10/21/2005 12:00 am EST
Here, we look at a five-pack of favorite fund ideas: Doug Fabian goes short small caps, Keith Fitz-Gerald likes a "clean energy" portfolio, Dan Wiener finds a value play, and Mark Skousen and Leonard Goodall each look to Latin America.
(For more on the advisors cited below, please click on their photos.)
"Overall, small-caps have been the weakest area of the market in the short-term, and further downside is very likely," says Doug Fabian, in his VIP Investor. "From January through April the Russell 2000—which represents the small cap sector— fell 10.21%, and then rallied 19.74% between May and July. Since then, it has lost 6.97%. The ongoing rate-raising campaign by the Fed doesn't bode well for small-cap stocks. We suggest looking at three funds that short the small-caps: Rydex Inverse Small Cap (RYSHX); Profunds Short Small Cap (SHPIX); and Potomac Small Cap Short (POSSX ). All of these funds seek to provide results that correspond to 100% the inverse of the Russell 2000 Index."
"WilderHill Clean Energy Portfolio (PBW ASE), an exchange traded fund, is a new recommendation," notes Keith Fitz-Gerald, editor of The Skeptical Investor. "I like it because the WilderHill Clean Energy Index contains some of the newer alternative energy companies that could well hit it big. In addition, its rules for inclusion are pretty stringent, so I expect a lot of the losers to be weeded out. It's a broad play on alternative energy, and I think it could add some serious ‘bandini’ to our holdings. Buy on dips under $17 and put a 15% stop loss in place to compensate for the higher volatility associated with this speculative play. The price appears to be consolidating, and the stock looks ready for a run higher after a momentary pullback."
"CRM MidCap Value (CRMMX) is a fairly concentrated fund run by a pair of managers, Jay Abramson and Robert Rewey III, with a keen eye for low-priced stocks," says Dan Wiener, editor of the Independent Advisor for Vanguard Investors. "Both managers ‘each eat their own investment cooking’, with each personally invested in the fund. This is a value fund, with eclectic and independent managers at the helm. CRM defines its style as ‘opportunistic value.’ The goal is to find catalytic changes that will lead to earnings, and stock price gains. In particular, CRM looks for companies that are poorly followed by Wall Street and are out of favor with most investors. The fund has been a strong outperformer, blasting its Russell MidCap Value index benchmark to smithereens."
"I recently had a chance to spend some time with Julian Mayo, investment director and money manager of Charlemagne Capital in the UK," notes Mark Skousen, editor of Forecasts & Strategies. "They have an outstanding record of performance, and right now they are very high on Latin America. Mr. Mayo says that Latin American stocks have been top performers for the past two years, but they still look cheap compared to US and other foreign stocks in terms of their p/e ratios. To take advantage of this trend, we are buying iShares Latin America 40 Index (ILF ASE), which invests in the top 40 Latin American stocks."
Leonard Goodall, editor of No-Load Portfolios, also likes the Latin American region. He notes, "T. Rowe Price Latin America Fund (PRLAX ) is one of the well-established funds investing in this region. This fund reflects the volatility often found in Latin America, but it has a solid record for the past five years, with an average annual total return of 13.3%. Like most Latin American funds, its investments are highly concentrated in Brazil and Mexico. At present, about 90% of its money is invested in these two countries. Its returns are strong with a 39% average return over the past three years and 66% over the past year. We expect volatility to return from time to time, but we see this as a good long-term holding."