Reuters Money
Opportunity knocks for Dreyfus Opportunistic Small-Cap fund
By Karyn McCormack
Before entering the investment world, David Daglio, 44, was a mechanical engineer who helped design, build and manage Dannon’s yogurt factory in Fort Worth, Texas. “I learned that running a business is hard and a lot of things need to be right,” recalls Daglio of his six years at Dannon. “Solving business problems is not simple …You need to understand solutions in a complex way.”
Running a factory and all of its moving parts turned out to be a good stepping stone for Daglio’s future career as a fund manager. After working several years as an equity analyst at The Boston Company, he became a portfolio manager in 2003 and was then promoted to lead portfolio manager of the Dreyfus Opportunistic Small Cap fund in August 2005.
Daglio and his Boston-based team — James Boyd, Dale Dutile, Creighton Kang, Brian Duncan and Shirley Mills — hunt for small-cap stocks (with market caps of $5 billion or less) that trade at a discount to their long-term intrinsic value. He defines intrinsic value as what an informed investor would pay for a security given the company’s earnings potential, cash flow, and long running assets and liabilities.
“We’re more concerned with long run earnings potential than what a company would earn over the next six to 12 months,” Daglio explains. He likes to find “real value opportunities” that most investors, who focus on the next 12 months earnings forecasts, might miss.
Daglio’s strategy is paying off. The Dreyfus Opportunistic Small Cap Fund’s three-year annualized return was 13.98 percent, beating the 2.08 percent rise for the Lipper Small-Cap Core Average (through Dec. 31, 2010). In the last five years, the fund has risen an annualized average of 10.29 percent, vs. 4.09 percent for similar funds. The fund has performed so well that it has won the 2011 Lipper Fund Award for consistent returns over the three-year and five-year periods. In fact, this is the second year that the fund has taken home the trophy for the small-cap core classification.
One reason for the fund’s stellar performance is understanding risk during the bear market of 2008. “The question we ask is, what can go wrong and what do we not know?” Daglio says. The team focuses on examining a company’s assets and liabilities, they also determine if its balance sheet is stretched too far. This helped the fund avoid the most leveraged sectors during the market meltdown, such as financials, leveraged industrials and some commodities.
Diversification key to award-winning sector funds
When people talk about house values, they say that three words matter the most, “Location, location, location.”
When Maura A. Shaughnessy, manager of MFS Utilities Fund since its inception 19 years ago, thinks about what to invest in, there are also three words that matter the most, “Diversification, diversification, diversification.”
If anything is important about mutual funds — any mutual fund — it is diversification. Yet nowhere is diversification to minimize investment risk more important to investors than in sector funds –- funds that are concentrated in slices of the U.S. or world economies, such as a utilities fund or a technology fund.
Diversification of a sector fund is also important to the people who run one, if they want to achieve records of consistently superior risk-adjusted performance for which Shaughnessy’s fund has received its third Lipper award for the latest three years.
For sure, her fund didn’t receive the awards for just collecting dividends from corporations that generate and sell electricity for lights and power in the U.S. She gets accolades for broadening the definition of utilities beyond that of her benchmark, the Standard & Poor’s 500 Utilities Index, to include new industries and foreign markets (such as Brazil). Shaughnessy has also broadened her scope to include bonds and convertible securities in addition to common stocks, when they promise greater appreciation, higher income — and diversification of a different kind.
“The fund’s exposure to the telephone services industry, which is not represented in the S&P Utilities Index, was the principal driver of performance relative to the benchmark,” she wrote in the annual report for the October 31 fiscal year along with Robert Persons, co-manager, who has run the fund’s fixed income portfolio since 2005. Other industries they cited for helping results: cable TV, energy, and gas pipelines.
As a member of the team supporting T. Rowe Price Global Technology Fund since 2003 and as its portfolio manager since 2008, David J. Eiswert has a ready explanation of why the fund has repeated as winner of a Lipper Fund Award for performance for the last five years in the global science and technology category:
Innovators boost Waddell + Reed Advisors New Concepts fund
By Karyn McCormack
Kimberly Scott, 51, has developed a knack for spotting innovators — and survivors — among mid-cap stocks for the Waddell & Reed Advisors New Concepts fund. ” We saw in 2008 and 2009 every company was at some risk,” she explains. “If you have a richer business model and clean balance sheet, during a bad time in the economy or a mistake in a product, those companies are more likely to survive.”
