The MFT - SCORECARD

From time to time articles will appear in the financial media about subjects that may have been referenced in “Mutual Funds Today…”  As a service to our readers, and to compare what was written to what either has or is expected to occur, we print the actual text on the subject from the book, including page number references and the current media report(s).
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Topic: 130/30 Funds

Mutual Funds Today - 130/30 Funds_  (Page 79)

“ - Comprise a portfolio of securities, 100 of which are straight stock investments and 30 stocks that are sold short. My opinion? You want Vegas, make a reservation and book a flight; you’ll have lots more fun.”

INVESTMENT NEWS, May 25, 2009

“Investors abandon 130/30 strategies” was the title of an article that appeared in Investment News, followed by the sub heading, “Assets declined 30% in six months according to a survey.”

“”Virtually all of the 21 managers who responded to the survey saw double-digit declines, proving that even the strongest players were no match for the markets. The increased risk – a result of leverage built into the strategies – also made them vulnerable.”

MFB Observation – While these funds still hold billions of investor dollars, it remains to be seen if they represent a prudent investment for investors with a long term outlook for their serious investment dollars.

 

Topic: Target Date Funds

Mutual Funds Today - Target Date Funds (Page 115)

“…her target date fund was called the “20/30 Fund” focused on a 20 year period to end in the year 2030. In this case it covered a 23 year period. The
portfolio of that fund was 88% in stocks and 12% in bonds. Theoretically, with the passage of time, a greater percentage would be allocated to bonds while reducing the percentage of common stocks.”

“…The point is that placing your investment on some kind of “automatic pilot” is not the solution unless you want nothing whatsoever to do with the results you hope to achieve. But hey, it’s still a free country.”

The Wall Street Journal, June 19, 2009

“Target-Date Funds Come Under Fire…Big Losses Lead to a Washington Hearing.”
That was the title of The Wall Street Journal’s column on target date funds.

“At the joint hearing held by the SEC and the Department of Labor to examine these funds, witnesses and regulators questioned everything from how the funds are named to how their investment mixes change over time.  The scrutiny comes after target-date funds designed for people now in or near retirement hit investors with big losses last year.

Some panelists took aim at target-date funds’ one-size-fits-all approach.”
MFB Observation - The jury is still out on this segment of the fund industry that held $164 billion in investor assets at the end of 2008, up from $71 billion in 2005.  Serious investors should beware of the “auto-pilot” approach to management of their long term investments.

 

Topic: "Stretching" For Higher Yields"

“Stretching” For Higher Yields (Pages 82-84)

“The April 22, 2008 edition of The Wall Street Journal, provided a cautionary tale in its “Fund Track” column that reported the plight of the Regions Morgan Keegan funds. The column was titled “Seven Bond Funds Get New Management.” Now that’s definitely not routine news. Briefly, this is what happened. Two of the seven funds mentioned posted returns of -70% and -73% losses over the 12 month period through March 31, 2008. The funds were primarily invested in mortgage backed securities, including low quality mortgage and complex securities like collateralized debt obligations.

“Another example of “stretching” for higher yields involves Charles Schwab Corp.’s Yield Plus Fund, an ultra short bond fund offering high yields. According to The Wall Street Journal the fund was advertised as a vehicle created for conservative investors looking for a slightly higher yield while preserving their capital.

...Once again we have some unhappy examples of the search for enhanced or higher yields from presumably “safe” investments, this time in the form of mutual funds.

“This is a good time to remind everyone that if it sounds too good to be true, it’s probably too good to be true!”
INVESTMENT NEWS, April 13, 2009
“ARBITRATIONS COST MORGAN KEEGAN BIG”
“…Investors have scored five consecutive wins against Morgan Keegan over the past two months, totaling $668,000 in compensatory damages and legal fees, according to an InvestmentNews tally of recent arbitration awards published by the Financial Industry Regulatory Authority, Inc. of New York and Washington.
Morgan Keegan & Co. Inc., a Memphis, Tenn. based broker-dealer subsidiary of Regions Financial Corp. of Birmingham, Ala., faces hundreds of arbitration claims from investors who bought the company’s bond funds and have seen as much as 95% of the funds’ value evaporate since mid-2007.  The Morgan Keegan bond funds lost bets on high-risk collateralized debt obligations (InvestmentNews, Nov. 10).”
…For example, one email was uncovered showing that Morgan Keegan gave advanced warning to institutional clients and large retail clients to get out of the funds ahead of small retail investors, he said.” (Clients attorney)
INVESTMENT NEWS, April 27, 2009
“SCHWAB FACES UPHILL BATTLE IN COURT OVER FUND LOSSES”
“Firm seeks appeal of precedent-setting ruling against the Schwab Total Bond Fund”
“…Charles Schwab & Co. Inc. is likely to lose this week when a California federal judge hears a motion appealing a ruling in a class action that, if left standing, would give mutual fund investors a new line of attack against underperforming funds, fund industry attorneys said.
MFB Observation – Serious long term fund investors are cautioned to resist sales pitches that are based on investment tactics that seem to be “stretching for higher yields.”  One of the tip offs to these sales pitches is quoting yields that are well above what is prevalent in the current market.  Remember to ask direct questions and get written responses.

 

 

 

 

 

Last Updated ( Thursday, 13 August 2009 14:15 )