AssetBuilder Inc, - Registered Invesment Advisor - Simple Investing Smart Future
in

Registered Investment Advisor

Scott Burns' Articles -- Recent and Archived

Learning How Your Fund Is Doing

Q. What can you tell me about Lehman Brothers First Trust Opportunity Fund (ticker: LBC)? My wife and I bought $60,000 worth in March of this year. This amount represents 25 percent of our investments. We purchased this stock at the suggestion of our (now ex) advisor. Is it safe? Should we sell all or just part?

---T.O., by email from Dallas

  

A. You invested in a closed end fund. These funds are launched as a new stock issue with a fixed number of shares. Then they trade on a stock exchange. This one trades on the New York Stock Exchange. Because they have a fixed number of shares and trade like a stock, closed end funds can sell at prices that are either a discount or a premium to the underlying net asset value per share.

Most closed end funds that invest in equities sell at a discount to net asset value. Many funds like yours, which invests in high yield junk bonds, sell at a premium to net asset value. This happens because their yields are very high and investors are chasing yield. In your case the yield is currently 11 percent and the shares are selling at a small premium to net asset value.

Launched in mid 2003, this fund has a very limited history. A look at its price history, however, indicates it is quite volatile. But I bet you knew that.

You can expect it will continue to be quite volatile. You can also expect that it will be vulnerable to rising interest rates or recession fears, should either develop.

Junk bond funds--- whether open or closed end--- are a reasonable investment in small amounts. Their high yields can increase your total portfolio yield nicely.

Committing 25 percent of your investments, however, is well beyond a small investment. It suggests that your ex-advisor was really a salesman who either didn't know about diversification or didn't care. As a practical matter, I'd limit any junk bond commitment to no more than 10 percent of financial assets.

  

Q. Late last year we read your article mentioning Fidelity Four in One Index Fund (ticker: FFNOX) and Leuthold Core   (ticker: LCORX). We'd like to know how they are doing but don't know how to get the information on the Internet. Can you help?

---A.B., by e-mail from Houston, TX

  

A. Here are two good ways to get basic information on mutual funds over the Internet. First, visit the Morningstar website, www.morningstar.com, and click on "funds."   Then enter the ticker symbol for your fund to get its report. From there I usually click on "total returns" so I can see how a particular fund has done in absolute terms and how it ranks against others in its category over different periods of time.

You can get much of the same information, also provided by Morningstar, by visiting the MSN Money website, http://moneycentral.msn.com. The advantage of visiting these websites over the websites from the fund company itself is the relative performance data.

Fidelity Four in One Index fund was created by mixing four Fidelity Index funds: Spartan 500 (55 percent), Extended Market Index (15 percent), International Index (15 percent), and Total Bond Index (15 percent). This gives you a heavy weighting to equities--- 85 percent of the total--- but good diversification. In mid September, the fund ranked in the top 14 percent of competing funds in the "large blend" category. It was also in the top 18 percent for the preceding 12 months, the top 8 percent for the preceding 3 years, and the top 20 percent for the preceding 5 years.

Fidelity charges 0.08 percent for this fund plus the cost of the individual funds. The cost of the individual funds has just been reduced to 0.10 percent annually. This should help the long-term performance slightly.

Leuthold Core Investment Fund, which Morningstar categorizes as a "moderate allocation" or balanced fund, is a managed fund run by Minneapolis institutional researcher Steven Leuthold.   So far this year it has fallen out of bed, ranking in the 96th percentile. That's quite a fall from its trailing 12 month rank in the top 30 percent and its 3 and 5 year rankings in the top 2 and 3 percent, respectively.

On the web:

Wednesday, November 20, 2003: Q&A: Real Estate Isn't Always Easy Street

Comments

 

ABModerator03 said:

Scott, Thanks for all your great info.

September 23rd, 2004 you wrote, "Fidelity charges 0.08 percent for this fund (Fidelity Four in One Index FFNOX) plus the cost of the individual funds. The cost of the individual funds has just been reduced to 0.10 percent annually. This should help the long-term performance slightly."

I have this fund as an option in my 401K and was excited about the lower fees compared to the separte spartan index funds, and when I checked the info Vanguard reports on this funds expenses (from Morningstar) it is listed as a 0.08% Expense ratio as of 02/28/2006.

Are you indicating I can just use the Fidelity spartan funds in my 401K separtaely and build this fund at a cheaper expense ratio compared to the 4 in one???

regards, Bruce
January 30, 2007 1:43 PM

About scottb

Scott Burns has covered the changing world of personal finance and investments for nearly 40 years. Today, he ranks as one of the five most widely read personal finance writers in the country. Scott began his career as a newspaper columnist at the Boston Herald in 1977 where he was also the financial editor. Nationally syndicated in 1981 and now distributed by Universal Press, the column appears in newspapers from Boston to Seattle. In 1985 he joined the staff of the Dallas Morning News where his column quickly became one of the most widely read features in the paper. He left the Dallas Morning News in 2006 to become one of the founders of AssetBuilder and its Chief Investment Strategist. Burns is a graduate of Massachusetts Institute of Technology (1962). He has written four books, including "The Coming Generational Storm" (MIT Press, 2004) coauthored with economist Laurence J. Kotlikoff. His fourth book, also coauthored with Kotlikoff, will be published this spring by Simon & Schuster. "Spend Til' the End" uses consumption smoothing to demonstrate the errors of conventional financial planning. His business experience includes working as a staffer for a major consulting company and service as a director and audit chairman of a NASDAQ listed manufacturing company. He and his wife divide their time between Dallas and Santa Fe, New Mexico.
Copyright © 2007 - 2008, AssetBuilder Inc - DFA Advisor. All Rights Reserved.