Tag Archives: zacks funds

Playing The Santa Rally With ETFs And Stocks

After a spectacular six-year bull run, the U.S. stock market got caught up in a nasty web of never-ending worries. It all started with the collapse in oil prices. Then came the instability in Greece, global growth concerns and the uncertainty of the Fed rate hike. Persistent weakness in China and the slump in commodities aggravated the woes. As a result, the S&P 500 and Dow Jones indices are trading in the red in the year-to-date frame, losing 1% and 2.3%, respectively. But the trend might reverse heading into the winter holidays if Santa pays a call. A Santa rally has gained coinage in the investment world, referring to the increase in stock prices in the final week of the calendar year (i.e. between Christmas and New Year’s Day) and extending into the first two days of the New Year. According to the 2016 Stock Trader’s Almanac , the Santa Claus rally has yielded average positive returns of 1.4% in 34 of the past 45 holiday seasons since 1969. Other research also confirmed this trend. If we dig into historical data dating back to 1896, the Dow Jones Industrial Average has a track record of gaining an average of 1.7% during this seven-day trading period. And this has happened 77% of the time. Santa on The Way! The Fed has raised interest rates for the first time in nearly a decade with a dovish view for future hikes. It is a clear signal that the U.S. economy has largely emerged from the impact of a financial crisis supported by solid labor market fundamentals and a gradually increasing inflation rate. This in turn has lifted consumer confidence, providing a boost to the stock market, setting the tune for a Santa rally. This is especially true as the stock market gained momentum at the start of this week with both the S&P 500 and Dow Jones gaining 1.7% each. Further, year-end seasonal factors such as holiday optimism, tax-related affairs, people investing their Christmas bonuses, short sellers going on vacation, and the “January effect” added to the strength. As such, Santa seems to be just round the corner but the rout in commodities and the resultant stress in the junk bond space could block its way. Nevertheless, the oil price has rebounded slightly from their 11-year low, bolstering hopes of a bullish market. As hopes start building for a Santa rally, we have highlighted a trio of ETFs and stocks that could provide investors with happy returns in the coming days and weeks. ETFs to Buy While there are a number of ETFs that are expected to benefit from the Santa Claus rally, we have highlighted three growth funds that have a higher potential to move upward when the markets go up. These products have been leading the broad market by a wide margin and have a top Zacks ETF Rank of 1 or ‘Strong Buy’. Further, these provide a broad play across various sectors rather than specific ones. PowerShares Dynamic Large Cap Growth Portfolio (NYSEARCA: PWB ) This ETF provides a pure exposure to the large cap growth segment of the broad U.S. equity market by tracking the Dynamic Large Cap Growth Intellidex Index. The fund is widely diversified across 50 securities with each holding less than 3.5% of total assets. From a sector look, consumer discretionary takes the top spot at 32% while information technology, healthcare and consumer staples round off the next three spots. The product has accumulated around $415.3 million in its asset base and charges 58 bps in fees per year. It gained 6.4% so far this year. iShares Russell Top 200 Growth ETF (NYSEARCA: IWY ) This fund offers exposure to 139 large U.S. companies whose earnings are expected to grow at an above-average rate relative to the market. It is concentrated in the technology sector and the top firm – Apple (NASDAQ: AAPL ) – occupies 8.2% of the basket while the other firms hold no more than 3.4% share. Consumer discretionary, healthcare and consumer staples also receive double-digit allocation each. The fund has amassed $559.3 million in AUM and has an expense ratio of 0.20%. IWY is up 5.6% in 2015. First Trust Large Cap Growth AlphaDEX Fund (NYSEARCA: FTC ) This fund provides a slightly active choice as it uses the AlphaDEX methodology to select the stock. The methodology seeks to narrow the large cap space to only the best positioned growth companies, eliminating the bottom ranked 25% of the stocks. This approach results in a basket of 177 stocks, which are widely spread across various securities with none holding more than 1.21% share. More than one-fourth of the portfolio is skewed toward consumer discretionary, followed by information technology (19.5%), healthcare (13.5%), consumer