Tag Archives: zacks-mutual

Mixed Views On Emerging Markets: Funds To Buy And Sell

There are mixed views on emerging markets now. According to a report from Bank of America Merrill Lynch, fund managers have mostly been pessimistic about emerging-market equities since 2001. On the other hand, some strategists at leading banks and financial companies believe that securities from emerging markets may have hit their lowest point. Amid the contradictory opinions, certain market experts are of the view that investors often invest in emerging market funds too late or they stay invested for too long. So, while buying certain favourably ranked emerging market funds at a discount now should be a prudent move, investors may also dump certain Sell-rated funds that their portfolio will not miss. The Pessimism According to Bank of America Merrill Lynch’s monthly survey, fund managers are the most underweight on emerging-market equities against developed-market equities since the survey began in 2001. While post 2009, fund managers’ relative positioning had jumped and stayed mostly in the green till 2013, the sentiment soured after that. In 2014, the sentiment dropped to a new low before rebounding in late 2014 and early 2015. However, the sentiment is the most pessimistic now. The bearish outlook is concentrated mostly on Asia. Investors are apprehensive about the slowdown in China’s economy while the U.S. central bank may hike rates. The International Monetary Fund (IMF) meeting on Nov 30 is also crucial. Investors fear further devaluation in the Chinese currency but not before IMF adds the yuan to its Special Drawing Rights basket of currencies. And if this happens, Bank of America strategists fear that the markets will move even lower. Goldman Sachs projects that yuan traded at offshore rate may weaken by 2.5% to 3% against the dollar in the next 2 months. Eventually, the devaluation of yuan may impact other emerging-market currencies, as they are often influenced by the monetary policies in the world’s second-largest economy, China. The Contrarian View Meanwhile, market watchers at a number of leading banks and financial institutions have said that they believe asset values for emerging markets have hit a rock bottom. In fact, the views come from the likes of Bank of America, Goldman Sachs and Barclays PLC. Following three continuous years of losses, markets and assets from developing nations are poised for a rebound. According to Morningstar, in the 12 months ended October, emerging-market stock funds traded in the US dropped an average 13.4%. A major indicator of valuations for emerging markets is the MSCI Emerging Markets Index, which is down 30% from the high achieved in 2011. The index is currently trading at approximately 12x its earnings estimates. Additionally, the index’s valuation is nearly three times lower than the S&P 500’s current figure. This is why analysts at Barclays believe that prices of emerging market securities are significantly lower than their intrinsic value. Over the six-month period since the last three American market tightening cycles began, global markets have gained an average 15%. Strategists are also hopeful that emerging markets might rebound in 2016. They say that it might not mirror the “roaring”2000s, but 2016 might be the year the emerging markets “find their feet”. 2 Emerging Market Funds to Buy As mentioned earlier, investors should not miss the buying opportunity. An uptrend in emerging economies brings good tidings for investment instruments from these countries. Many of them currently have reasonable valuations compared to their historical averages. Below we present 2 International Bond – Emerging Market mutual funds that carry either a Zacks Mutual Fund Rank #1 (Strong Buy) or Zacks Mutual Fund Rank #2 (Buy). 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 also on the likely future success of the fund. Fidelity New Markets Income (MUTF: FNMIX ) fund invests the lion’s share of its assets in emerging markets or makes other investments that are economically linked to emerging markets that have stock markets as defined by MSCI. These emerging market countries also may also be the ones with low- to middle-income as classified by the World Bank. FNMIX currently carries a Zacks Mutual Fund Rank #1. FSRPX has gained respectively 3.7% and 0.2% in the year-to-date and 1-year periods. The 3- and 5-year annualized returns are 1.2% and 5.4%, respectively. Annual expense ratio of 0.84% is lower than the category average of 1.16%. Goldman Sachs Emerging Market Debt A (MUTF: GSDAX ) predominantly invests in emerging market debt securities. These instruments may be issued by governments as well as corporate entities. To gain exposure to certain emerging economies, GSDAX may use structured securities or derivatives among others. GSDAX currently carries a Zacks Mutual Fund Rank #2. GSDAX has gained respectively 2.8% and 0.5% in the year-to-date and 1-year periods. The 3- and 5-year annualized returns are 1.5% and 5.1%, respectively. Annual expense ratio of 1.24% is higher than the category average of 1.16%. 