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Time To Buy Casino ETF On Value?

The dark clouds of slowdown that were long settled over Macau are finally clearing. Casino operators, who have been suffering from a sluggish business scene in Macau, are again seeing glimmers of hope. Notably, Macau – a Chinese territory – is one of the largest casino gaming destinations in the world. Credit crunch in Mainland China, check on illegal money transfers especially in VIP gaming, constraints on visa and last but not the least, a broad-based slowdown in China wrecked havoc on the casino business in Macau. However, these burning issues have started to cool off. Gaming revenues declined 21.4% year over year in January, but the fall was lesser than what analysts had projected. Year-over-year declines in Macau gaming revenues may decrease further in February to 5%, as per Credit Suisse Group AG. In the last one month, the casino gaming ETF Market Vectors Gaming ETF (NYSEARCA: BJK ) was up 3.3% (as of February 12, 2016). All in all, there was a boost in sentiments in gambling companies. This makes it more important to look at casino earnings this season. Below, we highlight two key casino earnings releases: Q4 at Wynn Resorts On February 11, Wynn Resorts Ltd. (NASDAQ: WYNN ) posted mixed fourth-quarter 2015 results. Adjusted earnings of $1.03 per share decreased 14.2% but beat the Zacks Consensus Estimate of $0.74 by 39.2%. Revenues of $946.9 million missed the consensus mark of $1960 million by 1.4% and slipped 17% year over year, owing to a choppy performance in Macau. Despite the mixed performance, investors were keen on building positions in the stock as founder Steve Wynn pointed out that this January as ‘the best month in a long time’. Investors took this statement as a sign of turnaround in Macau operations, which have long been a pain for Wynn. The company surged more than 15.8% on February 12, 2016 following the earnings report. Notably, Wynn Macau revenues plummeted 27% year over year to $555.7 million in the quarter, owing to lower revenues at the VIP and the mass market segments, while Wynn Resorts’ revenues from Las Vegas operations increased 3.8% year over year to $391.2 million supported by higher non-casino revenues. WYNN has a Zacks Rank #3 with a value style score of ‘B’. The underlying industry of the company is in top 25% segment of the Zacks Universe. Q4 at Las Vegas Sands Las Vegas Sands’ (NYSE: LVS ) fourth-quarter 2015 earnings of $0.62 – announced on Jan. 27 – missed the Zacks Consensus Estimate of $0.64 by 3.1%. Earnings fell approximately 32.6% year over year. The downside reflects a decline in revenues, partially offset by lower expenses. Quarterly net revenue of $2.86 billion missed the Zacks Consensus Estimate of $2.92 billion by 2.1% and declined 16.2% year over year due to soft business in Macau. Since reporting earnings, the stock gained about 6% (as of February 12, 2016). LVS has a Zacks Rank #3 with a value style score of ‘B’. Casino ETF: Time to Buy? The performance at Wynn Resorts has acted as a cornerstone for the entire space as LVS also added over 9% and MGM Resorts International (NYSE: MGM ) advanced about 7% at the close on February 12, 2016. WYNN’s outsized gains gave a big push to the casino gaming ETF which was up 3.4% on February 12, but is down 0.7% since Las Vegas Sands reported its earnings. Moreover, investors should note that casino stocks have been extremely cheap in valuation after undergoing a steep sell-off. Plus, analysts are betting on a turnaround in Macau. Per analysts , the region is changing itself from being mass-centric to being VIP-oriented. Another group of analysts believes that “if the yuan and Chinese economy stabilize there’s money making opportunity in Macau.” In any case, all three companies mentioned above have found a place in the fund with a considerable share. Las Vegas Sands and Sands China – together have about 16% exposure in BJK. Wynn Resorts takes about 3.21% in the fund while MGM has about 6.2% share. The fund holds about 43 stocks in total. The product charges 66 bps in fees and has a Zacks ETF Rank #3. Original Post

