How to Read a Mutual Fund Prospectus

A mutual fund prospectus is a managed fund's introduction to you. The mutual fund prospectus should tell the prospecting investor several things including 1) how the fund is managed, 2) what the fund invests in, 3) why the fund invests in what it does and 4) how the fund performs financially. Forward looking guidance in a prospectus is useful, but shouldn't be taken as gospel as much as the management's informed opinion regarding the fund's investments. This article will illustrate how to read a mutual fund prospectus in terms of understanding important sections and why they are useful. The Fidelity, February 2009 Contrafund Class A (FCNTX) Prospectus will be used as the example.

Review the mutual fund's expenses

The first thing a mutual fund investor may want to look at is the cost of investment such as management fees, transaction costs, front end costs and back end costs. If the fees are too high, they may offset the performance of a fund to such an extent that makes the investment unfit for specific investment objectives. Have a look at the linked to Fidelity Contrafund fee table, and look for what is not said or lightly alluded to rather than what is said and heavily emphasized. Three important things to look for are the following:

• Expense ratio
• Expense ratio source
• Footnote exemptions, caveats, conditions

Fee information is also provided in the 'Fund Management' section of the Contrafund prospectus and indicates how basic fees are calculated. Pay special attention to whether or not this fee is variable and how it is calculated. Additionally, add any taxes on dividends and capital gains to the cost basis to determine a more accurate potential return.
Compare the mutual fund's share classes

Share classes are quite important as each share class has different costs associated with it. Different funds may have multiple share classes such as A class, B class and C class. This particular fund consists of class A shares, however a similar fund with same name called the Fidelity Contrafund Class K (FCNKX) also exists. 

The difference between these two funds includes the expense ratio and minimum investment amountBeing exactly aware of what class A shares constitute and how they are managed is important because it can affect your investment objective. If the share classes aren't adequately illustrated in the prospectus contact the fund's investment representative for clarification of the share class terms. You may also want to do additional independent research on share class differences and their impact on investing.

Assess the fund's performance over time

The funds performance over the years will tell you what kind of investment return you're more likely to achieve through this particular investment. For example, the Fidelity Contrafund has closely matched the S&P 500 index for the last 10 years as of 10.09. 

This means the fund could provide average returns during good economic and/or market conditions, and average losses during bad economic and/or market conditions. Earnings types and distribution options should be listed in the prospectus i.e. whether or not the fund earns dividends, how and when capital gains are distributed, and reinvestment plans. In this particular fund, these items are listed in the dividends section of the prospectus.

Review the fund's investments and investment method(s)

What the fund invests in and how is also relevant and should be explained in a mutual fund prospectus. Some funds have strict guidelines and protocol for making investments and trading activity. The funds investment guidelines should match your risk levels and fund management preference. For example, the Fidelity Contrafund invests in common stocks and does not invest according to a specific protocol other than value investing per the fund management's analysis. This information is found in the 'Investment details' section of the prospectus.

Read the mutual fund's prospectus and investor instructions

The investor instructions include how an investor can purchase mutual fund shares, how the shares are valued and methods by which an investor can purchase shares of the mutual fund. In the Fidelity Contrafund Prospectus, these instructions are located in the buying section of the fund. Of particular relevance in this section are the following three listed items in addition to policies and conditions through which buying and selling activity takes place.

• Minimum investment
• Investment account types
• Contact information for investors

Check fund management information

For background information on the fund management begin by looking at the fund management section of the prospectus. This won't always tell you a whole lot about the funds management but will point you in the right direction should you wish to perform additional research on the mutual fund. Fund Management is key to how well a mutual fund can perform. Experienced, knowledgeable and proven fund managers may have a higher probability of steering the fund well into the black for consecutive quarters  and this can be demonstrated through the fund managers history through a complete business cycle.

Consider additional mutual fund factors

There is a saying among some investors that goes 'if the mutual fund prospectus has too many glossy pictures, don't invest in it.' Point being, a prospectus should be about how the fund is managed and how well the fund performs, and not necessarily how well it markets itself. This is so because a mutual fund doesn't depend on sales as much as it depends on being well managed i.e. Investors are important, but their reason for investing is often the fund itself, not the marketing of the fund.

Mutual Fund Reviews: DNP Select Income Fund

The DNP Select Income Fund (DNP) is a diversified low risk, income producing mutual fund that's primary goal is to generate income such as dividends and bond payments for its investors. The DNP Income Fund has been in existence since the late 1980's and is headquartered in Chicago, Illinois. The fund invests in Moody's rated bonds between BB and AAA and a number of both U.S. and International utility companies. This review will discuss the DNP Select Income Fund in terms of its management and key performance metrics.

DNP Fund management

The DNP Select Income Fund is managed by the funds Chairman and Chief Executive Officer name Francis E. Jeffries, and Nathan A. Partain respectively and as of the date of this review. Both of these fund managers are Chartered Financial Accountants and assisted by a Board of Directors and other key professional management executives. A complete profile of the DNP Income Fund's management is available within its U.S. Securities and Exchange Commission filings, particularly the annual report form N-CSR.
Performance metrics

• Risk: This mutual fund is low risk because it usually invests heavily in a range of low risk corporate and government financial instruments such as shares of utilities companies and/or high dividend paying stocks of highly capitalized companies.

• Yield: Since capital appreciation is a secondary objective of this fund, stock price has not followed a growth pattern but income yield is quite fair at an annual amount of .78 cents per shares ranging between 7.1-10.9% of share value at prices between $7.30-$11.00. The monthly distribution per share is fixed by the fund's management at 6.5 cents per share.

• Income: As of the date of this article the fund was yielding .78 cents per share, and at the maximum price the fund has reached per share this would be approximately 7.1% distributed quarterly.

• Size: The fund has 231.58 million shares outstanding and a market capitalization/worth $1.69 billion dollars (yahoo finance)

• Sector(s): The primary areas in which this mutual fund invests are utilities, specifically electric and gas at 58% of the fund's value and communications at 26% of the fund's value. (dnpselectincome.com)

• Structure: The DNP Select Income fund is closed-end except in the case of series C preferred shareholders. Moreover, DNP common shares are non-redeemable from the fund manager; consequently the structure of the mutual fund allows more fixed investments.

