Too Many Funds? Here's Help
BOSTON — Mutual funds have always promised a diversified portfolio without the hassle of picking stocks. But now so many funds have sprung up that it has become a chore to choose among them. Enter mutual-fund newsletters that offer a guide through the thicket of funds.
"They provide investors a way to get advice without giving up control" - or paying a high-priced financial adviser, says Mark Hulbert, editor of the Hulbert Financial Digest, which provides monthly rankings of the performance of more than 40 financial newsletters that recommend investment strategies.
Mutual-fund newsletters track and publish statistics and returns of mutual funds. Many build sample mutual-fund investment portfolios and recommend what to buy or sell in that portfolio depending on market conditions. The Hulbert Financial Digest watches these watchdogs, comparing the performance of their model portfolios with stock market averages and evaluating them for risk, just as the newsletters do with funds.
These days, almost none of the letters recommend load funds, those with up-front sales charges, says Sheldon Jacobs, editor of The No-Load Fund Investor, one of the newsletters. Rather, most recommend no-load funds to buy or sell through a discount brokerage. This can usually be done over the phone.
The quality of newsletters runs the gamut, Mr. Hulbert says, depending on their authors. Some have years of financial experience, others next to none.
And while the newsletters are auspiciously independent and make their money off subscriptions, a few carry advertising inserts in the envelope, Mr. Jacobs says.
Do the letters help?
Most don't outperform market averages. But many do better than Hulbert's composite "typical investor." This typical investor's portfolio includes all the investments recommended in any of the more than 180 newsletters Hulbert tracks.
Hulbert, in a column for Forbes magazine, has published an "Honor Roll" of newsletters, based on returns and risk, or volatility, in bull and bear markets. The list included three letters that deal just with mutual funds: As of October, Fidelity Insight (800-444-6342) returned 12.1 percent over five years. It costs $127 a year. The No-Load Fund Analyst (510-254-9017) returned 12.8 percent. It costs $225 annually. And Jacobs's The No-Load Fund Investor, (800-252-2042) returned 13.5 percent and costs $129. These returns compare with 15.2 percent for the Wilshire 5000, a broad index of US stocks.
In addition, Hulbert rates highly the performance of InvesTech Mutual Fund Advisor ($175; 800-995-8500) for its relatively strong returns (11 percent annually for 10 years) and consistently very low risk. InvesTech editor James Stack says "the real value of mutual-fund newsletters is in managing risk. Most investors look at only total returns."
Information vs. advice
But recommending stable portfolios is only part of the story. John Markese, president of the American Institute of Individual Investors, represents a different philosophy regarding newsletters. He recommends letters that are heavier on information about funds' objectives, performance, and who is managing them, rather than advice about which funds to buy.
He recommends the detailed fund profiles provided by Morningstar (800-735-0700; $425) and Value Line (800-284-7607; $295), which don't recommend a particular portfolio. Newsletters, he says, are "very valuable. But will they make you a better investor? Probably not."
In fact, many experts argue investors should just buy and hold a few carefully chosen funds, rather than rotating their portfolios based on newsletter tips.
Hulbert says newsletters are useful for small investors who don't deal with a professional money manager. Higher-priced newsletters do not necessarily give better advice, Hulbert says. His data show no such correlation. If anything, the reverse is true, he says.
If you want to follow a newsletter, look for one that suits your investment strategy. Investment letters come in all stripes, from extremely aggressive to downright bearish.
A somewhat lighter-reading option for those who don't want a sample portfolio to follow is Mutual Funds, a glossy monthly magazine. The magazine is an arm of the Institute for Econometric Research in Deerfield Beach, Fla., and was started in October 1994 in response to the explosion of interest in mutual funds, says executive editor James Hagy. He says the magazine "fills a hole" in the market, with more detail and better writing for general readers than the newsletters. "We don't tell people what to do" with their money, Mr. Hagy says. Rather, the magazine provides a broad range of information to help readers decide for themselves.
Each month, Mutual Funds includes a fund-manager profile; "Wild Country," an aggressive-investing feature; a Q&A feature where readers can write in to get advice on particular funds in their portfolio; and "Undiscovered Fund," a profile of a promising investment. Subscriptions cost $9.97 a year. To subscribe, call 800-442-9000.
As with most glossy monthlies, production occurs two to three months before the publication date, so it's not the place to get up-to-date market statistics. Its articles are general enough to provide an overview of the market and strategies, as well as in-depth looks at the people and companies behind the funds.