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Materials ETFs Surge On Dow Chemical, DuPont Chemistry

The latest merger talks between chemical giants Dow Chemical (NYSE: DOW ) and DuPont (NYSE: DD ) might provide a fresh lease of life to the long-ailing material sector. This is especially true as total earnings from the basic material sector were down 18.8% on 214.4% lower revenues as of December 4. The potential merger is rumored to be worth about $130 billion and split the business of the new entity into three new, per sources , namely material sciences, specialty products and agrochemicals. As of December 9, Dow had a market cap of $66.01 billion, while DuPont had a market cap of $65.28 billion. The news was brought to light by The Wall Street Journal . However, there is no assurance of the merger and talks could even disintegrate. If at all the deal is cracked, it would require regulatory clearances in several countries, per Reuters. No comment was made by either of the concerned entities. Both firms are striving to cut their underperforming assets and are gradually shifting to the high-growth areas. In the latest concluded third quarter, Dow Chemical maintained its streak of earnings beat for eight successive quarters. Strong performance by the Plastics segment backed by a lower cost of raw materials like oil and natural gas drove this outperformance. Dow Chemical also raised its quarterly dividend by 10% to 46 cents, which is the highest in the company’s history, reflecting its core strength. However, Dow’s farm chemicals and seeds unit is reeling under pressure for about a year. On the other hand, DuPont beat earnings estimate on cost containment, but its revenues and profits slipped on a strong dollar as the company is heavily exposed to international markets and a soft agriculture business due to soft demand for crop protection products, per Reuters. In such a situation, joining forces would be a win-win case as the duo can cash in on each other’s strength. CNBC estimated a cost synergy of $3 billion from the likely merger. As soon as the news became viral, Dow and DuPont shares climbed about 11.9% each on elevated trading volumes. Plus, Dow Shares advanced about 0.6% after hours of December 9, while DuPont shares returned about 0.1%. Dow shares rose on 4.3 times the regular volume, while DuPont rose on 3.8 times the daily volume. Dow Chemical has a Zacks Rank #2 (Buy) and has a Value score of ‘B’ and a Growth score of ‘A’ despite hailing from a sector which is in the bottom 25% in the Zacks universe. DuPont has a Zacks Rank #3 (Hold). Solid price performance by these two chemical bellwethers led to a rally in material ETFs that are heavily invested in these two stocks. Though these funds have an unfavorable Zacks ETF Rank of 4 or’ Sell’ rating, they gained in the range of 2.1% to 3.3% on December 9 and are on investors’ radar for the weeks ahead. Materials Select Sector SPDR (NYSEARCA: XLB ) The most popular material ETF follows the Materials Select Sector Index. This fund manages about $2.18 billion in its asset base and trades in heavy volume of around 7.5 million. The ETF charges 14 bps in fees per year from investors. In total, the fund holds about 30 securities in its basket with DOW and DD taking the top two spots, with over 11% allocation each. In terms of industrial exposure, chemicals dominates the portfolio with three-fourth share, while ‘metals and mining’ and ‘containers and packaging’ round off the top three positions. XLB is off about 6.4% so far this year (as of December 9, 2015) but rose over 3% post the news. iShares U.S. Basic Materials ETF (NYSEARCA: IYM ) This ETF tracks the Dow Jones U.S. Basic Materials Index and holds 53 stocks in its basket. The fund has AUM of $353 million and charges 43 bps in fees and expenses. Volume is good as it exchanges around 106,000 shares a day. DOW and DD occupy the top two positions in the basket, with over 11% of assets each. The product is heavily skewed toward the chemical segment, as it makes up for more than three-fourths of the portfolio while steel, ‘forestry and paper’, ‘metals and mining’ receive minor allocations to IYM. The fund is down 10.7% year to date (as of December 9, 2015), but jumped over 3.3% in the key trading session. Vanguard Materials ETF (NYSEARCA: VAW ) This fund has amassed about $1.1 billion in its asset base and offers exposure to 120 stocks by tracking the MSCI U.S. Investable Market Materials 25/50 Index. The ETF has 0.12% in expense ratio. Here, DOW and DD are the top two firms accounting for nearly 8% share each. Chemicals make up for nearly 70% of assets, while ‘container and packaging’ and steel also make a nice mix in the portfolio. The fund is down 8.9% in the year-to-date frame (as of December 9, 2015), but added over 2.1% following the merger news. Fidelity MSCI Materials Index ETF (NYSEARCA: FMAT ) This fund provides exposure to more than 120 materials stocks with AUM of $68.8 million. This is done by tracking the MSCI USA IMI Materials Index. Here too, DOW and DD are the top two firms with nearly 8% allocation. Chemicals accounts for 69.7% share, while ‘container and packaging’, and ‘metals and mining’ round off the top three spots with double-digit exposure each. The ETF has 0.12% in expense ratio. The fund was up about 2.3% on December 9 but has lost 8.8% so far this year. Original post .

