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Best And Worst Q1’16: Energy ETFs, Mutual Funds And Key Holdings

The Energy sector ranks ninth out of the ten sectors as detailed in our Q1’16 Sector Ratings for ETFs and Mutual Funds report. Last quarter , the Energy sector ranked last. It gets our Dangerous rating, which is based on aggregation of ratings of 23 ETFs and 112 mutual funds in the Energy sector. See a recap of our Q4’15 Sector Ratings here . Figures 1 and 2 show the five best and worst-rated ETFs and mutual funds in the sector. Not all Energy sector ETFs and mutual funds are created the same. The number of holdings varies widely (from 25 to 153). This variation creates drastically different investment implications and, therefore, ratings. Investors seeking exposure to the Energy sector should buy one of the Attractive-or-better rated ETFs or mutual funds from Figures 1 and 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 The Van Eck Market Vectors Uranium+Nuclear Energy ETF (NYSEARCA: NLR ), the PowerShares Dynamic Oil & Gas Services Portfolio (NYSEARCA: PXJ ), and the Van Eck Market Vectors Unconventional Oil & Gas ETF (NYSEARCA: FRAK ) 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 Van Eck Market Vectors Oil Services ETF (NYSEARCA: OIH ) is the top-rated Energy ETF and the Fidelity Select Energy Service Portfolio (MUTF: FSESX ) is the top-rated Energy mutual fund. OIH earns an Attractive rating and FSESX earns a Neutral rating. The First Trust ISE Water Index Fund (NYSEARCA: FIW ) is the worst-rated Energy ETF and the Saratoga Advantage Energy and Basic Materials Portfolio (MUTF: SBMBX ) is the worst-rated Energy mutual fund. FIW earns a Dangerous rating and SBMBX earns a Very Dangerous rating. 184 stocks of the 3000+ we cover are classified as Energy stocks. The FMC Technologies (NYSE: FTI ) is one of our favorite stocks held by OIH and earns an Attractive rating. While the Energy market has certainly had its issues over the past two years, FMC Technologies business has continued to exhibit strength. Over the past five years, FMC has grown after-tax profit ( NOPAT ) by 9% compounded annually. The company currently earns a return on invested capital ( ROIC ) of 12%. Best of all, FMC has earned positive economic earnings every year since 2006. Despite the above, FTI declined over 37% in 2015. Now, at its current price of $25/share, FTI has a price to economic book value ( PEBV ) ratio of 0.8. This ratio means that the market expects FMC’s NOPAT to permanently decline by 20% over its remaining corporate life. If FMC can grow NOPAT by just 2% compounded annually for the next decade , the stock is worth $31/share today – a 24% upside. The Diamondback Energy (NASDAQ: FANG ) is one of our least favorite stocks held by SBMBX and earns a Dangerous rating. Despite reporting impressive revenue growth, Diamondback Energy’s business is in decline. The company’s economic earnings have declined from -$32 million in 2012 to -$331 million over the trailing twelve months. Diamondback’s ROIC has fallen from 3% to -2% over the same timeframe. Despite the deterioration of the business, FANG was up 12% in 2015, which has left shares highly overvalued. To justify its current price of $58/share, Diamondback must grow NOPAT by 12% compounded annually for the next 18 years . When contrasted with Diamondback’s short history of value destruction, this expectation appears overly optimistic. Figures 3 and 4 show the rating landscape of all Energy 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 Mutual Funds Click to enlarge Sources: New Constructs, LLC and company filings D isclosure: David Trainer and Kyle Guske II receive no compensation to write about any specific stock, sector or theme.

