Shooting For Big Returns

Yes, the market's been turbulent. However, we have uncovered winners that outperform the market and will drive the growth of your portfolio.

Carter Raynes Claims Service, an insurance adjustment agency. “We lost some money on our stock funds but our bond funds gained, so we weren’t hit too hard.”

The Carters, who have been tilting toward bonds since 1998 on the advice of their financial advisor, Bill Harris of Asset Dynamics in Toledo, Ohio, are considering a dramatic restructuring–a move to 60% in stock funds and 40% in bond funds. “That’s what Bill has suggested and I’m inclined to go along,” Fred says. “Stock funds may be ready to move up.”

The Carters, who are investing to build up education funds for their three children, ages 11 to 18, as well as for their own retirement, truly believe in a diversified portfolio. “We invest in more than a dozen funds, in several categories,” says Fred. “We have domestic and international funds, small-caps and large-caps, fixed-income as well as stock funds.”

Among their holdings are BlackRock Large Cap Growth Equity, LSV Value Equity, Nicholas-Applegate Small Cap Growth, and Artisan Small Cap Value. On the fixed-income side, their funds include BlackRock Core Bond Total Return Portfolio and Baird Core Bond Investors. “With this type of portfolio,” says Fred, “we can take risks with some of our money while cushioning those risks with other funds.”

Back in 1998, the risks seemed to lie with high-priced growth stocks, especially technology stocks. “I advised my clients, including the Carters, to take some profits and put more money into bonds, which seemed undervalued then,” says Harris. “Now, stocks are down and the economy is likely to improve, after six interest rate cuts by the Federal Reserve. An improving economy should help the stock market to rally, so I’m recommending more equity funds in clients’ portfolios.”

Even though he’s upbeat, Harris is not telling clients to bet all their chips on a comeback by tech or growth funds. “Instead of 40% in equity funds, I might suggest a 60% allocation,” he says. “It’s necessary to keep a balance by investing in funds that are not correlated with each other.” That is, small value funds don’t rise and fall in sync with large growth funds. If one fund category runs into hard times, another probably will provide positive returns.

James McQuirter, too, believes in casting a wide net. “I usually own between 10 and 15 funds,” says McQuirter, who lives in Dallas and retired two years ago from IBM, where he was a technical support manager. “My wife, Ardath, and I live on my IBM pension now, but we also have a mutual fund portfolio to provide future growth.”

Investors need to consider such moves. After the results of the past year, mutual fund investors may be willing to sacrifice a little offense in order to strengthen their defense now that the bears have come out of hibernation.

B.E.’s Top Mutual Fund Performers









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