Tag Archives: zacks funds

Q4 Outlook For Telecom ETFs

The U.S. telecom industry has lately emerged as an intensely contested space where success thrives largely on technical superiority, quality of services and scalability. Thus, in order to stay abreast of competition, existing players need to be constantly on their toes to introduce innovative products or merge with other companies despite strict vigil by the Federal Communications Commission (FCC). In the near future, the U.S. telecom industry is slated to witness further mergers and acquisitions (M&A) and product diversifications. Spectrum Auctions to Boost Network Capacity Wireless networks are the key for future growth of the overall telecom industry. As wireless networks run on radio frequency, spectrums (airwaves) have naturally become the most sought after commodity in the industry. The FCC, which concluded an Advanced Wireless Servies-3 (AWS-3) spectrum auction in Jan 2015, accumulated a record-breaking $44.89 billion. The FCC also plans to conduct a broadcast incentive (spectrum with TV broadcasters) auction in 2016 to ease the pressure on wireless operators and thereby ensure uninterrupted transmission of data/voice packets. Unexpected high bidding for AWS-3 spectrum clearly indicates that telecom operators expect the demand for mobile data and video services to rise substantially in the near future. The spectrum license winners from different regions are gearing up to upgrade their respective networks to gain a competitive edge. Wireless network standards are continuously evolving around the globe to offer faster speed. This, in turn, is likely to result in increased capital expenditures and a surge in demand for telecom infrastructure gears. Momentum to Continue The need to remain connected is a human need. An era of digitization and technology is essentially built on this human need. It is here that telecommunications come to the fore as a necessary utility. The need for telecommunications in both rural and urban areas as well as its role in the infrastructural development of an economy is of vital importance. Telecommunications is one of the few industries to have seen rapid technological improvement even during recession. Owing to the significance of this service as an infrastructure product, we expect the overall economic dynamics to shift in the industry’s favor. Unprecedented growth in high-speed mobile Internet traffic, in particular with respect to wireless data and video, has transformed the industry into the most evolving, inventive and keenly contested space. Any new network standard that emerges aims at providing faster data connectivity, quick video streaming with high resolution and rich multimedia applications. The U.S. telecommunications industry is presently comfortably settled on the growth trajectory and the momentum is likely to continue through 2015. The rising demand for technologically superior products has been a silver lining for the telecommunication industry in an otherwise tough environment. Uninterrupted advancement in telecom technologies helped telecom operators adopt newer business models in order to boost revenues. ETFs to Tap the Sector Against this backdrop, investors seeking to tap the growth potential of the highly competitive telecom sector may take a closer look at the ETF approach to reap maximum benefit from investing in this sector. This technique can help to spread out assets among a wide variety of companies and reduce company specific risks for a very low cost. Below, we highlight the ETFs in this sector in greater detail for Telecom ETF investors: iShares Global Telecom ETF (NYSEARCA: IXP ) IXP is one of the most popular Telecom ETF available in the market. Launched in Nov 2001, this ETF tracks investment results before fees and expenses corresponds to the price and yield performance of the S&P Global 1200 Telecommunications Sector Index. The fund has nearly $418.3 million of assets under management and an average trading volume of roughly 63,886 shares a day in the last 3 months. The fund charges an expense ratio of 47 basis points a year. The fund holds 30 stocks in its portfolio and has a concentrated approach in the top ten holdings with 72.79% of the asset base invested in them. Among individual holdings, top stocks in the ETF include AT&T Inc. (NYSE: T ), Verizon Communications Inc. (NYSE: VZ ), and Vodafone Group Plc. (NASDAQ: VOD ) with asset allocation of 17.02%, 15.79% and 7.73%, respectively. Integrated Telecommunication Services, Wireless Telecommunication Services and Alternative Carriers are the three major sectors with asset holdings of 73.72%, 24.66% and 1.13% respectively. This ETF offers a dividend yield of 3.63%. Vanguard Telecom Services ETF (NYSEARCA: VOX ) Another popular fund in the Telecom ETF space is VOX. Launched in Sep 2004, this ETF seeks to track the performance corresponding to the benchmark MSCI US Investable Market Telecommunication Services 25/50 Index. It has assets under management of nearly $957.4 million and an average trading volume of roughly 74,143 shares a day in the last 3 months. The fund charges an expense ratio of 12 basis points a year. The fund holds 32 stocks in its portfolio and has a concentrated approach in the top ten holdings with 71.40% of the asset base invested in them. Among individual holdings, top stocks in the ETF are AT&T, Verizon, and SBA Communications Corp. (NASDAQ: SBAC ). Integrated Telecommunication Services, Alternative Carriers and Wireless Telecommunication Services are the three major sectors with asset holdings of 61.80%, 19.40% and 18.60%, respectively. This ETF offers a dividend yield of 2.69%. SPDR S&P Telecom ETF (NYSEARCA: XTL ) Incepted in Jan 2011, XTL ETF tries to match the returns of the S&P Telecom Select Industry Index, before expenses. The fund manages an asset size of nearly $24.7 million and an average trading volume of roughly 20,769 shares a day in the last 3 months. The fund charges an expense ratio of 35 basis points a year. The fund holds 56 stocks in total in its basket. However, this ETF is not following any concentrated approach as the top ten stocks hold only 26.86% of the asset base invested in them. Among individual holdings, top stocks in the ETF include Motorola Solutions Inc. (NYSE: MSI ), Ubiquiti Networks Inc. (NASDAQ: UBNT ) and Frontier Communications Corp. (NASDAQ: FTR ) with asset allocation of 3.00%, 2.79% and 2.77%, respectively. Communications Equipment, Integrated Telecommunication Services, Alternative Carriers, Wireless Telecommunications Services and Application Software are the five major sectors with asset holdings of 59.46%, 15.24%, 11.83%, 11.54% and 1.61% respectively. This ETF offers a dividend yield of 1.24%. iShares U.S. Telecommunications ETF (NYSEARCA: IYZ ) Incepted in May 2000, IYZ ETF tracks investment results before fees and expenses corresponds to the price and yield performance of the Dow Jones US Select Telecommunications Index. The fund manages assets worth of nearly $407.11 million and an average trading volume of roughly 235,547 shares a day in the last 3 months. The fund charges an expense ratio of 45 basis points a year. The fund holds 24 stocks and has a concentrated approach in the top ten holdings with 61.97% of the asset base invested in them. Among individual holdings, top stocks in the ETF include AT&T, Verizon, and SBA Communications with asset allocation of 11.85%, 10.40% and 5.85%, respectively. The four major sectors of this ETF include Integrated Telecom, Wireless Telecom, Alternative Carriers and Communications Equipment with asset holdings of 48.42%, 29.74%, 18.47% and 3.08% respectively. This ETF offers a dividend yield of 2.49%. Fidelity MSCI Telecommunications Services Index ETF (NYSEARCA: FCOM ) Incepted in Oct 2013, FCOM ETF tracks investment results before fees and expenses corresponds to the performance of the MSCI USA IMI Telecommunication Services 25/50 Index. The fund manages assets worth of nearly $105.6 million and an average trading volume of roughly 33,447 shares a day in the last 3 months. The fund charges an expense ratio of 12 basis points a year. The fund holds 25 stocks and has a concentrated approach in the top ten holdings with 69.86% of the asset base invested in them. Among individual holdings, top stocks in the ETF include Verizon, AT&T and CenturyLink Inc. (NYSE: CTL ), with asset allocation of 22.56%, 22.08% and 4.36%, respectively. Diversified Telecommunication Services and Wireless Telecommunication Services are the two major sectors of this ETF with asset holdings of 81.63% and 18.07%, respectively. This ETF offers a dividend yield of 3.13%. Link to the original article on Zacks.com

Does The Rebalanced Barron 400 ETF Look Smarter?