The Overland Park, Kansas-based fund manager studies many financial metrics, but focuses on trailing 12-month operating cash flow to find clues about what’s going on in a company’s business. For example, changes in working capital items such as inventory or accounts receivable can signal improving or deteriorating trends. She also looks for companies with healthy balance sheets and low leverage to add to the fund. In other words, “quality growth companies that have highly profitable business models supported by sound capital structures,” she says.
Scott breaks the fund’s holdings into three groups. The first is “stable demand,” comprised of companies that generate consistent revenue and earnings. The second is “greenfield” growth companies, which exhibit “longer runway” growth visibility, even though investors might not understand the extent of the growth potential. Chipotle Mexican Grill is one of those companies. Some investors might believe the stock is overvalued, but the company continues to deliver earnings and cash flow growth. “These stocks have performed well and look expensive, but end up being much less expensive because the earnings potential is much greater than what the market understands,” she explains.
The third group is made up of mistrusted or misunderstood growth opportunities, or companies that might have been on a growth track that investors have given up on. One example: BorgWarner, which Scott bought at an average cost of 37 throughout 2009 and currently trades at 74. Ultimately, she’s “looking for good assets on sale.”
Scott’s investing approach has catapulted the Waddell & Reed Advisors New Concepts fund to the top of its class among Lipper’s Mid-Cap Growth Classification. The fund’s three-year annualized return is 7.55 percent (through Dec. 31, 2010), beating the 0.4 percent decline for the Lipper Mid-Cap Growth Average. For the last five years, the fund has risen 9.16 percent, vs. 4.64 percent for similar funds that Lipper tracks. As a result, the $1.4 billion fund has won the 2011 Lipper Fund Award for the both three-year and five-year periods for consistent returns.
How did the fund get to the top of the charts? Scott took a defensive stance in 2007 and 2008 by backing away from energy and other commodities, cyclical, and big industrial stocks, while raising some cash. “I’m a bit of a skeptic in any environment,” she explains. “I want to understand the other side of the business.”
T. Rowe Price: The target-date fund powerhouse
Driving a team of a dozen horses toward the same destination, when they are tied to one another by a strong harness and responsive to commands, may appear to be easy, but it may not be.
Driving a team of a dozen mutual funds toward different distant years, connected by a common investment strategy within the parameters of a finely spun web of government regulations of securities and retirement plans, doesn’t appear to be easy, and it probably isn’t.
Yet, despite the recent recession and bear market, Jerome A. Clark, portfolio manager of the twelve T. Rowe Price Retirement Funds since the group’s organization in 2002, had five of them repeat as winners of Lipper Fund Awards for consistently superior risk-adjusted returns in their Lipper investment objective categories for periods ended December 31.
T. Rowe Price Retirement 2040 Fund repeated as winner for outperforming peers in its mixed-asset target year category for both the last three and five years. The 2030 fund repeated as winner for the last five years and won for the last three — as it did 2015 and 2025 — and the 2005, 2035 and 2045 funds also repeated for the last three.
The awards are given for consistently superior performance based on Lipper’s proprietary methodology for computing risk-adjusted returns.
What Lipper calls mixed-asset target funds — and others call target-date or lifecycle funds — are the 87-year-old mutual fund industry’s newest major fund type. Investment policies and strategies may differ, but they have things in common — each fund’s assets are invested primarily in stock and bond funds — usually sibling funds. The funds move along a glidepath, becoming more conservative as investors near retirement.
For younger investors, a fund starts with 90 percent in stock funds. By retirement, equity holdings will drop to 55 percent.
My favorite stocks: Microsoft, Pfizer, Electronic Arts top list
Fund manager Michael Levine is the first to admit Microsoft isn’t exactly winning any popularity contests these days. It hasn’t unveiled a sleek tablet or had blockbuster success with its smartphone. Oh, and Microsoft’s share price hasn’t seen anything near the meteoric rise of Apple. And yet, the tech giant is one of Levine’s favorite stocks.