• Diversification: This fund contained no more than %5 of its investments in any one company either domestic or international at the time of this documentation. This indicates a strong diversification of invested funds within a less diversified number of sectors.

Summary

The DNP Select Income fund has held up well in a time of economic recession with no interruptions to its monthly income distribution. This indicates sound investments and ample solvency for the fund to both continue its operations and income objectives. In terms of individual portfolio investing, this fund may be good for highly capitalized and/or late stage retirement planning or thereafter due to its lower capital appreciation and steady income at a moderate to good yield higher than money market accounts and most certificates of deposit. The fund has been active for over 2 decades, has a dividend reinvestment program (DRIP) and has a proven performance track record.

Sources:

1. http://www.dnpselectincome.com/index.html
2. http://www.finance.yahoo.com
3. http://www.sec.gov

Mutual Fund Reviews: Templeton Foreign Fund A

Templeton Foreign Fund Class A (TEMFX) is a mutual fund managed by Franklin Templeton Investments, operated out of Fort Lauderdale, Florida, and incepted in the 1982 as an international equity fund. The fund has over $5 billion dollars in assets and mostly invests, i.e. over 95%, in the stock of large European and Asian information technology, telecommunications, financial services, energy, pharmaceutical and other firms.

Fund, performance and risk

This mutual fund has never been ranked higher than 3 stars by the Morningstar rating system. Nevertheless, a 3 star rating from Morningstar qualifies as above average according to the company. Approximately 350 competing mutual funds exist for the Templeton foreign class A fund (finance.yahoo.com) and the fund has returned an average return of 9.88% after sales charges since its beginning (franklintempleton.com) The fund has an annual dividend of .315 cents per share in addition to any accumulated capital appreciation as of the creation of this review. This dividend is the second highest of all 5 classes of the Templeton Foreign Fund series.

For the most part, the Templeton Foreign Fund Class A has outperformed funds in the same category for a number of years according to yahoo finance. Almost two thirds of the years in which the fund has existed have been gainful for the fund with the remainder of the years incurring annual capital depreciation. (finance.yahoo.com) The fund has experienced both double digit return losses and gains in various years of its performance and has tended to follow/correlate overall market performance.

Cost and fee structure

The Templeton Foreign Class A fund has a different fee structure than class B. The fund has a front-end load fee of 5.75% and an expense ratio of 1.14% of investment worth. (Morningstar.com) The combined 1st year fee would consequently be 6.89% of the investment with subsequent years being closer to the 1.14% management and operational fees. The minimum investment for this fund is $1000.00 with lower required amounts for Individual Retirement Accounts and 'Annual Incentive Plan Accounts' (Morningstar.com)

Managment

As of the date of this article, the Templeton Foreign Fund, Class A was managed by 3 professional chartered financial analysts named Tucker Scott, Lisa Myers and Cynthia L. Sweeting, all of who have been employed by Templeton Global Advisors Limited since 1996 or 1997. According to the 2008 annual report of the Templeton mutual fund, the fund seeks value in its investments in relation to their estimated/projected long-term performance. These managers were selected by the parent company of the fund for their capacity to operate and maintain foreign funds.

Summary

For investors seeking a diversified, moderate risk, mutual fund investment with long term returns of close to 10%, the Templeton Foreign Fund Class A may be worth considering. The company in which the fund is managed is a long-standing and reputable financial services firm with a track record consisting of multiple mutual funds for investors. 

Consultation with a financial advisor, planner, accountant or Franklin-Templeton representative may assist with the decision to purchase shares in the Templeton Foreign Fund Class A. Since financial plans, age, risk tolerance, investment goals and other factors vary between investors, deciding whether or not the Templeton Foreign Fund Class A is the right fund to invest may be both a personal and informed financial decision.

Sources:

1. https://www.franklintempleton.com/retail/jsp_app/products/fund_facts.jsp?fundNumber=104
2. https://www.franklintempleton.com/share/pdf/products/semi_ann/annual/104s.pdf
3. http://quicktake.morningstar.com/FundNet/Snapshot.aspx?Country=USA&Symbol=TEMFX
4. http://finance.yahoo.com/q?s=TEMFX

Mutual Fund Reviews: Janus

The Janus family of mutual funds is divided into four categories including 1) Asset allocation funds, 2) Equity funds, 3) Bond funds and 4) Money market funds. A complete list of these funds can be viewed on the janus.com website. The company managing these funds is called Janus Capital Group (JNS) and is also a financial services company.

The Janus organization has been involved with financial services and asset management for much of the time in which the financial markets have evolved and according to the company itself, takes a strong research and risk management approach to its asset management strategy. More specifically, the Janus Capital Group has been in existence since the late 1960's and has a information focused, strategic approach to asset management as outlined by the company itself.

The Janus funds

Many Janus funds are ranked above average or higher by the Morningstar rating service and some of these funds have never seen a negative average annual return. For example, the following two funds are not only ranked with 5 stars by Morningstar, but have also had consistently positive investment returns (janus.com)

• Janus Flexible Bond Fund (JAFIX) : 7.35% average fund life return
• Janus Short-Term Bond Fund (JASBX) 4.73% average fund life return

According to Morningstar.com, the Janus fund family has an average fund expense ratio of 1.06-1.26 i.e. between 1.06%-1.26% depending on the type i.e. bond funds, equity funds etc. There are approximately 59 Janus funds on the market with a variety of concentration areas such as contrarian funds, international funds, growth funds and more.

More than two thirds of Janus' managed assets are in domestic investments and the majority of the funds are no load despite its expense ratio(s). Minimum investment amounts do apply to Janus funds when made directly through the firm. Moreover, Morningstar reports that over 85% of Janus' managed assets are invested in equities with the remainder in bonds, cash and other financial instruments.

There are many fund families to choose from when selecting mutual funds. For this reason, researching the various options and deriving an investment plan may be a good idea prior to purchasing mutual funds of any kind.

The Janus fund family as a whole is also given high ratings by Morningstar, however it is also important to note mutual funds may only meet specific investment objectives regardless of capacity. In other words, since mutual funds are managed funds they give less control to the investor but may also be a good place to hedge risk such as in the case of Janus Flexible Bond Fund (JAFIX).

Janus management

The Asset management company overseeing Janus funds has capitalization of over $1.5 billion dollars and a .04 cent per share annual dividend distribution. (finance.yahoo.com) Like many mutual fund/asset managers, 2008 was a particularly brutal year to investments of all kinds with the exception of bonds and other safe investment classes.

