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New Fund Ratings Could Earn Gold Star

Mon, 14 May 2012 11:32:08 EDT

NEW YORK (TheStreet) -- For decades, Morningstar's ratings have been a powerful force in the mutual fund industry. Funds that win a top five-star rating tend to attract assets, while most funds that receive a lowly one star soon go out of business.

Fund companies with high grades are quick to mention them in advertisements. But academic studies have shown that the ratings don't necessarily provide reliable guidance. All too often, funds that won top grades have gone on to deliver mediocre results.

Now, Morningstar has developed a new ranking system that will rate recommended funds as gold, silver or bronze. Should you ignore the new system? Not necessarily. There are good reasons to think that the latest approach could be a helpful predictor of future performance. Old vs. New ...

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Why Fund Costs Are Falling

Wed, 09 May 2012 10:08:59 EDT

NEW YORK (TheStreet) -- Fund investors have been dumping expensive mutual funds and gravitating toward low-cost choices.

According to a recent study by the Investment Company Institute, expense ratios for the average investor in equity funds dropped from 1.0% in 2003 to 0.79% last year.

Part of the decline can be attributed to the fact that shareholders have become savvier about shopping for bargains. ...

Stock-Picking Is a Fool's Errand

Mon, 07 May 2012 09:16:52 EDT

BOSTON (TheStreet) -- In case it wasn't already clear, new studies show that index investing is the way to go.

That means fund managers, advisers and brokers largely don't help individual investors.

Three separate research reports, issued together by the Center for Retirement Research at Boston College, conclude, variously, that individual investors have poor stock-picking skills, investment advisers' advice is frequently not in clients' best interest, and that profits from value-style investing can be, at best, illusory. ...

Why Value Funds Could Lead the Markets

Fri, 04 May 2012 11:24:10 EDT

NEW YORK (TheStreet) -- Plenty of academic studies show that unloved value stocks have outdone high-priced growth shares over the long term. But value has struggled lately. During the past five years, the Russell 1000 Growth index has returned 4.1% annually, while the Russell 1000 Value lost 1.6%. Value also trails for the past decade.

Growth stocks have led partly because financials account for a heavy weighting in the value benchmark. During the financial crisis, banks and insurance companies were crushed, and they still sell at low multiples compared to historical levels.

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First Quarter Ultra Fund Families

Fri, 04 May 2012 09:12:09 EDT

NEW YORK (TheStreet Ratings) -- TheStreet.com Ratings ranked 14,577 open-end stock mutual funds offered by 461 different fund families on the basis of risk-adjusted return for our Spring 2012 Guide to Stock Mutual Funds. The top 30% of funds with grades of B+ or better are considered to be 'Buys', the middle 40% 'Holds' have grade in the C range, and the lower 30% 'Sells' have grades of D+ or worse.

The fund families placing a higher percentage of their funds in the top 30% of our year-end rankings than their peers are considered to be 'Ultra' fund families. Peer groups include fund families with 100 or more rated funds, 40 to 99 rated funds, 10 to 39 rated funds, and 1 to 9 rated funds.

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Funds Get a Boost from Africa, Mideast

Mon, 30 Apr 2012 10:27:01 EDT

NEW YORK (TheStreet) -- One of the hottest performers this year is Nile Pan Africa Fund, which has returned 26.7% and outpaced the S&P 500 by 14 percentage points, according to Morningstar. Part of the reason for the strong showing is that many countries in Africa and the Middle East are booming.

Boosted by high oil prices, petroleum producers are enjoying some of the best results. Last year Saudia Arabia's economy grew 6.8%. In addition, consumer companies are achieving record sales as millions of people leave impoverished villages and join the urban middle class. In 2011, Sub-Saharan Africa grew 4.9%, and the World Banks says that the region should grow 5.3% this year.

Funds with sizable stakes in the fastest-growing countries include Harding Loevner Frontier Emerging Markets, T. Rowe Price Africa & Middle East, and Guggenheim Frontier Markets. All the funds are young and volatile, so they are only appropriate for aggressive investors. But it is well worth monitoring the portfolios because markets in Africa and the Middle East could grow steadily for years to come. ...

Click to view a price quote on NAFAX.

A Weitz Fund to Win in Downturns

Thu, 26 Apr 2012 19:51:41 EDT

NEW YORK (TheStreet) -- Weitz Funds can boast about some strong long-term track records. During the past 15 years, Weitz Partners Value returned 9.7% annually, outdoing the S&P 500 by 3.6 percentage points and topping 97% of large blend funds, according to Morningstar. Weitz Value also produced stellar results, returning 8.8% and surpassing 98% of peers in the large value category.

But the Weitz funds are only for patient shareholders. Diehard value investors, the Weitz managers take stocks that have delivered disappointing earnings or fallen out of favor. As a result, the funds sometimes trail the markets for long periods. In 2008, both Weitz funds lagged most of their peers.

For many investors, the best choice may be one of the company's younger funds, Weitz Partners III Opportunity (WPOIX). Partners III outdid most peers in 2008. During the past five years, the fund topped Weitz Partners Value and Weitz Value by 3 percentage points annually. ...

Click to view a price quote on WPVLX.

Can Absolute Return Funds Hit Their Targets?

Tue, 24 Apr 2012 11:39:50 EDT

NEW YORK (TheStreet) -- Absolute return funds aim to deliver competitive results in good times and bad. But many of the funds suffered painful declines in 2011, a year when the S&P 500 gained 2.1%. Among the losers was American Independence Absolute Return Bull Bear Bond, which dropped 9.3%, according to Morningstar. Funds that lost more than 3% included Absolute Opportunities and Quaker Akros Absolute Return .

