10
At the Morningstar Investment Conference,
JPM
organ
manager Anne Lester put it succinctly: “Everyone is
on the same side of the income trade and that’s made
income very expensive.”
If you want to find attractive investments today, run
in the opposite direction from all those yield-chasers.
Investments with little or no yield may well be
cheaper than those with high yields. The obvious
place to start is with growth stocks. United States
growth funds like
Harbor Capital Appreciation
HACAX
,
Akre Focus
AKREX
, and
Westport
WPFRX
fit the bill, as do foreign growth funds such as
T.
Rowe Price International Discovery
PRIDX
and
Vanguard International Growth
VWIGX
.
But within categories more known for their yields,
there may also be some opportunities in moving
to lower-yielding portfolios. Not only are they likely to
be cheaper, but they may be less risky because they
haven’t been bid up as much. As I’m trying to avoid
the most overbought securities, I want to see the port-
folio yield. Expenses are subtracted from yield, so
you need to add back expenses to see a portfolio’s
yield. After all, if two funds have identical securi-
ties, having a higher expense ratio won’t make it less
risky. Yield-chasers have been all over real estate
investment trusts, but much less so real estate oper-
ating companies.
Third Avenue International
Real Estate Value
TAREX
invests in mostly foreign
real estate operating companies. Its
4
.
23%
(
3
.
14%
after fees) portfolio yield is actually pretty low for the
global real estate category, so it may prove to
have better risk-adjusted returns over the next five
to
10
years.
Manning & Napier Pro-Blend Moderate Term
EXBAX
has a modest
2
.
1%
portfolio yield (
0
.
99%
)
after taxes. The equity side straddles the growth and
blend line of the Morningstar Style Box with quite a
bit more tech stocks than most conservative-alloca-
tion funds. On the bond side, it favors corporate
bonds and mortgages over Treasuries. Like many
other funds from Manning & Napier, this one has
strong long-term returns.
Oakmark Select
OAKLX
has almost no yield after
expenses as Bill Nygren has found a number of divi-
dendless bargains.
TRW Automotive
TRW
,
DirecTV
DTV
, and
American International Group
AIG
,
none of which pay dividends, are in the fund’s top
10
.
Nygren is sometimes early, but he’s generally pretty
adept at finding good companies. Wally Weitz’s
Weitz
Partners Value
WPVLX
, likewise, has virtually
no yield. While others are all over yield plays from Big
Oil, banks, and telecom, Weitz has big investments
in
Berkshire Hathaway
BRK
.A,
Valeant Pharma-
ceuticals
VRX
, Direc
TV
, and
Google
GOOG
. Weitz
takes a flexible, somewhat contrarian approach to
find good companies trading at a sizable discount to
his estimate of their value. It makes for a bumpy
but rewarding ride.
Artisan Value
ARTLX
has one of the lowest-yielding
portfolios in the large-value category. The portfolio
yield is just
1
.
73%
, or
0
.
65%
after fees. Scott Satter-
white has been scooping up stocks with relatively
low yields, such as
National Oilwell Varco
NOV
,
Apache
APA
, and
Oracle
ORCL
. Satterwhite looks
for companies with clean balance sheets, but his bias
toward tech and some other faster-growing areas
leads him into lower-yielding names than his peers
prefer. His success at other funds over the long
haul leads us to have faith in this fund despite its
shorter track record.
Royce Opportunity
RYPNX
has been a keeper under
Buzz Zaino and William Hench, but it’s not yield that
will keep you around—this fund doesn’t have any. In
this case it’s not because they like growth names
but because they go so deep into value. They buy turn-
arounds and asset plays where companies are often
holding on to their cash in order to get through a
rough patch. The stocks are well off the beaten path,
and that’s worked out nicely.
œ
To Find Values, Avoid Big Yields
The Contrarian
|
Russel Kinnel
Our Contrarian Approach
I go against the grain to find
overlooked funds that may be
ready to rally.
