilization of resources. We believe that in a mature energy market like the United States, mergers and acquisitions represent a sure way to enhance market share. Best Performing Utilities Mutual Funds We will pick 3 top utilities mutual funds that carry a Zacks Mutual Fund Rank #1 (Strong Buy) as we expect the funds to outperform its peers in the future. Remember, the goal of the Zacks Mutual Fund Rank is to guide investors to identify potential winners and losers. Unlike most of the fund-rating systems, the Zacks Mutual Fund Rank is not just focused on past performance, but the likely future success of the fund. These funds also have high returns year to date. The funds have relatively low expense ratio and carry no sales load. The maximum initial investment required for these funds is $5000. Fidelity Select Utilities Portfolio (MUTF: FSUTX ) seeks growth of capital. It invests most of its assets in companies related to the utilities industry or firms that earn most of their revenues from utility operations. The non-diversified fund uses fundamental analysis and also looks into market and economic conditions for taking investment decisions. FSUTX has returned 20.3% year to date. The fund carries an annual expense ratio of 0.80% as compared to category average of 1.28%. FSUTX carries no sales load. Fidelity Advisor Utilities I (MUTF: FUGIX ) invests a majority of its assets in utilities companies and those deriving most of their revenues from utilities sector. The fund invests in both US and non-US companies. FUGIX has returned 20.2% year to date. The fund carries an annual expense ratio of 0.84% as compared to category average of 1.28%. FUGIX carries no sales load. MFS Utilities I (MUTF: MMUIX ) seeks total return. The fund invests a lion’s share of its assets in utilities companies, which are engaged in production, generation and distribution of electric, gas or other types of energy, and those involved in telecommunications and cable business. The fund mostly invests in equities, but may also invest in debt instruments. MMUIX has returned 12.8% year to date. The fund carries an annual expense ratio of 0.76% as compared to category average of 1.28%. MMUIX carries no sales load.