New Funds for Bull (and Bear) Markets
New Funds for Bull (and Bear) Markets
by Norman Fosback
Mutual Fund Forecaster
Fund
sponsors continue to roll out intriguing new funds. Many have impressive
capital gains potential in this or future market environments. Here's a
run-down.
**
Rydex OTC Short complements an emerging array of funds designed
to profit on declining markets. (They've been having a field day over the
last month after considerable hardships previously.) The new fund is Rydex's
second bear fund. The first, Rydex Ursa, shorts the S&P 500 Index. It
lost half of its value from a January 1994 inception until the recent market
decline. The new fund will strive to match, in reverse, the performance
of the Nasdaq 100 Index. This index consists of one hundred large companies
whose shares trade on Nasdaq. The index is dominated by a handful of technology
companiesMicrosoft, Cisco Systems, Intel, and Apple constitute half of the
market-value-weighted index. The no-load fund (800-820-0888) has a $25,000
minimum initial investment and carries a 1.5% annual expense ratio.
**
One winning theme in the great 1990s' bull market is large multinational
companies. Funds focusing on these enterprisesCoca-Cola, IBM, General Electric,
and the likehave easily beaten the great mass of equity funds. Van
Kampen Global Franchise is the newest entry, although it features a
slightly deferent portfolio twist. This multi-class load fund, sponsored
by Morgan Stanley (which recently took over Van Kampen), is premised on
the belief that intangibles, such as patents, copyrights, brand names, licenses,
and unique distribution methods, underlie many strong business franchises,
and pose strong barriers to competition from other firms. The fund (800-282-4404)
will seek to identify global companies with resilient business franchises,
strong cash flows, capable managements, and global growth potential, all
with a bias towards value.
Time for Bear Funds?
| ||||
| Bear Fund | Portfolio | Inception Date | Minimum Investment | Telephone |
| Potomac OTC/Short | Short Nasdaq 100 |
10/16/97 | $10,000 | 800-851-0511 |
| Potomac U.S./Short | Short S&P 500 | 10/24/97 | 10,000 | 800-851-0511 |
| ProFund Bear | Short S&P 500 | 11/19/97 | 15,000 | 888-776-3637 |
| ProFund UltraShort | OTC Short 2 times Nasdaq 100 |
June/98 | 15,000 | 888-776-3637 |
| ProFund Ultra Bear |
Short 2 times S&P 500 |
11/19/97 | 15,000 | 888-776-3637 |
| Prudent Bear | Short mixed portfolio | 12/29/95 | 15,000 | 888-778-2327 |
| Rydex Ursa | Short S&P 500 | 1/07/94 | 25,000 | 800-820-0888 |
The
hottest speculative market craze going today may not be the Internet after
all. Instead, it may be at the opposite end of the glamour scale: conversions
of staid mutual savings banks and thrift institutions into publicly-owned
stock companies.
**
The newly-formed Bowes Bank and Insurance Fund is looking
to cash in on those conversions, as well as on a still fledgling, but possibly
parallel trend, of credit union and mutual insurance company conversions.
Founder and portfolio manager Robert Bowes says his no-load sector-specific
fund (888-829-9973) is the first to zero in on the huge profit potential
of this investment arena.
In
the first six months of this year, 35 mutual banks completed conversions
and went public. On average, the stocks popped 37% in the first day of public
trading, and most cruised higher from there.
The
$2-million fund will deposit up to 5% of its assets in mutual banks and
thrifts, and up to 5% in general annuity accounts of insurance companies,
that appear to be prime candidates to demutualize. Bowes has already put
capital in more than 120 community banks and mortgage, title and life insurers.
Why
bank deposits and annuity accounts? Simple! When mutual companies convert
to stock companies they initially offer shares to their depositors or policyholders.
In the case of community banks and thrifts, local residents are then given
an opportunity to buy shares if any are left over. Only after that is a
stock offering made to the public at large, and competition for shares can
be fierce. By making deposits of as little as $50 in an institution, Bowes
can be first in line to secure large allotments of stock from companies
that are demutualizing.
Bowes
says a wave of insurance company demutualizations is also around the corner,
and anticipates getting in on shares at 65% to 85% of book value. In addition
to short-term out-of-the-gate appreciation potential, the manager speculates
that many of these newly-formed firms will later be attractive takeover
and merger candidates, which could spike the shares still higher.
Bowes
expects more than $50 billion of discounted insurance company stocks to
flood the market in the next few years. Several goliaths, including Prudential
and John Hancock, have recently confirmed their intent to demutualize. Bowes
asserts his fund is likely to be among the few positioned to capitalize
on stock subscription rights.
