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Best And Worst Q3’15: Large Cap Value ETFs, Mutual Funds And Key Holdings

Summary Large Cap Value style ranks first in Q3’15. Based on an aggregation of ratings of 43 ETFs and 836 mutual funds. SCHD is our top-rated Large Cap Value ETF and MDIVX is our top-rated Large Cap Value mutual fund. The Large Cap Value style ranks first out of the 12 fund styles as detailed in our Q3’15 Style Ratings for ETFs and Mutual Funds report. It gets our Attractive rating, which is based on an aggregation of ratings of 43 ETFs and 836 mutual funds in the Large Cap Value style. See a recap of our Q2’15 Style Ratings here. Figures 1 and 2 show the five best and worst-rated ETFs and mutual funds in the style. Not all Large Cap Value style ETFs and mutual funds are created the same. The number of holdings varies widely (from 17 to 1007). This variation creates drastically different investment implications and, therefore, ratings. Investors seeking exposure to the Large Cap Value style 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 First Trust NASDAQ Rising Dividend Achievers ETF (NASDAQ: RDVY ), the iShares Enhanced U.S. Large-Cap ETF (NYSEARCA: IELG ), and the SPDR Russell 1000 Low Volatility ETF (NYSEARCA: LGLV ) 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 Schwab U.S. Dividend Equity ETF (NYSEARCA: SCHD ) is the top-rated Large Cap Value ETF and the BMO Dividend Income Fund (MUTF: MDIVX ) is the top-rated Large Cap Value mutual fund. Both earn our Very Attractive rating. The Guggenheim S&P 500 Pure Value ETF (NYSEARCA: RPV ) is the worst-rated Large Cap Value ETF and the Northern Lights Good Harbor Tactical Equity Income Fund (MUTF: GHTAX ) is the worst-rated Large Cap Value mutual fund. RPV earns a Neutral rating and GHTAX earns a Very Dangerous rating. Travelers Companies (NYSE: TRV ) is one of our favorite Large Cap Value stocks and earns our Very Attractive rating. Since 2012, Travelers has grown after-tax profits ( NOPAT ) by 22% compounded annually. The company has improved its return on invested capital ( ROIC ) to 12% from 4% in 2011. In addition, Travelers has generated over $3.4 billion in free cash flow on a trailing twelve-month basis. Despite the steadily improving business, the stock price remains undervalued. At its current price of $105/share, Travelers has a price to economic book value ( PEBV ) ratio of 0.7. This ratio implies that the market expects Travelers’ NOPAT to permanently decline by 30% from current levels. This expectation is overly pessimistic, and if Travelers can grow NOPAT by 3% compounded annually over the next five years , the stock is worth $193/share today – an 83% upside. Perry Ellis (NASDAQ: PERY ) is one of our least favorite stocks held by TILDX and earns our Dangerous rating. From 2011-2014, Perry Ellis’ NOPAT has declined by 17% compounded annually and its ROIC has fallen from 8% to a bottom quintile 3%. Most troubling is that over this same timeframe, Perry Ellis’ NOPAT margin has declined to 2% from 5%. Despite the company’s declining fundamentals, PERY is priced for significant growth. Even if Perry Ellis were able to increase its NOPAT margin to 3%, the company would still have to grow NOPAT by 12% compounded annually for the next 12 years to justify the current price of $25/share. This expectation is rather optimistic considering that over the last 12 years Perry Ellis only grew NOPAT by 4% compounded annually, and the business has seen profits decline as of late. Investors interested in a quality retailer would be better off avoiding Perry Ellis and looking at recent Stock Pick of the Week Ralph Lauren. Figures 3 and 4 show the rating landscape of all Large Cap Value ETFs and mutual funds. Figure 3: Separating the Best ETFs From the Worst Funds (click to enlarge) Sources: New Constructs, LLC and company filings Figure 4: Separating the Best Mutual Funds From the Worst 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, style, style or theme. Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More…) 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.

Precious Metal ETFs Regain Shine: Will It Last?