staples (13.0%) and industrials (12.8%). The product has $714.8 million in AUM and charges 63 bps in annual fees. It added 3.2% in the year-to-date time frame. Stocks to Buy For stocks, we have chosen three top picks using the Zacks Screener that fits our six criteria: a Zacks Rank #1, a Growth Style Score of ‘A’, Zacks Industry Rank within the top 15%, positive estimate revision for the current year, market cap of over 1 billion and year-to-date price performance in excess of the broad market returns. Here are the three chosen stocks. American Woodmark Corp. (NASDAQ: AMWD ) Based in Winchester, VA, American Woodmark is a major manufacturer and distributor of kitchen cabinets and vanities for the remodeling and home construction markets in the United States. The company has seen solid earnings estimate revisions of 8 cents for the current quarter over the past 30 days and delivered positive earnings surprises in the last four quarters, with an average beat of 35.40%. The stock has a solid Zacks Industry Rank in the top 5% and has doubled its returns in the year-to-date time frame. Integrated Device Technology Inc. (NASDAQ: IDTI ) Based in San Jose, CA, Integrated Device is engaged in designing, developing, manufacturing, and marketing a wide range of high-performance semiconductor products and modules for the communications, computing, and consumer industries worldwide. The company has seen earnings estimates rising by a penny for the current quarter over the past 30 days and delivered average positive earnings surprises of 10.04% in the last four quarters. Further, Integrated Device has an Industry Zacks Rank in the top 15% and gained over 37% this year. Leidos Holdings Inc. (NYSE: LDOS ) Based in Reston, VA, Leidos Holdings delivers solutions and services in the national security, health, and engineering markets in the United States and internationally. It has seen earnings estimate revision of 3 cents for the current quarter over the past 30 days and generated an average earnings surprise of 22.44% in the last four quarters. The stock is up 27.3% this year and has an Industry Zacks Rank in the top 15%. Bottom Line As the positive momentum starts to build in the market this week, Santa might definitely be on the way to give bountiful gifts to investors and set the tone for the New Year. Original Post

Rate Hike Leads To Bond Funds’ Biggest Withdrawals: 3 Funds To Sell

Time and again we at the Zacks Mutual Fund Commentary section warned investors about the possibility of bond fund exodus once the U.S. Federal Reserve pulls the trigger on rate hike. This turned out to be true last week when bond mutual funds and exchange-traded funds saw a record wave of withdrawals. Bond market funds saw the largest redemptions since 1992, when Lipper started tracking the flows. Remember, a low interest rate environment is favorable for investments in bond funds. This stems from the fact that the market value of a bond is inversely proportional to interest rates. Thus, the rush to pull out money from bond funds was pretty obvious. The U.S. corporate bond market is particularly at risk, as the central bank’s rate hike will lead to significantly higher borrowing costs for the lowest-rated companies. Corporate bond prices have also seen significant volatility, as investors find trading in and out of big positions next to impossible without affecting their prices. The Exodus from Bond Markets Apprehensions over the stability of the bond market compelled investors to pull out $15.4 billion from taxable bond funds for the week ending Dec 16. High-yield junk bond funds saw an outflow of $3.8 billion during the week. This was the largest outflow since Aug 2014. Another record wave of redemptions left investment-grade bond funds lose out $5.1 billion. This was the biggest outflow since Lipper started recording data in 1992. Alongside, yields on investment grade and junk bonds shot up to their highest level since 2012, according to data from Bank of America Merrill Lynch. Tom Roseen, head of research services for Lipper, said: “They were getting out of the way of the Fed.” He also acknowledged the recent closure of bond mutual funds and picked on the Third Avenue fund. He commented: “People are focused on the Third Avenue fund taking it on the chin.” New York-based Third Avenue Management had announced that it was closing the high-yield bond mutual fund Third Avenue Focused Credit Fund (MUTF: TFCVX ), but its investors will not get their money for “up to a year or more.” The move to block redemptions from a Stone Lion credit fund was also playing on investors’ minds. According to Morningstar data, high-yield bond funds were the