Portfolio Manager

SAN JOSE, Calif. -- There isn't a shortage of mutual fund managers who consider themselves value players. Yet all take a back seat to Edwin Walczak -- portfolio manager of Vontobel U.S. Value Fund and the fund industry's strictest disciple of value gurus Benjamin Graham and Warren Buffett.Adherence to their tenets keeps Mr. Walczak entirely out of major categories of stocks, such as technology and cyclical issues, even when they're dirt-cheap.But his religious-like devotion to value investing -- buying stocks at a discount, presumably because they're temporarily depressed -- has paid off with handsome returns, suggesting this fund makes sense for queasy investors.

The talk about shrewd investment maneuvers to be well-positioned for a new U.S. president has largely vanished. From the economy to international terrorism, many of President-elect Barack Obama's priorities will be handed to him as he takes the oath of office, making many of his own initiatives secondary. The entire U.S. government will play a significant role in the future of our investments. Expect dramatic events, successes, failures and continuing volatility. The shape in which the government leaves the troubled companies it touches, their shareholders and bondholders remains to be seen.

One key to investment success is to be a step ahead of the crowd. Being among the first to recognize a trend or invest in a successful new company can prove quite profitable.It also can pay to accurately forecast a company's earnings growth, said James Craig, portfolio manager of the Janus Fund in Denver. "What we get paid to do is correctly estimate company earnings," Mr. Craig said. "Money follows earnings."We build a portfolio of companies where our estimates of earnings growth exceed what others expect," he said.

You can see major movies that are "carbon neutral," buy any flavor of organic yogurt and even watch as Bob Costas recaps Sunday football by candlelight for NBC. With climate change increasingly at the top of people's minds - it was identified as a major concern for students at a recent round table of university and college presidents - big business is responding. In some cases, the effort is real; in others, it's what Garvin Jabusch, a former portfolio manager for the Sierra Club Stock Fund, calls "green washing."

Legg Mason Inc., which last summer hired Edward A. Taber III away from his job of running the fixed-income division of T. Rowe Price Associates Inc., has snagged two of Mr. Taber's colleagues from Price.Keith J. Gardner, who was a vice president, global bond trader and portfolio manager at Price, has been hired as vice president and senior global fixed-income portfolio manager at Legg Mason.And Elizabeth L. Daniels, who was an investment specialist with Price, has been named vice president and investment specialist at Legg.

It could've been a lot worse.That's a generous assessment of the overall performance of the nation's mutual funds in 1990, a year wracked by economic uncertainty and worrisome world events."

Upcoming guests and topics on "Wall $treet Week With Louis Rukeyser," produced by Maryland Public Television. It airs at 8:30 p.m. Fridays on Channels 22, 26 and 67 and is repeated Saturdays at noon on Channel 26 and Sundays at 12:30 p.m. on Channels 22 and 67.SEPT. 28: "Are Pollution Control Stocks a Waste?" -- Guest: Kenneth C. Leung, managing director, Smith Barney Harris Upham & Co. The outlook for the environment and waste management companies with a top analyst in the field.OCT. 5: "Where Does the Market Go from Here?"

U.S. bond yields, driven by another piece of news suggesting that the economy is hurting, fell to a record 6.18 percent before rebounding, the ninth straight day the record tumbled.The closing yield was 6.21 percent, down four basis points.Bonds were helped when the Commerce Department said the merchandise trade deficit widened to $12.1 billion for June. The gap was nearly 50 percent larger than expected, adding to investors' perception that the economy and inflation won't grow more than 3 percent this year.

When Morris Smith decided to devote more time to his family and quit as portfolio manager of the $20.4 billion Fidelity Magellan Fund July 1, he did more than raise eyebrows among his shareholders -- he set off a series of changes in Fidelity's equity fund lineup.To succeed Smith, Fidelity management chose Jeffrey Vinik, portfolio manager of Fidelity Growth & Income Portfolio. He has been succeeded by Andrew Midler, portfolio manager of Fidelity Equity-Income II Fund, who had been succeeded by Brian S. Posner, portfolio manager of Fidelity Value Fund, who has been succeeded by Richard Fentin, portfolio manager of Fidelity Puritan Fund, who -- is staying put. He just picked up another fund.

