Tag Archives: nyse

These Funds And ETFs Are Now Poised To Outperform

For several years now, I have been recommending that investors put a somewhat higher emphasis on two categories of stock funds/ETFs, namely Large Value and International, along with a lower emphasis on domestic Large Growth and Small-/Mid-Cap. The reason is straightforward to me although less than obvious for most: While the former two categories have consistently trailed US broad stock benchmarks over the last several years, the latter two have at times exceeded them. In the sometimes upside down world of fund investing, there is a tendency, usually after a considerable number of years, for underperforming and relatively weak performing categories to switch places with the well-performing ones. The same is true for ETFs. Finally, after some trepidation that the approach was not working as expected, except in the case of Small-Cap funds which have indeed gone from being stellar performers to among the weakest over at least the last year, it now appears that the strategy may be beginning to pay off. However, it has been a frustratingly long wait, although an interval of one or two years for such an expected turnaround should not be regarded as particularly unusual. Large Value I believe the long expected rotation to value stocks may now be underway. So far this year, all three value stock category averages, Large, Mid-Cap, and Small, are running well ahead of their three growth stock brethren categories. The average Large Cap Value fund is outperforming the average Large Cap Growth fund by over 4%. While such a short spurt may not in itself seem significant, on a quarterly basis one has to go back consecutive 29 quarters, to the third quarter of 2008, to see an outperformance by Large Value over Large Growth that is that large. Note: Performance figures cited are through Apr. 20 unless otherwise noted. If Large Cap Value funds continue to outperform Large Cap Growth at the same pace for the rest of the year, there would be a huge 12% spread by year’s end. While such a large disparity might seem highly unlikely, it cannot be totally dismissed. If you compare the performance of two Vanguard index funds, Vanguard Index Value (MUTF: VIVAX ) and Vanguard Index Growth (MUTF: VIGRX ) as proxies for each of these categories, you will see that over the last 9 years, going back to May 1, 2007, Value has gone from a NAV (Net Asset Value) of 27.85 to only 33.03 for a cumulative gain of 18.6% (not annualized, excluding dividends). Growth, on the other hand, has gone from a NAV of 31.44 to 55.64 for a gain of 77.0%. The difference is a whopping 58.4%. When averaged out over the 9 years, VIGRX has exceeded VIVAX by about 6.5% per year. You would find the same discrepancies if you looked at the ETF equivalents of these funds, Vanguard Value ETF (NYSEARCA: VTV ) and Vanguard Growth ETF (NYSEARCA: VUG ), since they encompass the identical portfolios as these mutual funds. Since Large Value has been so far behind, merely gaining back one year of this outperformance for the rest of this year would bring it close to an 11% outperformance of Large Growth. However, it seems far more likely that the category will see smaller outperformances over quite a few of a number of upcoming years to enable it to eventually catch up to Large Growth. I, for one, believe such an equalization is reasonable to expect. In fact, history shows that value stocks tend to be better long-term performers than growth stocks, supporting the potential for a big upcoming turnaround. What else might argue for my suggested Large Value overweighting? Evidence suggests that as the Fed raises interest rates which they already have begun to do, value stocks tend to get stronger. (For a further discussion of this, see the following article .) Further, with growth stocks having reached a greater degree of overvaluation in the recent past than value stocks (although each category is more fairly valued now), Large Growth stocks would seem more likely to suffer if and when investors become unnerved and decide that they need to protect their profits. International Stocks Even more severe than the long-term underperformance of value stocks has been that of International funds/ETFs. When one compares the performance of the average International category fund with that of the S&P 500 index over the last 10 years (thru Mar. 31), one finds an annualized total return for the foreign category of 1.8% vs 7.0% for the US-only index. Emerging Market funds have done only slightly better at 2.5%. Is there any sign of a possible turnaround here? While only tentative given the short time period, a proxy for the entire International category, the Vanguard Total International Stock Index Fund (MUTF: VGTSX ), has gone from a NAV of 12.87 on 01/20/2016 to 14.98 on 4/20 for a 16.4% gain over 3 mos. Looking back over its quarterly returns, one has to go back to the 3rd quarter of 2010 (21 consecutive quarters ending this past Dec.) to find a gain that big. The same can be said for emerging markets. Looking at the Vanguard Emerging Mkts. Index Fund (MUTF: VEIEX ), the NAV has gone from 18.06 on 01/21/2016 to 22.38 on 4/20 for a gain of 23.9%. To find a closely comparable quarterly gain, one would need to go back to the 3rd quarter of 2009 (25 consecutive quarters, ending this past Dec.). Once again, you would get essentially the same results as above with Vanguard Total International Stock ETF (NASDAQ: VXUS ) and Vanguard FTSE Emerging Markets ETF (NYSEARCA: VWO ). For both Large Value and International stocks, while not proof that a longer-term turnaround will be forthcoming, the data seem to be possibly suggesting that these categories of funds/ETFs will be better places to emphasize within a diversified portfolio over the next few years. With International stocks, and especially emerging markets relatively undervalued, these categories of funds/ETFs would appear more appealing than US-only stock funds when looking at annualized return potentials over at least the next several years. Still, there can be many “false dawns” where a category seems to be making a comeback but, not much later, falls back again. And, even if the outperformances I expect occur, it may not mean excellent absolute returns but only relatively better returns than the aforementioned competing categories. But especially when viewed over the longer term, an approach that incorporates the notion of comebacks by underperforming categories often seems to be an effective strategy when deciding which funds to emphasize within portfolio whenever considering periodic changes. But turnarounds don’t just happen because one “thinks” they should happen. The necessary ingredient is typically that the category in question has either become under-/overvalued, or, a major and usually unexpected development occurs within the markets that creates a nearly totally new mindset in investors, or both. While the second of these conditions is almost impossible to predict and is relatively rare, the first can be recognized by investors who are willing to pay close attention to relatively extreme over- or under-performance within the category averages. Disclosure: I am/we are long IN ALL OF THE MUTUAL FUNDS MENTIONED. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Amazon Is Not The Only Name In Online Retail

