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4 Top-Rated TIAA-CREF Mutual Funds Worth Adding

Teachers Insurance and Annuity Association of America-College Retirement Equities Fund (TIAA-CREF) has nearly $869 billion in assets under management (as of June 30, 2015). TIAA-CREF Asset Management, part of the TIAA-CREF group, seeks to offer financial services pertaining to investment advice and portfolio management to a wide range of investors including individual investors, intermediaries and institutional clients. Through its subsidiaries, TIAA-CREF invests in an array of mutual funds including both equity and fixed-income funds, and U.S. and non-U.S. funds. Below we share with you 4 top-rated TIAA-CREF Mutual Funds. Each has earned a Zacks Mutual Fund Rank #1 (Strong Buy) and is expected to outperform its peers in the future. TIAA-CREF Real Estate Securities Retirement (MUTF: TRRSX ) seeks maximum total return over the long run through growth of capital and current income. TRRSX invests a large chunk of its assets in companies primarily involved in operations related to the real estate domain. TRRSX may invest a maximum of 15% of its assets in securities issued by foreign entities. TRRSX may also invest not more than 20% of its assets in securities of companies from different sectors, other than real estate. The TIAA-CREF Real Estate Securities Retirement fund has a three-year annualized return of 11.8%. As of September 2015, TRRSX held 52 issues with 9.38% of its assets invested in Simon Property Group Inc (NYSE: SPG ). TIAA-CREF Small-Cap Equity Premier (MUTF: TSRPX ) invests the lion’s share of its assets in equity securities of domestic small-cap firms. TSRPX focuses on acquiring securities of companies with market capitalization similar to those listed in the Russell 2000 Index. TSRPX invests in securities of companies irrespective of their sectors, growth rates and valuations. The TIAA-CREF Small-Cap Equity Premier fund has a three-year annualized return of 18.5%. TSRPX has an expense ratio of 0.59% as compared with the category average of 1.23%. TIAA-CREF Mid-Cap Growth Retail (MUTF: TCMGX ) seeks a high total return. TCMGX invests the major portion of its assets in equity securities of companies having market capitalization within the range of the Russell Midcap Growth Index. TCMGX primarily invests in securities of domestic companies that are believed to provide above-average growth potential. The TIAA-CREF Mid-Cap Growth Retail fund has a three-year annualized return of 15.3%. George (Ted) E. Scalise is one of the fund managers of TCMGX since 2006. TIAA-CREF Large-Cap Value Retirement (MUTF: TRLCX ) invests the majority of its assets in securities of the U.S. based large-cap companies. TRLCX invests in companies with market capitalization identical to those included in the Russell 1000 Value Index. TRLCX invests in securities of companies that are believed to be undervalued. TRLCX may invest a maximum of 20% of its assets in securities of companies that are located in foreign lands. The TIAA-CREF Large-Cap Value Retirement fund has a three-year annualized return of 14.3%. TRLCX has an expense ratio of 0.69% as compared with the category average of 1.11%. Original Post

Southwest Gas Corporation Is Dependent On The Construction Business

Summary After years of performance, the stock slumped in 2015. Investors didn’t like Q3 results due to poor outlook for the natural gas division. The construction segment has a secular tailwind at its back, but there is no telling when it will go away. Southwest Gas Corporation (NYSE: SWX ) is a utility company that specializes in natural gas distribution and construction. It’s primarily services customers in Arizona, Nevada, and California. The company is the largest distributor in Arizona and Nevada. With its scale and the relative stability of the utility business, the stock has steadily climbed throughout the years. In 2015 however, the stock has hit a bump. Year to date, shares have fallen by 10% from $61.81 to $55.70. The Business Let’s first talk about the natural gas division. It consists of the company’s distribution and transportation business. The majority of customers is made up of residential and small commercial customers, which accounted for 85% of the company’s operating margin (defined by the company as operating revenue minus the cost of gas, which is more similar to gross margin) in 2014. The other 15% is broken down into two parts: 4% from other customers and 11% from transportation. The transportation segment acts like a midstream company, transporting gas that is sourced by the customer instead of Southwest. Interestingly, although transportation only accounts for a tenth of overall operating margin, it does occupy a significantly larger portion of total system throughput. Transportation accounted for almost half of the total throughput in 2013 and 2014. This discrepancy between transportation margin and the capacity occupied by the transportation segment shows that the company can improve profitability if it can shift more of its business to distribution, which earns much higher profits. The other half of the business is the construction division. This segment’s main focus is on energy distribution related systems, so it acts as a complement to the distribution and transportation business. A typical project could be as small as maintenance or as big as piping the entire community, for that reason, earnings could be quite lumpy. Recent Performance It would appear that the market didn’t like the company’s Q3 results. After releasing earnings on November 4th, the stock has declined by 9% in a matter of weeks. Both segments continued to grow. While natural gas operations’ revenue declined from $226 million to $219 million, this was the result of lower gas prices in general. After subtracting the cost of gas, the natural gas segment’s operating margin increased from $153 million to $155 million. However, it should be noted that the company is not expecting growth in the natural gas division in the near future. The management stated during the Q3 earnings call that they believe future margin increases will be offset by higher expenses. The construction segment experienced higher growth, increase revenue from $206 million to $286 million. Can you count on the construction segment to hold up? Recently the segment benefited from higher demand for pipe replacement projects as the result of regulatory pressure by the U.S. Department of Transportation to enhance safety. While projects may continue to ramp up in the short-term, I don’t think that the construction segment can continue to perform at the current level over the long-term. Conclusion In the near-term, I believe that the stock can only recover if the construction segment continues to perform well. Because the outlook for natural gas operation is not great (i.e. no growth), the only way that the company can create value is by winning more contracts through the construction segment. The aforementioned secular trend of increasing regulatory pressure could help, but there is no telling when the increase in demand will fade away.