After giving appalling performances, precious metals regained their sheen in the past couple of weeks as volatility levels picked up. This is especially true in the backdrop of growing fears over the global economy and China instability. While the U.S. economy is improving, the devaluation of the China currency and its negative impact has gripped the global market, raising fears over the global slowdown. This coupled with sluggish growth in emerging markets has compelled investors to turn their focus on precious metals as a store of wealth and a hedge against market turmoil. In particular, the global risk-off trade situation has resulted in a flight to safety to gold. Additionally, the Fed minutes dented the chance of an interest rate hike next month, leading to a decline in the U.S. dollar and a rise in gold price. Further, the growing U.S. economy is supporting the strength in silver price as the bullion is used in a wide range of industrial applications. About 50% of the metal’s total demand comes from industrial applications while 30% comes from jewelry/silverware/coins and medal manufacturers. Coming to platinum and palladium, the automotive industry, mainly catalytic converters for vehicles, is a big driver of demand. The industry is experiencing huge growth given increasing consumer confidence, rising income and of course cheap fuel. The bullish trend in the precious metals is likely to continue at least in the near term especially given the China-led global worries and the slumping stock market. Below, we have highlighted four winners from this corner of the commodity world over the past 10 trading sessions. Each of these has a Zacks ETF Rank of 3 or ‘Hold’ rating with a High risk outlook: ETFS Physical Platinum Shares ETF (NYSEARCA: PPLT ) This fund tracks the performance of the price of bullion platinum, before Trust expenses. With about $497 million in AUM, this is the largest and the only physically backed platinum product and kept in Zurich or London in plate and ingot form under the custody of JPMorgan Chase Bank. The product trades in light volume of around 32,000 shares a day and charges 60 bps in fees per year from investors. The ETF surged about 8.3% in the past 10 days. SPDR Gold Trust ETF (NYSEARCA: GLD ) This is the ultra-popular gold ETF with AUM of $24.3 billion and average daily volume of more than 5.6 million shares a day. This fund tracks the price of gold bullion measured in U.S. dollars, and kept in London under the custody of HSBC Bank USA. Expense ratio came in at 0.40%. The fund gained 5.8% in the same time period. ETFS Physical Silver Trust ETF (NYSEARCA: SIVR ) This fund has amassed $281 million in its asset base while trades in moderate volume of more than 76,000 shares per day on average. It tracks the performance of the price of silver less the Trust expenses and is backed by physical silver under the custody of HSBC Bank USA in London. Expense ratio came in at 0.30%. SIVR was up 5.7%. ETFS Physical Precious Metals Basket Trust ETF (NYSEARCA: GLTR ) For investors seeking the broad precious metal play, GLTR could be the most intriguing option. This fund provides exposure to all four precious metals in the physically backed form. Gold takes the top spot at 58%, followed by 29% in silver while the rest is almost evenly split between platinum and palladium. The product is kept in London or Zurich under the custody of JPMorgan Chase Bank. It has amassed $140 million in its asset base while trades in small volume of about 21,000 shares per day. It charges 60 bps in annual fees from investors and added 5.7% in the same time period. Bottom Line Precious metals create wealth and have been the most exciting investment area especially during times of economic and political turbulence. This is because these have value recognition nearly everywhere in the world and could easily be converted into liquid cash in any currency. The buying pressure has been intense for the precious metals lately and the most recent global economic woes have been extremely favorable for their performances. Additional buying could be in the cards for the space should tensions in China escalate. Link to the original article on Zacks

Vanguard Launches Its Second Alternative Mutual Fund

By DailyAlts Staff Vanguard, the globally recognized pioneer in low-cost index funds, took another step into the world of alternative investments earlier this year, when it filed a Form N-1A with the SEC for the launch of the Vanguard Alternative Strategies Fund. That filing took effect on May 28, and on August 11, exactly 75 days later, the fund’s investor-class shares began trading under the ticker symbol “VASFX.” The company’s launched its first alternative mutual fund, the Vanguard Market Neutral Fund (MUTF: VMNIX ), back in 1998. That fund is managed by the firm’s Quantitative Equity Group and has generated a 3.80% return over the past five years with a 3.98% annualized standard deviation. Objective & Approach The fund’s investment objective is to generate returns that have low correlation to the stock and bond markets, and also have less volatility than the overall U.S. stock market. These goals are pursued by means of a multi-strategy approach, which include the following: Long/short equity Event driven Fixed-income relative value Currencies Commodity-linked investments The fund may hold long or short positions within each strategy, and may also use options, forward contracts, futures, and swaps in pursuit of its investment objectives. The fund’s long/short equity and event-driven investments may include U.S. and non-U.S. equities, while its fixed-income relative value strategy involves mostly U.S. Treasuries. The fund’s currency strategy involves selling currencies of countries with poor fundamentals and buying the currencies of countries with strong fundamentals. Its commodities strategy seeks exposure through ETFs, commodity-linked swaps, and futures contracts on agricultural products, livestock, precious and industrial metals, and energy products. This combination of equity, fixed-income, currency, and commodity investments is intended to provide real diversification benefits, thereby dampening portfolio volatility. Management & Share Information While most multi-strategy funds feature a variety of sub-advisors, each specializing in one or two specific strategies, the Vanguard Alternative Strategies Fund is a single-manager fund* headed by Michael Roach, CFA. Based upon Mr. Roach’s LinkedIn profile, he is a portfolio manager in Vanguard’s Quantitative Equity Group and a specialist in portfolio construction and optimization techniques. He also serves as a portfolio manager to 14 other vanguard mutual funds, including the Market Neutral Fund. The Vanguard Alternative Strategies Fund’s investor-class shares are available with a minimum initial investment of $250,000. The management fee on the fund is 0.18% (yes, 0.18% – that’s not a typo) and the net-expense ratio is 1.10%. For more information, read a copy of the fund’s prospectus . * The fund does have the ability to appoint external managers as sub-advisors.