The company has had several years yield a positive annual revenue and income despite a difficult economic environment and has experienced a net negative cash flow i.e. higher cash outflow for the years 2007 and 2008. Janus Capital Management's "Corporate Governance Quotient" is near the 41st percentile for high ranked companies according to yahoo finance, and the company's headquarter is in Denver, Colorado.

Sources:

1. https://ww4.janus.com/Janus/Retail/StaticPage?jsp=jsp/Funds/OurFundsLanding.jsp
2. http://ir.janus.com/?WT.mc_id=6005
3. http://finance.yahoo.com/q?s=jns
4. http://quicktake.morningstar.com/FundFamily/Snapshot.asp?Country=USA&Symbol=10422
5. http://quicktake.morningstar.com/FundFamily/fundfamilylist.asp?Country=USA&Symbol=10422

Mutual Funds Containing WWA.OB and Entech Solar, Inc.

WWAT.OB is the former 'ticker' symbol for a company that was called WorldWater & Solar Technologies. In January of 2008 the WorldWater & Solar Corp. acquired Entech Inc. and later changed its name to Entech Solar, Inc. via corporate amendment in January 2009. (investorideas.com). The ticker symbol for this new company is ENSL.OB and it trades through the over the counter bulletin board (OTCBB) hence the letters OB at the end of the company's ticker.

Ticker symbols are the classification code for both publicly owned companies and mutual funds. Mutual funds can have a stake in the owenership of a company and thus, some mutual funds may contain Entech Solar, Inc. (ENSL.OB) in their investment portfolios. Each mutual fund that owns shares in a company may do so for different reasons, for varying lengths of time and in dissimilar amounts. However, a less than 1% ownership of the company is currently from mutual funds due to mutual fund investment policies regarding this type of stock (sec.gov)


Santa Barbara GRoup-PF Water Fund (PFWAX and PFWCX)

The Santa Barbra Group, a division of Nuveen Investments runs a mutual fund that includes ownership of Entech Solar, Inc. as of March 31, 2009. (finance.yahoo.com) This fund is divided into two classes in addition to one exchange traded fund with the ticker (PFWYX) The two mutual fund class names are PFW Water A (PFWAX) and PFW Water C.(PFWCX), both of which have similar investment strategies and holdings. The Santa Barbara PFW Water fund is one of the only mutual funds, if not the only mutual fund to own shares of Entech Solar Inc. Some key points regarding the fund are listed below as sourced from yahoo and google finance, lipper.com, and marketwatch.com.

• 2 star Morningstar rating, 2.4 average PFWCX and PFWAX lipper fund rating (06/09)
• 4.82% fund ownership in less than 1% of Entech Solar, Inc.
• Managed by Santa Barbara Asset Management a division of Nuveen Investments
• Mid-Cap Growth fund with $11.9-$14.64 million dollars of assets in its portfolio
• 1.54%-2.7% expense ratio and lower than average investments turnover
• Fund established in October 1998
• Holding of 330,000 shares as of 3/31/09
• 94.98% of investment assets in equity (google.com/finance)

Since Entech Solar Inc. is traded on the over the counter bulletin board, major ownership by mutual funds may not comprise a significant share of this company's ownership in the near future as gleaned from information from page 29 of Entech Solar Inc.'s Q1 2009 report. Thus mutual funds and/or exchange trade funds that do take ownership in this company may be seeking a high growth and risk strategy as OTCBB shares are often considered risky.

Summary

Entech Solar Inc. is not a widely held company by mutual funds. The mutual fund managed by Santa Barbara Asset Management is the primary mutual fund owner of shares of Entech Solar Inc's stock. Entech Solar Inc. changed its ticker symbol from WWAT.OB to ENSL.OB in January of 2009 to better reflect the companies intended brand equity and/or other factors. The company was acquired by WatsWater Technology Inc. in 2008. As of the date of this article, specifically June 2009, the total amount of shares held by the owning mutual fund(s) add up to less than 1% of the company's stock. Moreover, the fund which owns this stock has fairly low asset holdings no higher than $12 million for the PFWAX series and no lower than $2.8 million dollars for the C series and exchange traded fund.

Sources:

1.http://www.entechsolar.com
2.http://www.finance.yahoo.com/q/mh?s=ENSL.OB
3.http://www.investorideas.com/news/011209a.asp
4.http://www.google.com/finance?q=pfwax
5.http://www.marketwatch.com/tools/mutualfunds/overview.asp?symb=PFWCX
6. http://www.lipperweb.com/research/results.asp

Mutual Fund Review: Robeco WPG Small Cap Value Fund

The Robeco WPG Small Cap Value Fund (WPGTX) is a European managed, Maryland incorporated, 2 star Morningstar ranked mutual fund with a minimum initial purchase of $100,000.00 and .01 cent per share annual dividend. The share price has ranged in value from $6.00-$30.00 over its 35+ year life time and the fund specializes in small capitalization U.S. investments and has a an asset value in the tens of millions of dollars.

Robeco WPG Small Cap Value Fund: Fund management

The solvency of the Robeco WPG Small Cap Value Fund is stabilized by Robeco Investment Managements subsidiary relationship with Robobank, a credible and established Dutch financial services firm. Robeco Investment Management has 6 offices located in the United States including New York, Boston, Los Angeles, and San Francisco.

The Robeco fund family consists of several other managed mutual funds including a non-diversified climate sustenance fund (SSCIX), 2 Mid Capitalization funds (BPMIX) and (BPMCX), 2 All Cap funds (BPAIX) and (BPAVX) and a few other funds. (biz.yahoo.com)


Robeco WPG Small Cap Value Fund performance

Robeco WPG Small Cap Value Fund has a 5 year return ranking near the 60th percentile of all funds in the category, and as mentioned above a 2 star MorningStar rating meaning the fund is ranked by the organization as no higher than the 32.5th percentile in its mutual fund category. The MorningStar, star ratings specifically refer to investment risk and return of the funds but do not delve quite too deeply into the differences and nuances between similar mutual funds and the affects on performance those differences can have. (quickoverview.com)

Since the WPGTX fund invests primarily in Small Cap. U.S. businesses, i.e. companies with market capitalization under $1 billion U.S., the risk of volatility in the fund's value is unsurprising. This is so as Small Capitalization companies are notorious for their ups and downs, and this is reflected in the WPGTX fund history which has experienced down years approximately 33% of its existence.