The smart beta Barron’s 400 ETF (NYSEARCA: BFOR ) has made strategic shifts in its portfolio as part of the most recent semi-annual index rebalancing. The fund now seems to have superior fundamental attributes and be less susceptible to the current market turmoil due to increased weighting to the small cap stocks. Background of BFOR The ETF seeks to track the performance of the rules-based and fundamentals-driven Barron’s 400 Index. The benchmark uses the MarketGrader’s equity rating system to select America’s highest-performing stocks based on the strength of their financial statements and the attractiveness of their share prices. Notably, MarketGrader’s methodology assigns grades on a scale of 0-100 based on a proprietary combination of 24 fundamental indicators across growth, value, profitability and cash flow while it screens for size and sector diversification and liquidity. This approach has made BFOR superior to many other ETFs in the space with attractive fundamentals and growth prospects. The fund has been consistently crushing the ultra-popular broad market funds – the SPDR S&P 500 Trust ETF (NYSEARCA: SPY ) and the SPDR Dow Jones Industrial Average ETF (NYSEARCA: DIA ) – by wide margins. The fund gained nearly 23.3% since its June 2013 debut compared to gains of 20% for SPY and 8.9% for DIA. From the year-to-date look, the ETF is down 3.8%, which is better than the decline of 5.8% for SPY and 8.6% for DIA. Despite the strong performance, the product has not been able to garner enough investor interest as depicted by its AUM of $196.1 million. One of the main reasons for the unpopularity might be its expense ratio of 0.65%, which is one of the highest in the multi-cap ETF space. Further, it has a hidden cost in the form of wide bid/ask spread that increases the total cost of trading as it trades in a light volume of about 18,000 shares a day on average. Index Change and New Holdings During rebalancing of the index, sector allocation to the most beaten down energy sector was trimmed by more than half from 9.25% to 4%. Now, financials and industrials remain the top two sectors at 20% each. They are closely followed by consumer discretionary (19.25%), technology (13.75%) and health care (10.25%). In terms of security, 58 companies have found their way to the index and the ETF for the first time ever with the most notable names being GrubHub (NYSE: GRUB ), LendingTree (NASDAQ: TREE ), Blue Nile (NASDAQ: NILE ) and the recently merged Walgreens Boots Alliance (NASDAQ: WBA ). Some other big names that have been added to the holdings list are JPMorgan Chase (NYSE: JPM ), Verizon Communications (NYSE: VZ ), Altria Group (NYSE: MO ) and United Parcel Service (NYSE: UPS ). However, some marquee names such as Microsoft (NASDAQ: MSFT ), Facebook (NASDAQ: FB ), Wal-Mart (NYSE: WMT ), Celgene (NASDAQ: CELG ) and 3M (NYSE: MMM ) were booted from the portfolio. With these changes, the index currently has a total market capitalization of $18.28 billion post-rebalance versus $19.07 billion in March. The drop came on the heels of increased focus toward small cap stocks from 16% to 22%. Exposure to large cap stocks decreased from 27.25% to 25.5% while mid cap stocks saw a decline from 56.25% share to 52.5%. The fund currently holds 401 securities in its basket that are widely spread with nearly 0.25% share each. Bottom Line Though the new holdings suggest a modest change in the fund’s sector exposure, the reallocation to securities saw significant fluctuations in terms of market cap level. This is especially true as the tilt toward small caps suggests that BFOR will now be less exposed to the international markets, currently ruffled by China worries, a strong dollar and global slowdown concerns. As a result, the new portfolio now reflects increasing fundamental attractiveness of companies that earn the lion’s share of their profits in the U.S. The objective of the fund remains the same — offering quality exposure to investors seeking to stay invested in the broad market. The high quality stocks seek safety and protection against volatility in turbulent times and thus, outperform in a crumbling market. Overall, the Barron’s 400 Index and ETF seeks to take advantage of the improving U.S. economy with a heavy tilt toward the cyclical sectors and increased focus on small cap stocks. Link to the original post on Zacks.com

Don’t Wait For Oil To Hit $20, Sell These Energy Funds

