Tag Archives: zacks funds

What Lies Ahead For M&A ETF?

Merger and acquisition (M&A) activities across a number of sectors were on a tear last year, with a record level of such activities. But the momentum for M&A – one of the major drivers of the stock market ascent in recent times – seems to be fading this year. At least, the numbers are giving such cues. The volume of global deals is $US822.2 billion ($1.1 trillion) so far this year, which represents a decline of 17% year over year (read: Merger & Acquisition ETFs: Will 2016 Replicate 2015? ). In addition to this data, there has been a surge of failed M&A deals lately. As per data provided by Dealogic , “US targeted withdrawn M&A volume is up 64% on full year 2015 ($231.1bn) to $378.2bn in 2016 YTD (as of May 4, 2016).” This is because several mega deals have been called off lately which took the size of U.S. oriented withdrawn M&A to a record level. Drugmaker Pfizer’s (NYSE: PFE ) decision to abandon its $160 billion deal to unite with Botox maker Allergan plc (NYSE: AGN ) due to the new Treasury guidance related to tax inversion is the largest called-off deal on record. The $103 billion deal between Honeywell International (NYSE: HON ) and United Technologies (NYSE: UTX ) is also out of action. There was also a proposed $38.7 billion merger deal between Halliburton (NYSE: HAL ) and Baker Hughes (NYSE: BHI ), which finally fell apart in April. As per Dealogic, with the termination of these likely deals, investment bankers were hard hit as they lost about $1.2 billion in possible investment fees. What’s Next? It looks like that the removal of mammoth deals in the U.S. actually inflated the size of withdrawn M&A data ($357.8 billion); the data speaks less about the diminishing number of activities. As per financial review, though there was a plunge in global M&A deal size, the number of announced transactions is 8,025 so far in 2016 versus 8,085 last year, indicating that the number has just moderated, and is far from completely losing momentum. The stringency in the U.S. tax inversion rule is less likely to put an end to cross-border deals. Yes, it could slow the momentum, but cannot stop them altogether (read: New Tax Inversions Rules: Threats to Healthcare ETFs? ) Another reason for the M&A slowdown is the underperformance of hedge funds in recent times. Notably, activists’ hedge funds play a huge role in companies’ merger and acquisition decisions. If the climate improves in this area, maybe M&A sector will receive a fresh lease of life. Also, being an election year, activities may remain slightly subdued in the U.S. Plus, the banking sector is facing stringent regulation and is also caught in a trap following energy sector issues. This is because banks have considerable exposure in the energy sector, which may default on persistent low oil prices. This scenario made the banks unsure of “how much leverage they should supply to private equity transactions, which has caused them to shy away from lending to PE-backed deals .” If the banking sector recovers in the near term, mergers and acquisitions may also perk up and investors could easily take advantage of the merger arbitrage strategy. This strategy looks to tap the price differential (or spread) between the stock price of the target company after the public announcement of its proposed acquisition and the price offered by the acquirer to pay for the stock of the target company. This is especially true given that investors should go long on the target or the acquired company and short on the acquiring company. When the deal is completed, shares of the target company will increase to the full deal price (in some cases slightly below the deal price), giving investors a nice profit. How to Play? Here are three merger arbitrage ETFs, any of which could make compelling options for investors seeking to play this area. These are the IQ Merger Arbitrage ETF (NYSEARCA: MNA ), the ProShares Merger ETF (BATS: MRGR ) and the Credit Suisse Merger Arbitrage Index ETN (NYSEARCA: CSMA ). Link to the original post on Zacks.com

