Forbes Honor Roll
Forbes just published its list of 'Honor Roll' funds for 2007, and while there's not a real stinker in the bunch – this is no buy list. Here are the funds that made the cut, along with our MAXrating for each one:
Bruce Fund (BRUFX) MAXrating: 84
Delafield Fund (DEFIX) MAXrating: 63
Keeley Small Cap Value (KSCVX) MAXrating: 68
Mairs & Power Growth Fund (MPGFX) MAXrating: 80
Muhlenkamp Fund (MUHLX) MAXrating: 61
Osterweis Fund (OSTFX) MAXrating: 77
Perritt MicroCap Opportunities (PRCGX) MAXrating: 93
Stratton Small-Cap Value (STSCX) MAXrating: 70
Third Avenue Value (TAVFX) MAXrating: 85
Value Line Emerging Opportunities (VLEOX) MAXrating: 93
According to Forbes, to get on the Honor Roll "contenders must pass a number of stringent tests. The managers must have been on the job for at least six years; a newbie can't ride on the boffo showing of his predecessor. We also want portfolio diversification. Thus sector funds don't get in. And a fund must be open to new investors." Forbes also looks at how well funds have done through past up and down markets.
But like all top fund lists, this one has its share of problems... ...read the rest of this article»
Obvious Advice of the Week
Scott Burns at MSN Money meets this week's article quota by telling us that when shopping for mutual funds, you're better off going with cheap rather than expensive:
The least expensive one-eighth of large-blend funds had an expense ratio of 0.50% or less and provided an average return of 6.90%. More important, 49 of the 69 funds in the group provided superior returns, so you had a 71% chance of superior performance simply by selecting the least expensive funds."
While this advice might be a bit on the "duh" side for savvy MAXfunds readers, we reckon it never hurts to get a reminder every now and then.
Ask MAX: You call THIS a MAXadvisor Favorite?
Russ Asks:
You call the Vanguard Precious Metals & Mining Fund (VGPMX) a MAXadvisor Favorite Fund, but it has a MAXoutlook of -16%. Why do you call a fund a MAXadvisor Favorite if you think it is going to perform so poorly in the next year?"
How can we like and hate the same fund? We’re not bipolar – here’s how it works:
We give MAXadvisor Favorite honors to at least one fund in every stock fund category. No matter how well we think a category is going to do , we'll try and find the best funds available to you. You'll find a Favorite Fund listed in some categories we think are currently a very bad place to be invested - categories like real estate, Latin America, and yes, precious metals.
Our MAXoutlook is our forecast for a fund’s performance over the next twelve months. This figure is largely driven by our forecast for the fund’s category, the fund’s quality and fees, and the fund’s risk level. Safer funds generally don’t have big negative forecasts even if the category ranks poorly. ...read the rest of this article»
Mad Investors
Barron's online did a comprehensive review of Jim Cramer's Mad Money stock picks, and the results are unsurprisingly mediocre:
Cramer, by all accounts, had a stellar career as a hedge-fund manager. And he is held out by CNBC as the guy who can help viewers make big money. But a comprehensive and careful review of his stock picks by Barron's finds that his picks haven't beaten the market. Over the past two years, viewers holding Cramer's stocks would be up 12% while the Dow rose 22% and the S&P 500 16%, according to a record of 1,300 of the CNBC star's Buy recommendations compiled by YourMoneyWatch.com, a Website run by a retired stock analyst and loyal Cramer-watcher.
We also looked at a database of Cramer's Mad Money picks maintained by his Website, TheStreet.com. It covers only the past six months, but includes an astounding 3,458 stocks — Buys mainly, punctuated by some Sells. These picks were flat to down in relation to the market. Count commissions and you would have been much better off in an index fund that simply tracks the market."
We'd normally advise people to go ahead an watch CNBC's Mad Money because of its entertainment value, but Cramer is so good at making his picks sound like can't miss investments opportunities that even I've occasionally been tempted to fire up E*Trade and dive in. Mad Money no longer sullies my TiVo. I watch Jeopardy instead.
Read Also:
Bring in the Love, Push out the Jive
Lately the market has had more ups and downs than Lindsey Lohan's personal life. CNNMoney.com looks at five no-load mutual funds that have succeeded in capturing market gains while limiting losses during downturns.
2. Third Avenue Value Fund (TAVFX)
4. Neuberger Berman Fasciano Fund (NBFSX)
5. Royce Special Equity Fund (RYSEX)
Of the five, two (Fairholme and Neuberger Berman Fasciano) are currently included in the MAXadvisor Our Favorite Funds list – our hand-picked list of the best funds in each fund category. Jensen is no longer a fund favorite, but was in the past. We recently sold or stake in Fairholme in our MAXadvisor Powerfund Portfolios because the fund has become too popular with investors (thanks to lists like the above…).
We don’t think value in general and small cap value in particular are going to save a portfolio from the next major market downdraft. What worked in 2000-2002 won’t necessarily work today.
MAXadvisor Powerfund Portfolios Update
Note to subscribers of the MAXadvisor Powerfund Portfolios: this month's portfolio performance data update and commentary has been posted. Subscribers can log in by clicking here.
