Today's Opportunities - July 1, 2007

Our opportunity list, shown below, is comprised solely of actively managed mutual funds that should be available through the Fidelity, Charles Schwab and TD Ameritrade fund platforms as “no-transaction fee” options.  However, if you find an error in availability, let us know and we’ll be sure to correct it next quarter.

With investors now more aggressively seeking out opportunities in the growth sectors of the market, we’ve added a few funds that you may find attractive.  Not surprisingly, Janus Capital funds are faring very well again.  The fund complex has long had a growth bias and through the first half of 2007, Janus funds have been faring quite well.  Of course we’re partial to Janus Contrarian as we hold it in our Wealth Advisor model portfolios. Its current large cap, growth bias is arguably the right place at the right time, and the fund’s performance has been quite strong for the past four years, yet Janus Orion – a mid-cap growth offering is also looking very attractive.  We’d caution against holding both in an investor’s account as the returns to both funds will likely be highly correlated.

Changes in Fund Recommendations

Deletions

Allianz NFJ Dividend Value – D (PEIDX) – while performance has been strong, and we’d continue to recommend holding for those who have already purchased, the fund closed to new investors during the second quarter.  In its place we’d recommend new investors focus their attention on FMI Large Cap (FMIHX) or Excelsior Value & Restructuring (UMBIX).

Permanent Portfolio (PRPFX) – Risk adjusted returns have fallen off for this conservative asset allocation fund over the past six months.  While Morningstar continues to rate it “5 stars”, and it may remain a sound choice for more conservative investors, we believe there are better opportunties in funds like Oakmark Equity Income (OAKBX).

Baron Partners (BPTRX) – concentrated holdings make this a difficult fund to hold when it goes out of favor, which seems to be happening now.  We’d exchange for Janus Orion (JORNX), or Kinetics Paradigm (WWNPX).

Quant Foreign Value (QFVOX) – a solid fund we’ve owned for quite awhile in our models.  As value continues to rotate out of favor, we’d suggest exchanging for Forward International Equity (FFINX).  It’s unlikely that Quant can continue to deliver market-beating performance in the face of a strong headwind against its sector biases.

Additions

 Amana Trust Income (AMANX) – solid long-term performance, reasonable diversification, and a relatively small asset base ($250 million or so) make this fund a nice addition to an investor’s large-cap allocations. 

FMI Large Cap (FMIHX) – surprisingly this large-cap fund has remained relatively undiscovered by investors, yet its performance on a risk-adjusted basis is commendable – especially considering its concentration (roughly 20 assets). With only a bit over $500 million in assets, FMI retains the flexibility to move but turnover has been only modest, pointing to solid stock-picking ability. 

Excelsior Value & Restructuring (UMBIX) – with a tilt towards large-cap value, Excelsior Value & Restructuring is an attractive complimentary fund to Janus Contrarian.  Again, performance has been solid, if a bit volatile.  Our concern is that at close to $10 billion in assets, the opportunity for adding value may be reduced marginally going forward.

Janus Orion (JORNX) & Heartland Select Value (HRSVX) – while Heartland Select has added value over time, of the two Janus Orion looks the more timely option at this time.  Combine the two for coverage of the mid-cap value and growth sectors.

Forward International Equity (FFINX) – This is a nice growth-oriented, international investment option with a very small asset base (less than $60 million).  The fund should provide solid performance in a growth-led environment.

SSgA Emerging Markets (SSEMX) – there aren’t a lot of options in no-load, no-transaction fee emerging markets funds available through Fidelity, Schwab or TD Ameritrade, but the State Street Global Advisor Emerging Markets fund will provide robust coverage of the sector, and has shown an ability to generate “alpha” over time.  That said, we’d remain partial to Quant Emerging Markets (QFFOX) if its available to you on a no-transaction fee basis.

Matthews Korea (MAKOX) – Korea has been one of the cheaper Asian emerging markets for the past four or five years.  In fact, the Matthews Korea fund sports an overall P/E ratio of just 12.3x prospective earnings.  While performance has been erratic over the recent past, the diversification benefits shouldn’t be overlooked. We’d recommend tucking a small position (2-5%) away in investor accounts, as a contrarian long-term investment.