Got an answer there? Unless you have not been born yet, everyone should know the actor who uttered those famous words. Need some hints? Bald, detective, lollipops.
In the world of securities, perhaps the word "love" should be changed to "unlove." A lot is made of the juicy, well-known stocks and funds to which people immediately gravitate. After all, they are the "attractive" ones. But, what about those that aren't so attractive or to put it bluntly, are a bit unloved. Morningstar found an immediate answer with its annual study of the
The study looks at annual fund flows by category to see which attracted the most money and, more importantly, which inspired the bulk of the bailouts or redemptions. The Chicago-based researcher suggests that investors consider them. Why? Because in the past decade that Morningstar has studied this field, it has found that fund categories having the largest outflows have rebounded within one to three years. Moreover, they have discovered that such funds post returns usually beating the average equity fund three-quarters of the time. That's pretty good, to put it mildly.
According to Russ Kinnell, Morningstar's director of fund analysis, good value can be found in three of last year's unloved categories: utilities, financials, and technology.
Kinnell says that the financial category was actually a "decent performer in 2004," with returns averaging 13 percent. Still, investors continued to cash out, he claims, apparently persuaded by a few years of instability, not to mention the threat of rising interest rates. Utilities, he notes, "had a banner year in 2004," returning some 24 percent.
Interestingly, the technology sector only just this year made the cut as an unloved fund. I can attest to that. Kinnell points out that investors should have dumped it in 2002 (now he tells me) but returns have slowly started to recover, and last year the average category return was 3.8 percent. I would like the 24 percent figure better.
Morningstar has highlighted a number of funds that might just offer investors an opportunity to "buy low and sell high." Kinnell suggests that investors who buy into any of these funds should hold their position for at least three years.
In financials, Morningstar talks about T. Rowe Price Financial Services, a fund with a below-average expense ratio of 0.97 percent, and a year-to-date return of 10.2 percent.
In the utilities category, it suggests the Utilities Select Sector SPDR, an exchange-traded fund that it describes as "cheap, diversified, and a pure play." Also, Eaton Vance Utilities, with its large-cap utilities, telecommunications, energy, and foreign holdings sporting a year-to-date return of 25.1 percent, with an expense ratio of 1.15 percent.
In the technology sector, Morningstar's top pick is Pimco RCM Global Technology, with a year-to-date return of 17.9 percent and an expense ratio at 1.36 percent.
Now, I'm not providing any tips here. I'm simply reporting what Morningstar has released but I can tell you one thing. Morningstar's studies are first-rate. In fact, for two years running now, the company has won the CPA Wealth Provider's Financial Planning Award. Go get 'em, Telly!
