Investment Advice For 2004: Diversify
With all the hoopla going on within the fund industry, many fund families seem to have their heads in the sand.They're not talking about their funds' performances, 2004 investment outlooks, or, any changes their fund families have made to make their shareholders feel more confident about the investments they've made with regard to the industry's recent problems.
To that end, this week's column will look at how equity fund's are faring; what one fund family is doing to secure investor trust within its family; how another portfolio manager views the fixed-income market and for some investment perspective; and for some investment perspective, what wisdom the long-term past performances of the markets might show.
First, a look at how the average equity fund is doing. During the first two weeks of this year, (12/31/03 through 1/15/04), Lipper's numbers show that the average U.S. Diversified Fund had moved ahead 2.7 percent. What types of funds within this group of 15 are performing the best? The small-cap ones. Small-cap growth funds, for instance, were tops with a year-to-date total return average that was up 5.3 percent; small-cap core funds follow next, up on average 4.2 percent; then come multi-cap growth funds, up 3.4 percent; and small-cap value funds, ahead 3.3 percent.
Both science and technology funds and telecommunications funds were up almost 8 percent through Jan. 15, Latin American funds up about 5.5 percent and the only down category---gold orientated funds---off on average 7.7 percent. That's not a bad start for a year with a Presidential election in it.
As for what one fund family is doing to insure continued trust among its shareholders, the San Francisco-based Forward Management (800-999-6806) is implementing a new program. Forward is the investment advisor for two no-load fund families, Forward Funds and the Sierra Club Funds, and has not been involved in any of the New York's Attorney General Spitzer fund allegations or SEC investigations.
"The year 2003 was a trying time for the mutual fund industry, but an even more challenging time for individual investors, " says J. Alan Reid, Forward Management's president. "While Forward Funds and Sierra Funds remain unscathed, we believe there's always room for improvement. That's why we're excited to enact some of the most aggressive measures taken to-date by any fund management company, and to re-affirm our commitment to our fund shareholders.
The information that Forward is now making available includes: a weekly report of its daily fund flows so that investors can review the investments and redemptions made each day in the fund; a quarterly list of all Fund transactions made by senior management team members; the Fund's Code of Ethics; and Board of Director biographies.
To view this information, visit the Forward web site at http://www.forwardfunds.com or http://www.sierraclubfunds.com.
On fixed-income funds, Bill Gross, portfolio manager of the very popular Pimco Total Return Fund, is concerned about the increasing deficits in the U.S and has sold his holdings in that fund because, according to Morningstar, he believes there are" better opportunities elsewhere".
While the Pimco Total Return Fund (PTTRX) invests most of its assets in investment-grade debt securities, things such as the increasing deficits, the falling dollar and potential for rising interest rates can all wreak havoc on fixed-income security prices.
So, what kind of investments does Gross like these days? According to The New York Times reports, Gross has moved money into closed-end municipal bond funds, commodity derivatives and Treasury inflation-protected securities.
And finally, a reality check on where money has been made in the markets from Ibbotson's point of view. (Ibbotson is a Chicago-based securities research firm. The numbers that follow assume a re-investment of income and no transaction costs or taxes. Keep in mind, past performance offers no guarantee of future results.)
During the decade of the 1970s, small company stocks had an average return of 11.5 percent; inflation ran at 7.4 percent; treasury bills returned 6.3 percent; large company stocks, 5.9 percent; and government bonds, 5.5 percent.
During the 1980s, large-cap stocks were the big winners averaging a return of 17.5 percent over that decade; small-cap stocks came in second with a 15.7 percent return; government bonds at 12.6 percent; treasury bills at 8.9 percent and inflation, 5.1 percent.
In the 1990s, the average return on large-company stocks was 18.2 percent; on small-cap companies, 15.1 percent; government bonds, 8.8 percent; treasury bills, 4.9 percent; and inflation 2.9 percent.
Over the past 10-years, from December 31, 1992 through December 31, 2002, small-cap stocks were out in front again, with an average return during this decade of 11.6 percent; government bonds returned 9.7 percent; large-company stock, 9.3 percent; treasury bills, 4.4 percent; and inflation averaged 2.5 percent.
As you can see by the above numbers, the secret to investing is diversification. Why? Because you never know which asset class will be the winning one going forward.
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