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Harry Domash
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Harry Domash publishes DividendDetective.com, a site specializing in high-dividend investing. He also publishes WinningInvesting.com, a free site featuring “how to” investing tutorials and other resources. His best selling book on fundamental analysis, “Fire Your Stock Analyst,”... More
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Dividend Detective
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Dividend Detective
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Fire Your Stock Analyst
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  • Which Works Best: ETFs Or Mutual Funds

    Are you better off owing conventional mutual funds or exchange-traded-funds (ETFs) focusing on the same sector? I'll tell you what you need to know, but leave the decision up to you.

    ETF Advantages
    Both mutual funds and ETFs track the returns of stocks or other securities in specified market sectors. But ETFs offer trading advantages. Unlike mutual funds, you can buy and sell ETFs just like stocks, and you pay the same commissions as you would for trading stocks. Most ETFs require no minimum investment, and there is no required holding period. ETFs can be traded at any time during the day, but mutual funds trade only once a day, after the market closes.

    Mutual Fund Advantages
    Although ETFs may be easier to trade, you'd think that mutual funds would generate better returns. Most are actively managed by professionals who can react to changing market conditions. By contrast, most ETFs either track fixed indexes, or indexes that can only be changed quarterly.

    What the Numbers Say
    With that in mind, let's see what the numbers show. We'll start with China and India, which were last year's hottest markets.

    In China, an ETF, PowerShares China (NYSEARCA:CHNA), racked up a 66% return, edging out managed mutual fund Matthews India Investor (MUTF:MINDX), which returned 64%.

    Looking at India, two ETFs, iShares MSCI India Small-Cap (ticker SMIN), up 53%, and EGShares India Small-Cap (NYSEARCA:SCIN), up 47%, beat the best mutual fund, Wasatch Emerging India (MUTF:WAINX), which returned 45%.

    In the U.S. biotechnology was the strongest category in 2014. There, First Trust Arca Biotech (NYSEARCA:FBT), an ETF, gained 48% compared to 35% for the top mutual fund, Fidelity Select Biotechnology (MUTF:FBIOX).

    Real estate investment trusts (REITs), a type of corporation limited to investing in commercial real estate, was another strong category last year. The top ETF focusing on REITs, iShares Residential Real Estate (NYSEARCA:REZ), returned 35%, compared to 32% for the best mutual fund, Phocas Real Estate (MUTF:PHREX).

    Three Year Returns
    Obviously, last year's numbers aren't necessarily typical of long-term performance. Looking at three-year returns generally told a similar story, but the differences narrowed.

    For instance, the top performing ETFs, Market Vectors Biotech (NYSEARCA:BBH), up 45%, and First Trust Arca Biotech (FBT), up 44%, narrowly beat the top funds, Fidelity Select Biotechnology (FBIOX), up 44% and Rydex Biotechnology (MUTF:RYOAX), up 39%, on average, annually.

    After biotechs, pharmaceutical makers were the strongest category over the past three years. There, a mutual fund, T. Rowe Price Health Sciences (MUTF:PRHSX), up 37%, edged out the top ETF, PowerShares Dynamic Pharmaceuticals (NYSEARCA:PJP), which returned 36%.

    Transportation stocks, e.g. railroads and airlines, also outperformed over the past three years. Looking at that sector, the SPDR S&P Transportation ETF (NYSEARCA:XTN), up 29%, outperformed the best mutual fund, Fidelity Select Transportation (MUTF:FSRFX), which gained 26%.

    There you have the numbers. Draw your own conclusions.

    For these comparisons, I considered only no-load mutual funds currently open to individual investors and unleveraged ETFs, meaning that they do not attempt to double or triple their sector's returns.

    Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Jan 28 12:58 PM | Link | Comment!
  • These Web Sites Can Help You Make More Money

    Staying on top of your stock's industry news and trends will make you a better investor. Here's where to find that info.

    Biotech (www.biospace.com)
    GalaxoSmithKline's once promising new heart drug, Darapladib, flunked its FDA mandated tests, killing its future prospects. Besides for market moving news such as the Darapladib debacle, Biotech features in-depth commentary about happenings in biotech and the pharmaceutical business. If you invest in this category, check out Clinical Trial News accessed from the News section. Phase III trials (final phase) results often provoke big stock moves in both directions.