biggest losers over the last one week among other Taxable Bond Funds. The high-yield bond funds lost 3.5% in the one-week period and its year-to-date loss is now at 4.8%. Corporate bond funds lost 0.5% over the one-week period and the year-to-date loss stands at 1.2%. Corporate Bond Funds in Trouble According to UBS, an astounding $1 trillion of U.S. corporate bonds and loans that are rated below investment grade may be in danger. A UBS strategist commented: “It is our humble belief that the consensus at the Fed does not fully understand the magnitude of the problems in corporate credit markets and the unintended consequences of their policy actions.” According to Bank of America Merrill Lynch indices, price of U.S. company debts rated “CCC” had dropped to the lowest level since 2013. Subsequently, the average yield soared to a six-year high. Meanwhile, Moody’s noted that the list of companies rated B3 or lower with a negative outlook increased 5% in November to 239. This was a 37% year-on-year increase. What Increases the Risk for Bond Funds? A rise in rates may lead to bond exodus; consequently, the lack of liquidity may compel investors to sell the asset class at a significant discount. There is a growing concern that a massive exit from bonds may freeze the markets, as the number of sellers may not match the number of buyers. Redemption of bonds would increase the sell-off and fund managers would then have to sell the less liquid assets to match investors’ cash demands. However, if a mutual fund or an ETF holds illiquid bonds, the price swings will be rapid and would create a vicious cycle as price drops will again intensify selling pressure. The liquidity risk is of high concern. For bonds, sovereign government bonds are said to be the most liquid. On the other hand, corporate bonds are to suffer the most. New regulations and capital requirements have compelled Wall Street banks to cut their inventories. This has made the buy-and-sell activity of corporate bonds in the secondary market more difficult. The drop in inventories following fresh regulations has created a gap in the number of buyers and sellers. Thus, bond fund managers are now less prone to holding a large chunk of bonds in fear of any possible rout. The Securities and Exchange Commission had proposed a rule earlier this year that mutual fund companies must disclose how vulnerable their bond portfolios are to rate hikes. This was among SEC’s first moves to address concerns that the first rate hike in about seven years may spark a rapid sell-off in bond funds, resulting in steep losses. 3 High-Yield Bond Funds to Avoid Increasing concerns over bond funds will only intensify as the central bank opts for a gradual hike in rates. Thus, investors looking for safer avenues should exit from certain high-risk high-yield bond mutual funds. Below we highlight 3 mutual funds from the High Yield bond fund category that carry a Zacks Mutual Fund Rank #4 (Sell) or Zacks Mutual Fund Rank #5 (Strong Sell), as we expect the funds to underperform their peers in the future. Remember, the goal of the Zacks Mutual Fund Rank is to guide investors to identify potential winners and losers. Unlike most of the fund-rating systems, the Zacks Mutual Fund Rank is not just focused on past performance, but the likely future success of the fund. These funds have negative returns year-to-date and over the last 1-year period. The 3-year annualized return is also in the red. The minimum initial investment is within $5000. Northeast Investors Trust (MUTF: NTHEX ) focuses on investing in marketable securities of prominent firms. NTHEX primarily purchases debt securities rated below investment grade by any of the two major ratings firms. Northeast Investors Trust currently carries a Zacks Mutual Fund Rank #5. Over year-to-date and 1-year periods, NTHEX has lost 17.8% and 17.7%, respectively, and has a negative 3-year annualized return of 4.2%. Annual expense ratio of 1.09% is higher than the category average of 1.06%. NTHEX’s 85.59% of assets is allocated to bonds. Franklin High Income A (MUTF: FHAIX ) invests mostly in lower-rated debt securities that provide high yield. These lower-rated securities include bonds, debentures, convertible securities and other debt securities. The fund seeks a high level of current income. Franklin High Income A currently carries a Zacks Mutual Fund Rank #5. Over year-to-date and 1-year periods, FHAIX has lost 11.8% and 10.9%, respectively, and has a negative 3-year annualized return of 1.9%. Annual expense ratio of 0.76% is lower than the category average of 1.06%. Consulting Group High Yield Investments (MUTF: THYUX ) seeks a high level of current income by investing in below investment grade debt securities. THYUX focuses on investing most of its assets in domestic junk bonds. THYUX may utilize 20% of its assets to purchase high yield bonds of issuers located in emerging or developed economies. Average portfolio duration of THYUX is from two to six years. Consulting Group High Yield Investments currently carries a Zacks Mutual Fund Rank #4. Over year-to-date and 1-year periods, THYUX has lost 8.4% and 7.6%, respectively, and has a negative 3-year annualized return of 0.4%. Annual expense ratio of 0.74% is lower than the category average of 1.06%. Original post

