Many bulls believe that retirement investing by baby boomers will propel stocks higher for years to come. Not Investech Market Analyst (2472 Birch Glen, Whitefish, MT 59937). "If this theory were correct, shouldn't there be a corollary in Japan, where the workforce is older and there's no Social Security? The Japanese also have more incentive to invest in stocks, given Japan's record low interest rates. So why is the Nikkei still struggling to recover more than eight years after it crashed?"Aggressive growth and low risk don't ordinarily go hand in hand. But for MFS Capital Opportunities Fund, the lowest-risk fund in Value Line's 83-fund aggressive-growth universe, they certainly do. MFS has returned an average 25.5 percent annually over the past five years by unearthing stocks that seem relatively undervalued to their earnings growth rates and their future prospects, and have a clear growth catalyst. Recent favorites: Tyco International, Mannesmann AG, MCI Worldcom, BMC Software, Airtouch Communications, United Healthcare.
"Internet integrated-circuit companies aren't behaving like traditional semiconductor companies," says NationsBanc Montgomery Securities analyst Clark Westmont. "Their average annual growth has been 80 percent over the past couple of years." Individual Investor magazine (1633 Broadway, New York, NY 10019) agrees. "The rise of the Internet and burgeoning demand for data communication and telecommunication services has put a new face on things." II's favorite obscure Internet chip stocks: Galileo Technology, LSI Logic, PCM-Sierra.
Investors seeking capital appreciation, but also hoping for higher future dividend income, should consider this list of stocks from Babson-United Investment Report. All have "proven track records of generous dividend increases and substantial earnings gains. All have reported at least 10 percent compound annual growth for both measures over the past five years. And all have solid fundamentals: Danaher, Dover Corp., Fannie Mae, Gillette, Harley-Davidson, Illinois Tool Works, Newell."
Most mortgage securities don't have much more credit risk than Treasury bonds, and their returns are likely to be higher over time, observes Morningstar Mutuals. "The uncertainty associated with pure-mortgage funds may be too much for many investors, however, so a diversified fund holding a blend of mortgages and Treasuries makes sense. The key is to prioritize low-cost funds and stick with seasoned managers who know their way around this tricky market."
Sellers of closed-end funds invariably overreact to dividend cuts and dump their shares at wide discounts to net asset value, reports The Investor's Guide to Closed-End Funds (P.O. Box 161465, Miami, FL 33116). "Consequently, one of the best times to get a bargain on a closed-end is after a dividend reduction."
A study by Boston-based Dalbar found that the average no-load fund investor earned only 5.8 percent annually from 1984-1995, while the average growth fund earned 13.2 percent. Professor James Odean of the University of California has found that individual investors at discount brokerage firms also made very bad decisions. Stocks they bought underperformed the S&P 500 by 2.68 percent annually, while stocks they sold actually outperformed the same index by 0.54 percent.
Investor's Notebook is a digest of investment opinion from the world's leading financial advisers. It does not recommend any specific investments, and no endorsement is implied or should be inferred. For more information, contact the individual firms cited.