Competitive positioning: Robeco WPG Small Cap Value Fund

Advantages of the Robeco WPG Small Cap Value Fund include no load fees and an expense ratio around 1.61% which is above average for the funds competitive grouping (finance.yahoo.com) The fund has been in existence since 1972, and is owned by a financially stable bank possibly making WPGTX insolvency or bankruptcy a lower risk in that sense. The fund also has an above average turnover, meaning it may not take a long-term approach to all its investing activities. This indicates an active management but also a potentially less predictable performance and/or share price forecast. Similar funds in this category include the following:

• American Century Small Cap Value Investor Fund (ASVIX)
• Artisan Small Cap Value Fall (ARTVX)
• Fidelity Small Cap. Value Fund (FCPVX)
• Keely Small Cap. Value Fund (KSCVX)
• Allianz NFJ Small Cap Value D. (PSVIX)

Summary:

The Robeco WPG Small Capitalization Value Fund is an above average risk, low to moderate long-term return fund that invests in smaller capitalized companies within the United States. The fund has demonstrated far better performance in bull markets because of its investment status, and using its performance history as an indicator. The fund is volatile and lower than average in risk and return comparison(s) with similar mutual funds, of which there are hundreds to choose from. 

The fund has good ownership in terms of financial stability and experience in the industry, which may be part of the reason for the long duration of the fund. Investment in this type of fund can be considered aggressive and higher risk therefore might not be the best fund to invest in near retirement unless the investor has ample discretionary funds and/or a low adversity to risk.

Sources:

1. https://www.robeco-usa.com/us/eng/iw/content/ic/value_equities.jsp
2. http://www.rabobank.com/content/
3. http://moneycentral.msn.com/detail/stock_quote?ipage=qd&symbol=WPGTX
4. http://biz.yahoo.com/p/fam/robeco_investment_funds.html
5. http://finance.yahoo.com/q/pm?s=WPGTX
6. http://quicktake.morningstar.com/DataDefs/FundRatingsAndRisk.html
7. http://www.quickoverview.com/overviews/morningstar-ratings-overview.html

Written: 06/14/2009 

Mutual Fund Review: Pioneer Mid-Cap Value Fund Class A

Pioneer Mid-Cap Value Fund Class A (PCGRX) is one of several classes of Middle Capitalization funds managed by Pioneer funds. The Pioneer Mid-Cap Value sister funds are class B, C, R, and Y. The class A mutual fund is the largest of the 5 with over $900 million dollars in managed assets, a 1.13% expense ratio and a total return of nearly 4% since its 1990 inception date.

The Pioneer Mid-Cap Value Fund Class A is managed by a financial services and investments firm called Pioneer Investment Management, Inc. that is of European ownership and registration with offices and mutual fund tailored to the United States market(s). The company and/or asset management by the company has been in operation since the late 1920's. This review will discuss the Pioneer Mid Cap Value fund in regard to its performance, characteristics and competitiveness as a choice among an array of similar funds.

Pioneer Mid-cap Value Fund Class A performance 

If an investors expectations are moderate return on investment, medium risk, and equity portfolio diversification among multiple mid-sized U.S. companies across several industrial sectors, then the Pioneer Mid-Cap Value Fund Class A might be a good choice. The difference between the Class A fund and the others pertains to 1) assets managed, 2) expense calculations, fund creation date and availability to investors.

While the Class A fund has the largest amount of assets, it also incurs a sales charge and does not have exclusive ownership like the Class Y fund. In terms of performance, the Pioneer Mid-Cap Value Fund Class A has not greatly exceeded the Russell Mid-Cap Value Index that's 10 year return is around 21 basis points short of 4%. Moreover, the companies the fund invests in have relatively normal Price to earnings ratios and a near 75% index correlation indicating a somewhat predictable performance.

Competitive Positioning: Pioneer Mid-cap Value Fund Class A

The Pioneer Mid-Cap Value Fund Class A is managed for value and capital appreciation rather than niche market and outstanding potential to grow as would be more the case with a Small-Cap growth fund. In light of this, the fund is not entirely aggressive or high risk but rather a moderate position which itself has relatively frequent turnover of 61% of its assets within its portfolio. This indicates an active management with a short-term as well as long-term approach to asset management investing.

Middle capitalization firms that were not previously large capitalization firms, but rather small capitalization firms and in the investment portfolio of the Pioneer Mid-Cap Value Fund Class A may indicate strong value and/or potential growth due to current market conditions approaching the 3rd quarter of 2009. In terms of additional mutual funds of similar nature, the Pioneer Mid-Cap Value Fund Class A performs on average. Some of the higher ranked funds in this category as indicated by Morningstar rankings and smartmoney.com include the following:

• Artisan Mid-Cap Value Fund (ARTQX)
• Dreyfus Mid-Cap Value (DMCVX)
• American Century Mid-Cap Value (ACMVX)
• T. Rowe Price Mid-Cap Value (TRMCX)
• Janus Perkins Mid-Cap Value (JMCVX)

Summary 

The Pioneer Mid-Cap Value Fund Class A is a mutual fund that invests in U.S. companies with equity capitalizations under $10 billion dollars i.e. 'Mid-Cap'. The fund is slightly above average in return performance, is of moderate risk and invests primarily in diversified U.S. companies and industries.

The quality of the selection of these companies i.e. the management's ability to select quality and companies with high revenue and earnings growth potential is a significant factor affecting the performance of this fund. For example, a mid-cap company upgraded as such during an economic recession may have more potential than a mid-cap company downgraded to such during the same time period. This fund has a sales expense but is a no load fund with a fairly typical expense ratio for a mutual fund.

Written 06/15/2009 

Mutual Fund Reviews: Charles Schwab

Charles Schwab mutual funds are named after Charles R. Schwab, the Founder and Board of Directors Chairman of Charles Schwab Corporation (SCHW). Charles Schwab mutual funds began in 1984, and have evolved into a developed and researched medley of investment selections as managed by a financial services firm that is well entrenched within the industry. Schwab mutual funds include over 60 funds and more than $230 billion in managed assets.