    Capital Link Marine Transportation (marine-transportation.capitallink.com/)
    "The darkest days of the downturn in the containership segment appear to be behind us." This recent quote from the CEO of a container shipping company, found in Capital Link's Latest News section, could be worth money to container ship investors. Capital Link's Media Interviews, most featuring shipping industry CEOs, are equally informative. The Maritime Indices section shows current and historical charter day rates for dry-bulk and crude oil tankers. These are the numbers that heavily influence ship owners' profit margins.

    Edmunds Industry Center (edmunds.com/industry-center)
    Large vehicle sales are up while small car sales are falling. Also, growing inventories are driving used-car sales down. Further, more new car buyers are choosing to lease instead of purchase. Edmunds is the go-to site for auto industry information that could help you make better decisions.

    Energy Information Administration (www.eia.doe.gov)
    This U.S. government agency site has all sorts of data about petroleum, natural gas, and electricity production. Data you might find useful includes current and historical coal, crude oil, natural gas, gasoline and heating oil prices. The site also offers historical and forecast energy consumption numbers through 2040.

    Energy Pulse (www.energypulse.net/centers)
    Provides in-depth commentary on the energy industry. For instance, a lengthy May 8 article tells you more than you want to know about hydraulic fracturing (fracking), and why you shouldn't stay up nights worrying about it.

    Farm Industry News (www.farmindustrynews.com)
    Think farming is boring? Not any more. Think about employing satellite imagery, drones, robot weeding systems, high-speed planters, and much more. It's all explained in Farm Industry News.

    Food Navigator.com (www.foodnavigator-usa.com)
    Organic food sales are soaring, food supplement makers are switching to non-GMO ingredients, whole grains reduce inflammation in overweight children, and "Newmans' Own" has started making 'Greek yogurt,' which is a fast growing food category. Food Navigator covers the food industry, often from a science and nutrition perspective.

    Insurance Journal (www.insurancejournal.com)
    Fewer consumers shopped online for new auto insurance in 2013 than the year before, and 2012 was down from 2011. Translated, that means higher percentages of consumers are satisfied with their current insurance providers. That's the kind of information you'll find in Insurance Journal, which covers the insurance industry and its suppliers.

    National Real Estate Investor (www.nreionline.com)
    Office leasing activity in San Francisco increased by 25% in January through March of this year. That information should help real estate investment trust (REIT) investors determine which office REITs are going to outperform. Besides for office properties, National Real Estate Investor covers all commercial real estate property types including industrial, medical, retail, and lodging.

    Oil & Gas Journal (www.ogj.pennnet.com)
    Publicly traded oil and natural gas producer Encana (NYSE:ECA) developed new techniques for shale drilling for one of its British Columbia properties that the company described as a "game changer." This is news that energy investors should be able to put to good use. Oil & Gas Journal is chuck full of news and research about all facets of the oil and gas industry.

    The Register (www.theregister.co.uk)
    This U.K. based site's logo "Biting the hand that feeds it," describes its intentionally provocative approach. The Register covers technology with mostly original stories. Not a techie magazine, it focuses on the business side of the industry. The Register is always interesting, even if it sometimes gets it wrong.

    Transport Topics (www.ttnews.com)
    Truck shipment volumes are increasing while gasoline and diesel prices are dropping. These events should translate to higher profits for truck operators. Transport Topic is the place to keep up with news affecting the trucking industry.

    These are the industry sites that I have room to describe here. Click here for more from my Winning Investing site.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    May 21 4:06 AM | Link | Comment!
  • How To Find The Best REITs

    With the commercial real estate market gaining strength, this might be a good time to consider investing in commercial real estate. You can do that via real estate investment trusts (REITs).

    REITs trade like regular stocks, but they don't pay U.S. federal income taxes as long as they pay out at least 90% of their taxable income to shareholders. On the downside, REIT dividends are mostly taxed as regular income instead of the lower 15% capital gains rate. So it's best to keep REITs in tax-sheltered accounts.

    There are two basic types of REITs: Property REITs and mortgage REITs.

    Property REITs own commercial real estate properties such as apartment complexes, office buildings, or shopping centers. Mortgage REITs don't own properties; instead they invest in mortgages backed by real estate, typically single-family residential properties. Today, we'll focus on property REITs.

