IDEAS ON WHERE TO INVEST
Trying to figure out the best types of funds to invest in for positive returns has always been a challenge for investors no matter what's happening in the market. So, if you're looking for a couple of ideas, here's what some pros are suggesting.
Sheldon Jacobs, publisher of The No-Load Fund Investor, thinks one sector ripe for "outsize returns over the next five-to-ten years" is health and biotech funds.
His reasoning? On the plus side is demographics, thanks to the aging baby boomers. And, the defensive nature of these stocks.
Unlike cyclical companies, health and biotech stocks are defensive. Meaning, people typically will spend money on their health and health care no matter what's going on in the economy.
Then there is profitability. Forget the Internet stock bubble, in which dreams were played and not much made, there are many established health and biotech companies out there with track records that make viable products.
And, there is also the promise that the brand new world of genomics offers. Plus, the potential profitability if cures for chronic diseases, like Alzheimer's and cancer, are found.
On the downside, a couple of the many risks include the fact that the price earnings ratio on health and biotech stocks -- and the funds investing in them -- is higher than average. And, the risk factor in developing new drugs is also high. "Right now, about one in 50 survive from scientific idea to human testing, " says Jacobs. "Even from that point, there is a tremendous attrition rate so that for every compound that starts in preliminary human testing, the FDA approves only about one in 10."
Even though this sector can be a risky one, if you find the health and biotech arena exciting, Jacobs suggests the best play is a diversified one. That is, look for a fund that not only diversifies its holdings by companies but among various sub-sectors.
His recommendation for a conservative play is the Vanguard Health Care Fund. Its portfolio currently has the bulk of its assets -- 68 percent -- invested in health care companies. Middle of the road suggestions include Invesco Health Sciences Fund, currently it has 56 percent of its assets invested in pharmaceuticals and 31 percent in biotechnology health care companies; T.Rowe Price Health Sciences Fund, biotechnology companies make up 37 percent of its portfolio and pharmaceuticals 33 percent; and American Century Life Sciences Fund with 44 percent of assets invested in pharmaceuticals, and, 23 percent in medical providers.
For those wanting to take maximum risk, his suggestion is the Genomics Fund. Pharmagenomics make up 45 percent of its portfolio, followed by 31 percent invested in monoclonal antibodies companies.
Should you decide to research any of Jacobs' fund suggestions, you'll find all of their year-to-date total return performance numbers in minus territory. Don't let that alarm you. While it's impossible to predict the future returns on any type of mutual fund, it's not unusual to find this year's dog funds performing well on future year's performance lists.
For those interested in trends, Montgomery Asset Management thinks that there's a new mega-trend on the horizon. In a white paper recently released by this San Francisco based company, the potential of alternative energy sources are addressed in their report titled, "New Power -- The Next Frontier."
The experts at Montgomery see this mega-trend as world-wide in scope and being driven by a number of factors. "When deregulation, technology and innovation combine in a major industry to lower prices, improve quality and simplify as well as personalize use, consumer adaptation can be fast beyond anyone's expectations," says Glen Hilton, Montgomery's senior analyst and New Power expert.
Technologies that the report thinks will shape the new power industry of tomorrow include: distributed power, it's designed to decentralize power at its source; clean power, like marketing surge-free and continuos power supplies to power-dependent users; green power, or renewable power ; and e-power which leverages power moving it directly to consumers and away from suppliers.
And there you have it; new ideas to think about, cautiously.
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