KKR Income Opportunities: Good Entry Point For A 10% Yielder

Summary KKR Income Opportunities is a closed-end fund that invests in high-yield debt. A weak market in 2015 pressured the stock price and caused the discount to NAV to widen. Broad diversification, a large discount to NAV and a 10% yield make the current price a very compelling entry point. KKR Income Opportunities Fund (NYSE: KIO ) is a name that I have been watching with interest over the last few months. In this article I’m going to provide an analysis of the portfolio of this closed-end fund and explain why I think it is an interesting buying opportunity for income focused investors. What is KIO? KIO is a closed-end fund that provides a high level of current income by investing in a portfolio of loans and fixed income securities in the high-yield space. The fund makes use of leverage in order to enhance its yield and has a credit facility in place for this purpose – at the moment leverage stands at 32%. The company invests predominantly in BB – B – CCC rated securities and is almost evenly split between high yield bonds and leveraged loans, as you can see in their latest factsheet : The portfolio As we enter 2016 a characteristic that I search in a fixed income portfolio is a low exposure to interest rate risk. The portfolio’s duration is 3.4 years even though the average maturity is eight years. This low duration is achieved thanks to the allocation to leveraged loans, which generally offer a spread on top of the LIBOR rate and therefore have limited interest risk exposure. I believe the portfolio also is reasonably diversified, with a total of 95 positions and a concentration in the top 10 names of 32% of NAV. Sector concentration is a bit higher (44% for the top five industries) but what I particularly like is the absence in the top five of the energy sector. Considering how much money energy companies raised in the last few years and the weight of energy in high yield benchmarks (around 12%) I’m very pleased to see that exposure to this sector is below 6%. Credit to the management for that! As of the end of September the yield to maturity in the portfolio was 15.6% while the average coupon stood at 10.6%. As mentioned earlier the portfolio is leveraged with a loan to value of 32%. As of April 30th (date of the latest semi-annual report ) a credit facility was in place for a total of 145 mln at LIBOR + 0.825%. This facility expired on August 28th. I could not find the terms of the new facility but I suspect there must have been some worsening in the spread. The publication of the Annual Report (fiscal year ends on October 31st) will give some insight on this. One last thing that deserves to be mentioned is the management fee: KKR manages the fund and receives a fee of 1.1% of the Fund’s average daily managed assets. That means that also all the assets acquired thanks to the credit facility will pay the management fee. At the current 32% loan to value that means the fee is roughly 1.6% of net asset value. Investment thesis KIO currently trades around $14.4, a 13.9% discount to the most recent NAV. That compares with an average discount since the 2013 inception of 8.9%. I believe closed-end funds should trade at a discount to NAV given the often elevated fees and expenses associated but I believe such a discount should be between 5% and 10%. A 13.9% discount certainly has some appeal. Other two elements make that discount even more appealing to me: This is an income distribution fund: the yield currently stands at 10.45% and dividends are paid monthly. That means that you get a significant portion of your investment back at NAV even though you are investing at a large discount. The discount is close to peak in a disappointing year for high-yield securities. That means you are entering into a market that became cheaper during the year and you are doing so at a larger than usual discount. My biggest concern as I look at this investment is the possibility that the weakness in high yield/leveraged loans is not over yet. If we look at the S&P Leveraged Loans Total Return Index we see a peak to trough of 2.8% this year over six months. That compares with a 5.5% decline in 2011 over one month – in that occasion the decline was completely re-absorbed within six months. For the purpose of giving a complete picture I also have to add 2008: in that case the peak to trough was a massive 29% over six months. Although we can’t exclude a repeat of 2008 I have to say that I find it extremely unlikely. Credit conditions certainly relaxed over the past few years but they are not at the level of pre 2008 and, more importantly, banks have much higher capital cushions and are not as involved in the high-yield space as they used to be. In any case even in the dramatic situation of 2008 the S&P Leveraged Loans Total Return Index re-absorbed all losses within 11 months. Conclusions I believe the quality of the portfolio (measured in terms of diversification, exposure to the now “toxic” energy sector and duration) makes me comfortable in getting long KIO. However I can’t rule out further weakness in the months to come. As a result I’m starting a new position with an amount equal to 50% of my target allocation. The objective is to add to the position over the next few months in case of further weakness or keep it at current levels in case the decline in the market is over.