    Property REITs provide the customary management services associated with leasing properties such as apartment buildings, shopping centers and office buildings. But they can't operate properties requiring a high degree of personal service such as hotels and healthcare facilities. Instead, they must lease those properties out to third-party operators.

    Finding REITs
    You can use the free, easy-to-use screener at FINVIZ.com to find REITs. Start by going to the FINVIZ homepage (finviz.com) and then selecting Screener. FINVIZ calls its selection criteria "filters." On the Filters bar, select "All" to display all of the available filters. Use the associated dropdown menus to select the desired filter values.

    REIT Categories
    Most property REITs specialize in one of these property categories: retail, healthcare, lodging (hotels, motels, etc.), industrial, office, or mixed industrial/office. Diversified REITs own properties in multiple categories.

    FINVIZ allows you to search for REITs by those categories. Start by using the screener's Industry menu to select a category such as "REIT- Retail."

    Dividend Yield
    Dividend yields are analogous to the interest rate on a savings account. For a stock, your yield is the dividends you receive over a year divided by the price that you paid for the stock. So your yield would be 10% if you received $1 per share of dividends from a stock that cost you $10 per share. Currently, most property REITs are paying dividends equating to 3% to 7% yields.

    Use the Dividend Yield menu to define your minimum acceptable yield. I specified "Over 4%."

    Smart Money
    Thanks to the huge trading commissions that they generate, institutional investors such as mutual funds have access to information that you and I never see. Thus, it makes sense to stick with stocks that the big money likes. Institutional ownership measures the percentage of shares held by these savvy players.

    Require "over 40%" Institutional Ownership.

    Not Too Cheap
    Cheap stocks get that way because many investors see problems ahead. Whether they are right or wrong, low trading prices signal added risk, which you don't need.

    For Price, specify "over $5."

    Analyst Advice
    FINVIZ tabulates stock analyst buy/sell ratings into these categories: strong buy, buy, hold, sell, and strong sell. If anything, analysts tend to be overoptimistic. To be on the safe side, pass up stocks that the analysts are avoiding.

    Require "Buy or Better" for Analyst Recommendation.

    Forecast Growth
    For REITs, or almost every other category of stocks, the best candidates are those expected to grow earnings over the next few years.

    Because property owners must deduct non-cash depreciation expenses when calculating earnings, even if the property is, in fact, appreciating in value, reported income is unrealistically reduced by those charges and doesn't measure the actual cash flow generated by the properties. For that reason, the REIT trade association created a measure called "funds from operations" (FFO), which reflects the actual cash profits generated by a REIT's operations. Although property REITs typically report both net income and FFO, the analyst' earnings estimates that you see on financial sites for REITs are typically FFO per share estimates rather than earnings per share.

    Use the "EPS Growth Next Five Years" menu to select "over 10%."

    Price Chart
    Stocks tend to move in trends. That is, as stock that has been steadily moving up is likely to continue in that direction, and vice-versa. Thus, your best candidates are those that are trending up.

    Comparing a stock's share price to its moving average (average closing price over a specified number of days) will tell you which way a stock is moving. Uptrending stocks are trading above their moving averages, while downtrending stocks are trading below. The 200-day moving average measures a stock's long-term price action.

    Use the "200-Day Simple Moving Average" menu and specify "Price Above" to limit you list to uptrending REITs.

    My screen turned up the following REIT candidates. Click here to see what the screen turns up today.

    Residential
    • Campus Crest Communities (NYSE:CCG), 5.8% yield.

    • Home Properties (NYSE:HME), 4.2% yield.

    • Senior Housing Properties (NYSE:SNH), 5.8% yield.

    Diversified
    • Lexington Realty Trust (NYSE:LXP), 6.0% yield.

    Office
    • CapLease (LXE), 5.3% yield.

    Lodging
    • Hersha Hospitality Trust (NYSE:HT), 4.6% yield.

    Please note that the REIT categories listed by the FINVIZ screener are sometimes wrong. You can find out a REIT's business by checking its profile on Yahoo! (finance.yahoo.com).

    As with any screen, consider the REITs listed to be research candidates, not a buy list. The more you know about your stocks, the better your results.

    Disclosure: I am long HME.

    Sep 24 6:50 PM | Link | Comment!
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