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Funds Funds

Quant Small Cap Fund Direct Plan-Growth Updates

Investing goal and benchmark

The fund’s primary goal is to “create capital growth through investments with a very well mix of small cap companies.” The NIFTY Small cap 250 Total Return Index is used as a benchmark.

Portfolio Structure & Asset Allocate

The fund’s asset allocation is roughly 95.85% in equities, 0.0 percent in bonds, and 4.15 percent in cash and cash equivalents. The top 10 equity holdings account for 43.41 percent of total assets, while the top three sectors account for 44.15 percent. The fund invests in a variety of market capitalisations, with roughly 1.41 percent in gigantic and big cap companies, 19.83 percent in mid-cap companies, and 78.76 percent in small cap companies.

Implications for Taxation

1. If units are surrendered within one year of purchase, gains are taxed at a rate of 15% (Short-term Capital Gains Tax – STCG).

2. Gains of up to Rs. 1 lakh accruing from units redeemed after one year of investment are free from tax in a financial year.

3. Profits of at most Rs. 1 lakh would be subject to a 10% tax rate (Long-term Capital Gain Tax – LTCG).

4. Dividend income from this fund will be assigned to an investor’s income and taxed as per to his or her tax slabs for Dividend Distribution Tax.

5. In addition, for dividend income in excess of Rs 5,000 in a financial year, the fund house is required to deduct a TDS of 10%.

Source: Economic times

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

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ETFs ETFs

Kotak PSU Bank Exchange Traded Fund updates

Investment goal and benchmark

The fund’s investment objective is “The scheme’s objective is to offer total returns that correspond to the total returns of the Nifty PSU Bank Index.”The NIFTY PSU Bank Total Return Index is used as a benchmark.

Portfolio Structure & Asset Allocate

The fund’s asset allocation is roughly 99.98 percent equities, 0.0 percent loans, and 0.02 percent cash and cash equivalents.The top 10 equity holdings account for roughly 96.27 percent of assets, while the top three sectors account for around 99.98 percent.The fund invests mostly in companies with a substantial market capitalisation, with 64.86 percent in giant and large cap companies, 33.04 percent in mid cap, and 2.1 percent in small cap companies.

Implications for Taxation

1. If units are surrendered within one year of purchase, gains are taxed at a rate of 15% (Short-term Capital Gains Tax – STCG).

2. Gains of up to Rs. 1 lakh accruing from units redeemed after one year of investment are free from tax in a financial year.

3. Gains of more than Rs. 1 lakh would be subject to a 10% tax rate (Long-term Capital Gain Tax – LTCG).

4. Dividend income from this fund will be added to an investor’s income and taxed according to his or her tax slabs for Dividend Distribution Tax.

5. In addition, for dividend income in excess of Rs 5,000 in a financial year, the fund house is required to withhold a TDS of 10%.

Source: Economic india

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

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Technology Stocks

Seagen Reports Solid 2nd Quarter Results within Expectations; Maintaining FVE to $144

Operating expenses remain elevated compared with the previous year, which reflects Seagen’s investments to support the European launch of Tukysa and continued development of its pipeline. R&D expenses for the second quarter were $235 million and SG&A expenses were $165 million, representing increases of 19% and 31%, respectively.

Adcetris for lymphoma contributed $182 million in sales for the quarter, representing an increase of 9% compared with the prior-year period. Padcev for metastatic bladder cancer contributed $82 million in sales, representing growth of 44% from the second quarter of 2020. The FDA granted regular approval for Padcev in July 2021 and added a new indication for locally advanced or metastatic urothelial cancer. Tukysa for breast cancer reported revenue of $83 million, growing 427% year over year since the drug received FDA approval in April 2020. Seagen could gain regulatory approval later this year for its fourth-approved product, Tisotumab vedotin, or TV, for metastatic cervical cancer.

