Posts Tagged fund
High Yields Aren’t Always a Good Thing
Posted by Tetyana Matychak in Investing on March 1st, 2010
In the parched landscape of income investing, dozens of closed-end funds yield more than 10%.
Just as wanderers in the desert shouldn’t mistake a mirage for an oasis, investors shouldn’t regard these funds as salvation. Often, the income you earn in the short run mightn’t be worth the principal you lose in the long run.
Like mutual funds, closed-ends are baskets of stocks or bonds. Unlike a mutual fund, a closed-end trades like a stock; you can buy shares only from other investors. Thus the price isn’t set merely by the value of a closed-end’s investments, but by the whims of those who trade its shares. When investors pay more than the portfolio’s net asset value, that is called a “premium.” When the shares trade at less than NAV, that is a “discount.”
As of last week, 11 of the roughly 650 closed-ends tracked by Lipper Inc. traded for at least 20% more than their portfolios are worth. In many cases, investors are paying those big premiums in pursuit of high yields.
Buy such a fund, and you may double-dose on risk. A yield that looks stable can crumble; then the premium may collapse as panicked investors dump the fund. That leaves you with less income than you expected—and a big market loss to boot. Read the rest of this entry »
How funds can hit such different notes
Posted by Tetyana Matychak in Fund Markets on January 20th, 2010
Individual investors are often told that index-linked funds are better for them than actively managed offerings. That may be true, but index funds carry their own risks that can catch the unsuspecting.
Look, for example, at two exchange-traded funds that track the same international-stock index — and yet their results last year are significantly different.
IShares MSCI Emerging Markets Index ETF (EEM 41.95, -0.49, -1.16%) and Vanguard
Emerging Markets ETF (VWO 41.70, -0.50, -1.18%) both track the MSCI Emerging Markets
Index. But the Vanguard ETF gained just over 76% last year, while the iShares offering was up nearly 72%. The Index itself was up 78.5%.
The difference highlights the varied results index funds can produce and offers a lesson to investors about the best way to choose an indexed investment.
How can investors tell which ETF best tracks its benchmark index and also come to realize that not all indexes are the same? The answer isn’t so straightforward. Read the rest of this entry »
Portfolio makeover: Is our big debt doing us in?
Posted by Tetyana Matychak in Budget on January 6th, 2010
Marc and Sharon LeRoux always dreamed of opening a business together. They took the plunge in 2006, tapping home equity to buy a franchise selling pre-made meals to busy families. Alas, the business failed, and last year the couple closed it down.
Fortunately, neither had quit their day jobs - Sharon is an engineer at Hewlett-Packard, Marc owns a specialty game store. But they still have $154,000 on a home-equity line of credit from the venture dragging them down. “Our income is very good, but we’re living paycheck to paycheck,” say Sharon. “And I’m sure we’re underfunding our retirement and our kids’ college.” (They are parents of Marie, 15, Nicole, 12, and Marc, 5.)
That debt is indeed an obstacle, says Salem, Ore. financial planner Ron Keleman. It eats up $1,000 a month. In spite of that, they’ve been keeping up with retirement, managing to stash away $12,000 a year. At that pace, says Keleman, they’ll have about $1.25 million by age 65, assuming a 7% average annual return (which they may be able to get if they build more growth into their portfolio).
The good news: That amount, along with Social Security, should be enough for their modest income goals. The bad news: They’ve been unable to start an emergency fund - savings that are essential in such uncertain times. As for college, they’re aiming to have saved a year of state-school tuition for each kid . While they can probably get there, wiping out the HELOC would allow them to cover even more. Read the rest of this entry »
Best mutual funds and ETFs
Posted by Tetyana Matychak in Favourites, Investing on January 5th, 2010
Last year’s roller-coaster market showed why it pays to be patient with your investments. The Money 70, our recommended list of mutual funds and ETFs, will help you buy and hold your way to your long-term goals.
For the Money 70, our recommended list of mutual and exchange-traded funds, 2009 was a year of vindication. After the vast majority of the funds on our list suffered steep losses in 2008’s credit crisis, almost all rebounded strongly last year — with many posting double-digit gains. But short-term returns aren’t the point. It’s far more important for you to focus on long-term results.
This list was never intended to be a collection of hot funds. Instead, the point of the Money 70 is to give you a menu of high-quality funds and ETFs that you can use to construct a well-diversified portfolio, which in turn will help you achieve your long-term financial goals.