In a doomsday scenario, Goldman Sachs (NYSE: GS ) projects oil prices may nosedive all the way to $20. Financial and fundamental metrics are said to be weaker this year and a glut in global production may drag oil prices lower. While a doomsday scenario will see oil plunge to $20, the official projection for WTI in 2016 is $45, down from a prior estimate of $57. For 2017, Goldman left the projection unchanged at $60. Last Wednesday, the Energy Information Administration (EIA) reported that the US commercial crude oil inventories dropped 2.1 million barrels for the week ending Sep 11 from the previous week to 455.9 million barrels. US commercial crude oil had increased 2.6 million barrels in the week prior. This encouraging report boosted energy shares. However, these are momentary respites for the crude prices, as they may continue to remain low. For the short term, oil prices may remain muted. A radical slump may not be seen in the short term, as there’s hope that geopolitical news doesn’t act as the igniter. Bearishness will persist though, as it is unlikely that there will be a consistent sharp decline in US shale oil production. Also for oil prices to bounce sharply higher, the OPEC nations would need to cooperate with non-OPEC producers to cut production. In spite of soft pricing, U.S. shale producers and OPEC continue to produce more of the commodity for fear of losing their market share. Most importantly, when the energy market had pushed the cartel to cut output last November, it had clearly refrained from doing so. The $20 Doldrum A decade ago, Goldman projected that oil prices have entered the “super spike” period and that the price of oil would inflate to $105. This was proved right, though the prediction had sparked criticism that Goldman Sachs was marketing its commodity index fund. This time with a $20 prediction for the worst-case scenario, even those criticisms will not make sense. When crude prices were hovering significantly over $100, it must have sounded strange to predict its fall to $40 in a year. But it did happen. Goldman says that there is less than a 50% chance of oil dropping to the $20 figure. The glut or global oversupply of oil is larger than what Goldman had predicted earlier. Below $20, some U.S. shale-oil producers will not be able to recover their operating cost and will eventually be forced to stop pumping. Production Cut Most Wanted A production cut from the U.S. shale players is most needed. The International Energy Agency (IEA) is anticipating U.S. oil production to decrease by 400,000 barrels a day in 2016 as the shale players might soon slip on low crude prices. Most importantly, the declining U.S. oil production trend has already started this year. This was revealed in the short-term energy outlook of the Energy Information Administration (EIA) which provides official energy statistics from the U.S. government. Per this outlook, August oil production declined by 140,000 barrels a day from the prior month. Energy Funds to Sell For risk-averse investors who are cautious of this sector, we present 3 Energy funds below that carry either a Zacks Mutual Fund Rank #4 (Sell) or Zacks Mutual Fund Rank #5 (Strong Sell) as we expect these funds to underperform its 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. The minimum initial investment for these funds is within $5000. The BlackRock Energy & Resources Portfolio A (MUTF: SSGRX ) seeks capital appreciation over the long run. SSGRX invests a lion’s share of its assets in small cap companies related to sectors including energy, natural resources and utilities. SSGRX has no limit on number of companies it can invest in, but it will invest in a minimum of three countries. SSGRX currently carries a Zacks Mutual Fund Rank #4. The year-to-date and 1-year losses are 26.2% and 47.5%. The 3 and 5-year annualized losses now stand at 15.3% and 8.3%. Annual expense ratio of 1.31% is lower than the category average of 1.45%, but SSGRX carries a front end sales load of 5.25%. The BlackRock All-Cap Energy & Resources Portfolio A (MUTF: BACAX ) seeks capital appreciation over the long term. BACAX invests a majority of its assets in domestic and foreign natural resources and energy companies. BACAX may also invest in related businesses and utilities. However, a minimum of 25% of its assets must be invested in the energy sector. BACAX currently carries a Zacks Mutual Fund Rank #4. The year-to-date and 1-year losses are 24.2% and 38%. The 3 and 5-year annualized losses now stand at 9.2% and 4.6%. Annual expense ratio of 1.38% is lower than the category average of 1.45%, but SSGRX carries a front end sales load of 5.25%. The Rydex Energy Services Fund A (MUTF: RYESX ) seeks growth of capital. The fund invests a majority of its assets in equities of small to mid-cap Energy Services Companies that are domestically traded. It also invests in derivatives. The fund may also buy American Depositary Receipts for exposure to non-Us energy companies. RYESX currently carries a Zacks Mutual Fund Rank #4. The year-to-date and 1-year losses are 25.3% and 48.5%. The 3 and 5-year annualized losses now stand at 15.3% and 5%. Annual expense ratio of 1.6% is lower than the category average of 1.45%, but RYESX carries a front end sales load of 4.75%. The Ivy Global Natural Resources Fund A (MUTF: IGNAX ) seeks capital appreciation. It invests heavily in equity securities of companies across the globe, whose primary operations are related to natural resources, including suppliers and service providers. A minimum of 65% of its assets are invested in a minimum of three countries and may include domestic firms. IGNAX currently carries a Zacks Mutual Fund Rank #5. The year-to-date and 1-year losses are 14.6% and 32.2%. The 3 and 5-year annualized losses now stand at 8.1% and 4.5%. Annual expense ratio of 1.57% is higher than the category average of 1.42%, and IGNAX carries a front end sales load of 5.75%. Link to the original post on Zacks.com