Company’s Future outlook

We believe Adcetris and Padcev provide ample near-term diversification, which we anticipate will further improve with additional label expansions and approvals of other indications. We expect Tukysa will gain steady market share as the drug recently received approval in the EU. We also anticipate a steady stream of licensing and collaboration revenue from its various partners. Our forecast implies a five-year projected revenue CAGR of about 16%.

Company Profile

Seagen Inc. (formerly known as Seattle Genetics) is a biotech firm that develops and commercializes therapies to treat cancers. Seagen’s therapies are based on antibody-drug conjugate technology that utilizes the targeting ability of monoclonal antibodies to deliver cell-killing agents directly to cancer cells. The company’s lead product, Adcetris, has received approval for six indications to treat Hodgkin lymphoma and T-cell lymphoma. Other approved products include Padcev for bladder cancer and Tukysa for breast cancer. The company has several other oncology programs in pivotal trials. Seagen also licenses its antibody-drug conjugate technology to several leading biotechnology and pharmaceutical companies.

(Source: Morningstar)

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Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

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Fixed Income Fixed Income

Principal Core Fixed Income A (CMPIX)

The team still intends to balance a higher-yielding corporate-bond stake with securitized fare and U.S. Treasuries, yet the strategy’s high-yield sleeve is now capped at 5% of assets (compared with a previous sleeve of 10% to 20% of assets). Corporate credit still typically accounts for 60% to 65% of assets and drives returns, while high quality securitized fare (20% to 25%), U.S. Treasuries (10% to 15%), and cash are intended to provide stability. This stake stood at 35% of assets as of March 31, 2021, which was 17% larger than the typical intermediate core bond peer. This translates to more credit risk relative to peers.

  • A new shift to higher quality is untested.

The managers employ a consistent, conventional investment process overseen by an adequately sized team. The strategy earns an Average Process Pillar rating. The team emphasizes corporate credit relative to Treasuries and securitized assets, with bottom-up analysis driving credit selection. Manager John Friedl and his team search for credits they believe will provide the best opportunities over a full market cycle; they have a stated preference for smaller offerings in energy, healthcare, utilities, and REITs buoyed by larger names in the financial sector. Prior to 2020, the team invested heavily in high-yield debt (usually 10% to 20% of assets). Now, the team is limited to a 5% sleeve in high yield after a mandate change in January 2020. The team does not make interest-rate calls and historically has kept the strategy’s duration within 15% of the Bloomberg Barclays U.S. Aggregate Bond Index.

  • Still a barbell construct with heavy credit exposure.

The strategy’s barbell structure is composed of income-generating corporate bonds on one end and high-quality securitized fare and Treasuries for ballast on the other. As of March 2021, the strategy’s corporate credit allocation sat at 57% of assets, including a BBB rated stake (35%) and BB and below (4%) that was about 17 and 3 percentage points higher, respectively, than its typical intermediate core bond category peer. The team has historically focused on oilfield services and pipelines in its energy stake (about 4%), given their resilience in the face of commodity price drops. Financials have made up a consistent overweighting relative to the benchmark (11% versus 6%), with the team focusing on the debt of large banks with strong balance sheets. The ballast end of the barbell, composed of agency mortgage-backed security pass through (20%), U.S. Treasuries (15%), and asset backed securities (3%), has not seen major sector shifts since 2013.

 (Source: Morningstar)

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

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Technology Stocks

Signs of a Successful Second Quarter for Digital Realty its conversion to a Connectivity Platform is going well.

the types of services it historically didn’t provide but has entered via acquisitions in the last several years. We believe the ability to connect enterprises (smaller deployments) to hyper scalers like cloud a provider is what make data centers differentiated and that the ability to do it on a global scale is attractive for customers. Digital’s portfolio seems to be in the sweet spot to provide these abilities, and we think it can close the gap with Equinox as the premier global data center provider for connectivity.

Total revenue grew 10% year over year. Like its peers, Digital’s revenue was boosted by higher reimbursements for power costs. If utility reimbursement had grown at the same pace as rental revenue (10%), total sales growth would’ve been just under 9%. The higher pass-through revenue likely weighed on margins a bit. The adjusted] EBITDA margin was 55%, down more than one percentage point from last year’s second quarter but generally consistent with where the margin has been since the March 2020 Interxion acquisition.