When investors think about online retail stocks, certainly the first name that comes to mind is retail behemoth Amazon (NASDAQ: AMZN ). Not only has it surpassed brick-and-mortar competitor Wal-Mart (NYSE: WMT ) as the largest global retailer, but in the growing world of online retail, it holds approximately a quarter of the market share . Amazon will report its first quarter earnings on April 28th after the close. Amazon had a streak going of beating earnings until last quarter when it missed analyst expectations by 38%. Going into this quarter, it faces many of the same issues. The company is heavily reinvesting into business: partnering with Air Transport Services Group (NASDAQ: ATSG ) to boost shipping and logistics, buying content for its newly announced stand-alone streaming video service, and investing in new devices such as the Echo. Despite its position as a market leader and its bright growth prospects, as an investment, Amazon stock is down more than 8.5% YTD versus a positive return of 2.5% for the S&P 500 Index. Thanks to an uncertain earnings outlook coupled with a premium P/E ratio of more than 500X earnings, Amazon has failed to beat the market this year. Fortunately, Amazon is not the only name to play in the online retail space. EQM Indexes launched its Online Retail Index ((IBUYXT)) on December 1, 2015. The Index is now being tracked by the Amplify Online Retail ETF (NASDAQ: IBUY ), which launched on April 20 of this year. The index is comprised of a basket of global companies involved in three primary market segments: online retail, online marketplace, and online travel. The index is NOT capitalization weighted which allows equal exposure to other companies in the industry. The Investment Case for Online Retail Almost everyone has purchased merchandise online. Ecommerce is the fastest growing segment of retail sales. Global online sales are expected to grow 117% by 2018 . So as an investment theme, you can make a strong argument that online retail is a good place to have exposure. Online retail exhibits strong growth characteristics, continues to gain market share relative to brick-and-mortar retail, and is expanding globally. Thanks to advantages such as competitive pricing, shopping convenience, greater product selection, and rapid delivery, online commerce appears to be a disruptive technology that is here to stay. The mall isn’t dead, it has just moved online! Other Names in Online Retail Looking at the year-to-date performance of the stocks within the EQM Online Retail Index, Amazon is not even among the top-ten performers. Indeed, many of the top-performing names are companies that 1) US investors only have limited access to, OR 2) are names that they may not be familiar with. Let’s start with the top-performing name in the Index this year aptly named Start Today ( OTCPK:SATLF ), a Japanese e-commerce apparel retailer. The stock, which trades locally in Japan, but also as a U.S. ADR, is up more than 29% on a US dollar basis this year. Online retailer Overstock.com (NASDAQ: OSTK ) is also up more than 24% this year, after posting strong Q4 results in February. Also up in excess of 23% this year is Canadian-based Shopify (NYSE: SHOP ), a leading cloud-based commerce platform designed for small and medium-sized businesses. Clearly, Amazon stock is not the only game in town! Online retail offers a diverse and global set of opportunities. Indeed, retail is not the only industry that has been transformed by online commerce. Online travel has almost put travel agencies out of business by democratizing the price and availability of travel and vacation options. Besides U.S. names in the online travel space such as Priceline (NASDAQ: PCLN ), Expedia (NASDAQ: EXPE ), and TripAdvisor (NASDAQ: TRIP ), there are many global players that have delivered strong growth and investment performance. Makemytrip Ltd. (NASDAQ: MMYT ) is an India-based online travel retailer that allows travelers to research and plan trips. One of the key strengths of online commerce is that it is not limited by geographic boundaries. While Makemytrip may cater to specific demographics, its offerings are available around the globe. The stock is up 8.9% YTD. So just like ecommerce offers broad access to all types of merchandise, owning a basket of names in online retail offers diversified exposure to this attractive thematic opportunity. That is not to say that all performance is rosy in online-retail land. Chinese online beauty retailer Jumei International (NYSE: JMEI ), online jewelry retailer Blue Nile (NASDAQ: NILE ), and UK food delivery service Just Eat Plc ( OTC:JSTLF ) are all down in excess of 20% this year as they have struggled to execute. Expect more consolidation in the online retail industry, especially in online travel, as the stronger players gobble up their smaller competitors. Expedia acquired competitor Home Away last December in the online travel space. And Japanese travel booking site Ikyu was purchased by Yahoo! Japan in a deal that closed in February . What about other retail ETFs? Interestingly, while other retail sector ETFs offer broad exposure to traditional retail, their exposure to ecommerce and virtual retail is extremely limited. Look at the limited exposure among retail and internet ETF offerings. ETF Ticker # of Online Retail Stocks % Weight AMZN % Weight Non-US? Consumer Discretionary Select Sector SDPR Fund XLY 5 17.17 11.25 N SPDR S&P Retail ETF XRT 12 11.35 1.17 N PowerShares Dynamic Retail Portfolio PMR 1 3.03 0.00 N Market Vectors Retail ETF RTH 2 19.50 14.95 Y First Trust Dow Jones Internet Index Fund FDN 7 30.55 10.18 N as of 12/31/15 Furthermore, most of these ETFs are U.S. focused and fail to offer exposure to the many non-U.S. companies that are innovators in the space. Conclusion In summary, there are many reasons investors should want exposure to a globally diverse basket of stocks focused on online retail sales, rather than owning just a name or two: Get diversified investment exposure to the fastest growing global segments of online commerce: online retail, online marketplace, and online travel Participate in the accelerating growth potential being fueled by trends such as mobile growth and user-interface innovation Gain access to online retail growth opportunities outside the U.S. At the end of the day, the universe of opportunities is broader and more diverse than just Amazon. Disclosure It is not possible to invest directly in an index. Exposure to an asset class represented by an index is available through investable instruments based on that index. EQM Indexes does not sponsor, endorse, sell, promote or manage any investment fund or other investment vehicle that is offered by third parties and that seeks to provide an investment return based on the performance of any index. EQM Indexes makes no assurance that investment products based on the Index will accurately track index performance or provide positive investment returns. EQM Indexes is not an investment advisor, and makes no representation regarding the advisability of investing in any such investment fund or other investment vehicle. A decision to invest in any such investment fund or other investment vehicle should not be made in reliance on any of the statements set forth on this website. Prospective investors are advised to make an investment in any such fund or other vehicle only after carefully considering the risks associated with investing in such funds, as detailed in an offering memorandum or similar document that is prepared by or on behalf of the issuer of the investment fund or other vehicle. Inclusion of a security within an index is not a recommendation by EQM Indexes to buy, sell, or hold such security, nor is it considered to be investment advice. Disclosure: I am/we are long IBUY. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. Editor’s Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.

