Pinnacle Investment Management Inc.
client letter, Greystone Court West, 573 Hopmeadow St., Simsbury, CT 06070.
www.Pinnacle-Investment.com
"Non-traditional" investments that
can benefit from the declining dollar
John W. Eckel: "The declining dollar, combined with budget and trade deficits may create inflationary pressures, which are usually detrimental for stocks and bonds. One of the lessons of the 1970's is that although inflation reduces returns from paper assets such as stocks and bonds, it benefits hard assets like commodities. While it is important for investors to maintain a diversified portfolio, they should also consider utilizing "non-traditional" investments that can benefit from the declining dollar, the potential for rising inflation and interest rates. Although the following discussion highlights the non-traditional investments, it is not meant to imply that traditional stocks and bonds should be overlooked in investment portfolios.
Natural resources finds such as RS Global Natural Resources can benefit from the growth of Asian economies and provide some protection from potential inflation. Investments in basic industrial companies such as Caterpillar, Phelps Dodge, and Alcoa should also achieve the same end. Other funds which may benefit from rising commodity prices include Pimco All Asset Real Return, Pimco Commodity Real Return, and Oppenheimer Real Asset. The last two funds replicate the performance of diversified commodity indexes, and can be used to diversify a portfolio, but should not be considered "stand-alone" investments.
Foreign investments should benefit if the dollar continues to decline. International stock funds such as First Eagle Sogen Global and Overseas, Longleaf International, Tweedy Browne Global, Third Avenue International Value, and Franklin Mutual Discovery should provide attractive risk adjusted returns. Funds with significant Japanese holdings, such as Longleaf International and DFA Japanese Small Company funds can benefit from both the improving Japanese economy and weakening US dollar...Also, international and global bond funds such as American World Bond or Pimco Foreign Bond should also do well compared to their US counterparts if the dollar continues to weaken.
Funds such as Kensington Strategic Income (a preferred stock REIT), Merger, and Calamos Market Neutral funds are examples of alternative investments that follow relatively low risk strategies."
THE INTELLIGENT FUND INVESTOR
26106 Tallwood Dr., North Olmstead, OH 44070.
Monthly, 1 year, $179.
Japan & Small Caps are buys
Dr. Gary Harloff: "The first stock market correction of 2004 appears to be over, just in time for earnings reporting season. Our timing models, are bullish for S&P 500, NDX, XAU, and bond yields (i.e. we recommend shorting bonds). Our style analysis indicates that small growth and value beat large growth and value. Large institutions appear to be in cash. This means that there is "fuel" for higher equity prices. Because small caps are outperforming, we like Rydex Mekros (RYMKX) and Profunds Ultra Small Cap (UAPIX).
Our analysis indicates that the economy is starting to awaken with semiconductors, Internet, and technology as buys. We like Japan (UJPIX and RYJPX). This broad based Asian equity price growth is an early sign of business buying technology and suggests that our economy will pick up in a few months.
Even though gas prices are high in the US, energy stocks (XOI) are falling, winter is fading in the North, and refineries are switching from heating oil to gasoline. Gas prices at the pump will fall soon.
The US dollar (DXY-Z) is weak again, even as the administration SAYS it is for a strong dollar. We are long gold.
Real estate remains strong due to extremely low interest rates. We expect low rates until October, 2004."
ALL STAR FUND TRADER
P.O. Box 20347, Austin, TX 78720.
Monthly, 1 year, $249.
Ron Rowland: "Gold: The yellow metal remains strong, as do the companies that produce it. Many precious metals funds posted gains of 5% or more in March. They have not, however, returned, to the levels of December and January and seem to be hitting resistance around the current levels. Unless the bullion price breaks to the upside, we think most of the gains in this sector are past.
Real Estate: REIT and other real estate funds had a banner month in March, which seems a little strange given uncertainties about the economy. The best explanation we can think of is that investors who have fled stocks are going into real estate in search of higher income than bonds are able to provide. However, the steep run-up in price has drastically reduced the yields available from real estate funds."
EQUITY FUND OUTLOOK
P.O. Box 76, Boston, MA 02117.
Monthly, 1 year, $139.
Nervous selling unwarranted
Thurman Smith: "There is good chance for the market to complete a secondary correction, but nervous selling to raise cash is unwarranted. Every investor should ask each month: Are there suitable and available investment opportunities that will likely be higher a year from now? I see no reason to think not. So though the investment picture is giving mixed signals, it is still wise to seek out and buy the best managed funds that make a well balanced portfolio and whose average risk does not exceed one's ceiling. If you have a large inflow of new money, spreading out buys over several weeks or so would make sense; otherwise continue to review and upgrade as the tax status of each account permits.
Check industry sector weightings of funds you may be adding to ensure having some energy, financial services and healthcare, sectors that, for some reason, tend to do well in election years. If your portfolio is more than the market average of 20% in tech, look for ways to ease up in this sector, as it tends not to do well in election years. While it's still too early for large-cap funds, don't skimp on now equally attractive mid-cap funds. Some foreign participation is also warranted; with federal deficits rising the dollar is unlikely to recover soon."
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