Bookings in the quarter totaled $113 million in annualized revenue, including $13 million in interconnection revenue, a figure that has remained fairly constant each quarter since the Interxion acquisition. Leasing in the Americas accounted for more than half of the total bookings, with Europe and Asia Pacific each making up about a quarter. Two very encouraging results in the quarter were the improvement in pricing, as shown by renewal spreads, and the proportion of bookings made up of smaller deployments.

Company Future Outlook

We are raising our fair value estimate to $130 from $127. We believe the stock is moderately overvalued but more reasonably priced than peers and the first data center firm we’d look to on a pullback. We believe that Digital’s transformation should provide it with pricing power, so we expect to continue seeing better renewal spreads over time. However, we expect these spreads to remain choppy even as they trend up, so we are under no illusions that we’ve seen the last leases having to renew at lower rates.

Company Profile

Digital Realty owns and operates nearly 300 data centers worldwide. It has more than 35 million rentable square feet across five continents. Digital’s offerings range from retail co-location, where an enterprise may rent single cabinet and rely on Digital to provide all the accommodations, to “cold shells,” where hyper scale cloud service providers can simply rent much, or all, of a barren, power-connected building. In recent years, Digital Realty has de-emphasized cold shells and now primarily provides higher-level service to tenants, which outsource their related IT needs to Digital. Digital Realty has also moved more into the co-location business, increasingly serving enterprises and facilitating network connections. Digital Realty operates as a real estate investment trust.

(Source: Morningstar)

General Advice Warning
Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

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Global stocks Shares

Driver Shortage a Utilization Headwind but Demand & Pricing are Surging for Knight- Swift

Knights long-standing laser focus on network efficiency has served it well given the asset-intensive nature of trucking. Its legacy operating ratio (expenses/revenue, excluding fuel surcharges) averaged in the mid-80% range before the merger, versus an industry average that traditionally exceeds 90%. Within its legacy dry van truckload unit, Knight has long emphasized short- to medium-haul shipments (length of haul near 500 miles) and high-density lanes near its existing service centers. Regional freight is an attractive niche because shipments face less competition from intermodal and are seeing growth as shippers locate distribution centers closer to end customers.

In 2017, Knight Transportation and Swift Transportation merged. Following the transaction, Knight-Swift became the largest asset-based full-truckload carrier in the industry. Overall, we believe the merger structure was positive for previous shareholders because of meaningful cost and revenue synergy opportunities, which have proved to be within reach over the past few years.

Knight’s management has executed well in terms of applying its best-in-class operating acumen to Swift’s network. In fact, Swift’s adjusted truckload OR was roughly at parity with the Knight trucking division’s OR in first-quarter 2021. Pandemic lockdowns weighed on freight demand in early 2020, but retail shipments turned robust in the second half on strong inventory restocking, and industrial end markets are recovering off pandemic lows. Furthermore, truckload-market capacity has tightened materially and double-digit contract rate gains are likely this year.

Financial Strength

At the end of 2020, Knight-Swift held roughly $700 million of total debt on the balance sheet (including capital lease obligations, an accounts receivable securitization program, and a term loan), some of which stems from the former Swift operations. Recall truckload-industry giants Knight Transportation and Swift Transportation merged in September 2017. The firm held $157 million in cash on the balance sheet at year-end 2020, similar to 2019, with total available liquidity near $740 million. Management expects net capital expenditures of $450 million to $500 million in 2021, which we estimate will be around 10.4% of total revenue, compared with 9% in 2019.

Bull Says

  • The 2017 Knight-Swift merger created meaningful opportunities for cost and revenue synergies that have thus far proved value accretive. The firm is also enjoying a demand surge from heavy retailer restocking that should last into the first half of 2021.
  • The legacy Knight operations rank among the most efficient and profitable carriers in trucking, with an average operating ratio in the mid-80s prior to the merger.
  • Knight has expanded its asset-light truck brokerage division at a healthy clip over the years, and these operations add incremental opportunities for long term growth.