The MAXadvisor Powerfund Portfolios is a collection of seven model mutual fund portfolios ranging in risk from very safe to quite aggressive. Each portfolio is made up of a group of terrific, no-load, low-cost mutual funds that are carefully chosen to work together to lower volatility and increase returns. You can learn more about the MAXadvisor Powerfund Portfolios (and sign up for a free trial if you like what you see) by clicking here.
It's Not All Sub-Prime's Fault
Sure, the sub-prime mortgage mess played a big part in this week's wild market gyrations, but it wasn't the only factor. Charley Blaine at MSN Money says there's plenty of blame to go around, and points the finger at hedge funds, quant models, even the securities and exchange commission.
How Safe Is Your Money Market Fund?
In a market that has seen even supposedly super-safe funds lose upwards of 6% in a single day, are even safer-than-super-safe money market funds immune from getting walloped? Gail MarksJarvis at ChicagoTribune.com writes that while companies that run money markets do everything they can insure that investors in their funds won't lose money, it's not impossible that the sub-prime mess could take a toll:
The models used by Wall Street to design the securities have been a flop. As a result, the securities have plunged in value. Some financial firms are laying low, holding onto the sludge, and hoping that if investors calm down the securities will regain some of their value.
Money market funds are allowed to invest in the mortgage-related securities, but only the safest slices -- or traunches -- of them; such as those rated AAA or AA.
Still, in the current environment, even those slices have lost value, and investors are learning that the top AAA rating on the mortgage-related securities is not akin to AAA in corporate bonds."
But don't panic. While money market funds are not backed by the government, the odds of a money market meltdown are slim:
According to federal rules, the securities within money market funds are supposed to mature quickly -- no longer than 13 months for securities, or 90 days on average for all the investments within a fund. Within those constraints, money market funds can also hold 'illiquid securities' -- or securities, like the mortgage-related bonds. 'Illiquid' means the bonds cannot be sold easily. Of course, in today's nervous market, institutions holding the mortgage-related securities can't find willing buyers at decent prices.
By requiring money market funds to keep risky securities at a minimum, and mandating that most securities mature quickly, the funds have had a reliable track record.
The industry prides itself on guaranteeing that funds "don't break a buck." In other words, if you put a dollar into a fund, you can get that dollar out.
Still, money market funds are not insured by the Federal Deposit Insurance Corporation like bank savings accounts are. So investors cannot take them for granted."
Contact Your Congressperson
We here at MAXfunds.com obviously are pretty fond of mutual funds. After all, we've been encouraging readers of the site to invest in them since MAXfunds began way back in 1999 (though with more than a healthy dose of criticism and contrarian opinion). But while we think mutual funds are the best investment choice for just about everybody, they aren't perfect. One of their biggest drawback is the way investors in mutual funds are taxed.
When you invest in a mutual fund, you are essentially handing your money over to somebody else to invest for you. Because you lose direct control over your investments, you also lose control of your tax situation. If a fund manager sells a stock for a profit and has no losses to counter the gain, you are liable to pay a tax on that profit even if you haven't sold any of your shares in the fund. That means in any given year you could be hit with a monster tax bill clear out of left field - even if you didn't sell a single share of the fund.
Chuck Jaffe from Marketwatch reports on a law pending in Congress that would dramatically change how mutual funds are taxed.
The Generate Retirement Ownership Through Long-Term Holding Act of 2007 -- call it the GROWTH Act -- was introduced in June by Rep. Paul Ryan, R-Wis., effectively rehashing a sound proposal that he has put forth several times since 2003. The bill would allow fund investors to defer capital gains taxes on reinvested distributions until the fund is sold, a change that would simplify personal accounting, make fund investing more attractive and that would put funds on a similar tax plane as stocks."
The effect would be to turn every mutual fund portfolios into a kind of junior Roth IRA:
Allowing an investor to save in a fund without paying taxes on distributions indefinitely effectively creates the "lifetime savings account" that so many politicos have kicked around in recent years. For a buy-and-hold investor, it turns a "taxable fund account" into the equivalent of a traditional IRA, without the contribution limits. (Traditional IRAs require payment of taxes only upon withdrawal but allow investors to trade in and out of securities without generating a tax bill; in an ordinary taxable account, every trade is a taxable event.)"
For fund investors, we think this is a no-brainer. If you agree, why not drop your congressperson a line and tell them to get behind it. For many investors it would be a bigger investing tax break than the recent dividend tax cut.
MAXadvisor Powerfund Portfolios Update
Note to subscribers of the MAXadvisor Powerfund Portfolios: September's feature article has been posted. Subscribers can log in by clicking here.
This month we look at what August's market turmoil means for Powerfund Portfolio investors.
The MAXadvisor Powerfund Portfolios is a collection of seven model mutual fund portfolios ranging in risk from very safe to quite aggressive. Each portfolio is made up of a group of terrific, no-load, low-cost mutual funds that are carefully chosen to work together to lower volatility and increase returns. You can learn more about the MAXadvisor Powerfund Portfolios (and sign up for a free trial if you like what you see) by clicking here.