Schwab funds are subdivided by management and itemization categories. For example, fund groups include those maintained by Charles Schwab Investment Management and/or Laudus funds, or funds that are a part of Schwab's Mutual Fund One Source and Mutual Fund Select List programs. Many of the Schwab funds are no load and no transaction fee meaning they do not charge for purchase or sale of the mutual funds, but rather pay for services through maintenance fees and/or service charges. Some of the Charles Schwab mutual funds include affiliated funds such as the Laudus funds in addition to Schwab owned and managed funds such as the following:

• Schwab Tax-free bond fund (SWNTX)
• Schwab balanced fund (SWOBX)
• Schwab Market track growth portfolio (SWHGX)
• Schwab Core Equity Fund (SWANX)
• Schwab Inflation Protected Fund (SWRSX)

Charles Schwab mutual funds focus on a number of investment areas such as bonds, international investments, small through large capitalization companies, dividend yielding investments etc. Several Schwab funds have 4 and 5 star Morningstar ratings in 3, 5 and 10 year averages, meaning they are in the top quarter of all U.S. mutual funds in terms of risk weighted returns.

Mutual fund performance

Assessing Charles Schwab mutual fund performance depends on the investor's goals, however most investors do like to see a profit on their investment making returns an important factor in determining performance. In this category, Schwab's funds seem to have a fairly close beta to the relevant index or investment group that the funds represent.

Secondly, in terms of money management, Charles Schwab gets top marks for professionalism, ability and skill of portfolio managers and customer service(s). Charles Schwab is a premier discount brokerage service that hasn't forgotten what quality of service is and the importance of the client-firm relationship.

A third factor for which Schwab funds can be measured by is cost. Since there are many no load and no transaction fee mutual funds provided by Schwab, the cost factor is clearly quite good and quite a few of Schwab's mutual funds have expense ratios well below 1% and closer to the .5% range.

Variety and choice is another area in which Schwab funds excel as the company provides a wealth of mutual fund investment options for investors seeking to place funds in mutual funds and/or seek tax free growth. Additionally, the range of mutual fund options can meet a number of risk levels, where even in times of heavy economic recession, the tax-free bond fund has maintained a positive return near 2%. Schwab funds also have the option of low investment minimum further adding value to the investment dynamic.

Summary

If you're looking for somewhere to park your money where it will be professionally managed, diversified, and somewhat safe for a low cost, Charles Schwab mutual funds might be worth considering. The company's public mutual funds business has been around since the 1980's, has a proven management track record and is well known and reputable within the financial services industry.

In terms of performance, there may be better investments to choose from. Despite this, mutual funds can serve a purpose in balancing portfolios and risk, in which case selecting Charles Schwab mutual funds can be a feasible option. The option for low minimum investments for a low cost with inflation protected, tax free and taxable bond funds and further diversified investment choices make Charles Schwab mutual funds worth a look.

Sources:

1. http://www.aboutschwab.com/about/facts/mutual-funds.html
2. http://tinyurl.com/5vgljss (BusinessWeek)
3. http://tinyurl.com/ma4c8m (Schwab)

Written 05/05/2009 

Mutual Fund Reviews: T. Rowe Price New Asia Fund

The T. Rowe Price New Asia Fund (PRASX) was initiated on September 28, 1990, and is one of numerous international mutual funds managed by T. Rowe Price. T. Rowe Price (TROW) is a publicly owned and traded investment management firm that has been in business for over 80 years, has offices worldwide, and has a market capitalization/worth of over $10 billion dollars. According to the T. Rowe Price mutual fund prospectus, the New Asia Fund invests in small and large growth orientated companies throughout emerging markets within Asia, thus naturally excludes Japan.

Mutual fund performance

The New Asia Fund is ranked by Morningstar's star rating system with 2 stars for its 3 and 10 year return performance and 3 stars for its 5 year progress meaning it ranked between the 10-67.5th percentile of all mutual funds reviewed by Morningstar. Despite this relatively low ranking by Morningstar, the T. Rowe Price New Asia Fund has performed relatively well in terms of long term average annual returns yielding 6.01% if held since its first issue. Moreover, the New Asia Fund has returned higher 3, 5 and 10 year yields than the T. Rowe price International Growth and Income fund, the T. Rowe Price Global Stock Fund and the T. Rowe Price International Equity Index Fund.

The costs of owning shares in the T. Rowe Price New Asia Fund include an expense ratio of just under 1% with no load fees unless the fund is sold within 90 days of purchase for which a 2% redemption charge is incurred. The minimum investment amount for this fund is $2,500.00 for new accounts or $100.00 for existing accounts.

The risk of owning the New Asia Fund is higher than bond and blue chips funds, is ranked at the high end of the risk spectrum by T. Rowe Price, but has correlated quite closely with the Lipper Pacific (excluding Japan) funds average; moreover as of the date of this article, 28.7% of the funds asset value was distributed among 10 companies. The fund is heavily weighted in India and China among 5 core industry sectors. The funds management is somewhat limited in comparison to some other funds, however its longevity provides some testimony to its ability to perform.


Competitive positioning

Outside of T. Rowe Price mutual funds specializing in Asian growth companies provide competition for the New Asia Fund. Some of these funds have averaged higher returns than the New Asia Fund, whereas others have yielded lower average returns for multiple year categories. A few of T. Rowe Price's competitor funds are the Fidelity China Region Fund (FHKCX), the Goldman Sachs Asia Equity Fund (GSAGX), Dreyfus Emerging Asia Fund (DEAAX), and the AIM Asia Pacific Growth Fund (ASIAX). These funds have various investment objectives and sizes and average annual 5 year returns ranging from 0-10.95% (googlefinance.com). They are also managed by well established financial competitors in the financial services industry.

Summary

The advantages of owning the T. Rowe Price New Asia Fund is the potential for high return, no load fees, and stable management as indicated by parent company management, time since fund inception and long- term performance. The disadvantages of this fund are there are better performing Asian emerging market mutual funds to choose from as indicated by this article and the Morningstar mutual fund star rating system.

If an investor is diversifying mutual fund ownership through a T. Rowe Price account, the New Asia Fund provides a higher risk option through ownership of a handful of pre-selected companies within Asian emerging markets. Several competing funds to the T. Rowe Price New Asia fund exist with differing risk, investment mix, size and returns making the choice and necessity for research before purchasing such a fund beneficial to a more complete understanding of the costs, benefits and disadvantages of emerging market mutual funds specializing in Asian asset management.