5 Sector ETFs For December

So far, the month December has been downbeat for the U.S. market with the S&P 500 and Nasdaq Composite Index losing about 2.6% each (as of December 9, 2015) and the Dow Jones Industrial Average shedding about 2.2%. The commodity market rout instigated by fresh oil lows, the possibility of a Fed lift-off in a few days, the persistent slump in Chinese economic indicators, milder-than-expected generosity from ECB regarding the stimuli in the Euro zone, a strong greenback and depreciating emerging markets have set the backdrop for this investing lull. People are speculating hard about what the potential bet could be at this point of time, given the above-mentioned deterrents. Since equities are in the negative territory, hearsay is rife that there may not at all be any sector winner this month. For them, below are five sector ETFs which could be in watch for the rest of this month. The sectors have been chosen as per the Zacks Market Strategy. Semiconductor – Market Vectors Semiconductor ETF (NYSEARCA: SMH ) Since the second half of 2015 marked the rebound of tech stocks, semiconductors can’t be far behind. The semiconductor market will be propelled by smartphones and automotive in the coming days. As car sales are soaring and consumers are binging on tech gadgets this holiday season, demand for semiconductors should surge. Moreover, some analysts believe that the PC market is set for a rebound, helping companies like Intel (NASDAQ: INTC ). Meanwhile, the semiconductor titan Intel hiked its dividend and provided a bullish outlook for 2016. Impressive Q3 earnings are also driving this sector. In the last one month (as of December 9, 2015), the fund gained over 2.5%. Medical Devices – iShares U.S. Medical Devices ETF (NYSEARCA: IHI ) Though the healthcare sector has confronted a number of issues regarding steep pricing on drugs, overvaluations of biotech stocks and the future of ObamaCare, the sector sailed through pretty smoothly. The medical sector has seen earnings rising 15.2% on 9.7% higher revenues in Q3, with 80.8% of the companies beating EPS estimates and 59.6% surpassing on revenues. In the sector, medical products seem the most stable if we consider both earnings and revenue growth of 13.4% and 12.2%, and beat ratio of 71.4% and 61.9%, respectively. As much as 86% of the fund is invested in healthcare equipment followed by life sciences tools & services (12.84%). The fund has a Zacks ETF Rank #1 (Strong Buy) and was down 1.4% in the last one month (as of December 9, 2015). US Global JETS ETF (NYSEARCA: JETS ) Development in the airline industry is rampant these days. Busy traffic on improving travel and business demand, restructuring indicatives, stepped-up ancillary revenues, limited capacity growth and most importantly rock-bottom oil prices have put the spotlight on this area. Fuel accounts for a large portion of airlines’ operating expenses and the possibility of soft oil prices for longer has helped the sector to battle headwinds like a stronger dollar and global growth worries. The sole airline ETF JETS might have lost 1.1% in the last one month (as of December 9, 2015) on the November Paris terror attacks which resulted in lower tourism; but is due for a reversal in the coming days. KBW Premium Yield Equity REIT Portfolio (NYSEARCA: KBWY ) The interest-rate sensitive REIT sector might underperform once the Fed enacts a lift-off, but the underlying fundamental for the area is quite strong. As demand for housing picks up in the U.S., and the economy rebounds, the requirement of establishment rises and so does rent. So, income for REITs should go up. Notably, when rates rise on the back of a pickup in the economy, REITs outperform. As per reit.com , “in the 16 periods since 1995 when interest rates rose significantly, Equity REITs generated positive returns in 12.” Finally, REITs are strong dividend vehicle. The fund KBWY yielded 5.59% as of December 9, 2015 which is way above the current benchmark U.S. treasury yield of 2.22%. The fund has a Zacks ETF Rank #3 (Hold) and was flat in the last one month. SPDR S&P Retail ETF (NYSEARCA: XRT ) Traditionally, December is the month for retail and discretionary purchases. Though shopping euphoria has subdued a little among cautious consumers in recent times, spending on apparel, accessories, footwear and tech gadgets is still high thanks to the holiday season. As a result the Zacks Rank #1 XRT should be closely watched. The fund has 22.3% exposure in apparel followed by 16.4% in specialty stores and 15.4% in automotive retail. However, XRT was down 3.6% in the last one month. Original Post