Should you stay away from the funds because of one bad year? Some analysts think so. They argue that absolute return funds are only worthwhile if the managers can deliver consistently positive results. But portfolio managers counter that 2011 was an unusual year when volatile markets whipsawed all kinds of strategies. The managers say that they can produce competitive results over a market cycle of three to five years.

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3 Funds Banking on Financial Stocks

Fri, 20 Apr 2012 10:47:56 EDT

NEW YORK (TheStreet) -- Financial stocks have been rallying. With banks reporting improving earnings, financial funds have gained 14.7% this year, outdoing the S&P 500 by 4 percentage points, according to Morningstar.

Some mutual fund portfolio managers argue that financial stocks can continue climbing. The managers have big stakes in banks, insurance companies and money managers.

Funds with sizable financial holdings include Davis New York Venture, Haverford Quality Growth Stock and Snow Capital Opportunity. ...

Click to view a price quote on NYVTX.

New Ways to Guard Against Rising Inflation

Wed, 18 Apr 2012 10:09:35 EDT

NEW YORK (TheStreet) -- Plenty of financial advisers are worried about inflation. High oil prices are hurting consumers, the advisers say, and heavy spending by the Federal Reserve could trigger inflation in coming years.

To protect against rising prices, the advisers suggest a traditional approach -- holding assets such as real estate investment trusts, gold and Treasury Inflation-Protected Securities. That strategy has often worked in the past, but the favored assets have all surged in recent years and now prices look rich.

Consider REITs. During the past three years, real estate funds returned 31.3% annually, ranking as the top-performing category tracked by Morningstar. As real estate shares climbed, yields fell. Now the average REIT yields 4.3%, near the record low of 3.8%, which occurred during the bull market of 2007. ...

Click to view a price quote on PASAX.

Young People Are Loading Up on Stocks

Fri, 13 Apr 2012 09:39:29 EDT

NEW YORK (TheStreet) -- After suffering through a decade of volatile markets, many young people have soured on stocks. Investors who were born from 1970 through 1979 have less than 40% of their assets in stocks, according to a study by Investment Company Institute. In contrast, investors who were born from 1950 through 1959 retain faith in stocks, keeping more than 50% of assets in equities.

Seeing the data, pundits have worried that a generation may have abandoned the stock market. But that assessment is too bleak. While some investors have undoubtedly turned away from trading, young people have been increasing the stock allocations in their 401(k) plans. The transition to equities has occurred steadily in recent years -- even during the financial crisis. According to a study by Vanguard Group, participants in their early 20s had 41% of 401(k) assets in equities in 2003. By 2010, savers in their early 20s had 85% of assets in stocks.

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Investors, Issuers Plan for 2112 With 'Century Bonds'

Wed, 11 Apr 2012 08:35:14 EDT

NEW YORK (TheStreet) -- Investors are starting to make trades that prepare themselves for the 22nd century amid uncertainty about the U.S. economy, the direction of interest rates and the sustainability of once mighty industries.

Will railroads, Coca Cola drinks, Disney features and IBM IT systems be around when the 21st century draws to a close? Previous investor bets on those companies' bonds that expire at the end of the century say "yes."

Top U.S. colleges like the University of Pennsylvania are using current market worries to plan for a century of needs by selling 100-year bonds at what may amount to the cheapest financings in history. While retirement and college savers may find little benefit in those bonds, understanding the market for them may clear the air on how to navigate the investing risks that linger after the crisis.      University of Pennsylvania takes a look at "century bonds"     ...

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This Red-Hot Fund Could Suddenly Turn Cold

Tue, 10 Apr 2012 09:50:34 EDT

NEW YORK (TheStreet) -- Permanent Portfolio has enjoyed a remarkable run. During the past ten years, the mutual fund returned 11% annually, ranking as the top-returning competitor in Morningstar's conservative allocation category. The number two fund lagged Permanent Portfolio by 3 percentage points, while the S&P 500 trailed by 7 percentage points.

Seeing the compelling results, investors have poured into the fund. Permanent Portfolio's assets climbed from $333 million in 2005 to $17.2 billion now. But the new shareholders are not likely to be pleased with their investment. After enjoying an epic hot streak, the fund seems likely to be faced with a period of mediocre results. The problem is that the fund depends heavily on Treasuries, precious metals and Swiss francs -- assets that could be peaking after long rallies.

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Click to view a price quote on PRPFX.

3 Convertibles Funds Offer Smooth Rides

Thu, 05 Apr 2012 10:14:53 EDT

NEW YORK (TheStreet) -- In recent years, convertibles funds have delivered compelling returns. During the past decade, the funds returned 6% annually, outdoing the S&P 500 by 2 percentage points while taking much less risk, according to Morningstar. Can convertibles continue outpacing stocks? Maybe not. But convertibles are worth considering because they can diversify portfolios.

Convertibles are bond-like securities that can be converted to stocks. Yields on the securities currently range from about 2% to 5%. The yields cushion performance in downturns. As a result, convertibles outdid the S&P 500 during the market collapses that occurred after the Internet bubble burst in 2000 and in the financial crisis of 2008.

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Click to view a price quote on FISCX.

Mutual Funds for High Oil Prices

Mon, 02 Apr 2012 10:58:12 EDT

NEW YORK (TheStreet) -- With oil prices climbing, you might expect that investors would be racing to buy funds that have big stakes in energy and commodities.

But in the past year, shareholders have followed unexpected patterns, investing in some energy-oriented funds and pulling out of others.

According to Morningstar, investors have put $6.1 billion into commodities broad basket mutual funds, which have 47% of their assets in energy. ...

Click to view a price quote on PGNAX.