2 Emerging Market Funds to Sell It is also important to not stay invested in certain underperforming funds. For investors not ready to bet on the emerging markets now or for investors who have lost plenty staying invested in some emerging market funds, below we present 2 funds that either carry a Zacks Mutual Fund Rank #4 (Sell) or Zacks Mutual Fund Rank #5 (Strong Sell). Eaton Vance Emerging Markets Local Income A (MUTF: EEIAX ) gains exposure to the emerging economies by investing in securities and derivatives among other instruments. Bulk of EEIAX’s assets are invested in securities denominated in currencies of emerging market countries, fixed income instruments that are issued by emerging market entities, and in emerging-market denominated derivative instruments. EEIAX currently carries a Zacks Mutual Fund Rank #5. EEIAX has lost respectively 10.6% and 16.5% in the year-to-date and 1-year periods. The 3- and 5-year annualized returns are negative 7.2% and negative 2.5%, respectively. Annual expense ratio of 1.25% is higher than the category average of 1.16%. PIMCO Emerging Markets Currency A (MUTF: PLMAX ) invests most of its assets in currencies of emerging market countries or in fixed income instruments denominated by these currencies. PLMAX currently carries a Zacks Mutual Fund Rank #4. PLMAX has lost respectively 5.2% and 9.7% in the year-to-date and 1-year periods. The 3- and 5-year annualized returns are negative 4.7% and negative 2.4%, respectively. Annual expense ratio of 1.25% is lower than the category average of 1.58%. Original post

5 Taxable Bond Funds To Invest In Despite Record Outflows

Taxable bond funds are debt securities whose interest payments are taxable at the local, state or federal level. Concerns about higher interest rates resulted in a massive sell-off in taxable bond funds in the third quarter of this year. Federal Reserve Chairwoman Janet Yellen indicated that the lift-off option is very much on the table later this year provided the economy is strong enough to boost employment and inflation touches the desired level. Moreover, worries about global growth, mostly in emerging economies, led to the outflow in taxable bond funds. Nevertheless, these type of funds showcased strength in an otherwise punishing market environment. They posted steady returns amid the stock market sell-off. They are even poised to yield better results banking on stepped-up economic activity, rising business and consumer confidence, improving housing market and continued job creation. Hence, investing in these funds should be a prudent idea. Taxable Bond Funds Suffer Huge Outflows Investors have pulled $36.2 billion out of taxable bond mutual funds in the third quarter of this year, according to the preliminary Lipper data. This represents the biggest outflow from this fund type since the fourth quarter of 2008. In fact, taxable bond mutual funds continued to bleed in the week ended October 7. During the week, investors pulled $2.3 billion out of taxable bond mutual funds, registering its 11th continuous week of net withdrawals. This dismal performance came in after taxable bond mutual funds posted their second-largest weekly outflow on record for the week ending September 30. In the first half of the year, however, taxable bond mutual funds had posted an inflow of more than $23 billion. But if this current outflow continues for the rest of the year, taxable bond mutual funds will mark their first annual net outflow since 2000. According to Jeff Tjornehoj, head of Americas research at Lipper, outflow from this type of funds was broad-based as it was spread across all types of categories and companies. He added: “Investors are getting out of these bond funds because of fear. An unfounded fear, in my opinion, of higher rates and a global recession.” Higher Rates, Global Growth Concerns Concerns about higher interest rates in the near term resulted in outflows from taxable bond mutual funds. Last month, the Fed Chairwoman Janet Yellen said that the Federal Open Market Committee (FOMC) members “expect that the various headwinds to economic growth … will continue to fade, thereby boosting the economy’s underlying strength.” She added: “Most FOMC participants, including myself, currently anticipate that achieving these conditions will likely entail an initial increase in the federal funds rate later this year, followed by a gradual pace of tightening thereafter.” Worries about global economic growth, especially in the emerging economies including China, also led to outflow from bond funds. Markets across the world took a beating in response to the slowdown in China’s economic growth and its surprise move to devalue its currency. Weak Chinese trade data also raised concerns about the country’s growth outlook. While its exports were down 3.7% in September from the same period last year, its imports plunged 20.4% last month from a year earlier. Separately, other emerging markets also face the threat of instability, since their debts are vulnerable to rising interest rates in the US. Overall, the International Monetary Fund downgraded its global growth forecast for this year to 3.1%, which will result in the weakest growth performance since 2009. 