ALLSTAR FUND TRADER
P.O. Box 203427, Austin, TX 78720.
Monthly, 1 year, $249.
Ron Rowland: "We had to double-check our data this month when we saw Jacob Internet (JAMFX) atop our no-load growth fund rankings. We had almost forgotten that this fund was still around. It's still here and gained +10.1% in October, +15.5% year to date, and +12.0% in the last twelve months. Manager Ryan Jacob had the misfortune of launching his fund in December 1999, near the peak of the Internet bubble. The fund lost -79% in 2000, another -56% in 2001, and -13% more in 2002. The year 2003 brought anyone who was still around a nice gain of +101%. Even with this huge year, the fund is still down more than -85% from its peak.
It is not our intent to pick on Mr. Jacob; we actually admire his perseverance. The point is that seeing a fund like this rise to the top of the RSM rankings suggests that something is afoot in the markets. Could technology and internet stocks be getting ready to explode upward? We find it hard to believe, but we can't argue with the numbers. Tech is trying to stage a comeback.
Consider Google (GOOG), the IPO of the century (so far). After coming out in August at what seemed like a very high price, Google shares have more than doubled to almost $200. No doubt much of the action is simply short-term traders aiming to make a quick profit. But there must also be a substantial number of long-term investors who think Google is a good buy at current prices. Maybe they are wrong. On the other hand, maybe they are right.
Bull markets are said to climb a wall of worry, and there are few walls more intimidating than the one technology stocks fell from in 2000-2002. Many investors lost staggering amounts and won't be back in the game anytime soon. Could this mean an opportunity for those willing to buy in the face of fear?
As technical traders we try to avoid letting emotions like fear and greed influence our decisions. We also try to exercise common sense. The technology sector may have opportunity, but it also has risks. When we see an attractive balance of risk and reward, we will be glad to go back in. That time may come sooner than you think."
INVESTECH PORTFOLIO STRATGEY
2472 Birch Glen, Whitefish, MT 59937.
1 year, 17 issues, $295.
Featured Investment - Artisan Mid Cap Value Fund
Catherine Hetrick: "Our favored choice for a mid-cap value fund is the Artisan Mid Cap Value Fund (ARTQX). This fund pursues long-term capital growth by investing in a diversified portfolio of mid-sized companies that are undervalued, but in solid financial condition. Management utilizes a fundamental approach when choosing investments in the $1.2 billion to $10 billion market cap range, seeking companies with low debt, positive cash flow and good returns on capital.
The fund is managed by Scott Satterwhite and James Kieffer who have worked together for over a decade, first at Wachovia Securities in the '90s and now at Artisan Funds. They have managed the Artisan Small Cap Value Fund since inception and added management of the Mid Cap Value Fund when it opened in early 2001. The managers' strict value investment philosophy has led them to purchase some of the same stocks listed in the InvesTech Model Portfolio including Liz Claiborne and Equitable Resources. The fund typically holds 35-65 stocks broadly diversified across sectors and industries. Individual positions rarely exceed 5% of the fund's assets.
Normally, we don't feature a mutual fund with just a three year history, but this same management team has a proven track record managing a very similar small-cap strategy for the past seven years. Under their direction, the Artisan Small Cap Value Fund, now closed to new investors, has posted returns in the top 30% of its category on a year-to-date, 1-year, 3-year and 5-year basis.
Now Satterwhite and Kieffer are proving themselves equally adept in the mid-cap value arena with Artisan Mid Cap Value ranking in the top 10% of mid value funds for the past 1-year and 3-year time frames. Year-to-date, the fund ranks in the top 1%. Not only is the fund outperforming its peers, but it's also outdistancing its benchmark, the Russell Mid Cap Value Index:
Since inception, Artisan Mid Cap Value has posted a 14% annualized return, while the average mid value offering has gained just 8% on an annualized basis.
This strong performance has attracted significant attention with assets growing from $50 million early this year to over $300 million now. Though the fund likely has some way to go before it would close to new investors, Artisan has a history of limiting new investment as their funds become too large - a policy that is very attractive for current shareholders. Three of Artisan's seven funds are now closed and target closing level has been announced for a fourth offering.
