Four offerings deemed to be right for right now.
Exchange-Traded Fund: SPDR DB Int'l Gov't Infl-Protected Bond
For investors in government bonds, inflation has always presented one of the few major risks to maintaining purchasing power. This has driven a large market in U.S. Treasury Inflation-Protected Securities, which are now available in countless mutual funds and ETFs for investors concerned about maintaining their real wealth. Other countries have also begun issuing similar inflation-protected securities for their local investors and pension funds, but U.S. bondholders could benefit from the currency diversification as well as further insurance against potential widespread inflation.
This ETF invests in the broad variety of inflation-protected government bonds issued outside the U.S. The two largest currencies represented by the portfolio are the British pound and the euro, but it also holds approximately 5% stakes in higher-yielding bonds such as those from Canada, Brazil, Mexico, and Sweden. The portfolio as a whole no longer yields more than U.S. TIPS, but the currency and issuer diversification should still help improve the risk-adjusted returns for investors who own mostly U.S. bonds.
This fund still carries some strong risks-diversification cuts both ways. If the dollar appreciates, this fund will underperform U.S. bonds. Also, most inflation-protected bonds tend to be long-term, which gives this fund a hefty 10-year duration. Although it will not be affected by rates rising due to inflation, real rates are likely to go up as global growth resumes and could cause this fund (along with U.S. TIPS) to fall in value. (Bradley Kay)
Separate Account: Chase Investment Counsel Tax-Exempt Large-Cap Growth
This separate account is a great core holding. Managers David Scott and Derwood Chase practice a prudent style of growth investing. They steadfastly buy high-quality firms with solid earnings growth but won't overpay for them. The portfolio's return on equity, net margin, Morningstar Profitability grade, debt/capital ratio, and free cash-flow yield are all better than the S&P 500 Index's. Yet its P/E is in line with the benchmark's. Early in 2009 the managers were adding to such industry leaders as Cisco Systems
After a few years of investing in research and development, bolstering its salesforce, and pruning its product lineup, Covidien has returned to prominence in the medical-device arena. The company's strong product pipeline, a management team dedicated to maximizing returns on investment, and the favorable secular trends bode well for its prospects. We think the company represents an appealing long-term investment opportunity despite the uncertainty surrounding the health-care reform.
Our fair value estimate is $65 per share. We forecast overall revenue will grow in excess of 6% annually through 2013, driven largely by rapid growth in the medical-device segment. Our model assumes steady margin expansion from now on, driven by improved product mix and leverage on the operating line. We project the gross margin will expand as high-margin surgical instruments become a greater part of the overall revenue. We project increasing investment in R&D through 2013, until this expense reaches 5% of sales, typical to most device makers. (Haywood Kelly)
Mutual Fund: Matrix Advisors Value
Longtime manager David Katz likes to purchase great business at cheap prices. He only buys companies trading at a 30% discount to his estimate of their fair value, and he doesn't buy many of them. Turnover is low, and the portfolio typically holds just 30-40 stocks. In 2008 and early 2009, high-quality companies were pummeled alongside riskier fare, so Katz had a bigger-than-normal universe of stocks to work with, and he upgraded the portfolio's quality.
For example, he sold longtime holding Time Warner
Hindsight: Summer 2008 á la Carte
Our picks from the Summer 2008 issue have been solid. First, the bad: Stock pick Allied Capital