Investing


“many portfolios were overweighted in that area, and many investors have suffered as those stocks fell in the past few years. Now is not the time to get out of stocks–you don’t want to miss big days when the market turns around–but it is a time for diversifying. You don’t know which asset classes will be the leaders so it pays to own different types of funds.”

Diversification may mean some portfolio shifts for investors seeking options. “Outside of Roxanne’s 401(k), the Chatmans held AXP European Equity [AXEAX]” says Dyas, “but I thought they should have a real international fund rather than a regional fund. Therefore, I suggested they move money into Putnam International Growth (POVFX), which has an excellent record of picking stocks around the world.”

Not all of Dyas’ favored funds are carrying American Express’ proprietary AXP brand. “I also recommend Ariel Appreciation (CAAPX), Strong Advisor Small-cap Value (SMVAX), and Liberty Acorn (LACAX),” he says, reciting a menu of blend, value, and small-cap funds for investors who have a taste for something besides yesterday’s house specials: large-cap growth funds.

STOCKS:THE BULLS MAY BE RUNNING IN EUROPE
Domestic stocks have taken a beating since early 2000, but foreign stocks have fared even worse. Through the third quarter of 2002, the S&P 500 was off 12.88% a year, for the last three years, but the leading international index, the MSCI EAFE index, lost a staggering 14.60% per year.

Thus, if stocks rebound this year, offshore issues may bounce higher. Derek Sasveld, who helps direct portfolio strategy for the UBS Global Allocation fund, feels investors generally will find better values outside the U.S. now. The UBS position is that U.S. stocks are undervalued by roughly 10%, but foreign stocks are undervalued by as much as 20%, making them better buys. “Japan is slightly overvalued,” he says, “so Europe can be assumed to provide the bulk of that undervaluation.” Among his favorite foreign sectors: forest products and energy. “In forest products,” says Sasveld, “we have a significant overweight position in Svenska Cellulosa, a Scandinavian [Swedish] firm with low-cost stands of timber, state-of-the-art production equipment, and operating costs that are half of those found in North America.”

In energy, Sasveld favors Italy’s ENI and France’s TotalFina. “Investors have driven up the stock prices of larger oil companies but have given smaller firms less attention,” he says. “These two companies have higher returns on equity and faster production growth than the majors.”

What about U.S. stocks? Now may be the time to rake in some oversold blue chips. “Our recommendations include large-cap stocks that have strong cash flows, solid balance sheets, and dividend payouts,” says Dyas, the American Express financial planner. “Examples include Procter & Gamble, Wal-Mart, Costco Wholesale, and Anheuser-Busch.”

BONDS: MAX OUT ON MUNIS
If the skimpy yields on bank CDs and money market funds don’t excite you, consider bonds. Morningstar Inc., the Chicago-based mutual fund research company, put the average bond-fund yield at 5.52% as of Sept. 30, while 10-year Treasuries were yielding a little more than 4% over


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