Company Profile

Knight-Swift Transportation is by far the largest asset-based full-truckload carrier in the United States. About 80% of revenue derives from asset-based truckload shipping operations (including for-hire dry van, refrigerated, and dedicated contract). The remainder stems from truck brokerage and other asset-light logistics services (8%), as well as intermodal (8%), which uses the Class-I railroads for the underlying movement of the firm’s shipping containers and also offer drayage services.

 (Source: Morningstar)

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

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Dividend Stocks Expert Insights

Market Gains Continue to Offset Weaker Flows to Drive T. Rowe Price’s AUM Higher

with two thirds of its assets under management derived from retirement-based accounts. At the end of 2020, 83%, 79%, and 77% of the company’s fund AUM were beating peers on a 3-, 5-, and 10-year basis, respectively, with 77% of AUM in the funds closing out the year with an overall rating of 4 or 5 stars, better than just about every other U.S.-based asset manager. T. Rowe Price also has a much stronger Morningstar Success Ratio—which evaluates whether a firm’s open-end funds deliver sustainable, peer-beating returns over longer periods–giving it an additional leg up.

T. Rowe Price is uniquely positioned among the firms we cover (as well as the broader universe of active asset managers) to pick up business in the retail-advised channel, given the solid long-term performance of its funds and reasonableness of its fees, exemplified by deals the past few years with Fidelity Investments’ Funds Network and Schwab’s Mutual Fund OneSource platform. With the company likely to generate mid- to high-single-digit AUM growth on average going forward (aided by 0%-3% annual organic growth), we see top-line growth expanding at a positive 7.7% CAGR during 2021-25, with operating margins of 47%-49% on average.

Financial Strength

T. Rowe Price has traditionally maintained a very conservative balance sheet, with no debt on its books since 2002. The company has relied overwhelmingly on its internally generated capital to fund acquisitions and other investments, while still returning a sizable amount of capital to shareholders via stock repurchases and dividends. During 2011-20, T. Rowe Price, by our calculations, generated $14.9 billion in free cash flow (cash flow from operations less capital expenditures) and returned $5.3 billion to shareholders as share repurchases (net of issuances) and $6.2 billion as dividends. Our current forecast has the firm generating $3.5 billion in free cash flow annually on average during 2021-25, the bulk of which will be dedicated to seed capital investments, acquisitions, dividends, and share repurchases.

The company’s quarterly dividend was raised 20% in February 2021 to $1.08 per share, and the company has announced a $3.00 per share special dividend, which was paid out in July 2021. The company remains comfortable with the 35%-40% payout ratio we’ve seen for the regular quarterly dividend over the past five years. During 2019, T. Rowe Price bought back 7.0 million shares (equivalent to 2.9% of its outstanding shares) for just over $700 million, offset by $83 million worth of stock issued under stock-based compensation plans. The firm followed this up with the repurchase of 10.9 million shares for $1.2 billion (equivalent to 4.6% of outstanding shares) during 2020, offset by some $200 million worth of stock-based compensation plan issuances. During the first half of 2021, T. Rowe Price bought back 1.9 million shares for around $309 million.

Bulls Say’s

  • With $1.623 trillion in AUM at the end of June 2021, T. Rowe Price is one of the larger U.S.-based asset managers. Retirement accounts and variable-annuity investment portfolios account for two thirds of assets.
  • At the end of the second quarter of 2021, 91%, 84%, and 86% of T. Rowe Price’s multi-asset AUM was beating passive peers on a 3-, 5-, and 10-year basis, respectively.
  • Target-date retirement portfolios have been a significant source of organic growth, generating just under $100 billion in net inflows (equivalent to an 8% rate of annual growth) for the firm the past 10 years.

