WHICH WAY TO GO?
AFTER a second quarter in which U.S. stock funds on average gained a more-than-healthy 6.4% -- putting them up 8.7% for the first half of 2007 -- you might be inclined to pause to ponder your portfolio.
That’s especially true after the quarter ended with a turbulent June that saw record highs for some major equity indexes, followed by a series of plunges and spikes as bond yields surged and losses on mortgage-backed securities left investors questioning the wisdom of any holdings that could be deemed risky.
Dorothy Geller of West Los Angeles grew so concerned about her stock fund holdings late last month that she called Jack Bowers, editor of the Fidelity Monitor newsletter, to ask whether she should sell some of her equity funds.
“He said to me, ‘Dorothy, keep your positions. Just leave it be,’ ” Geller, 77, recalled.
But Bowers’ voice is just one in the world of mutual fund newsletters, where there is no shortage of opinions to choose from. Those periodicals, it turns out, have widely divergent views about the current investing climate in general and the outlook for stocks in particular.
Ron Rowland, for example, is very bullish on stocks -- and he’s telling subscribers to his All Star Fund Trader newsletter to pile into a variety of funds.
At the other end of the spectrum, Stephen McKee, the editor of No-Load Mutual Fund Selections & Timing, has sliced his recommended equity allocation over the last three weeks and now says investors should have 60% to 80% of their portfolios in cash.
“You’ve got the market still trending upward, but you have to remember the lessons of 2000 and all the other bear markets,” McKee said.
The key lesson is that the market “doesn’t go to the moon,” he said. “I wouldn’t say I’m outright bearish, but I’d say be awfully careful.”
By one measure, fund and other market newsletter writers are relatively upbeat, with 49.4% currently bullish, according to sentiment tracker Investors Intelligence in New Rochelle, N.Y. An additional 32.6% -- up sharply from 25.8% a week ago -- are bullish about the long-term outlook for stocks but are bearish about the short term.
By another gauge, though, newsletters -- at least the kind that purport to help you time the market on daily basis -- are far from upbeat. An index of stock market bullishness among such rapid-fire newsletters fell to 22.2% on Tuesday, down from 53.1% on June 6, according to the Hulbert Financial Digest, which monitors newsletters.
So the advice you get can vary sharply depending on which newsletter you happen to consult.
There are some things, however, that many fund newsletter writers appear to agree on: One is to be cautious about fixed-income investments, especially long-term bond funds, which could suffer if long-term interest rates rise as they have recently. Income-oriented investors should stick with money market funds, many of which are yielding around 5%, or short-term bond funds, the newsletters advise.
As for stocks, several writers favor funds that focus on medium-capitalization stocks, which have been outperforming large-cap stocks this year.
The Times asked a few top fund-newsletter writers for their thoughts on the market and for some of their current picks.
All Star Fund Trader
For the last 3 1/2 months, Rowland -- who relies on technical analysis, or the study of stock-trading patterns -- has recommended being fully invested in stocks.
Though a few industries, such as housing and financial services, are performing poorly, the outlook for many others is bullish, he said.
With oil prices rising of late, Rowland, based in Austin, Texas, is a big fan of energy funds. Among those he likes: Fidelity Select Energy Service (ticker symbol: FSESX) and PowerShares Dynamic Oil & Gas Services (PXJ), an exchange-traded fund.
Rowland also favors mid-cap stocks and recommends PowerShares Dynamic Mid-Cap Growth (PWJ).
“The mid-caps have been the strongest [sector] for quite a while now,” he said. Within that group, he added, growth stocks are starting to outperform value stocks.
No-Load Mutual Fund Selections & Timing
McKee, on the other hand, worries that the market has gotten ahead of itself.
He advised his readers in mid-June to raise their cash positions and wait for a market pullback before raising their equity exposure.
The Richardson, Texas-based advisor boosted his recommended cash allocation to 60% from 45% in his “aggressive growth” portfolio and to 80% from 65% in his “balanced” portfolio.
One of the few fund areas he likes at the moment is growth-and-income, both domestic and international. The large-cap value stocks that tend to make up those funds can be attractively priced, McKee said.
Domestically, McKee likes American Century Equity Income (TWEIX), Fidelity Disciplined Equity (FDEQX) and Spectra (SPECX). Among international funds, he recommends Longleaf Partners International (LLINX), Tweedy Browne Global Value (TBGVX) and Oakmark Global (OAKGX).
Fidelity Monitor
Bowers, whose newsletter focuses on Fidelity funds, describes himself as “reasonably optimistic” about equities.
He favors large-cap funds, saying that aggressive stock buybacks by large companies are giving their stocks a boost. He recommends Fidelity Equity Income fund (FEQIX).
Bowers, who writes from Rocklin, Calif., also likes Fidelity Leveraged Company Stock (FLVCX), which invests in firms with burdensome levels of debt.
Though officially a mid-cap-blend stock fund, it’s run in some ways like a junk-bond fund and relies on research from Fidelity’s high-yield bond analysts, Bowers said. The goal is to determine which companies will survive despite their debt and other problems they might have, and to buy their stocks before the firms’ survival is evident.
The manager, Thomas Soviero, is a former high-yield manager, who Bowers says “may be a modern-day Peter Lynch in the making,” referring to the legendary former Fidelity fund manager.
Sacramento resident and Fidelity Monitor subscriber Greg Gonot bought shares in the leveraged-company fund early last year and recently bought some more, both times following Bowers’ recommendations.
“It’s been a good performer,” he said. But the 60-year-old lawyer, who plans to retire in October, has grown wary of stock funds in general and so has raised his cash position to about half his portfolio from about 40% three months ago.
“I feel I can sleep better at night if I have a large position in cash,” he said.
Independent Adviser
for Vanguard Investors
Editor Dan Wiener, whose newsletter is based in Rockville, Md., is bullish on mid-cap funds.
He likes Vanguard Strategic Equity (VSEQX) and Vanguard Capital Opportunity (VHCOX).
Capital Opportunity is closed to new investors, but Wiener recommends PrimeCap Odyssey Aggressive Growth (POAGX), which is run by the same outside team that manages Capital Opportunity.
