|
Mutual Fund Notebook
|
 |
November 9, 2000: 6:10 a.m. ET
Jundt funds; plus, are high-yield bond funds for you?
By Staff Writers Martine Costello and Jeanne Sahadi
|
NEW YORK (CNNfn) - Fund manager Jim Jundt says he isn't a bear. He's just a realist.
So after the spring technology correction sent the Nasdaq into a tailspin, Jundt increased his cash positions and decided that leaders like Microsoft and Intel wouldn't be able to climb back to old highs.
The strategy paid off, and a number of Jundt's funds were among the only names to post positive returns during the stormy period between Sept. 1 and Oct. 13, according to an analysis by Morningstar.
And while some of the Jundt funds have been in the red this year as of Oct. 31, other names in the family are soaring, like American Eagle Capital Appreciation, up 92.5 percent, Morningstar said.
"You're going to see a lot of volatility in the next few years," Jundt said recently. "Major trading swings."
Also in this column: A question about the lowdown on high-yield bond funds; plus, A ray of sunshine for Ryan Jacob and the Internet sector.
How did the Jundt funds avoid a flameout? While a move to cash may have had something to do with it, Jundt says the main reason is that his funds have the ability to short stocks.
Most mutual funds hold "long" positions on stocks, meaning they buy stocks on the idea that the prices will rise in the future. When you short a stock, you are betting the price will fall. (Click here for a definition of short-selling).
Mutual funds only recently started shorting stocks, after a repeal of the so-called "short-short" rule in the Taxpayer Relief Act of 1997. The rule prevented funds from earning more than 30 percent of their profit from short-selling.
"We've created mutual funds that can protect their assets by hedging," Jundt said.
Jundt started the Minneapolis-based business in 1964 when the Dow was at 864, never imagining the benchmark would eventually get to 10,000. He decided to get into hedging because he believes returns of 20 percent a year are abnormal. The company has fund assets of $500 million.
(Jundt also manages hedge funds but he declined to comment about them).
"Our belief is the future of the market is going to return to the norm with returns closer to 6 to 8 percent," Jundt said.
Jundt started hedging about 80 percent of the portfolio in August, as much as he's allowed to do.
Still, the strategy comes with volatility. Another Jundt fund, American Eagle Twenty, is up 63.9 percent as of Oct. 31. But Jundt Opportunity is up just 1.6 percent and Jundt Twenty-Five is down 4.6 percent in the same time.
And Morningstar's Russ Kinnel warned that while market turmoil produces a few "heroes," it's hard for managers to always make the right call.
But Jundt thinks funds that use hedging strategies will give investors peace of mind during volatile times.
"There probably was a time in the last 18 years when hedging was not appropriate," Jundt said. "We tell investors that if they think the market is going to keep doing what it's doing in the last five years with 20 percent returns a year, then we're not the fund family for you."
Question of the week: High-yield bond funds?
Not all bonds are a saving grace during rocky times for stocks. The average high-yield bond fund is down 5.64 percent year to date through Nov. 2, according to data from Lipper.
These kinds of bond funds, while they may provide wonderful dividends, are risky propositions since they invest in corporate or municipal bonds with very low credit ratings, and the securities they invest in have a default rate equal to 1.5 percent to 4.5 percent of a portfolio, said certified financial planners Bud Kasper of Financial Security Investment Advisors in Lee Summit, Mo., and William Kring of Kring Financial Management in Atlanta.
One reader asked CNNfn.com what place, if any, high-yield bonds might have in a long-term portfolio.
Question: What is your opinion on high-yield bonds in a retirement account?
If they fit in with your asset allocation needs, you understand the risks and volatility associated with them and you hold them through a fund rather than individually, then they may make a good investment for you, Kasper said.
For investors still saving for retirement, reinvesting the dividends can be a strong engine for asset growth, Kring said. And for those already in retirement and taking distribution from their accounts, "It's a great way to turn on the income stream," he added.
But both Kring and Kasper warned that the volatility factor in such funds is high. Performing more like stocks than your basic Treasury, Kasper said, "I would treat them no differently than I would an equity position," meaning he would not let them account for more than 2 to 4 percent of his assets.
In choosing a high-yield bond fund, check that its holdings are well diversified and don't duplicate what you already have plenty of in your portfolio, Kring cautioned. Much of the action in the high-yield bond market recently has come from the telecommunications sector, where company stocks have gotten hammered, he said.
If you're looking for a solid, consistent performer among high-yield bond funds, Kasper recommends Vanguard High Income Fund, Strong High-Yield Bond Fund, MAS High-Income Fund, Janus High Yield or PIMCO High Yield.
You can learn more about mutual funds on CNNfn.com's mutual fund page. Or, if you need portfolio help, e-mail our experts at retirement@cnnfn.com.
Coming up for air
Ryan Jacob, poster boy for can't-catch-a-break Internet-fund managers, had a little something to smile about during the week ended Nov. 3. The Jacob Internet Fund was the No. 2 performing fund in the technology category with a gain of 14 percent, according to data from Morningstar. But that's chump change, given that the fund is one of the worst performers year to date, down nearly 60 percent as of Nov. 7.
Other Internet funds, which are still down between 30 and 50 percent for the year, enjoyed a nice bounce last week as well. Potomac Internet Plus rose 15.2 percent; WWW Internet was up 12 percent, and Rydex Internet Adviser was up 11.3 percent. 
|
|
|
|
|
 |
|