Launched
in March, Bowes Bank and Insurance was seeded with $100,000 and is off 12%
from its initial $10-per-share offering price. Why? It has yet to land its
first conversion deal. Meanwhile, Bowes is socking most of his assets in
stocks of fundamentally-sound banking, insurance, and financial services
concerns, which has been a top-performing sector. But if he lands a handful
of conversions/demutualizations, Bowes believes they could account for as
much as two-thirds of the fund's assets.
The
manager will also employ tax-sensitive investment strategies to maximize
aftertax returns. "Over the next year," says Bowes, "we expect
to have between thirty and fifty stocks in our fund, with the number growing
as we invest and hold for the long-term." A minimum investment of $2,000
is lowered to $1,000 for retirement accounts.
**
Golf Fund (888-823-GOLF) is certain to catch its fair share
of attention on the Sunday links. The fund will invest in stocks of firms
that are involved in, or related to, the golf industry. Examples: golf club
manufacturer Callaway Golf; Jack Nicholas' course and range management firm,
Golden Bear; golf apparel makers Ashworth and Cutter & Buck; and club
manufacturers Coastcast and Square Two Golf.
Tiger
Woods hasn't won many tournaments lately, but he set the world afire a year
ago, triggering renewed interest in the sport, especially among the young.
As a result, some of these stocks have taken off. For instance, Family Golf
Centers, which has been recommended in our companion advisory, Market
Logic, has spurted more than 50% in the last twelve months. The company
is building a chain of golf practice ranges and family entertainment centers.
Unfortunately,
there aren't a lot of pure golf plays with sizable market capitalizations,
so Golf Fund will have to fill its bag with some not-so-pure plays, including
companies that sell chemicals and fertilizer to golf courses, publishers
of golf periodicals, and even large non-golf companies that are involved
in sponsorship and advertising of golf events. A minimum initial investment
of $1,000 is lowered to $250 for retirement accounts. The shares will be
offered in three classes"A," "B," and "C"imposing
a variety of front, back, and continuing 12b-1 loads.
If
golf just isn't your sport, consider putting yourself in the shareholders'
seat of StockCar Stocks Index (877-223-3863). The prospective
fund's sponsor has created an index of 52 companies involved in auto racing
and plans to mimic that index with its new portfolio. Auto racing, believe
it or not, is the #1 spectator sport in America. Most of the attention is
on "Winston Cup" stock car racing, sponsored by NASCAR. The fund
will invest in companies that sponsor NASCAR racing teams and events, such
as Goodyear, DuPont, Ford, Anheuser-Busch, Quaker State, and Texaco; publicly-traded
race track owners, such as Dover Downs Entertainment, International Speedway,
Penske Motor Sports, and Speedway Motor Sports; and niche companies like
Action performance, which produces licensed apparel and souvenirs, Racing
Champions, a producer of die-cast race car replicas, and trading card manufacturer
Wheels Sports Group. The fund claims its Stock Car Index has edged the S&P
500 over the last five years.
**
Two Russia funds, Templeton Russia and Lexington Troika
Dialog Russia, have been among the wildest funds on the U.S. market.
If they're not the top performers over a given period, you can pretty well
bet they're at the bottom, instead. But, although Russian stocks have taken
a pounding latelythe two funds are down an average of 60% over the last
twelve monthsthey've actually been up a lot more than down. The older of
the two, Templeton Russia, doubled over a ten-month period between early
1996 and early 1997, then doubled again in the next six months. The two
funds will soon get competition for the limited number of securities trading
in Russia and companies doing business in that country. The upstart, Third
Millennium Russia (800-527-9525), does not have a front-end load,
but will impose a 2% fee on shares sold within 360 days of purchase. A quarter-percent
12b-1 fee contributes to an extremely high 2.75% estimated annual expense
ratio. Templeton Russia is a closed-end fund (NYSE TRF) that is now priced
more than 40% above its net asset value. Lexington Troika, a no-load fund
with a 1.85% expense ratio, is the better play at this juncture.
Editor's
Note: Norman Fosback is Editor in Chief
of Mutual Fund Forecaster, 2200 SW 10th St., Deerfield Beach, FL
33442, 1 year, 12 issues, $100. This highly-regarded advisory service provides
unique one-year and five-year profit projections and risk ratings for over
700 funds in every issue. Also in every issue are the "Best Buy"
Recommendations, Market Outlook and the Model Asset Allocation Portfolios.
A Bull & Bear recommended service.
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