5 Taxable Bond Funds to Buy as it Shows Signs of Stability Despite the outflows this year, taxable bond mutual funds are holding up a lot better than the stock markets. Amid volatility in the financial markets, returns from this type of funds remain more or less stable for the year, while the S&P 500 is down 2.7% year to date. Additionally, taxable bond mutual funds have given a steadier average annual return of 4.3% in the last 10 years. Moreover, flows are a result of economic events. A gradual recovery in domestic housing and manufacturing sectors, steady improvement in labor market conditions and lower gasoline prices are expected to boost the US economy in the near term. These factors are likely to have a positive impact on the fund’s performance. Several taxable bond mutual funds are excelling this year. Below we present five such bonds that have given steady returns, possess a relatively low expense ratio and boasts a Zacks Mutual Fund Rank #1 (Strong Buy) or Zacks Mutual Fund Rank #2 (Buy). Buffalo High-Yield (MUTF: BUFHX ) invests a major portion of its net assets in higher yielding, higher-risk fixed income securities.BUFHX currently carries a Zacks Mutual Fund Rank #1. BUFHX’s year-to-date and 1-year total returns are 3.2% and 4.7%, respectively. Annual expense ratio of 1.02% is lower than the category average of 1.06%. Vanguard Intermediate-Term Investment-Grade Investor (MUTF: VFICX ) invests in a widely diversified group of intermediate-term bonds, most of them issued by corporations with good credit ratings. VFICX currently carries a Zacks Mutual Fund Rank #2. VFICX’s year-to-date and 1-year total returns are 2.1% and 2.2%, respectively. Annual expense ratio of 0.20% is lower than the category average of 0.84%. Columbia Strategic Income Fund Class A (MUTF: COSIX ) invests in debt securities issued by the US government, including mortgage-backed securities issued by US government agencies. COSIX currently carries a Zacks Mutual Fund Rank #1. COSIX’s year-to-date and 1-year total returns are 1.2% and 1%, respectively. Annual expense ratio of 1.04% is lower than the category average of 1.27%. SEI Daily Income Trust GNMA Fund Class A (MUTF: SEGMX ) invests primarily in mortgage-backed securities issued by GNMA. SEGMX currently carries a Zacks Mutual Fund Rank #1. SEGMX’s year-to-date and 1-year total returns are 1.1% and 2.2%, respectively. Annual expense ratio of 0.63% is lower than the category average of 0.91%. Performance Trust Strategic Bond (MUTF: PTIAX ) invests a major portion of its net assets in fixed-income instruments. PTIAX may also invest in derivative instruments. PTIAX currently carries a Zacks Mutual Fund Rank #1. PTIAX’s year-to-date and 1-year total returns are 2.3% and 3.1%, respectively. Its annual expense ratio of 0.94% is lower than the category average of 1.03%. Original Post

SEC Proposals To Lower Liquidity Risk In Mutual Funds

Periods of large investor withdrawals may spell doom for both fund houses and investors. Many funds have piled up hard-to-sell assets, which are non effective during such periods of withdrawals. The five-member Securities and Exchange Commission (“SEC”) unanimously voted last week to recommend new rules to help the multitrillion asset-management industry with effective liquidity risk management. These additional safety measures will require mutual funds and ETFs to implement new plans to manage liquidity risks. The proposal calls for funds to keep a minimum amount of cash or cash equivalents that can be easily sold within three days (down from seven days currently required for mutual funds). Moreover, fund families may charge investors who redeem their holdings on days of increased withdrawals. The move comes as part of five initiatives framed by the SEC to minimize risks imbedded in such funds and adequately shield them from any financial shock. Since the financial crisis, the asset management sector has been under increasing regulatory scrutiny. The proposals came after the Fed and IMF warned that certain funds may be incapable of keeping up with investor redemptions if there is a market rout. Addressing the Redemption Challenges The challenge is to meet shareholder redemptions during periods of stress and ensure smooth functioning of the funds amid large withdrawals. The SEC targets lower overall systematic risks in the $60 trillion asset-management industry and protection of investors’ interests. “Promoting stronger liquidity risk management is essential to protecting the interests of the millions of Americans who invest in mutual funds and exchange-traded funds,” said SEC Chair Mary Jo White. “These significant reforms would require funds to better manage their liquidity risks, give them new tools to meet that requirement, and enhance