To soothe New York nerves chafed by constant exposure to the securities markets, sit down for a talk with a mutual fund veteran from at least 500 miles out of town.
I tried a dose of this old-fashioned remedy the other day, and it helped.
Through a 90-minute lunch, Joseph Keating, chief investment officer at Old Kent Financial Corp.'s $6.1 billion Kent Funds group of Grand Rapids, Mich., spoke hardly a word about e-trading, 24-hour markets or the next move in gold.
Instead, Keating laid out a case for sticking with long-term investments in both stocks and bonds, in spite of all the uncertainties those markets may pose. He said he thinks the stock market is right about where it should be, and bonds are a bargain.
A calm, blind-faith approach is a special luxury for individual fund investors, who don't have to answer to any investment committee while they ride out a rocky spell like the third quarter of 1999.
"I believe the forces are in place to keep us in a low-inflation, low-interest-rate environment," Keating said, not in the least distracted by a gleeful wine-tasting marathon of New Yorkers at the tables around us.
Keating, who has spent 20 years in investment management, the last 12 with the Kent funds, concentrates on big-picture macroeconomic matters as he oversees the managers of the group's five stock, six bond and three money-market funds.
"We've had a big expansion in stocks' price-earnings ratios, and our opinion is that that game is over," he said. But he said there's no reason for P-Es to fall significantly either. "So the stock market can grow along with growth in corporate earnings," he said.
The Kent Growth and Income Fund, the group's biggest fund at $968 million in assets, is a large-stock fund that owns about 220 stocks in the Standard & Poor's 500 Index, keeping the same industry weightings as those of the index while attempting to choose the best stocks within each industry group.
Over the last five years, Kent Growth and Income has gained an average of 22 percent a year, outperforming 90 percent of all other funds and 65 percent of the funds with the same investment objective, according to Bloomberg analytics.
It has not kept pace, though, with the S & P; 500 itself, which has returned 25 percent a year over that stretch, or its sister fund, the Kent Index Equity Fund, based on the S & P; 500, which has returned 24 percent.
The Kent stable also includes small-company and international stock funds; a soon-to-be-introduced large-stock growth fund; and taxable and tax-exempt bond funds with short, intermediate and long maturities.
Keating said the bond funds are looking to profit from a drop in interest rates by stretching their durations, a measure of exposure to interest-rate risk, to 20 percent more than their benchmark indexes.
"Real" bond yields that is, the nominal interest rate minus the inflation rate are at an attractive level of close to 5 percent, by his measure. From that point, bonds have moved up substantially twice in the last five years, Keating said.
"The bond market is setting itself up for a rally," he said. "It may not happen until we see obvious signs of a slowing in the economy."
Keating argued that the Federal Reserve's moves to push short-term interest rates gradually higher this year have worked in favor of lower long-term rates later on. "Fed tightening should help reinforce the low-inflation, low-interest-rate environment," he said. "I think the conduct of monetary policy by the Fed has been masterful."
There's always been a lot of faith and hope involved in mutual fund investing. Nowadays you can find charity, too.
The place to look is the increasingly popular charitable-giving fund, designed to provide a philanthropic vehicle for small investors in much the same way that traditional investment funds give them entree to the big-time securities markets.
Instead of contributing directly to charities on your own, you can contribute to these funds, which invest your money and then parcel it out to charities where and when you wish.
The idea was pioneered by Fidelity Investments, the largest fund firm, in 1992, and has since spread to several other financial companies, including Vanguard Group, which is No. 2 in funds.
Last week Charles Schwab & Co., the San Francisco discount brokerage firm that manages $100 billion in its own mutual funds and distributes funds of other companies, introduced its version, the Schwab Fund For Charitable Giving.
In outline, here's how these funds work: An investor, who may or may not already be a client of the sponsoring firm, opens an account at Fidelity or Schwab with a minimum of $10,000 or at Vanguard with at least $25,000, putting up cash, stock or mutual fund shares. Since the fund is itself organized as a charity, that serves as a contribution. It's deductible on your tax return, and you can't take it back.
If you give shares that have increased in value since you bought them, you get the double tax incentive that encourages investors to contribute appreciated securities. You avoid paying capital gains taxes on the appreciation, and can take a deduction for the full market value at the time of the contribution.
Once you've opened an account, you can make additional contributions to the fund as you wish. You choose the charities to which the fund gives your money, and the timing and amount of each gift with two important restrictions.
The recipient must be a charity recognized by the Internal Revenue Service, and you cannot direct the money to any place that provides you a personal benefit. No quid pro quos for luxury box tickets, gifts in lieu of tuition or anything of that sort.
There are management fees, as well as altruism, in this for the sponsoring firms. The charitable funds hire the management firms to run their investment portfolios, just as other charities and nonprofits pay advisers for money-management services.
Why use a fund instead or contributing directly? Charitable funds provide a simplified format for giving to multiple charities through a single account, summarized in regular statements.
Also, contributions to a charitable fund are invested in one of several portfolios (Fidelity offers a choice of growth, equity income, interest income and money-market pools), and thus can earn more money before it is passed on to its ultimate recipients.
Charitable funds, like mutual funds in general, aren't always the best way to go. Would-be contributors are well advised to shop around with an eye to fees and the specific services they want.
Charles Schwab, one of the two-dozen wealthiest people in the country with a net worth of $6.8 billion by Forbes magazine's estimate, has two separate foundations of his own for his charitable and philanthropic activities. Even so, he opened the first account in the Schwab charitable fund for himself. "It's an example for my five children," he said.
Chet Currier is a columnist with Bloomberg News.
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