Along with solid performance, Artisan Mid Cap Value has several other strong points. Perhaps most importantly, the fund boasts very favorable valuation with a portfolio P/E of just 14.2, a full six points lower than the category average. In part, this lower valuation is due to the fact that the fund invests only 6% of assets in technology firms, about half its typical peer.
The fund's expense ratio, however, is slightly higher than average at 1.4% vs. 1.2% for the typical no-load mid-cap value fund. Still, turnover is very low at only 12%, helping to curb costs, and we expect expenses to continue to decline as the fund grows. Already, fees have dropped from 1.6% to 1.4%. Additionally, Artisan Mid Cap Value is offered without a transaction fee at large brokerage firms like Schwab, Fidelity and Waterhouse and does not impose any short-term trading penalty. This absence of "hidden" costs makes Artisan Mid Cap Value more attractive despite its slightly elevated expense ratio.
We will likely recommend purchasing this fund in the weeks to come, but are holding off for now as Artisan Mid Cap Value plans to distribute between $0.41 and $0.65/share in mid-November, with about half that amount categorized as long-term gains. The fund is planning a second distribution in early 2005, but that payout is expected to be much smaller - probably less than $0.07 per share.
Our alternate mid-cap value fund is T. Rowe Price Mid Cap Value (TRMCX), a mutual fund we have followed on our "Top-Rated Funds List" since December 2002. It is also an excellent choice, particularly if you hold other T. Rowe Price funds at the fund company and want to keep investments in the same family.
While performance is not as strong as Artisan's, returns are very respectable, ranking in the top 30% year-to-date and top 20% for the 1-year, 3-year and 5-year time frames. Valuation has crept a little higher than we'd like to see - partially driven by a 20% allocation to technology - but expenses remain below 1% and there are no short-term trading penalties. T. Rowe Price Mid Cap Value is widely available, though a transaction fee is imposed at most brokerage houses. Investors with taxable accounts should note that this fund is also planning a year-end distribution of about $1.59/share paid in mid-December."
Harloff's THE INTELLIGENT FUND INVESTOR
26106 Tallwood Dr., North Olmsted, OH 44070.
Monthly, 1 year, $179.
Dr. Gary Harloff: "Lower oil prices, weaker/lower U.S. dollar, a Bush re-election, and end of year tax spending are pushing technology stock prices higher. And about time. This year has been a cyclical up and down market with leadership changing quickly. An obvious exception to this behavior has been a cyclical up and down market with leadership changing quickly. An obvious exception to this behavior has been the oil and oil services. Now that oil supply appears more certain and China is slowing down its growth engine, there is less oil demand and we think oil related stock will no longer lead.
There are signs that large institutions are finally starting to invest in equities. These signs includes: rising bond yields, rising Dow prices, and increases in many of the broader indexes. Our timing models are bullish for the S&P 500, NDX, Gold, and remain bearish on 10 year bond yields. Our graphs for support and resistance for S&P 500 and NDX illustrate a strong stock market."
EQUITY FUND OUTLOOK
P.O. Box 76, Boston, MA 02117.
Monthly, 1 year, $139.
Thurman Smith: "Don't miss out on what looks like a rising market for at least the next year, but do mix it up. The broadening of market participation also argues for considering cap-styles that have been bypassed for so long, especially large caps. Everything I read about the dollar suggests further erosion, so do include a foreign stock fund, and some operating-firm type real estate fund as a core holding. Aggressive investors should consider a natural resource fund as well."
Libera's CLOSED-END COUNTRY FUND REPORT
725 15th St., Ste. 501, Washington, D.C. 20005.
Monthly, 1 year, $225.
Global economy strengthening again
James Libera: "The global economy appears to be strengthening again despite high oil prices. After softening in the second quarter, economic growth accelerated in the third quarter. We project that total world GDP will rise 4% in both 2004 and 2005, compared with about 2.5% in 2003. Europe remains a laggard, but all the other major economic regions - U.S., Japan, China, emerging Asia and Latin America - should show 4%+ growth this year. We recommend strongly overweighting the emerging markets.
Latin American markets have been among the world's best performers this year. All the major economies have enjoyed accelerating growth and that momentum should carry into 2005. Markets are not cheap but remain reasonably priced. We recommend a modest overweighting here."
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