Last Dog Days of Summer Markets and A Few Money Savings Tips

Here’s a letter that we shared today with our clients, friends and prospects.  I’m posting it in hopes that you might find some value in it.

As the summertime fun draws nearer to its final days, I hope that you’ve been able to take some time to get out there and relax with your families.

The markets have been kind over the summer and have given us much to be optimistic about.  But if you’ve heard or listened to the never ending supply of prognosticators out there, you’d think that the market was about to fall out of the sky any day now.  As I’ve mentioned before, while it seems that the market may have gotten ahead of itself a bit, and the fundamental economic factors may not fully support such a bullish run, I don’t see anything that supports a return to anywhere near the March lows.   However, there’s a “but” to be mentioned.

A few technical signs have developed over the last few days that signal that the current market may be a bit overbought, and therefore may be ripe for some profit taking.  I therefore want to caution you that we may see a correction of sorts come September, perhaps in the range of 3-5%, maybe more.  However, I believe that based on all of the improving economic reports, we will eventually resume our uptrend and I predict that we will see double-digit gains come year-end.  The funny thing is though, my crystal ball did not come with a money back guarantee, so please accept my prediction solely for its entertainment value rather than anything to rely or invest on.

The month of September traditionally has not been kind to the stock markets, so please be prepared for some bumpiness.  Should we see an overall deterioration or any hint of a so called double-dip recession, we will take appropriate protective action for our client portfolios.  But right now, all signs point to a very slow economic recovery over the next year.

Some Money Saving Tips:

Now a Doubly Great Deal: You may recall that I touted this cash back deal from Bing last month.  This month, Microsoft is doubling the cash back for a limited time.  If you’re shopping for anything online, try the price comparison tool at, then look for that merchant on Microsoft’s new search tool at Click on “Shopping”.  Enter the item name in the bing search box, and look for merchants offering “Bing cash back” of 2-40%.  Compare the prices on the two sites (PriceGrabber and Bing) and, if the price is less after the rebate on Bing, then buy it there and have the rebates deposited into your PayPal account. Ka-ching!

1st Time Home Buyer’s Credit: If you know of a 1st time home buyer (anyone who hasn’t owned a home in the last three years), they have until November 30 to close on a home and get a refundable 10% tax credit up to $8,000.  They get this money back even if they owe no federal income tax.  But since banks are taking upwards of 60 days to close a deal, getting to an agreement by the end of September is essential so the buyer does not miss out on the tax credit. See for more details on this credit.

Would you like free fries and drink with that?: McDonald’s is offering a free medium fries & soft drink or tea with the purchase of any Angus 1/3 Pound Burger-coupon expires 8/31/09.

Funny Quote: “The United States has developed a weapon that destroys people but leaves buildings standing. It’s called the stock market.” -Jay Leno

Please enjoy the last few days of summer and your Labor Day weekend.

I welcome your comments and feedback.  If you have any questions, please feel free to get it touch with me and be sure to share this message with your friends and colleagues.  And please be sure to let your friends know about me if you think that they might benefit from my services.  As a CFP® and NAPFA registered investment advisor, we have a fiduciary responsibility to always put your interest ahead of ours and avoid conflicts of interest.  Most brokers and advisors cannot say this nor do they adhere to this very high standard of care.

Please follow me on Twitter at

Sam H. Fawaz CFP®, CPA is president of YDream Financial Services, Inc., a registered investment advisor and can be found at  All material presented herein is believed to be reliable, but we cannot attest to its accuracy.  Investment recommendations may change and readers are urged to check with their investment advisors before making any investment decisions. Opinions expressed in this writing by Sam H. Fawaz are his own, may change without prior notice and should not be relied upon as a basis for making investment or planning decisions.  No person can accurately forecast or call a market top or bottom, so forward looking statements should be discounted and not relied upon as a basis for investing or trading decisions.

Evaluating Equity Mutual Fund Recommendations

I’m a charter subscriber to the Consumer Reports Money Advisor (CRMA) newsletter and I just received the August 2009 issue.  The CRMA is a very informative newsletter that I always read cover to cover and I highly recommend it to anyone who wants the straight talk on personal finance (I have no affiliation with CRMA).

In their monthly “Money Lab” article entitled “Time to Move Back into Stocks?”, CRMA discusses how it may be time for folks who were severely hurt by the recent market downturn (and perhaps left the markets) to pick themselves up, dust off, and start looking at the stock market again.  Waiting for someone to sound the all-clear sign is not going to happen, and if you wait until everything “feels” good, you’re going to miss out on some of the most important gains of the economic recovery, which usually come in the first 12-18 months.

The article goes on to list five large capitalization funds (large caps) and five small capitalization funds (small caps) as standouts.   Now I normally don’t like to promote or recommend anyone rely on a magazine or a newsletter’s choices for investments, but I trust the CRMA more than other consumer publications.  For most people, the funds that are right for you can only be determined with a careful assessment of your goals, risk tolerance and investment time-frame.  Once these items are known, a proper asset allocation can be constructed.

But I was curious to see how CRMA’s choices stacked up with a methodology that I use to screen funds for my own clients.  So I popped the names of the funds into my research tool, ran an research report on them and I present my observations here.

