5 Best Construction Stocks To Own Right Now
Trackers and exchange traded funds (ETFs) that pursue a passive strategy of simply following a specified market or index have become extremely popular in recent years, as it has become common knowledge that classic stock picking does not always work.A pure tracker that entails "buying a market," such as the S&P 500 or the FTSE in the U.K., has its disadvantages. Although highly transparent, investors are completely exposed to the market in question and all its vicissitudes. It is not surprising, therefore, that hybrid models have emerged that are still tracker ETFs, but are deliberately biased in one or more respects. These are often referred to as "factor ETFs."
The Workings of Factor ETFs
The concept behind a factor ETF is that by shifting away from "plain vanilla" trackers, one can improve the rate of return and/or risk level without getting into expensive and time-consuming stock picking. The shift is referred to as "bias" or "tilt." In other words, these products are not pure trackers; they deviate to some degree from simply going up and down with the specified market.
The following factor ETFs introduced in April 2013 demonstrate how these vehicles operate:
- iShares MSCI USA Size Factor ETF (NYSE:SIZE)
- iShares MSCI USA Momentum Factor ETF (NYSE:MTUM))
- iShares MSCI USA Value Factor ETF (NYSE:VLUE)
Each iShares ETF has a particular tilt, one biased toward small firms, another toward firms whose stock value is accelerating in price or gaining momentum, and a third toward stocks that may be undervalued by the market.
The size factor ETF from iShares focuses on U.S. large- and mid-capitalization stocks "with relatively smaller market capitalization" with the idea that smaller firms tend to be overlooked. The momentum factor ETF invests in stocks with accelerating price and volume, while the value factor ETF weights securities according to four accounting variables and compares these to the parent index. These three approaches "tilt" the fund away from exposure to your chosen index. These forms of bias all make financial sense, and if properly tuned, should provide a good quasi-tracker, but one that can outperform a pure buying-the-market vehicle.
How Effective Is All This Likely To Be?
These ETFs are fairly new, so there is not much of a track record. However, the logic is sound enough that a prudent investment could pay off. Make sure that you understand exactly how the products work. The more an ETF deviates from the pure index (benchmark risk), the more appropriate it may become for sophisticated and active investors.
There are various ways of using these concepts in practice. Atlas Capital, for instance, has offered a variant of the concept, "enhanced indexing," since the firm was founded seven years ago by Jonathan Tunney, CFA, in San Francisco. In separately managed accounts for large dollar amounts, it uses value, size and momentum, as well as short-term reversal. This latter term refers to return over the prior month, which tends to display negative serial correlation, whereas medium-term momentum displays positive serial correlation. The new Atlas ETFs use one factor per ETF and combine the separate approaches into a unified strategy. In other words, Atlas does not actually use the ETFs described above in their pure form, but instead has adapted the concept to its own portfolio of stocks, using a ranking system with regard to value, momentum, size and short-term reversal.
Atlas founder Tunney says the firm's factor model process enables it "to provide clients with portfolios that are liquid, transparent, low-cost and backed by years of academic research." Factor ETFs reduce the costs of traditional actively managed funds by providing a low-cost product that's still well-researched and can provide greater-than-market returns, he says.
These products are generally recommended, by the people offering them, for investors who seek exposure to other and different risk factors and "alternative beta." Nonetheless, until they gain acceptance, the factor ETFs face liquidity issues.
Some Other Market Offerings
Plenty of other factor ETFs are in the market, as they include any common market-wide drivers of security return. Apart from the offerings of Atlas and iShares, Schwab has "Fundamental Index" ETFs, using three fundamental measures of a company, namely adjusted sales, retained cash flow and dividends plus buybacks. Its three products are FNDB, FNDX and FNDA.
FlexShares, the ETF unit of Northern Trust, launched two new fund products last year. They are based on a multi-factor model approach intended to provide a heavier emphasis on international small caps and value stocks. The products are the FlexShares Morningstar Developed Markets Ex-U.S. Factor Tilt Index Fund (TLTD) and the FlexShares Morningstar Emerging Markets Factor Tilt Index Fund (TLTE).
The Bottom Line
ETFs and trackers are here to stay, given that it is pretty much accepted that paying someone to simply "beat an index" can be counterproductive. Pure trackers have their disadvantages, however, as there is no protection from market movements. New factor ETFs offer some compromise with a bit of "tilt" away from an index. If you are more experienced or adventurous, factor ETFs may make sense as a form of diversification and potential means of enriching your portfolio.
