The Best Investment Reads of the Summer

If you've been away from Morningstar.com for the summer, welcome back. Many years ago, summers used to be a sleepy time for the markets and business in general, so you could hit the beaches and come back to pretty much the same world you left in June. Not anymore. As Summer 2003 shows, quite a lot can occur. So, I'll try to bring you up to speed on what's happened and some of the best reads of the summer on Morningstar.com.

Bond Debacles and Non-Debacles
First the bad news: The bond market finally returned to reality as it sank in that we weren't headed for deflation. Bonds, particularly Treasury bonds, had been bid up so high that their tiny yields implied we were headed for a long, grinding, Japanese-style deflationary period. That left long-term bonds and the funds that own them in a bad spot. Sure enough, interest rates spiked sharply in July, and long-term bond funds got burned. I wrote about how bad the carnage was and how bad it could get if the bears are right.

My favorite piece on bond funds, though, was senior fund analyst Brad Sweeney's article about a debacle that wasn't. Some folks were shocked to learn that government-bond funds owned debt issued by  Freddie Mac (FRE) and  Fannie Mae (FNM). If it didn't make a lot of sense, I'd be outraged, too. No, they aren't part of the government, but they're close, and their bonds are high-quality credits that help to diversify a portfolio that would otherwise be all Treasuries. Moreover, if you just wanted Treasuries, you could save money by buying directly from the government.

A Much-Needed Rally
Now the good news. The market staged one heck of a rally this summer as the economy showed some signs of life. For a change, I had scores of front-runners for Manager of the Year who had posted double-digit gains as well as outstanding long-term returns. It's been great to see savvy managers such as Bill Miller of  Legg Mason Value Trust  (LMVTX) and the  Vanguard Primecap  (VPMCX) team back in the saddle again. I was also encouraged to see that bear-market stalwarts American Funds and T. Rowe Price didn't miss out on the party. Unfortunately, some fund companies couldn't resist crowing about their good short-term numbers.

Foreign markets rallied, too. Senior fund analyst Emily Hall answered the question: Is this rally for real?

Now the tricky question is what should you do about it. Senior fund analyst Gregg Wolper provided some advice on picking funds after a rally. And I weighed in on allocation funds that should appeal to those wary of rising rates.

I know the rally seems quite young, but some areas already look overheated. Mark Sellers, Morningstar's equities strategist, wrote a great piece on 10 stocks to dump. I took stock of five hot funds and weighed in on what you should do with them. Hint: It rhymes with "bell." Meanwhile, stock analyst Mike Porter said retailing stinks. (Mike, you know I don't like that word.)

Shut Up and Give Me Some Investment Ideas
I can do that, too. Fund analyst Paul Herbert used Morningstar's  Premium Fund Screener to come up with the best 3-year-old funds. Gregg Wolper offered up some good mid-cap funds you might have missed. If you like focused funds, I've compiled a list of the best. Meanwhile, senior fund analyst Bill Rocco picked his favorite dividend-focused small-cap funds. For those who really want to invest like us Morningstarites, Emily Hall gave a tour of Morningstar's 401(k).

If you're in the market for stocks, Haywood Kelly, Morningstar's chief of securities analysis, outlined a bevy of great watch lists you can set up. And if you want to be like Bill Miller, check out his latest picks.

Good Advice
Our Ask the Analyst column is full of it. (Hmm. Maybe I should rephrase.) Anyway, Emily Hall had ideas on picking good core funds, and stock analyst Brian Lund instructed stock investors on how to avoid dividend mistakes.

And finally, Sue Stevens, Morningstar's director of financial planning, came up with some great ideas on avoiding 10 portfolio pitfalls.

Poll Results
On Monday, I asked which concentrated fund was your favorite. This is how you voted:

38.4% - Clipper
25.5% - Legg Mason Value
19.9% - Marsico Focus
10.9% - Weitz Value
5.47% - ICAP Select Equity