First, the screen criteria listed for the CRMA choices were:

  1. The funds consistently outperformed their peers (but no period or specific criteria were listed).
  2. Funds had managers that had run them for at least 4 years.
  3. The funds have an expense ratio of no more than 1.4% for small caps (the average expense ratio for small caps is 1.54%) and no more than 1.27% for large caps (1.27% is the average for large caps).

Their choices and a few observations:

Small Caps

Name Ticker Morningstar
Buffalo Small Cap BUFSX Small Growth
Neuberger Berman Genesis Inv NBGNX Small Blend
Queens Road Small Cap Value QRSVX Small Value
Royce Special Equity Invmt RYSEX Small Value
TCW Small Cap Growth I TGSCX Small Growth

From this list, the Royce Special Equity Invmt (RYSEX) and Neuberger Berman Genesis Inv (NBGNX) were on my preferred list of small cap funds.  The rest were not, so I was only batting 0.400.  Naturally, I wanted to know why the rest didn’t make my list.

Queens Road Small Cap Value (QRSVX) did not make my list because it does not have a 10 year history, has only $22M in total assets and a somewhat higher (though still below average) 1.35% expense ratio.  I generally like to see a fund with a 10 year history, at least $50M in total assets and a low expense ratio that matches its best performing peers.

Although TCW Small Cap Growth I (TGSCX) ranked highly for performance compared with its peers for 1, 3 and 5 years, it was ranked in the bottom 15% of funds in its class for the 10 year period ending June 30, 2009.  Though 10 years is a long time, there are funds in this category that make the grade for all periods.  In addition, although TGSCX had a high return rating, it also came with a high risk ranking, and I generally avoid high risk funds, especially when there are funds that generate high returns with lower risk factors.

At first glance, the Buffalo Small Cap fund (BUFSX) revealed that it was outstanding in most respects, so I was puzzled why it wasn’t on my preferred list.  Looking at all the criteria, the fund risk was a bit higher than others but not the highest in the group.  This fund makes big sector bets which can go awry and cause short-term performance problems.  The fund has a 2% redemption fee if you cash out in 180 days or less.  Nonetheless, in the small cap growth space, this is a fine choice.

Large Caps

Name Ticker Morningstar
Yacktman YACKX Large Value
Parnassus Equity Income – Inv PRBLX Large Blend
Fairholme FAIRX Large Blend
Aston/Montag & Caldwell Growth N MCGFX Large Growth
CGM Mutual LOMMX Large Growth

From the above list, only Parnassus Equity Income – Inv (PRBLX) is on my preferred funds list for large cap funds.   The rest were not, so I’m batting 0.200 in this category.

Yacktman (YACKX) is ranked #1 in its category for all period rankings (1, 3, 5 and 10 years), but it does not make my preferred list due to above average risk for the past five years.  It also has a 2% redemption fee if you cash out in 30 days or less.  The managers run a concentrated portfolio (currently 31 stock holdings), which can add to volatility and performance swings over time.  The fund’s propensity to hold cash (20% last year) can hamper the fund when the market is roaring, though it helps in down markets.  In most respects, this is a good fund.

Fairholme (FAIRX) is not on my list because it doesn’t have a 10 year history (currently stands at 9.5 years) and fund’s five year risk is high.  It also has a 2% redemption fee if you cash out in 60 days or less. This fund concentrates its picks in individual sectors and is a highly concentrated portfolio (currently 21 stocks), with top positions representing as much as 15% of assets. Otherwise, it’s ranked #1 in its category for all periods.

Aston/Montag & Caldwell Growth N (MCGFX) is in the top 35% of funds for the 10 yr category ranking.  The managers run a concentrated portfolio (currently 31 stock holdings), which can add to volatility and performance swings over time.  This is the only fund in the recommended group that charges a 0.25% 12b-1 (marketing) fee.  It is a fine fund, but with such a wide universe of large growth funds, you can do better.

CGM Mutual (LOMMX) has excellent 3, 5, and 10 year rankings, but its 12 month category ranking was in the bottom 16% of large cap growth funds.  The 5 year fund risk is above average, so it doesn’t make my list of preferred large cap growth funds.  Year to date, it’s in the bottom 2% of similar funds and is the only fund in the recommended group that has a negative return (-1.27%).  While long term performance is what matters most, I can’t overlook the short term under-performance.  The fund also has concentrated holdings (only 15 stocks and 7 bonds).  Although it’s classified as a large cap growth fund, the prospectus objective is a balanced fund (stocks and some bonds).

Please keep in mind a couple of things when using the forgoing information: 1. This is not an endorsement or recommendation for any particular fund; 2. Fund performance, managers, expenses, operations, etc. change on a daily basis, so a fund that looks great today, may not look so good next week or next month.  With this in mind, if you are managing your own investments, you should be sure to review your choices at least once a year, preferably when you are re-balancing your investments, to ensure that they still meet the objectives you had when you bought them.

Overall, my objective here was not to criticize or praise the choices of the CRMA.  While these funds are good choices in general, knowing more about them can help you decide whether they are appropriate for your portfolio.

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