Perrigo Misses Q1 Views, Cuts Guidance As Valeant Poaches Its CEO

As had been widely rumored, drugmaker Perrigo ( PRGO ) lost its CEO to Valeant Pharmaceuticals ( VRX ) Monday and also reported preliminary Q1 earnings and guidance that missed expectations. Perrigo stock plummeted in early trading, while Valeant stock rose modestly. Valeant said Perrigo CEO Joseph Papa will take the helm as both chairman and chief executive in early May, replacing Robert Ingram in the former role and J. Michael Pearson in the latter. Anonymous sources had leaked Papa’s appointment to the press late last week, although it was still unclear at the time whether Perrigo would let him out of his contract. “(Papa) has a strong shareholder orientation, a background in science and an unmatched track record of accomplishments, highlighted by his ability to lead companies through times of transition and drive excellence across commercial, manufacturing and R&D platforms,” Ingram said in a statement. “In addition, fostering an ethical culture and creating opportunities for professional development have always been high priorities for Joe, and we look forward to Joe’s arrival at Valeant.” Valeant rose 1.4% to 36.45 in afternoon trading on the stock market today . Perrigo tumbled 15.2% to 102.93, hitting a three-year low. Just how much is Perrigo hurting, as Valeant takes its CEO? Get an idea on IBD Stock Checkup. Perrigo, meanwhile, named its president John Hendrickson as its new CEO, “aligned with our succession planning process,” according to Chairman Laurie Brlas. The company also said that Q1 sales were around $1.33 billion to $1.35 billion, missing analysts’ consensus of $1.4 billion, according to Thomson Reuters. Earnings were $1.71 to $1.77 a share, while Wall Street had expected $1.89. Perrigo also cut more than a dollar off its full-year EPS guidance, now $8.20 to $8.60. “The majority of this change in guidance provided on Feb. 18 is the result of a reduction in pricing expectations in our Rx segment due to industry and competitive pressures in the sector,” Perrigo said in a statement. “The remainder of the reduction is primarily due to weaker-than-expected performance within the BCH (branded consumer health care) segment for the next three quarters and lower expectations for consolidated new product launches.” Perrigo also said that it was assessing a possible impairment charge associated with the BCH business, which was formed when Perrigo acquired Omega Pharma last year. It said it will be prepared to report the extent of the charge when it issues its official Q1 report on May 12.