And over lengthy periods of time, Money 70 funds have proved worthwhile — provided you stuck with them in good times and bad. Take the case of Royce Pennsylvania Mutual. In a decade where gains were hard to come by in the U.S. stock market, this small-cap fund earned 9.5% a year vs. 3.9% for small stocks in general. Yet by moving money into and out of the fund at the worst possible times, Pennsylvania Mutual investors earned just 3.9% annually, according to Morningstar. Read the rest of this entry »
Kuwait Investment Fund Sells Citigroup Stake for $4.1 Billion
Posted by Tetyana Matychak in Trading Markets on December 10th, 2009
Kuwait Investment Authority, the nation’s sovereign-wealth fund, sold its stake in Citigroup Inc. for $4.1 billion after helping the U.S. bank boost capital amid the worst financial crisis since the Great Depression.
The fund converted preferred securities of Citigroup that it purchased for $3 billion last year into common shares and sold them, making a profit of $1.1 billion, KIA said in an e- mailed statement today.
The transaction “will be a confidence-booster,” said M.R. Raghu, head of research at Kuwait Financial Center, a Kuwait- based investment bank, in a telephone interview. “It looks to be good news, making a profit in these times.”
Sovereign wealth funds are selling investments in financial stocks as they seek to reduce risk and address domestic criticism over investment priorities. The funds, fueled in part by oil revenue, had become sources of capital around the world for companies including Citigroup and Morgan Stanley, helping them to withstand the credit market seizure that followed the collapse of U.S. subprime mortgages. Read the rest of this entry »
How to be an emotionless investor
Posted by Tetyana Matychak in Investing on October 30th, 2009
It’s one of the truths of mutual fund investing: You buy the manager as much as the prospectus. So it pays to have someone you trust.
Neil Hennessy, who runs the Hennessy Focus 30 fund (HFTFX), might be someone investors trust for what he does as much as what he doesn’t do. Since its September 2003 launch, the Focus 30 has returned 6.76% annually, beating the S&P 500 by an average of 4.8% a year by following a simple, quantitative strategy. Hennessy only reshuffles the fund’s 30 stocks once a year, usually in the fall. That means two things: He can’t time the market and he can’t let feelings get in the way.
After writing about his flagship fund back in February, we recently checked in with Hennessy. He had just finished rebalancing the Focus 30 in September, which meant screening 10,000 companies to find mid-cap U.S. securities that pass his requirements for price-to-sales ratio, increased annual earnings, and recent rallies. If a company makes it to the top 30, it’s given equal weight: Each stock makes up 3.33% of the fund.
Last year consumer discretionary stocks composed a third of the portfolio. That led to a paltry 0.7% gain for the portfolio in the past year, but it still beats the S&P 500’s (SPX) 5% drop. Read the rest of this entry »
Municipal bonds — still worthwhile
Posted by Tetyana Matychak in Budget on July 28th, 2009
When veteran money managers are finding one of their favorite segments of the market is potentially more lucrative, it’s time for average investors to take heed. But they need to keep their eyes open to new complexities — especially when the pros are plowing more money into a market that will likely never be the same after the beating it’s taken.
That’s what’s happening with the $2.7 trillion municipal bond market, where state and local governments raise cash to build everything from sewers to schools to roads. It’s also a magnet for investors seeking modest and reliable tax-exempt returns of around 3 to 4 percent that in normal times rival those of Treasury bonds.
Until recently, comparing muni bonds was pretty simple. You assessed the maturity date when you could expect your principal back, weighed a bond’s price against its default risk rating, and determined if the bond was backed by insurance. But the tax-favored status munis enjoy was foremost — a big selling point for wealthier investors looking to ease their tax hit.
“People used to be able to shut their eyes and buy a muni bond as long as it had insurance, and they felt safe and secure,” said Marilyn Cohen, a longtime fixed-income manager whose Los Angeles-based firm, Envision Capital Management, invests most of the $195 million it manages in muni bond portfolios. Read the rest of this entry »
Madoff Trustee Sues Fairfield Group for $3.5 Billion
Posted by Tetyana Matychak in Investing on May 19th, 2009
The trustee for Bernard Madoff on Monday sued funds run by Fairfield Greenwich Group, the confessed swindler’s largest “feeder fund,” for $3.5 billion, claiming it should have been aware he was engaged in fraud.
Connecticut-based Fairfield Greenwich Group “worked closely” with Madoff and “knew or should have known” that he was engaged in fraud, according to documents that Madoff’s trustee Picard filed in Manhattan bankruptcy court.
The trustee says Fairfield Greenwich continued to work with Madoff even though it knew his firm was the subject of a U.S. Securities and Exchange Commission investigation in 2005, and that Fairfield also ignored other warning signs.
The $3.5 billion figure represents money Fairfield Greenwich received from Madoff on behalf of clients. Read the rest of this entry »
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