The Kirk Report

Honor Roll Mutual Funds & Top Holdings

Roy Weitz is a harsh critic for the mutual fund business and, while I'm not a fund focused investor, I do read his monthly report.

To start off the new year, Roy decided to do something a little different by providing a honor roll list of the best-of-the-best mutual funds. While his list is a good one for mutual fund investors to research, those of us who don't use mutual funds may still want to peruse though these fund's top 25 stock holdings to see how these "best of the best" funds are currently positioned and what they've been buying recently. (I have provided the direct links to Roy's chart below to save you some time):

Benchmark	Top FundAlarm Honor Roll fund
Large-cap	Kinetics Paradigm (WWNPX)
Mid-cap	Fidelity Leveraged Co Stock (FLVCX)
Small-cap	Schneider Small Cap Value (SCMVX)
Balanced	Bruce (BRUFX)
International	ING Russia A (LETRX)
Specialty-Communications	T. Rowe Price Media & Tele (PRMTX)
Specialty-Financial	Fidelity Select Brokerage & Investment (FSLBX)
Specialty-Health	Jennison Health Sciences Z (PHSZX)
Specialty-Metals	U.S. Global Inv World Prec Min (UNWPX)
Specialty-Natural Resources	U.S. Global Inv Global Res (PSPFX)
Specialty-Real Estate	Morgan Stanley Instl Intl Real Est A (MSUAX)
Specialty-Technology	Jacob Internet (JAMFX)
Specialty-Utilities	Jennison Utility Z (PRUZX)

Go to the full list of Most Honorable Honor Roll funds

Roy Weitz's Fund Alarm

Roy Weitz's monthly Fund Alarm is always a good way to stay on top of important news brewing in the mutual fund industry. Roy's 100th consecutive monthly issue does not disappoint. His consistent critical analysis of the mutual fund industry fills an important gap in the financial media and, if you invest in mutual funds of any kind, his monthly newsletter is highly recommended. I always learn something new from it. READ

Morningstar's Five Star Ranking

Mutual funds covet Morningstar's 5-star ranking since it helps them aggressively market their fund to new investors. However, according to a new study by Pace University, it appears the 5-star ranking is the kiss of death. Pace discovered that a fund's performance typically drops dramatically in the three years after it receives Morningstar's highest ranking. READ

It's A Stock Picker's Market

I've always disliked that saying even though I've heard it consistently this year. For one thing, I don't know a market in which a good stock picker isn't required. After all, if you're going to beat the market, you always have to pick the right stocks to buy. Right?

In addition, I'm not surprised to read this morning that the majority of mutual funds are still underperforming the S&P 500 this year. You would think that this year, unlike previous ones, portfolio managers could show how their skills and knowledge could produce better returns through active portfolio management. But the stats clearly don't confirm this view. READ

Socially Responsible Investments

I have never understood why people waste their money in so called socially responsible investments. My view is that if you want to feel good about yourself and where your money is going, then do something worthwhile for others with it. Don't waste your time and energy buying a mutual fund because it claims to be socially responsible unless it also shows that it is a desirable investment beyond that.

It is certainly ok if you disagree with me on this issue as plenty of people do, but you should also beware of the fact that many of these mutual funds also have many holdings in companies that are still considered socially or environmentally questionable. Just take a moment to read about the research of Natural Capital Institute which discovered that that socially responsible mutual funds frequently do not live up to their mission statement. READ

Unhedged Foreign Bond Funds

For years I've been a subscriber of Don Steinmann's free Investment Tip of the Week. Every weekend he sends out a short newsletter by email with usually contains a helpful quick tip or food for thought. Last week's edition was no exception. In it he provides some interesting insight on how to hedge against the falling dollar:

A big movement in the investment industry over the last few years has been about hedge funds. In fact I was surprised to learn that among very wealthy investors (those with $10 million or more to invest) they have more money in hedge funds than in straight common equities. The whole idea of hedging can be an attractive one. Diversify into other types of investments, other currencies, invest on the short as well as long side and protect yourself. Though it probably won't lead to a 50% gain in any one year, it can help prevent a 50% loss.

That's all fine and good for the very wealthy, but what about the average Jane and Joe? Well there are ways to hedge that require very little money. Currency hedging is one of the easiest to do. Let's say you are concerned about the drop in the US dollar (or whatever your home currency is) and you want to protect yourself against a really big drop. Wealthy investor can go to a hedge fund, or directly to the currency markets. But other investors can hedge too, by buying into a foreign bond mutual fund. You have to make sure the fund is 'unhedged'.

You want to directly participate in the moves of the currencies in that fund. You'll earn some interest on the bonds, and also participate if the dollar declines versus the other currencies in the fund. Of course if the dollar increases in value, the fund will decline. But if the dollar is rising, yields on domestic bonds and probably stocks, will be on the rise offsetting those declines. Get a little, give a little. Hedging. T. Rowe Price, PIMCO and American Century among many others have unhedged foreign bond funds.

For more tips like this, please visit Don Steinmann's website. VISIT

Bob Olstein

Bob Olstein, veteran manager of the Olstein Financial Alert Fund (OFALX), sits down with Wall Street Week's Karen Gibbs to explain why he is fully invested for the first time in nearly a decade. Olstein also talks about some of his current stock picks which include Interpublic (IPG), Pier 1 (PIR), Del Monte (DLM), Tupperware (TUP), & Hasbro (HAS). READ

Price War: Index Funds vs ETFs

Those of us who monitor expense ratios like a hawk already know there is a price war underway between popular index funds and exchange traded funds. This is certainly music to my ears even though I think at some point someone in the industry will be smart enough to market an index fund or etf that has no expense ratio and instead uses the product as a means to gain client share in order to sell other investment and insurance products. (Mark my words - this will happen sooner or later). Until then, it makes sense to shop around as every little bit helps the bottom line. READ

Mutual Fund Scams

I understand that Wall Street needs to make a profit, but frankly I'm very upset that they are doing their best to rip off the men and women in our military. In recent weeks there have been widespread reports across the country regarding the sale of mutual funds on military bases.

Essentially, soldiers who may not be that sophisticated in money management are led down a dangerous path by commissioned salespeople. Soldiers typically pay 50% commissions for these funds and life insurance policies. (The typical commission is four to five percent, and at most you should pay eight percent.) It’s becoming a bigger scandal and hearings just took place on Capitol Hill to discuss how to handle it and a number of states are also investigating the issue. If you know someone in the military, please take time to let them know that they should avoid these scams.

Stock Market Window Dressing

Last night I wrote at the members' only website that I was surprised that we haven't seen any end-of-the-quarter window dressing yet. Sure enough, one day later, the pump and dumpers arrive right on cue.

So, what is window dressing? It is well-known and highly publicized strategy used by mutual fund and portfolio managers near the year or quarter end to improve the appearance of the portfolio/fund performance before presenting it to clients or shareholders. Performance reports and a list of the holdings in a mutual fund are usually sent to clients every quarter. To window dress, the fund manager will sell stocks with large losses and purchase high flying stocks near the end of the quarter. These securities are then reported as part of the fund's holdings.

Another variation of window dressing is investing in stocks that don't meet the style of the mutual fund. For example, a precious metals fund might invest in stocks that are in a hot sector at the time, disguising the fund's holdings, so clients really have no idea what they are paying for. Ultimately, window dressing may make a fund appear more attractive, but you can't hide poor performance for long. That is, unless you practice the art of survivorship or you just fake the numbers as so many funds are doing these days.