Buy 5 Best Dividend Mutual Funds For Enticing Returns

A Fed rate hike seems off the table in June as companies scaled back hiring in April. Not only was the increase in hiring the slowest since September, the labor force participation rate also declined, which could mean that people found it a bit more difficult to get jobs. The Fed is already cautious about raising rates in the near term as the U.S. inflation rate in the first quarter came in way below its desired target. Possibility of a rate hike receding in the near term makes investment in dividend-paying mutual funds more alluring. As economic growth stalled in the first three months of the year, with a slew of data from consumer spending to manufacturing in April neither painting a solid picture, it will be prudent to stay invested in such funds. Dividend-paying funds generally remain unperturbed by the vagaries of the economy. Rate Hike Improbable in June The latest report on weak job creations in April made the Fed cautious about raising rates sooner. The U.S. economy created a total of 160,000 jobs in April, significantly lower than the consensus estimate of 203,000. The tally was also considerably lower than March’s downwardly revised job number of 208,000. The unemployment rate in April was in line with March’s rate of 5%. However, more people dropped out of the labor force. The participation rate fell to 62.8%, declining for the first time in 7 months as 300,000 individuals quit jobs or gave up job searches. An impending threat with regard to job additions continues to haunt the economy. Companies’ profits are getting squeezed, so they could look to stabilize their labor costs by reducing hiring further. Fed officials were already harboring mixed feelings about raising rates in June. The core personal consumption expenditures (PCE) price index, the Fed’s preferred inflation measure, increased 0.1% in the first quarter, below the consensus estimate of a 0.2% gain. This is also way below the Fed’s desired target level of 2%. Economic Data Disappointing As businesses and consumers turned cautious with their spending, the U.S. economy posted its weakest quarterly growth in two years between January and March. The U.S. economy expanded at an annualized rate of 0.5% in the first quarter, way below last quarter’s growth rate of 1.4%, according to the Commerce Department. Into the second quarter, things aren’t looking bright either. Consumer spending that weakened in the first quarter may have further experienced a slowdown in April. The Reuters/University of Michigan consumer sentiment index declined to 89.0 in April from 91.0 in March. Compared with year-ago levels, the index plummeted 7.2%. The battered U.S. manufacturing sector did stabilize a bit in April, but is yet to regain full health. The ISM manufacturing index dropped to 50.8 in April from 51.8 in March. Top 5 Dividend Mutual Funds to Invest In Diminishing chances of a rate hike soon, calls for investing in dividend-paying mutual funds. Dividend payers suffer when rates are rising as investors focus on safe bonds. Add to this a flurry of weak economic reports and we all know why investing in such top-notch dividend funds won’t be a bad proposition. Companies that pay dividends persistently put a ceiling on economic uncertainty. These companies have steady cash flows and are mostly financially stable and mature companies, which help their stock prices to increase gradually over a period of time. Moreover, dividends are less taxed as compared to interest income, help your portfolio to grow at a compounded rate and offer protection from earnings manipulation. We have selected five such mutual funds that offer a promising year-to-date dividend yield, have given impressive 3-year and 5-year annualized returns, boast a Zacks Mutual Fund Rank #1 (Strong Buy) or #2 (Buy), offer a minimum initial investment within $2,500 and carry a low expense ratio. Funds have been selected over stocks, since funds reduce transaction costs for investors and also diversify their portfolio without the numerous commission charges that stocks need to bear. Vanguard Dividend Growth Fund Investor (MUTF: VDIGX ) invests primarily in stocks that tend to offer current dividends. VDIGX’s year-to-date dividend yield is 1.88%. VDIGX’s 3-year and 5-year annualized returns are 10.5% and 11.9%, respectively. The annual expense ratio of 0.33% is lower than the category average of 1.01%. VDIGX has a Zacks Mutual Fund Rank #2. Fidelity Strategic Dividend & Income Fund (MUTF: FSDIX ) invests the fund’s assets with a focus on equity securities that pay current dividends. FSDIX’s year-to-date dividend yield is 2.71%. FSDIX’s 3-year and 5-year annualized returns are 7.1% and 9.3%, respectively. The annual expense ratio of 0.75% is lower than the category average of 0.82%. FSDIX has a Zacks Mutual Fund Rank #1. Vanguard Dividend Appreciation Index Fund Investor (MUTF: VDAIX ) seeks to track the performance of a benchmark index that measures the investment return of common stocks of companies that have a record of increasing dividends over time. VDAIX’s year-to-date dividend yield is 1.95%. VDAIX’s 3-year and 5-year annualized returns are 8.7% and 9.9%, respectively. The annual expense ratio of 0.19% is lower than the category average of 1.01%. VDAIX has a Zacks Mutual Fund Rank #2. Fidelity Dividend Growth Fund (MUTF: FDGFX ) invests primarily in companies that pay dividends or that Fidelity Management & Research Company believes that these companies have the potential to pay dividends in the future. FDGFX’s year-to-date dividend yield is 1.38%. FDGFX’s 3-year and 5-year annualized returns are 8.9% and 8.3%, respectively. The annual expense ratio of 0.68% is lower than the category average of 1.01%. FDGFX has a Zacks Mutual Fund Rank #2. Vanguard High Dividend Yield Index Fund Investor (MUTF: VHDYX ) employs an indexing investment approach designed to track the performance of the FTSE High Dividend Yield Index. VHDYX’s year-to-date dividend yield is 2.9%. VHDYX’s 3-year and 5-year annualized returns are 10.2% and 12.1%, respectively. The annual expense ratio of 0.16% is lower than the category average of 1.1%. VHDYX has a Zacks Mutual Fund Rank #1. Original Post

3 Strong Buy Large-Cap Value Mutual Funds

Investors interested in comparatively safer returns from stocks available at discounted prices may consider large-cap value mutual funds. While large-cap funds usually provide a safer option than small- or mid-cap funds, mutual funds investing in value stocks have the potential to deliver higher returns and exhibit lower volatility than their growth and blend counterparts. Large-cap funds generally invest in securities of companies with market capitalization of more than $10 billion. These funds have exposure to large-cap stocks that are expected to provide long-term performance history and assure more stability than what mid or small caps offer. Value funds, on the other hand, generally invest in stocks that tend to trade at a price lower than their fundamentals (i.e., earnings, book value and debt-to-equity) and pay out dividends. Value stocks are expected to outperform the growth ones across all asset classes when considered on a long-term investment horizon, and are less susceptible to trending markets. Below, we share with you three top-rated, large-cap value mutual funds. Each has earned a Zacks Mutual Fund Rank #1 (Strong Buy) and is expected to outperform its peers in the future. To view the Zacks Rank and past performance of all large-cap value mutual funds, investors can click here . Vanguard U.S. Value Fund Inv (MUTF: VUVLX ) seeks long-term capital growth and high income. It invests all of its assets in undervalued companies having low price/earnings (P/E) ratios. VUVLX focuses on acquiring stocks of large and mid-cap companies having impressive growth potential and favorable valuations. The fund has a three-year annualized return of 9.3%. VUVLX has an expense ratio of 0.26%, compared with the category average of 1.1%. MFS Value Fund A (MUTF: MEIAX ) generally invests in equity securities, including common stocks, securities of REITs and convertible securities. Though it primarily invests in value companies having large capitalization, it may also invest in small and mid-cap companies. The fund has a three-year annualized return of 10.1%. As of March 2016, MEIAX held 100 issues, with 4.13% of its assets invested in JPMorgan Chase & Co. (NYSE: JPM ). Commerce Value Fund No Load (MUTF: CFVLX ) seeks capital appreciation. It invests a minimum of 65% of its assets in common stocks. Its investments include companies with an impressive earnings growth track record that are believed to pay out dividends. CFVLX may invest a notable portion of its assets in securities of companies from the financial sector. The fund has a three-year annualized return of 9.5%. CFVLX has an expense ratio of 0.70%, compared with the category average of 1.1%. Original Post