For the first time since mid-March, the Dow Jones industrial average closed above 10,000 yesterday, leading some market watchers to be cautiously optimistic that the stock market may have finally hit bottom. But others warn that stocks may still be vulnerable to a downslide depending on first-quarter earnings reports that are beginning to be released. The Dow, an index of 30 blue chip stocks, rose 257.59 points, or 2.62 percent, to 10,102.74, closing above the psychologically important 10,000 mark for the first time since March 15. "You can't ever pick a low with any precision, but we are pretty optimistic," said David Straus, senior portfolio manager with Washington--based Johnston Lemon Asset Management Inc. Straus blamed some of the recent market declines on investors raising money to pay taxes.

Back in 1999, as the world was fixated on the potential for haywire computers to cripple the financial system, experts had little clue to what the next star investments would be. The top 10 mutual funds since Dec. 31, 1999, are beneficiaries of an abrupt farewell to U.S. growth stocks and rush to energy, real estate, precious metals and international stocks. Rather than lead a transition to the high-tech world, the year 2000 and the bursting of the tech bubble ushered in a retrenchment into hard assets.

A new generation of Internet companies is gaining currency and enticing investors again. Although remnants of the Internet mania of the late 1990s still litter the landscape, that debacle almost assures that today's cyber investor remains grounded in reality. "All of us took more risks [in the late 1990s] than we should have," said Ryan Jacob, portfolio manager of the Jacob Internet fund. "Today, investors are much more scrutinizing, and it is a much more rational environment." That's good because investing in dot-coms is not - and never should have been - for everybody.

SOMETIMES, market-moving news fails to move markets. China's decision to unlink its currency from the U.S. dollar barely fazed Wall Street, even though global news wire Reuters called it "the biggest financial story of the year." The news broke July 21, a day that saw a second terrorist attack on London's transit system and congressional testimony by Federal Reserve Board Chairman Alan Greenspan. A flurry of expert advice on how to "play" the China currency story ensued: Bet against the dollar and Treasury securities; sell Wal-Mart Stores Inc. and other retailers that import from China; buy commodity futures.

Supersize me. Individual investors, institutions and pension funds love to own giant stocks that command everyone's attention. Market capitalization is computed by taking the total number of shares and multiplying by the share price. The stocks with the largest capitalization earned their popularity because their companies were quicker, shrewder and more forceful than the competition. Investors in these stocks expect the winning ways to continue, providing a foundation for their portfolios.

Tomorrow is another day,M-v declared Scarlet OM-FHara in Gone with the Wind. M-tThe sunM-Fll come out tomorrow,M-v sang the plucky orphan in Annie. M-tI canM-Ft wait until tomorrow ... M-Fcause I get better looking every day,M-v quarterback Joe Namath wrote in his book with that title. Tomorrow does not hold such allure for mutual fund investors in 2004. Tomorrow has become a worrisome destination, where bad things could happen at the gas pump, on the battlefield or in the voting booth.

Those lyrics from the Temptations in 1970 aptly describe the current scenario. The situation in Iraq, the presidential election, differing views on the economy, rising interest rates and criminal convictions of chief executives have muddled our collective brain. In the case of mutual funds, scandals in which high-rollers received secret trading deals have made investors even more wary. Amid the turmoil, the average U.S. diversified stock fund managed to eke out a 0.84 percent gain in the second quarter of 2004 and a 3.86 percent increase for the first half of the year, according to Lipper Analytical Services.

The law requires mutual fund advertisements to tell new investors to "read the prospectus before investing." But is that enough? No -- not if you really want to know where the fund invests your money, and don't want any unpleasant surprises.One investor recently said she planned to complain to the Janus Twenty fund after belatedly discovering the presence of Philip -- Morris, a major tobacco and food conglomerate, in its portfolio. She had already invested in the fund on the recommendation of a financial planner.

Japan, which may not be the perfect economic juggernaut after all, lately has grown accustomed to losing face.There was the bribery scandal that led to the resignation of its prime minister two years ago.This year's embarrassment, coming in the midst of a three-month decline in the Tokyo stock market, was the resignation of key securities industry executives due to improper reimbursement of big clients for losses in last year's market collapse.Surprisingly, such revelations may not be bad for either Japan or for would-be investors in stocks of Japanese companies.

When scouting out mutual funds for an investment in a taxable account, investors sometimes do a funny thing: They look at pretax returns. Strange that they wouldn't look at after-tax returns since Uncle Sam has a seat at the table when you invest in a taxable account. After-tax returns are readily available in fund reports and at Morningstar.com. You can even look at figures that show what your returns would have been assuming you held on to the fund beyond the time period in question or if you had sold at the end of the period.