Yen ETF Gains On Bank Of Japan Stimulus Changes

Unexpected modifications in the quantitative easing program by Bank of Japan (BOJ) on Friday helped the Japanese currency yen to move higher against the U.S. dollar. BOJ took some moderate steps to boost the sluggish Japanese economy and achieve its inflation target rate. Following the announcement, the yen gained nearly 1.2% against the dollar. BOJ’s New Steps in Focus Japan’s central bank announced a number of judicious changes without expanding the volume of its annual asset purchasing program it has been following for the last three years. Though it maintained the volume of bond purchasing at around 80 trillion yen ($660 billion) per year, the bank opted for raising the Japanese government bonds’ (JGBs) average maturity from 7-10 years to 7-12 years. The bank also revealed its plan of purchasing all JGBs to be issued next year. BOJ also announced that under this program, it will allocate 300 billion yen of assets annually in purchasing ETFs that seek to follow the JPX-Nikkei Index 400, which comprises companies that carry out operation without violating the corporate-governance criteria. The central bank’s intention was to boost capital expenditure and wages – an important parameter of an economy – through this step. This was in addition to the BOJ’s annual allocation of 3 trillion yen in ETFs, which started in late 2014. Will It Work? The changes in economic stimulus came on the back of concerns that BOJ’s quantitative easing program that started three years ago has done little for the economy. Despite the bond purchasing program – popularly known as Abenomics – that had aimed at achieving economic growth, the economy slid into contraction territory in the second quarter with a year-on-year GDP decline of 0.5%. However, according to the latest estimate, the economy rebounded strongly in the last quarter to witness a GDP growth rate of 1%, contrary to the earlier estimate of a contraction of 0.8%. Meanwhile, it was reported that the output expanded at an annual pace of 1.6% in the last three quarters. Also, spending by households in the last quarter saw an increase of 0.5%, indicating that the QE program is not a complete failure. Though the bank’s inflation target of 2% has not yet been achieved, BOJ indicated that it will do whatever it takes to reach the goal. Haruhiko Kuroda, Governor of BOJ said: “I’d like you to understand that we have taken those measures so we will be able to quickly adjust policy if we ever reach a conclusion that [further] action is needed to achieve the price-stability target at an early time.” He even added: “If risks to growth and price rises materialize, and if additional easing becomes necessary as a result, I certainly think we will have to undertake bold measures.” Yen ETF – FXY Gains Divergence in economic policies between the two major economies, the U.S. and Japan, played an important role in boosting the yen against the U.S. dollar on Friday. Last week, the Fed announced the first rate hike in almost a decade. The Fed finally pulled the trigger, raising benchmark interest rates by a modest 25 bps to 0.25-0.50% for the first time since 2006. Like the yen, CurrencyShares Japanese Yen ETF (NYSEARCA: FXY ) that tracks the value of the yen against the price of the greenback also gained 1.2% on Friday following the BOJ announcement. This $252.8 million fund charges 40 basis points as fees. FXY also returned 0.9% in the past six months as the yen, which is considered a classic safe haven asset continue to attract investor focus. FXY has a Zacks ETF Rank #3 (Hold) with a High risk outlook. Apart from FXY, popular Japanese ETFs such as iShares MSCI Japan (NYSEARCA: EWJ ), WisdomTree Japan Hedged Equity ETF (NYSEARCA: DXJ ) and Deutsche X-trackers MSCI Japan Hedged Eq (NYSEARCA: DBJP ) will also remain on investors’ radar in the coming months as they will track the prospect of the changes in economic stimulus. However, EWJ, DXJ and DBJP declined 1.3%, 2.7% and 2.6%, respectively, following the yen’s gain.