Best And Worst Q1’16: Consumer Staples ETFs, Mutual Funds And Key Holdings

The Consumer Staples sector ranks first out of the ten sectors as detailed in our Q1’16 Sector Ratings for ETFs and Mutual Funds report. Last quarter , the Consumer Staples sector ranked first as well. It gets our Attractive rating, which is based on an aggregation of ratings of 9 ETFs and 15 mutual funds in the Consumer Staples sector. See a recap of our Q4’15 Sector Ratings here . Figure 1 ranks from best to worst all nine Consumer Staples ETFs and Figure 2 shows the five best and worst-rated Consumer Staples mutual funds. Not all Consumer Staples sector ETFs and mutual funds are created the same. The number of holdings varies widely (from 17 to 116). This variation creates drastically different investment implications and, therefore, ratings. Investors seeking exposure to the Consumer Staples sector should buy one of the Attractive-or-better rated ETFs or mutual funds from Figures 1 and 2. It is rare that one of the worst ETFs in this sector hold enough quality stocks to earn an Attractive-or-better rating. 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 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 Fidelity Select Automotive Portfolio (MUTF: FSAVX ) is excluded from Figure 2 because its total net assets (TNA) are below $100 million and do not meet our liquidity minimums. The Vanguard Consumer Staples Index Fund ETF (NYSEARCA: VDC ) is the top-rated Consumer Staples ETF and the Vanguard Consumer Staples Index Fund (MUTF: VCSAX ) is the top-rated Consumer Staples mutual fund. VDC earns a Very Attractive rating and VCSAX earns an Attractive rating. The PowerShares DWA Consumer Staples Momentum Portfolio (NYSEARCA: PSL ) is the worst-rated Consumer Staples ETF and the ICON Consumer Staples Fund (MUTF: ICRAX ) is the worst-rated Consumer Staples mutual fund. PSL earns a Neutral rating and ICRAX earns a Very Dangerous rating. 121 stocks of the 3000+ we cover are classified as Consumer Staples stocks. Wal-Mart Stores (NYSE: WMT ) continues to be one of our favorite stocks held by VDC and earns an Attractive rating. Since 1998, Wal-Mart has been uniquely consistent in growing after-tax profit ( NOPAT ) by 9% compounded annually and earning a double-digit return on invested capital ( ROIC ), which is currently 11%. Additionally, Wal-Mart has generated over $57 billion, cumulatively, in free cash flow over the past five years. Overblown concerns about Wal-Mart’s business model pushed the stock down over 25% last year, which has made shares greatly undervalued. At its current price of $64/share, WMT has a price to economic book value ( PEBV ) ratio of 0.8. This ratio means that the market expects Wal-Mart’s NOPAT to permanently decline by 20%. However, if Wal-Mart can grow NOPAT by just 2% compounded annually over the next decade , the stock is worth $98/share today – a 53% upside. The J.M. Smucker Company (NYSE: SJM ) is one of our least favorite stocks held by ICRAX and earns a Dangerous rating. Over the past five years, J.M Smucker’s NOPAT has declined by 2% compounded annually while its ROIC has fallen from 8% to 5%. Despite the deterioration of the business, SJM is up over 20% in the past two years, which has left shares significantly overvalued. To justify its current price of $122/share, SJM must grow NOPAT by 13% compounded annually for the next 12 years . This expectation seems awfully optimistic given SJM’s inability to grow NOPAT at all in the past five years. Figures 3 and 4 show the rating landscape of all Consumer Staples 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 Mutual Funds Click to enlarge Sources: New Constructs, LLC and company filings D isclosure: David Trainer and Kyle Guske II receive no compensation to write about any specific stock, sector or theme.

The V20 Portfolio Week #17: It’s Difficult To Be Different

The V20 portfolio is an actively managed portfolio that seeks to achieve an annualized return of 20% over the long term. If you are a long-term investor, then this portfolio may be for you. You can read more about how the portfolio works and the associated risks here . Always do your own research before making an investment. Read last week’s update here ! Current Allocation *Only available to Premium Subscribers Planned Transactions *Only available to Premium Subscribers ————- In the first weekly update of 2015, I stated that history may be repeating itself. Now that a month has gone by, it is evident that the V20 Portfolio is again experiencing the pain it had to endure in January 2015. Over the past week, the V20 Portfolio declined by 5.2% while the S&P 500 appreciated by 1.7%. Year to date, the V20 Portfolio declined by 16.3% and the S&P 500 declined by 5.0%. This compares to a 15.5% loss and 1.3% decline in January 2015 for the V20 Portfolio and the S&P 500, respectively. Portfolio Commentary Despite the ongoing volatility in the portfolio and the broader market, our holdings (for the most part) have been incredibly boring. There were no surprise developments or unexpected setbacks (at least on a company level). Last week I talked about how the meltdown in the junk bond market affected Intelsat (NYSE: I ), these things are completely out of our hands, but unfortunately, we must live with the short-term consequences. Despite the lack of excitement, the V20 Portfolio dramatically underperformed in the first month of 2016. While I am not very concerned, I am sure some of the readers may not feel the same way. While investing in the most undervalued companies will deliver the best return over the long-term, investors will inevitably face periods like the one we are experiencing today. Despite their transitory nature, there is no easy way to deal with short-term losses. It may be disheartening to see your holdings decline in value after spending so much effort doing research, but when you come to terms with the fact that the market can be irrational (and stay that way), the “losses” become more digestible. As I’ve mentioned in the introduction to the V20 Portfolio, the portfolio seeks to achieve long-term gains . Whether a stock goes up or down in a particular month, day, or even a year, is irrelevant to us. Most of the time, undervalued companies eventually converge to their fair value as temporary negative sentiment fades away. Unfortunately, there is no set timeline for this convergence. Ultimately the valuation of the business is not impacted by the stock price. If a business is well-run, it will continue to create value even when the stock price is declining (cyclicality aside), meaning that the discount will grow larger, making it more attractive. There is no telling where the market will trend in the coming months. But irrespective of the result, the V20 Portfolio will continue to have an unwavering focus on the fundamentals. Performance Since Inception Click to enlarge