Evan Agostini, Invision/APCBS president and CEO Leslie Moonves ranked No. 2 on a list of highest paid CEOs. LOS ANGELES -- Once again, media company CEOs are among the highest paid executives in the nation, occupying six of the top 10 earning spots, according to an Associated Press/Equilar study. Compensation experts say a variety of factors are at play, including the gain in media stocks, the intangible value of talent in a hit-or-miss business, the control of shareholder power in very few hands, and the decline of the financial sector. Stock Outperformers Outsized stock growth boosts the value of stock and option grants. Media companies' shares have rebounded strongly since the 2008 recession, mainly because advertising spending grows in tandem with a growing economy. That means higher-priced ads and higher-priced execs. Stocks of the six media companies on the list all outperformed the Standard & Poor's 500 index (^GPSC), which grew 128 percent in the five years through December 2013, according to FactSet. CBS (CBS) shares grew a whopping 699 percent in that period; Discovery Communications (DISCA) went up 539 percent; Viacom (VIA) rose 377 percent; Walt Disney (DIS) rose 250 percent; Time Warner (TWX) climbed 259 percent and Comcast (CMCSA) grew 223 percent. "If shareholders are happy they don't care how much a person makes," said Paul Dorf, managing director of consulting firm Compensation Resources. "When they complain most is when the market doesn't do well and their stock is going down the tubes." Talent Quotient Making it big in media means generating hits. And while top executives may not be hands-on with every decision, they are where the buck stops. Take Disney's animated blockbuster "Frozen," which grossed $1.2 billion at box offices worldwide. While Disney CEO Bob Iger didn't make the movie, he did orchestrate Disney's $7.4 billion acquisition of Pixar in 2006, which brought in talented executives to help reform Disney's faltering animation studio. "With movie studios and the media, it's more of a talent business. You have highly paid people at all levels," said Alan Johnson, managing director of Johnson Associates, a compensation consultant in New York. "The view is the right CEO can make a big difference." Voting Power Control of voting power by a single shareholder can dilute the impact of "say on pay" advisory votes, experts say. A major shareholder can override other shareholders' concerns. For instance, Sumner Redstone controls 79.7 percent of the vote at CBS and 79.3 percent of the vote at Viacom, possibly contributing to the higher pay of CEOs Les Moonves and Philippe Dauman, who were ranked No. 2 and No. 5. CEO Brian Roberts, ranked No. 10, controls 33.3 percent of the voting power at Comcast. And Discovery CEO David Zaslav, ranked No. 8, answers to one big boss: cable magnate John Malone, who controls 28.9 percent of the vote. "When you have the vote in your back pocket, you do not need to negotiate in the same way," said Nora McCord, managing director at Steven Hall & Partners, an executive compensation consulting firm in New York. Other Industries' Decline Lists in previous decades might have had more financial and banking executives. Since the Great Recession punished those companies with government bailouts, bank collapses, accounting revisions and writedowns, they have dropped in the pay rankings. "If you were to go back in time, a lot of these lists would have had financial executives," Johnson said. "They're not part of it anymore." All Boats Rise When one company boosts pay, others compensate to remain competitive. That's why executive pay within industries tends to "move in lock step," McCord said.
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There are plenty of ways for investors to make money in the oil patch –from actually drilling wells to moving oil through pipelines to refining and selling energy downstream to end users.
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Getty ImagesEven if you do reach a perfect score, there's no guarantee you'll stay at the top for long. Some people obsess over perfect grades. Others find fulfillment in bowling a perfect 300. Still others make it their life goal to earn the highly elusive perfect credit score. But while getting A's on all your midterms and even bowling 300s are fairly attainable goals, perfection in the credit world is practically unheard of. Can it really be done? And more importantly, is it a worthy goal to strive toward? Here's why the perfect credit score may not really matter in the end. Is it possible? Yes, it's possible to get a perfect credit score. However, this answer comes with a few caveats. First off, the "yes" assumes you're thinking about the 850 FICO score. While the FICO score is the most common score lenders use to determine your creditworthiness, it's not your only score. There are dozens of scoring models that can be used to determine your score, and each model calculates your score differently. So even if you achieve a perfect score with one model, your other scores may be very different. Secondly, even if someone is able to achieve a perfect score, there's no guarantee that it will stay that number or he or she will be able to reach it again. Credit scores change constantly, and every time someone pulls your score, it's calculated anew. Credit scores are also notoriously mysterious. While most people know they should pay their bills on time and avoid unnecessary hard inquiries, there is no "magic formula" out there that consumers can follow to earn a perfect score. So even the most credit-savvy consumers may not be able to repeat their success or pinpoint what exactly got them to the top. Lastly, a perfect score is extremely rare and almost impossible to attain. In 2010, the Fair Isaac Corp., the creator of FICO scores, estimated that only about 0.5 percent of consumers are able to reach the 850 mark. In fact, it's so uncommon that when people do achieve it, they sometimes get into the news. Is it worth it? Greatness is always a good goal to strive toward. However, is it worth spending ridiculous amounts of time and money stressing over a perfect credit score? In most cases, no. While it doesn't hurt to desire and try to obtain an excellent score, you don't need a perfect score to get the best rates as a consumer. As FICO spokesman Anthony Sprauve told Forbes last year, "It's important to understand that if you have a FICO score above 760, you're going to be getting the best rates and opportunities." In other words, lenders aren't looking for a perfect credit score -- they're simply looking for a score that indicates you're a responsible borrower. Most people want the 850 just so they can say they're at the top.