Company Profile

T. Rowe Price provides asset-management services for individual and institutional investors. It offers a broad range of no-load U.S. and international stock, hybrid, bond, and money market funds. At the end of June 2021, the firm had $1.623 trillion in managed assets, composed of equity (61%), balanced (28%), and fixed-income (11%) offerings. Approximately two thirds of the company’s managed assets are held in retirement-based accounts, which provides T. Rowe Price with a somewhat stickier client base than most of its peers. The firm also manages private accounts, provides retirement planning advice, and offers discount brokerage and trust services. The company is primarily a U.S.-based asset manager, deriving just 9% of its AUM from overseas.

(Source: Morningstar)

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

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Global stocks Shares

Facebook Posted Impressive Q2 results; 2H2021 Represents Tougher Comps; Increasing FVE to $407

We are pleased with Facebook’s continuing enhancement of its platforms as it improves e-commerce functionality, increases video content, and introduces more audio content, which support the firm’s network effect moat source on the user and advertiser sides, increasing overall ad inventory. Facebook is also investing in innovation for the long-run, including Metaverse, which we view as the next stage of growth and development in virtual reality. While Metaverse is likely to require more interoperability between many platforms and may slowly erode Facebook’s walled garden, the firm’s current network effect moat source should maintain more users on the Facebook side of the Metaverse.

Management guided for significant deceleration in revenue growth during the second half of this year, which we had already modeled in. Total revenue of $29.1 billion was up 55.6% year over year due to higher ad prices and an increase in users. Facebook benefited from ongoing strong demand for direct response and the resurgence of brand advertising. Monthly active users increased 7% and 2% year over year and from last quarter, respectively, to nearly 2.9 billion. Engagement remained at around 66% as daily active users increased to 1.9 billion (also up 7% from last year and 2% sequentially).

Strong Revenue Growth

Strong revenue growth during the quarter created operating leverage for Facebook resulting in 42.5% operating margin, compared with 31.9% last year. Management expects yearover- year revenue growth during the second half to “decelerate significantly.” The firm provided a bit more color by stating that the slowdown will be modest when comparing the second quarter 2021 with the same period in 2019 (revenue up 72.2%). The firm still expects full-year operating expense between $70 billion and $73 billion and capital expenditures of $19 billion-$21 billion.

Metaverse to take hold and attract billions of users, the virtual world needs to be more interoperable, like the physical world where users can easily experience many different environments and interact with different individuals and groups. Allowing interoperability may represent a risk to the network effect of platforms like Facebook. However, in our view, given Facebook’s 2.9 billion users and strong network effect moat source, the firm’s Horizon will be a step ahead of competitors in attracting users and quickly building the virtual environments, which should attract more users, content creators, businesses, and advertisers.

Company Profile

Facebook is the world’s largest online social network, with 2.5 billion monthly active users. Users engage with each other in different ways, exchanging messages and sharing news events, photos, and videos. On the video side, the firm is in the process of building a library of premium content and monetizing it via ads or subscription revenue. Facebook refers to this as Facebook Watch. The firm’s ecosystem consists mainly of the Facebook app, Instagram, Messenger, WhatsApp, and many features surrounding these products. Users can access Facebook on mobile devices and desktops. Advertising revenue represents more than 90% of the firm’s total revenue, with 50% coming from the U.S. and Canada and 25% from Europe. With gross margins above 80%, Facebook operates at a 30%-plus margin.

(Source: Morningstar)

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

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Dividend Stocks Shares

Xcel Energy Pushing Through Its Regulatory Agenda; Raising Fair Value Estimate

On July 2, Xcel filed a $343 million rate increase request that we think will be one of its most important and hotly debated rate requests ever in Colorado, its largest jurisdiction. The proceedings during the next six months will test whether regulators are willing to raise customer rates to pay for Xcel’s clean energy and safety investments along with supporting Colorado law that requires Xcel to supply 100% carbon-free electricity by 2050.

