Tax Reform in This Election Year: It's Not Likely
Which Credit Card Rewards Does the IRS Care About?"When our most recent measurement period has been down, it is useful to look for funds that fell less than the market while also evidencing attractive reward/risk characteristics over the past three years," says Thurman Smith.
The editor of Equity Fund Outlook -- a fund advisory service that places its greatest emphasis on manager expertise -- takes a looks at a trio of mutual funds -- Permanent Portfolio (PRPFX), CGM Focus (CGMFX) and Leeb Focus R (LCMFX).
"Permanent Portfolio is not strictly an equity fund, but does have a structured diversification that is broader than most sector funds.
"Preservation of buying power over all market conditions is the idea behind this unique offering, which maintains a fixed allocation of 25% in gold and silver, 10% in Swiss franc assets, 15% in U.S. and foreign real estate and natural resource companies, 15% in aggressive domestic stocks, and 35% in U.S. government paper.
"Permanent Portfolio has not beaten the market over very long periods, but it returned 8.5% annualized over the last fifteen calendar years vs.10.5% for the market, and over the past ten years its annualized return of 9.4% beat the market's 6.3%. It did this with a Risk Exposure half that of the market. (One reason for therecent good performance is its gold allocation.)
"So Permanent Portfolio might be useful in a choppy market that makes little net gain over a sustained period. During a period of several years with a more typical market return, a shareholder could feel left behind and might be inclined to migrate to faster moving fare.
"But for cautious investors who are willing to give up market returns in strongly rising periods, Permanent Portfolio looks like a way to grow capital safely and with a low tax impact from distributions.
"In sharp contrast is go-go CGM Focus, where Ken Heebner starts with some top-down analysis, which has worked more often than not. He has kept the fund in the money during a sloppy time in the domestic market by thinking about accelerating demand in emerging markets.
"This has led him to concentrate in energy, industrial raw materials, infrastructure builders and agribusiness in markets all over the world. His choices need not be glamorous: One of his biggest gains recently has been in fertilizer makers.
"At last report, 57% of assets were outside the U.S. Heebner trades as rapidly as opportunities suggest and typically holds twenty to twenty-five stocks. He also might short stocks he thinks will decline.
"Focus has almost three times the standard deviation of the market and can deliver some doozy downdrafts. So it's strictly for aggressive investors in taxadvantaged accounts who plan to hang on over a market cycle, and who will stagger purchases, especially as Focus is now very extended.
"A resource-stretched world is the underlying theme at Leeb Focus R, which returned 17.0% over its first 12.5 months, a period in which the market gained less than 1%. The portfolio is heavy in the larger firms Stephen
"Leeb sees as leveraged to growth and inflation, such as energy (15%), materials, and industrials. It also holds about 5% in gold-related ETFs and stocks.
"The firms selected have growth rates higher than the overall market and also their peers, and have strong franchises in their given businesses, along with superior operating and credit histories.
"In 2003, Leeb was one of the first to forecast $100 oil. Leeb Focus is a good defensive play with low
correlation to the market. It is also tax efficient and shows a comfortable Investment Skill Quotient (ISQ) of 14.9.
"Its small asset base will give Leeb great flexibility for some while. It is available at Schwab and TDAmeritrade with a trading fee. Its administrators are working to add it to the Fidelity platform, but cannot estimate the date at this time."
Each day, Steven Halpern's TheStockAdvisors.com offers the latest market commentary and favorite investment ideas from the nation's leading financial newsletter advisors.
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