HEADING FOR HOME?
Domestic markets are also difficult to forecast. “For several years, small-cap and value funds have led the way,” Coumarianos says. Value funds seek undervalued stocks, compared with growth funds, which attempt to invest in companies where earnings are growing rapidly.
Last year, Coumarianos says, leadership rotated to mid-caps — those companies in between the biggest and smallest players. Mid-cap growth, blend (growth and value combinations), and value funds returned 9.64%, 9.22%, and 8.36%, respectively, in 2005, which were the best results of all diversified U.S. fund categories.
“Toward the end of the year, large-cap growth funds were very strong,” Coumarianos says. “It’s possible this trend will continue and large-growth will have excellent results in 2006.”
Similarly, Gendreau is encouraged by the prospects of the large-cap U.S. issues that have lagged since 2000. “Earnings recently have been strong for major corporations, yet the markets have not reacted,” he says. “Therefore, valuations for large-cap stocks, especially growth stocks, have become more attractive.”
What might make markets react to the improved prospects of large-cap growth funds? “The catalyst could be a sign that the Federal Reserve has stopped raising interest rates. Such a move would be like a Good Housekeeping Seal of Approval for the economy, indicating there’s little danger of inflation in the near term,” says Gendreau. “Four of the last five times that the Fed stopped tightening, U.S. equity markets went up sharply.”
TOO MUCH OF A GOOD THING
What portion of your mutual fund dollars should you ship outside the country? Although some investment pros recommend steep allocations, Joe Outlaw, president of PenTrust Financial Services in San Diego, does not want to go overboard overseas. “I think 20% of your portfolio is enough,” he says. “International funds are doing well, so we’re moving clients’ money there if they have too little in foreign stocks. There may be more opportunity outside the U.S. now. Still, we don’t like clients to have too much of their money in one category because you don’t know what will happen from one year to the next.”
Among Outlaw’s clients are Karen and Keith Compton of Glendale, California, who invest in Oppenheimer Global Fund. “We want to be well-diversified, and international investments should be included,” says Karen, 40, director of business development at a local architectural firm. “Besides, our global fund has done well.” Indeed, Oppenheimer Global, whose biggest holdings are large companies in the United Kingdom and Western Europe, returned nearly 14% in 2005 and almost 25% per year for the past three years.
This fund, though, is only one of a half dozen funds now owned by the Comptons. “We started to invest with Joe back in the early 1990s,” says Keith, 41, chief finance and administration analyst for Los Angeles County. “Our goals then were to pay off our college loans, pay for our wedding, and buy a home. Thanks to our mutual fund investments, we have met all of those goals and far exceeded what we had hoped to accomplish.”
ALL IN THE FAMILY
The Comptons’ fund lineup now