Distinction Between Mutual Funds And Hedge Funds Is Eroding

The growth of liquid alternatives combined with an evolving regulatory framework is leading to a confluence between ’40 Act mutual funds and private hedge funds, according to Wulf A. Kaal, contributor to the forthcoming Elgar Handbook on Mutual Funds. In an expert from that guide, titled Confluence of Mutual Funds and Private Funds , Mr. Kaal makes the case that mutual funds are becoming more like hedge funds in terms of strategy, while hedge funds are becoming more like mutual funds in terms of regulation. In Mr. Kaal’s view, this calls into question the distinction between mutual funds and private funds. Eroding Distinctions While it’s true that mutual funds and hedge funds still occupy distinct segments of the market, employ some different strategies, serve largely different clients, and are subject to different legal rules, the gulf between the two types of funds is eroding. This is due to a combination of market forces, as retail investors seek out alternative strategies while institutions demand greater liquidity and transparency; and regulatory changes such as the Jumpstart Our Business Startups Act (the “JOBS Act”), which makes it easier for non-accredited investors to fund private, startup enterprises, including via crowdfunding. Alternative AUM Growth In terms of market forces, Mr. Kaal points out that, since 2005, alternative investments have grown twice as fast as traditional investments, in terms of assets under management (“AUM”). Although traditional investments, i.e. long-only stocks and bonds, have seen AUM grow from $37.1 trillion in 2005 to $56.7 trillion in 2013; in terms of percentages, the growth in alternative AUM from $3.2 trillion in 2005 to $7.2 trillion in 2013, is greater. While traditional investments’ AUM grew by a total of 52.8% during the period under review, alternative investments saw their AUM more than double. Rate of Growth Across Alternative Investments Mr. Kaal breaks down AUM growth across three alternative-investment structures: Alternative mutual funds Hedge funds Private equity He also lists the AUM growth for all mutual funds – i.e., mostly traditional assets – as a control group. His findings: While all four categories suffered AUM drawdowns in 2008, alternative mutual funds had by far the strongest growth in 2009, 2010, 2011, and 2012. Alternative mutual funds continued to grow in 2014, but at an abated pace. All three alternative categories showed positive AUM growth for all years, save 2008, while traditional mutual funds lost ground in 2011. Conclusion Market forces and regulatory changes are leading to a confluence between mutual and private hedge funds – but what are the implications of this confluence? Mr. Kaal lists several areas he expects will be impacted, ranging from mutual fund governance to the structure of federal securities law, and he opines that possible effects of this confluence could include “drastic immediate repercussions for market participants.” He concludes his paper by calling for continued monitoring, scholarly evaluation, and regulatory scrutiny of these developments. For more information, download the full report . Past performance does not necessarily predict future results. Jason Seagraves contributed to this article.

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

The Information Technology sector ranks third out of the ten sectors as detailed in our Q1’16 Sector Ratings for ETFs and Mutual Funds report. Last quarter , the Information Technology sector ranked second. It gets our Neutral rating, which is based on aggregation of ratings of 28 ETFs and 109 mutual funds in the Information Technology. 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 Information Technology sector ETFs and mutual funds are created the same. The number of holdings varies widely (from 25 to 397). This variation creates drastically different investment implications and, therefore, ratings. Investors seeking exposure to the Information Technology 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 PowerShares Dynamic Semiconductors Portfolio (NYSEARCA: PSI ) is excluded from Figure 1 because its 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 Fidelity Advisor Communications Equipment Fund (MUTF: FDMIX ) is excluded from Figure 2 because its total net assets are below $100 million and do not meet our liquidity minimums. The Market Vectors Semiconductor ETF (NYSEARCA: SMH ) is the top-rated Information Technology ETF and the Vanguard Information Technology Index Fund (MUTF: VITAX ) is the top-rated Information Technology mutual fund. Both earn a Very Attractive rating. The ARK Innovation ETF (NYSEARCA: ARKK ) is the worst-rated Information Technology ETF and the Rydex Internet Fund (MUTF: RYINX ) is the worst-rated Information Technology mutual fund. ARKK earns a Dangerous rating and RYINX earns a Very Dangerous rating. 511 stocks of the 3000+ we cover are classified as Information Technology stocks. Applied Materials (NASDAQ: AMAT ) is one of our favorite stocks held by SMH and earns an Attractive rating. Going back to 1998, the earliest year in our model, Applied Materials has grown after-tax profit ( NOPAT ) by 10% compounded annually. AMAT currently earns a 12% return on invested capital ( ROIC ) and has generated over $2.8 billion in free cash flow over the last three years. Despite the nearly two decades of strong business operations, AMAT shares are significantly undervalued. At its current price of $16/share, AMAT has a price to economic book value ( PEBV ) ratio of 1.1. This ratio means that the market expects Applied Materials to grow profits by only 10% over its remaining corporate life. If Applied Materials can grow NOPAT by just 5% compounded annually (half its historical rate) over the next decade , the stock is worth $20/share today – a 25% upside. Trimble Navigation (NASDAQ: TRMB ) is one of our least favorite stocks held by ARKK and earns a Dangerous rating. In five of the past six years Trimble has generated negative economic earnings . In fact, the only time TRMB generated consecutive years of positive economic earnings was during the economic boom from 2004-2008. Since then, the company’s ability to create shareholder valued has deteriorated. Since 2008, the company’s ROIC has declined from 10% to 6%. Investors have taken notice of the downward trend in Trimble’s operations as the stock has fallen 26% over the past year, but shares remain overvalued. To justify its current price of $21/share, Trimble must grow NOPAT by 15% compounded annually for the next 17 years . This expectation seems highly optimistic given the recent history of deteriorating business operations at Trimble. Figures 3 and 4 show the rating landscape of all Information Technology 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. Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. 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.