“Simplistically, we like cheap stocks with good yield,” says Levine, who manages the Oppenheimer Equity Income Fund, a Lipper Leader in the 10-year performance category in the 2011 Lipper Fund Awards. “Here’s a company with a huge installed base … and they’re beginning to return more capital to shareholders.” The stock is trading at 9.6 times next 12 months earnings versus 25.5 times earnings for the software industry and 20.3 times earnings the overall tech sector.
In other words: It’s not sexy, but it works. That’s a sentiment shared by other managers at leading funds in the 2011 Lipper Fund Awards, who tend to gravitate more towards under-appreciated and beaten-down stocks than to Wall Street hotshots. Reuters spoke to four winners to find out what names have been catching their attention lately.
Cheap is good
For Levine, Pfizer is another stock with good risk-reward potential. “It’s cheap, has good yield and has low expectations. I think there’s a lot more that can go right than can go wrong at this point,” he says.
Levine is overweight financials versus the Lipper Equity Income peer group, and he particularly likes JPMorgan, currently the biggest holding in the fund. He says the bank has successfully navigated its way through the financial crisis — snapping up Bear Sterns and Washington Mutual along the way –- and emerged stronger than ever (with many of its competitors out of the picture.)
The company should thrive in the current credit environment — rising interest rates will boost margins, he argues. “We think you’re going to get a dividend increase fairly soon,” says Levine.
ERTS Easy Studios GDC F2P business model. Next big thing?
General manager of Easy Studio’s (ERTS) GDC presentation http://www.slideshare.net/bcousins/payin g-to-win#postComment
Drowsyjay video response: http://www.youtube.com/watch?v=gDsbQGbUD kc
Tech Vs. Gaming future : http://www.youtube.com/watch?v=FRbcV1e4k 7A
“Data released by NPD, shows 11 million PC games were downloaded from the internet during the first half of 2010 and there were only 8.2 million packaged games sold during the same time period. http://www.gamespot.com/news/6276553.htm l
This transition is happening like it or not.. ” http://www.battlefieldheroes.com/en/foru m/showthread.php?tid=223635&page=1
Small stars reap big rewards at 2011 Lipper Fund Awards
Size matters, but bigger isn’t always better when it comes to funds — as evidenced by a number of the 37 trophy winners of the 2011 Lipper Fund Awards.
Funds with an asset base under $500 million were among the top performers in the three-year trophy category, demonstrating the flexibility and agility that’s inherent to smaller funds. With a smaller portfolio, fund managers can pounce on market opportunities and trade in and out of securities with ease.
“Trying to move a multi-billion dollar product around actively would be much more difficult, given the size of the underlying market. I think our size is to our benefit,” says Roger Early, who co-manages the award-winning Delaware Inflation Protected Bond Fund with Paul Grillo at Delaware Management Company.
The Delaware Inflation Protected Bond Fund had $285.1 million under management as of Dec.31, 2010. Active since 2004, the fund primarily invests in inflation-indexed government debt and seeks to provide inflation protection and income for institutional investors.
“Delaware has a history of building our products on physical bonds — traditional, old-fashioned bonds. To do that in the Treasury Inflation-Protected Securities (TIPS) market, you’re at a significant advantage to be in the several-hundred-million size rather than trying to be several billion or multiples of that,” says Early.
The focus on tangible securities seems to be paying off – the fund’s three-year annualized total return was 5.82 percent as of Dec.31, 2010, outperforming the Barclays Capital U.S. TIPS Total Return Index, which had an annualized return of 4.97 percent for the same time period.
The same holds true for the mixed-asset class category. USAA’s First Start Growth Fund, which had $218.6 million under management as of Dec.31, 2010, counts its small size as one of the reasons it was able to capitalize on the boom in the bond market.
2011 Lipper Fund Awards: What makes a winner?
“How have my mutual funds performed?”
The easiest answer to the question: Look at their average annual total returns, calculated according to the formula mandated by the Securities and Exchange Commission for all 7,500 money market, equity, bond and mixed-asset mutual funds.