Sources:

1. T. Rowe Price International Funds Equity Portfolios 2009 Prospectus
2. http://www3.troweprice.com/fb2/fbkweb/snapshot.do?ticker=PRASX
3. http://google.com/finance

The Top Morningstar Rated Funds

The top rated Morningstar funds are divided into categories including dividend, value, growth, large-capitalization, mid-capitalization and small-capitalization. Additionally, within these groups, Morningstar rates fund by classes; for example ABC Fund Class A and ABC Fund Class B. As of the date this article was produced, Morningstar’s top rated funds included 1) AIM Diversified Dividend Fund, 2) Allianz NFJ Small Cap Value Fund, 3) American Century Equity Fund, 4) American Century Mid Cap Fund, and 5) the American Century Small Cap Mutual Fund. Morningstar rates each of the funds within this category to come up with the highest rated funds. 

Before delving into the top rated Morningstar funds it is a good idea to understand what Morningstar is and why their ratings are considered by some to be useful assessments of mutual funds. Morningstar describes itself as an investment research firm that has been around since the 1980’s before mutual funds became the massive industry they are today. Over time the Morningstar product line, reputation and analysis grew with the market making it a leading investment information firms. Having said that, and without further ado, more about the top rated Morningstar funds as of the date of this article are as follows:

Top Morningstar rated funds by category:

1. AIM Diversified Dividend Instl  (DDFIX)
 High minimum investment, average risk and return institutional fund as per Morningstar.com. The fund is in the 10th percentile for the 3 years beginning in 2006.

2. Allianz NFJ Small Cap Value A  (PCVAX)
 A closed fund as of 12/16/09 with billions in assets, above average returns and low risk. 10 year investor percentile rank of 22 within the category as per Morningstar.com.

3. American Century Equity Income Instl  (ACIIX)
High minimum investment institutional fund i.e. for financial institutions to invest in.  26th percentile investor return ranking for 10 years with 7.08% investor return.

4. American Century Mid Cap Value Adv  (ACLAX)
A no load fund with high turnover and assets in the millions. This fund was incepted in 2006 and has a 52nd percentile investor return rank in 12/09.  Considered by Morningstar to have high returns for low risk as per Morningstar’s 11/30/09 data.

5. American Century Small Cap Value Instl  (ACVIX)
An institutional fund that has opened and closed to investors more than once. The fund has a high 10 year return and rating with below average risk according to Morningstar.

Rating methodology

It is important to note these ratings were compiled in December of 2009,  are based on data from the previous month, and do not necessarily rank high in dollar weighted returns. In such cases, evaluating the top rated Morningstar funds over a multi year period and in terms of investor returns may be more revealing and of additional use to investors. 

Moreover, the criteria by which mutual funds can be evaluated vary allowing investors to independently rank funds with Morningstar’s investor tools. Morningstar itself uses  1) a star rating system, 2) year to date return and 3) expense ratio when listing top rated funds.   The star rating itself is divided into further criteria that include variables such as risk.

The rating methodology used for the above funds does not necessarily include the same criteria an investor would look for. For this reason additional fund comparison tools are provided by Morningstar to arrive at top rated Morningstar funds for themselves and their specifications. For example,  the 1st ranked fund above does not rank in the highest in the 1,3 or 5 year percentile rankings. 

In other words, the aforementioned mutual funds are not measured using a percent rank methodology which measures fund return against similar mutual funds. The Morningstar tools allow an investor to weight criteria according to importance to them to arrive at ’fund scores’. In other words, this allows investors to customize their investments search by their investment goals, and criteria and not Morningstar’s.

Source: http://www.morningstar.com

Originally written 12/17/2009

Mutual Funds Review: Russell 200 Index Funds

Russell 2000 index funds are mutual funds and exchange traded funds (ETFs)based on the Russell 2000 index (^RUT). The Russell 2000 index is an equity weighted price metric for small capitalization companies also known as small caps. The Russell 2000 is considered an important index for measuring the performance of smaller companies across various industries and has several key features.

• Measures performance of companies with less than $1 billion in equity
• Consists of 2000 U.S. Small Capitalization companies
• Diversified across a number of industrial and service sectors
• Weighted for capitalization

Funds that attempt to correlate either directly or inversely with the index are trying to provide investors with a basket of small cap businesses similar in size and performance to those companies within the Russell 2000 index, or in the case of inverse funds, financial instruments believed to perform contrary to that of the businesses within the Russell 2000. Some Russell 2000 Index funds are listed below.
Russell 200 Index Funds

Two fund families that have several Russell 2000 Index related funds are iShares and Rydex, and a third company managing Russell 2000 related assets is Proshares. The 'I' in iShares stands for index and the Rydex fund family is named after the asset management company overseeing the index portfolios. Both iShares and Rydex fund families are run by experienced and well known global asset management firms.

• iShares Russell 2000 Index (IWM)
• Ultra Russell 2000 ProShares (UWM)
• Rydex 2X Russell 2000 (RRY)
• Rydex Inverse Russell 2000 Strategy A (RYAKX)

Russell 200 Index Funds performance

Performance of Russell 2000 Index funds varies between the function and type of asset management the fund undertakes. Since many of the Russell 2000 Index funds attempt to mimic the Russell 2000 index performance, a high correlation between the fund and the index is desirable in addition to fund returns and low fees.

Small capitalization funds that are solely dedicated to matching the index return tend to perform weakly in poor economic times. However, the inverse hedge strategy fund managed by Rydex has been able to perform its role of contrary performance to the market through its investments in Government securities.

The risk level for several Russell 2000 Index funds is quite high due to the size of the fund's underlying assets, however, not all Russell 2000 Index funds invest in the same companies as the index meaning performance can vary. Expense ratios below 1% are common among Russell 2000 index funds, an example being the iShares Russell 2000 Index (IWM) at .15% . (finance.yahoo.com). The size of the funds themselves ranges from small to large, growth to blend meaning the fund may have billions of dollars of liquid assets in the Russell 2000 index companies or companies like them, or have either growth, value or combination categorized companies in their portfolio.