Rate settlements in Xcel’s

The Colorado outcome could affect Xcel’s five-year, $24 billion investment plan and management’s 5%-7% annual earnings growth target in the near term. That difference accounts for about 15% of Xcel’s rate increase request. Rate settlements in Xcel’s three smallest jurisdictions are in line with our estimates. In New Mexico, Xcel settled for a $62 million rate increase ($88 million request) and 9.35% allowed ROE (10.35% request). In Wisconsin, Xcel settled for a $45 million combined electric and gas rate increase in 2022 and a $21 million combined rate increase in 2023 based on a 9.8% allowed ROE in 2022 and 10% allowed ROE in 2023. In North Dakota, Xcel settled for a $7 million rate increase ($13 million revised request) and 9.5% allowed ROE (10.2% request).

Company Profile
Xcel Energy manages utilities serving 3.7 million electric customers and 2.1 million natural gas customers in eight states. Its utilities are Northern States Power, which serves customers in Minnesota, North Dakota, South Dakota, Wisconsin, and Michigan; Public Service Company of Colorado; and Southwestern Public Service Company, which serves customers in Texas and New Mexico. It is one of the largest renewable energy providers in the U.S. with one third of its electricity sales coming from renewable energy.

(Source: Morningstar)
General Advice Warning
Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

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Technology Stocks

Sonic Has a Record Second Quarter, Joining the Dealer Space.

Modern financier with papers sitting in front of computer monitor with chart and graph of sales rate

We are raising our fair value estimate to $60 from $58. The change is from the time value of money, higher revenue growth based on how 2021 is unfolding, and a 20 basis point increase in our midscale operating margin including floor plan interest to 3%. We made the latter change to reflect our expectation of better overhead cost leveraging long-term due to the chance that inventories will be lower than pre-pandemic levels after the] semiconductor shortage ends, which should enable better pricing power long-term. Sonic is also due to introduce a digital commerce platform in the fourth quarter that will start at the Echo Park used vehicle stores but likely be rolled out companywide over time. This platform could enable further overhead cost efficiencies long-term.

Second-quarter results were in our view strong and we are encouraged to see same-store revenue up 24.9% compared with the second quarter of 2019. The lucrative service business also did well with same-store service gross profit up 6.9% versus second-quarter 2019. We see more upside this year from this nearly 50% gross margin business because the warranty side of it has not rebounded yet from the pandemic while customer pay has; and management said its California stores, which made up 26.4% of 2020 total revenue, have not rebounded as much from the pandemic as the rest of Sonics stores.

Company’s Future Outlook

Echo Park lost $14.4 million in pretax income for the quarter as high auction prices made sourcing inventory more expensive. Management now sees Echo Park annually selling two million vehicles once it is mature sometime in the 2030s. The more noteworthy news though is Sonic’s board is “considering a full range” of alternatives for Echo Park and has hired Lazard and Kirkland & Ellis as advisors, though no deal may occur. We’d prefer to see Echo Park get larger over time before a divestiture so Sonic shareholders could benefit but it is possible that a sale or spin-off, should it occur, could unlock value for Echo Park not currently recognized by the market. The downside, in our view, of divesting Echo Park is once it’s gone from Sonic; Sonic will not have an exciting growth story to talk about beyond its franchise business. We have about $36 billion of Echo Park revenue modeled for 2021-25.

Company Profile

Sonic Automotive is by our estimate the sixth-largest public auto dealership group in the United States by new-vehicle unit sales. The company has 84 franchised stores in 12 states, primarily in metropolitan areas in California, Texas, and the Southeast, plus 25 Echo Park used-vehicle stores. In addition to new- and used-vehicle sales, the company derives revenue from parts and collision repair, finance, insurance, and wholesale auctions. Luxury and import dealerships make up about 88% of new-vehicle revenue, while Honda, BMW, Mercedes, and Toyota constitute about 60% of new-vehicle revenue. BMW is the largest brand at over 24%. 2020’s revenue was $9.8 billion, with Echo Park’s portion totaling $1.4 billion.

(Source: Morningstar)

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.