The formula involves calculation of the annual rate of appreciation of an investment in a fund over one, five and 10 years (or other period) in a way that reflects the reinvestment in additional shares — at appropriate prices per share — of all dividends and capital gains distributions.
Easy answers? Sure. You can get annual returns from the funds or from media that publish the data as calculated and disseminated regularly by Lipper, a unit of Thomson Reuters.
But are average annual total returns the only, really meaningful performance data?
No.
They don’t tell you how much volatility in returns or share prices a fund incurred over the time you’ve been invested in it — or how much volatility a competing fund may have incurred in outperforming it.
4 ways to add inflation protection to your retirement plan
The consumer inflation rate hit an 18-month high in February, driven mainly by higher food and energy prices. But few economists think the longer-range inflation rate is heating up — there’s still too much slack in the labor and housing markets.
Over the long haul, inflation is a potential threat to retirement security, since a well-constructed plan looks out over a 25- to 30-year horizon. Yet inflation protection isn’t baked into nearly enough retirement plans, according to a new survey by the Society of Actuaries.
The study found that 72 percent of pre-retirees — and 55 percent of retirees — have a strategy to protect themselves against inflation in retirement. But the percentages probably are too optimistic, according to Steve Vernon, a prominent retirement educator and co-author of the report. “That’s higher than my experience talking with people at the seminars I teach. I think, there’s a say/do gap there, where people say they’re planning for inflation, but they’re not.”
“Other studies show that only half of pre-retirees have even calculated the amount of money they’ll need for retirement,” he adds. “So if that’s true, there’s no way 72 percent have thought about inflation.”
Vernon’s on the money there; the new 2011 Retirement Confidence Survey from the Employee Benefit Research Institute shows that just 42 percent have tried to calculate how much they’ll need to live comfortably in retirement.
Inflation poses several retirement challenges. Healthcare is a major area of expense and risk in retirement, and those costs are rising about four times faster than overall inflation. Meanwhile, sources of guaranteed income are faltering. Social Security is replacing a smaller percentage of income due to the increasing full retirement age implemented in 1983, rising Medicare Part B premium deductions and more Social Security income subject to income tax. The near-disappearance of traditional defined benefit (DB) pensions in the private sector also hurts retiree purchasing power.
Here are four ways to add inflation protection to your retirement plan:
from the article: “But few economists think the longer-range inflation rate is heating up — there’s still too much slack in the labor and housing markets.”
Most economists are prognosticating from a seriously misguided and antiquated frame of reference.
America may still be the largest economy on earth but it is no longer the financial monolith at center of the universe and the laws of financial physics as we once knew them have changed.
The troubled labor and housing markets will not prevent a sustained increase in inflation. Those factors will not have that much effect on the long-term inflation computations.
Home values continue to fall but mortgage payments do not fall in parallel. In fact if interest rates move up (and there isn’t any other direction to go), those who still have adjustable rate mortgages will find their payments increasing.
Not many people are lowering their housing costs by moving into mortgages for new purchases right now. In fact, a significant number of Americans are entering the rental market, driving rental rates up sharply in many areas.
Hoping that the anemic labor market will somehow hold down inflation is nothing short of ridiculous. It will only hold down wages. The value of things is no longer solely a function of America’s appetite for them. Commodity prices are up sharply and will continue to rise due to investors, speculators, and world-wide demand.
Additionally, the cost of energy intrinsic in making and moving products will exert upward pressure on prices as energy prices rise (we will not be getting any future big breaks in the cost of energy, either).
The inflation that DC has been praying for has finally raised its ugly head even though QE2 won’t be done injecting capital into the system until June 2011.
This is going to get ugly.
Mobile Currency Trading: There’s an app for that
The days of haggling over the phone with your broker or hunching over your online brokerage account may become a thing of the past with the advent of mobile trading.
Investors are increasingly turning to their mobile phones and tablets to trade on-the-go in a new trend that is shaping the 24-hour trading cycle.