the Commission’s oversight.” The Reforms Under the proposal, mutual funds and ETFs must implement liquidity risk management programs and enhance disclosure regarding fund liquidity and redemption practices. These would lead to timely redemption of shares and collection of assets by investors without hampering day-to-day running of the funds. Further, the open-end funds will have to allow the use of “swing pricing” in certain cases. Swing pricing is a liquidity management tool designed to reduce the dilution impact of subscriptions and redemptions on non-trading fund investors. This step would enable mutual funds to reveal the fund’s net asset value (NAV) costs related to shareholders’ trading activity. In addition, the proposed reforms would put a 15% cap on investments that can be made in hard-to-trade assets. As reported by The Wall Street Journal , some of the largest U.S. bond mutual funds have 15% or more of their money invested in such illiquid securities. Need for Covering Liquidity Risks Assets are deemed liquid when an investor can buy or sell large quantities rapidly at an expected price. During market rout, investors may engage in intense panic selling, for which funds must have adequate the liquidity or return cash to investors. For instance, there are fears of bond liquidity once the Fed decides to hike rates. 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. An ideal market would have the right level of liquidity at the right price. Redemption of bonds will increase the sell-off and then fund managers will 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 end up in selling pressure. Funds with High Liquidity & Low Redemption Fees In such scenario, investors may buy funds that offer high liquidity and low redemption costs. As for liquidity, substantial stock holdings would provide the edge during a debt market sell-off. While withdrawing money from mutual funds, there are certain charges or penalties that investors may have to bear. The charges may include sales load and 12-b1 fees. While selling a fund, investors may have to incur Deferred Sales Charge (Load). There may be funds that carry no sales load, but have 12-b1 fees, which are operational expenses between 0.25% and 1% of the fund’s net asset. Funds may also charge redemption fees. It is different from sales load since it is not paid to a broker but directly to the fund. The SEC has set a 2% maximum ceiling on redemption fees. 3 Funds to Buy Hence, funds carrying no sales load and low expense ratio stuffed with substantial stock holdings in its portfolio should be safe picks. We have narrowed our search based on favorable Zacks Mutual Fund Ranks. The following funds carry either a Zacks Mutual Fund Rank #1 (Strong Buy) or Zacks Mutual Fund Rank #2 (Buy) as we expect the funds to outperform 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. The minimum initial investment is within $5000. The funds have encouraging returns for each of the 1, 3 and 5-year periods. The Fidelity Small Cap Growth Fund (MUTF: FCPGX ) seeks long-term capital appreciation. Under normal circumstances, FCPGX invests at least 65% of its total assets in the common and preferred stocks of companies located in at least three countries in Europe, Australia and the Pacific Rim. FCPGX offers dividends, if any, and capital gains, if any, at least annually. Fidelity Small Cap Growth carries a Zacks Mutual Fund Rank #1. While the year-to-date and 1-year returns are 9% and 18%, respectively, the respective 3- and 5-year annualized return is 16.6% and 16.7%. Looking at asset allocation, over 97% is invested in stocks, while it holds 2.8% as cash. Annual expense ratio of 0.90% is lower than the category average of 1.34%. The VALIC Company I Health Sciences Fund (MUTF: VCHSX ) invests the majority of its assets in common stocks of healthcare products, medicine or life sciences related companies. VCHSX focuses mainly on investing in large and mid-cap companies. A maximum of 35% of VCHSX’s assets is invested foreign companies. VALIC Company I Health Sciences carries a Zacks Mutual Fund Rank #2. While the year-to-date and 1-year returns are 13.5% and 26.4%, respectively, the 3- and 5-year annualized returns are 29.9% and 29.7% respectively. Looking at asset allocation, nearly 94% is invested in stocks, while it holds 5.1% as cash. Annual expense ratio of 1.09% is lower than the category average of 1.35%. The Bridgeway Small-Cap Growth Fund (MUTF: BRSGX ) aims to provide total return on capital over the long term. BRSGX invests in a broad range of small cap growth stocks that must be listed on the New York Stock Exchange, NYSE MKT and NASDAQ. Bridgeway Small-Cap Growth carries a Zacks Mutual Fund Rank #1. While the year-to-date and 1-year returns are respectively 6.8% and 12.7%, the 3- and 5-year annualized returns are a respective 16.9% and 16.4%. Looking at asset allocation, 99.5% is invested in stocks. Annual expense ratio of 0.94% is lower than the category average of 1.34%. Link to the original article on Zacks.com