Derivative leveraged Russell 2000 funds such as the Rydex 2X Russell 2000 (RRY), utilize these financial instruments to increase returns on the base Russell 2000 Index, hence the 2X in the fund name. Naturally, when the Russell 2000 Index performs poorly, the Rydex 2X Russell 2000 index is more likely to amplify losses experienced by non-derivative leveraged funds. The Ultra Russell 2000 Proshares fund (UWM) also seeks to double the performance of the Russell 2000 index.

Summary

Russell 2000 Index funds are a class of funds ranging from small to large, value to growth that make use of the Russell 2000 Index as a base metric to 1) replicate 2) multiply and 3) inverse. Several Russell 2000 Index funds have low expense ratios below 1% and do correlate with the Russell 2000 index. Some of the Russell 2000 Index funds offer dividends in addition to any capital appreciation incurred through ownership of the fund's shares.

The performance of Russell 2000 Index funds varies dependent on factors such as fund function, management, type, diversification and other key variables. Incorporating Russell 2000 Index funds into an investment strategy could correlate the index's risk making a risk assessment of one's investment strategy important to one's investment planning. Consulting a financial adviser or planner may assist in the process of incorporating the right funds into ones financial plans and/or goals.

Sources:

1.http://www.streetauthority.com/terms/index/russell2000.asp
2.http://finance.yahoo.com
3.http://www.rydex-sgi.co
4.http://www.proshares.com
5.http://www.ishares.com
 
Originally written 06/01/2009 

Mutual Fund Review: American Century Heritage Fund

American Century Heritage Fund (TWHIX) is a mid-cap growth mutual fund with above average to high 3, 5 and 10 year rankings by both Morningstar and Lipper rankings. (americancentury.com). The fund came into existence in 1987, has assets over 1.25 billion U.S. dollars in worth which is invested primarily in U.S. securities in accordance with the fund's goals and governing policies. The American Century Heritage Fund is managed by two economists named David Holland and Greg Walsh, both of whom, have been at American Century Investments for at least 5 years.

The company itself is an established and highly charitable non-public asset management firm operated out of the U.S. Midwest. The TWHIX prospectus indicates the mutual fund comes in B, C and R classes. The class A American Century Heritage Fund shares charge a front end load of 5.75% of the purchase price whereas the B and C shares require no front end load but do have potential deferred and declining sales charges of UP TO 5% and 1% respectively. The R class shares require neither a front end load charge or a deferred sales charge. (2009 TWHIX Prosepctus)

American Century Heritage Fund performance

The American Century Heritage Fund has had a long-term life time performance return of 9.67% as of the 2nd quarter of 2009. The fund's expense ratio is reported by American Century Investments as being 1.01%. While these returns are not fantastic, they are not long-term negative and higher than U.S. money market and most certificate of deposit returns. Moreover, the companies 10 year return comes close to that of the Russell Mid-cap Index long term projected growth of 10.91% (russell.com)

Also, the fund's existence is in excess of 10 years giving it credibility in terms of longevity and transition through various economic and market conditions. Add to this the high marks afforded to The American Century Heritage Fund by Morningstar and Lipper, both well known mutual fund ranking organizations, a longstanding asset management company and relatively good short-term performance despite bad market conditions in 2008-2009 and this mutual fund generally stands as a performer on some level and in so far as mutual funds go.

Competitive positioning: American Century Heritage Fund

Few mid-cap growth funds come into near competitive with the American Century Heritage Fund at the 5 year level. However at the 3 month, 1 year and 3 year level the Yahoo finance top performers for this category of mutual funds include the following mutual funds in addition to MorningStar and Lipper high ranked mid-cap growth funds. These other mutual funds may or may not be truly competitive with TWHIX, however indications that they are may warrant further investigation in ascertaining a more refined competitive positioning of the American Century Heritage Fund class A.

• BB&T Special Opportunities Equity Classes A, B and C (BOPAX, BOPCX, BOPBX)

• Monteagle Informed Investor Growth (MIIFX)

• Monetta Mid-Cap Equity (MMCEX)

• FBR Focus Fund (FBRVX)

• Northern Mid Cap Growth Portfolio, Class A (BMGRX)

Additional factors to consider in assessment of the American Century Heritage Mutual Fund are its above average total annual assets turnover ratio of 178% as reported by Yahoo finance, the multiple classes of the fund, a contradiction between reporting in the fund prospectus and mutual fund reporting sites in terms of load fees, and the funds 40% down year percent ratio. (finance.yahoo.com) Despite potential discrepancies and questions regarding this funds performance and competitiveness, it has still maintained a long-term position among its competitors that may be worth consideration.

Summary

For a mutual fund with high recognition as a leader in its fund category, with relatively low expense ratio, sound investment principles and good long-term return, the American Century Heritage Fund (TWHIX) may be a mutual fund worth considering. As mutual funds go, this one may be a steady prospect.

Since the company that manages the fund is private, access to corporate asset management statistics and financial statements may be limited. Nevertheless, the American Century Heritage Mutual Fund is respectable mid-cap growth mutual fund as it pertains to its management, long-term fund performance, institutional ranking and competitive performance.

How to Review Security Transactions In a Mutual Fund

Mutual fund transactions are an essential aspect of mutual fund investing that can determine the success or failure of a mutual fund. These transactions can either help or hinder a mutual fund depending on their cost(s), resulting capital appreciation, capital depreciation, dividend income, leveraging etc.

If the mutual fund managers know what they are doing, these transactions will follow a sound strategy, comply with securities regulations, do so at a minimal cost and at optimal benefit to investors, the fund itself and the company under which the fund is managed.

Why mutual fund security transactions are reviewed

Sometimes investors want to know more about the fund than is readily available at any one given location or source. Mutual fund transactions are an example of this type of information because they can be quite critical to the fund and investors for investing purposes. Consequently, how to review security transactions in a mutual fund not only helps investors makes decisions as to whether or not they should invest in a particular mutual fund, but helps them understand the reasons why they should make either or decisions.

Finding information about mutual fund transactions may involve a little research which involves 1) locating the right sources of contact 2) requesting information or research methods from those sources and 3) decoding and/or reviewing the transactions. In some cases only partial information may be accessible due to the ability to find the information, time frame in which the transactions took place and/or the policy or regulations governing the mutual fund itself.