VWELX: This 86 Year Old Fund Is Still An Ideal Choice For Retirement

Summary Vanguard Wellington is the first balanced fund in the U.S. having launched in 1929. The fund has ranked in the top 10% of its Morningstar peer group over the past 5-, 10- and 15-year periods. The fund has a beta of 0.65 compared to the S&P 500 while outperforming the index over the long term. Wellington held up remarkably well during the 2000 and 2008 bear markets. In a world where there are literally thousands of funds and ETFs available that cover almost every niche, sector and style available, sometimes it’s the most tried and true investment vehicles that still remain the best choices. In the case of the Vanguard Wellington Fund (MUTF: VWELX ), we’re talking about literally the oldest balanced mutual fund in the country. Launched all the way back in 1929, Wellington looks to maintain a balance of roughly two-thirds of assets in conservative large cap stocks and one-third of assets in a mix of high quality bonds. It’s this type of asset allocation that makes for an ideal core holding in many retirement portfolios. Historically, Wellington has provided exactly what retirement investors should be seeking – above average returns with below average risk. With a current beta of 0.65, you’d expect the fund to return about two-thirds of the SPDR S&P 500 Trust ETF’s (NYSEARCA: SPY ) return but over the past 20+ years that hasn’t been the case. VWELX Total Return Price data by YCharts Looking at the past 2+ decades of history is especially appropriate because it takes into account both bull and bear market environments. The fund has performed about how one would expect – outperforming the S&P 500 in a down market but trailing in an up market. The fund’s risk minimization strategy proved especially effective during the Nasdaq bubble providing a relatively steady market performance given the economic environment. While the chart above doesn’t illustrate Wellington’s performance during the financial crisis particularly well but you can see below how well the fund held up. VWELX Total Return Price data by YCharts While the S&P 500 dropped around 55% from its 2007 peak, Wellington was down about 35%. That’s roughly what you’d expect considering the fund’s 60/40 allocation but the fund’s long term performance has been exceptional. Over the last 10 years, the overall performance of Wellington and the S&P 500 has been almost identical. Using a more apples to apples comparison, Wellington has also outperformed the Vanguard Balanced Index Fund (MUTF: VBINX ) – a fund with a 60/40 stock and bond allocation – during the same 10 year period. Morningstar drops Wellington into the Moderate Target Risk bucket. While the fund has returned 8.2% per year since the fund’s inception, it has consistently ranked at the top of its peer group. Wellington ranks in the top 6% of its peer group over the past 5-year and 10-year periods and ranks in the top 4% in the past 15-year period. It’s this type of risk-managed performance history that retirement investors should be seeking out. Retirement income investors will also appreciate the fund’s 2.43% yield. The fund has a few dividend champions among its equity holdings and the bond holdings are almost entirely high quality corporate and Treasury securities ensuring that the fund’s dividend is secure and reliable. Conclusion I’m a firm believer that in the case of most retirement investors, simpler is better. Sophisticated investors may feel comfortable building a more complex portfolio using stock, sector ETFs, etc. but for those who want an all-in-one long term holding that they can just establish and forget about, it’s hard to imagine someone doing much better than Vanguard Wellington. The combination of strong long term performance, risk minimization and low costs make this an ideal core retirement holding even if it’s not as exciting as some of the newer niche products hitting the market today.