Some stock funds offered as ripe for profit-taking

Most such vehicles are not very attractive propositions anyway

Dollars & Sense

April 01, 2001|By Russel Kinnel | Russel Kinnel,MORNINGSTAR.COM

Do you own a couple of stock funds that are actually in the black this year? Way to go. Now, consider selling them.

Just about the entire market is down, so your fund might be doing something pretty weird to be making money. If you look at the long-term record for most of these funds, you'll see they aren't really attractive propositions. A handful, like Oakmark Select, are most definitely keepers that you don't want to unload, but most are not.

However, if you had the remarkable good fortune to have bought some of them a few months ago, you probably have made a tidy profit. Don't get greedy. Remember what happened to the greedy Internet fund investors.

As a public service, I'll share some funds worth taking profits on.

Bear funds: Bear funds like Rydex Ursa and Profunds Ultrashort OTC do a fine job of executing their strategy. If the indexes they short go down, the funds go up and vice versa. There are two catches though: First, stocks generally go up, so you're sure to lose over the long haul. Second, bears are very difficult to predict, and the record of inflows to these funds shows that investors typically get it wrong. They buy after a sell-off just in time to get hit with a rebound and they sell after a rebound.

Weird costly funds: Though this year's heroes look smart for the moment, many charge a high price for lousy long-term performance. Don't be fooled.

Apex Mid Growth started to draw a lot of hits on our Web site thanks to its strong start in 2001. It was up 59 percent at the end of January, but has since given that gain up through March 21. Morningstar analyst Hap Bryant took a look at the fund and came back holding his nose. The fund charges a steep 2.68 percent of assets, yet it has lost a stunning 24 percent annualized over the past five years. Why the good start? It held some wireless stocks that produced great returns initially. But so what? It has a record of making bad market-timing moves that have sunk this fund over the past five years.

Every once in a while, Perkins Opportunity gets something right. It runs a very concentrated portfolio, and when its top holdings make a run, things look ducky. This year, the fund's 13 percent return is mostly attributable to the micro-cap Insignia Systems, which is 17 percent of assets and has rallied 79 percent this year.

Unfortunately, the fund's big bets don't usually pan out and its returns are in the red for the trailing five years, no thanks to the fund's 2.18 percent expense ratio.

Comstock Strategy also has posted a nifty 14 percent gain this year. This "permabear" usually has most of its assets tucked away in bonds and short positions.

My guess is that it's waiting for the Dow to go to 5,000 before it buys much. The fund lost money in every calendar year that the market went up since 1995. As a bonus, the fund charges 2.46 percent.

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