Where to find information on mutual fund transactions

Mutual funds are required to report transactions to investors on a semi-annual basis. (investopedia.com) The following link illustrates these requirements and rules by which mutual funds must abide by to maintain legality.

http://www.investopedia.com/exam-guide/finra-series-6/securities-industry-regulations/mutual-fund-rules-reporting-requirements.asp

Locating mutual fund transaction information is the first step in reviewing mutual fund transactions. Without the transaction information available, nothing can be reviewed, so knowing where to look is important. The following methods and places may assist in locating mutual fund transaction data, research or contact information for obtaining reports of mutual fund transactions.

• Call the mutual fund's investor relations department
• Contact the Securities and Exchange Commission (SEC)
• Research Mutual Fund statistics that include turnover, and investments
• Ask a broker or advisor for more information about a fund's transactions
• Review the Mutual Fund's prospectus, 10K, 10Q and other reports
• Consult a securities official, attorney or research sources for additional information

How to review security transactions in a mutual fund

Reviewing a mutual fund transaction report, if available, should not be unlike studying a financial statement such as a statement of cash flow, income statement, tax reports, account books etc. The mutual fund transactions should reveal information about the mutual fund and allow the reviewer to glean how the fund's management makes decisions, why they make the investment decisions they do, where they invest, how frequently they invest and if the transaction strategy and tactics have proven fruitful to the mutual fund and its investors. Some of the things to keeping in mind when reviewing a mutual fund transaction report, in addition to items the transactions should reveal ideally include the following:

• The transactions should match the goals of the mutual fund
• Frequent transactions or a high transaction ratio aren't necessarily good
• Reasons for the transaction(s) and research behind them
• Dollar or currency value of the transaction, time and date, volume of investment
• Product or financial instrument invested in
• Transaction fees, commissions and/or related expenses
• Loss or gain on transaction, and/or dividend information

In addition to the above information, mutual funds are subject to regulations that prevent them from legally investing in a certain manner. Due to the restrictions made possible through such regulations, mutual funds report their transaction information to securities authorities to demonstrate compliance. Some of the transactions a mutual-fund are not allowed to take part in are listed in the following securities industries regulation link. Despite reporting requirements, organizations such as the Securities Industry and Financial Markets Association (SIFA) have advocated more transparent disclosure of mutual fund financial data to investors in mutual funds. (archives2.sifma.org)

Summary

Mutual funds invest other people's money into assets the fund's managers believe are quality investments. These investments should meet the goals of the Mutual fund(s) and investors in those funds.

In managing assets within a mutual fund, the fund manager(s) may believe it is no longer beneficial to retain a certain investment or group of investments. Following this, the mutual fund may take a larger cash position or re-invest the sold assets into new assets. To do so a mutual fund transaction is necessary. In order for investors to better understand the workings and effectiveness of a mutual fund, reviewing mutual fund transactions can be helpful.

Obtaining and reviewing mutual fund transactions involves research, know how and understanding about locating the transaction information, what to look for and how to comprehend the information revealed by the transactions.

This article has outlined this process however since mutual fund transactions may not always be available to investors despite being required on a semi-annual basis, the obtaining and reviewing of up to date mutual fund transactions may not always be a possible endeavor.

Why Invest in a Mutual Fund? What are the Advantages and Typical Returns?

Mutual funds are managed investments that diversify a large pool of investor's money into a number of investment vehicles. There are advantages and disadvantages to investing in mutual funds, and these pertain in part to investment risk, yield, opportunity cost, fees, and financial planning. This article will outline some these pros and cons of mutual fund investing in addition to giving examples of various types of mutual funds.

Types of mutual funds available

When it comes to mutual funds there are a sizable number of choices to choose from. Some mutual funds specialize in emerging markets, others specialize in commodities, some in stocks and bonds and so on. The historical performance of a mutual fund varies from fund to fund.

Additionally, different fund managers may use different investments strategies and styles for similar types of mutual funds. Thus, the fund management is also a relevant factor in how a mutual fund will do. Some examples of mutual funds are illustrated below to demonstrate the wide range of investments a mutual fund can make possible that may not otherwise be possible via investment alternatives.

• Fidelity ContraFund (FCNTX): Invests in large capitalization companies
• ProFund Ultra Short Japan Inv (UKPIX): A mutual fund that invests on a decline in Japan's financial markets
• Dreyfus Premier Emerging Mkts Opp 1 (SEORX): Specializes in large capitalization emerging markets
•PIMCO Commodity Real Return Strategy Fund (PCRAX): A mutual fund focused on commodities investments, specifically natural resources.
• Summit Nasdaq 100 Index 1 (SANIX): A fund that invests in the 100 largest NASDAQ stock exchanges companies

Risk, fees and yield of mutual funds

Fees associated with mutual funds can also vary. A mutual fund may be a no load, front end or back end mutual fund in addition to having annual maintenance fees which vary among funds. No load funds do not charge fees for certain requested by the mutual fund owner such as buying and selling of the mutual fund.

Front-end mutual funds charge a fee and/or commission upon purchase but not upon sale whereas back end mutual funds do the reverse. Assessing the scale and amount of mutual fund management fees and charges in relation to their cost and percentage yield is an important calculation to consider when choosing mutual funds.

Mutual funds are generally a lower risk choice of investment than direct investment in options, commodities and some types stock investing. This is primarily due to 1) the professional management of the fund and 2) the diversification of risk over a number of investments. These two factors can make mutual funds a useful part of an individual, estate or business investment strategy as it hedges against risk. However, investing solely in mutual funds may also create risk because mutual funds are not entirely immune from investment risk and may not guarantee returns or value of initial investment.

Alternatives to mutual funds

Alternatives to mutual funds include Exchange Traded Funds (ETF), Unit Investment Trusts (UIT), Treasury Inflation Protected Securities (TIPS), Real Estate Investment Trusts (REIT) and Certificates of Deposit (CD) among several other options be it via investment in physical property, business or asset classes such as art, antiques, or vehicles. In other words, the number of choices an investor has is broad, and mutual funds represent only a fraction of the available choices.

Consequently, being able to weigh the advantages and disadvantages of one investment over another is essential for investment success, risk level and investment goals. How well a mutual find is capitalized i.e. its size and capacity to invest, the performance of the companies and/or financial products the fund invests in, and the tax implications or lack thereof on investing through certain funds can all be relevant when choosing to invest in a mutual fund.