“Futures and forex trade around the clock, so you’re not always at a computer or you’re not always at your desk,” says Nicole Sherrod, director of trading at TD Ameritrade. “Our clients in the evening can trade futures and forex and monitor their positions through their phone apps.”
In a year-long study on trading trends, the investment firm found its technology rollouts have helped to increase mobile trading by 125 percent.
Whereas larger firms like E*Trade and Charles Schwab offer retail investors the ability to trade stocks, only TD Ameritrade currently gives clients the mobile platform to trade currencies. E*Trade offers futures trading, but not currencies; Schwab offers options trading, but not currencies or futures; and Fidelity Investments offers similar services as TD Ameritrade, but they do not offer futures trading. Schwab says it is investigating currency trading. Fidelity, although it is “sensitive to (its) customer base,” has no specific plans to offer futures trading anytime soon, according to a spokesperson.
Being close to the markets at all times provides investors with quicker access to make gains and limit losses. “You’re seeing all of the news today: it’s all about oil, it’s all about commodities and currency fluctuations based on what’s going on in the Middle East,” Sherrod says, noting that complex options, futures and forex trading features have been “gaining a lot of traction” with retail investors. “We feel that this type of technology helps them gain more visibility about the market and, as such, they’re trading smarter; they’re making better trading decisions,” she continued.
But beware of making a snap trade based on emotion or a change of environment while on the road, warns Peter Misek, managing director at Jefferies & Co., an investment firm.
What happens to home values if you live near a nuclear reactor?
By Jennifer Merritt
The ongoing nuclear crisis that followed the earthquake and tsunami in Japan has renewed fears about nuclear power plants across the globe. It has led to temporary shutdowns in some countries and in the U.S., a call for safety reviews of the 104 reactors at the 64 commercial nuclear facilities — some just outside major cities and population areas like New York, Boston and Orange County, California.
For some homeowners in and near towns that nuclear reactors call home, safety is just one concern. Those looking to sell might be in for a long wait for buyers along with a decline in sale prices and property values. Experts say buyers will carefully scrutinize how close their dream home might be to a nuclear plant.
Already, community message boards across the web are on fire with comments from prospective buyers reconsidering a purchase in or near a reactor town. “I’d be shocked if this didn’t have a temporary negative effect on selling prices,” said David Clark, professor of economics at Marquette University. Clark has conducted numerous studies on the impact of nuclear power plants and other negative external factors, like crime and other perceived hazards, on home values.
Just how temporary — and how big — any negative impact might be remains to be seen, Clark and others say. If, for example, one or more of the crippled nuclear reactors at Japan’s Fukushima Daiichi plant go into complete meltdown and there’s a large release of radiation into the air, the chilling effect — and with it, a downward push on home values in nuclear towns like Buchanan, New York. Plymouth, Massachusetts, and San Luis Obispo, California — could last longer than the maximum of two to three years economists would consider temporary.
Already, several homes within a short distance of the Plymouth Nuclear Power station have shown price drops, according to Trulia.com.
What’s more, if the public outcry and regulatory scrutiny continues, some states might force disclosure about a home’s distance from a nuclear power plant in real estate sales, right alongside disclosures about termite damage, roof leaks and boiler conditions, says Peter G. Miller, founder of consumer real estate website ourbroker.com. California already requires such disclosure within a certain distance. California, along with Oregon, are the only states that also require disclosure of earthquake zones, even though would-be buyers could easily find the information themselves, says Walter Molony, a spokesman for the National Association of Realtors.
I live in San Clemente. It’s a wonderful and beautiful town. Since I live so close to this plant, I have researched the dangers. One thing I learned is that with a meltdown, radiation will travel in most every direction – across the entire country and beyond. Food supplies across the country will contain unhealthy levels of radiation. It’s important for everyone in California and across the country to support shutting down these unsafe and financially unsound nuclear plants. For more information on San Onofre safety issues and reasons the NRC and others
are not protecting our safety and financial interests, go to http://sanonofresafety.org/
California registered voters — sign the California Nuclear Initiative petition that will finally give the people the choice to effectively shut down California’s two remaining nuke plants (San Onofre and Diablo Canyon)- we need over 500,000 valid signatures by April, so please download and sign today and spread the word.
