The average annual turnover rate for stock funds is not as high as you might think. According to the 2008 Investment Company Institute fact book, the average annual turnover was 59%, right on the 35-year average and much lower than turnovers experienced in the mid-1980s when they were in the 80% range. Now I don't spend a great deal of time studying mutual funds but that number seems awfully low. As it turns out, it's irrelevant. Mutual fund turnover ratios have little correlation with fund quality. There are top performing funds with both high and low turnover ratios. At the end of the day, it matters only that they perform. (Learn about mutual fund turnover in our article Turnover Ratios Weak Indicator Of Fund Quality.)
IN PICTURES: Seven Ways To Position Yourself For Recovery
In the last few years there have been two star funds that sit at opposite ends of the spectrum. Ken Heebner's CGM Focus (CGMFX) fund has a current turnover rate of 504% and a five-year annualized rate of return of 8.89%, putting it in the top 2% of its large growth category. Also in the large growth category and in the top 2% is the Amana Trust Growth (AMAGX) fund with a current turnover rate of 7% and a five-year annualized rate of return of 9.45%. Both handily beat the S&P500 and the average large growth fund by 7-8% annually. How they got that performance are two entirely different stories. I won't get into that today. Instead, I'll concentrate on each fund's top five holdings and whether any in the group are worthy of your investment consideration.
CGM Focus Top Five Holdings
|Goldman Sachs (NYSE:GS)||$93.24B|
|J.C. Penney (NYSE:JCP)||$7.87B|
Blink and You'll Miss It Some consider Baidu the Chinese version of Google. Personally, with all the trouble it's currently facing over illegal MP3 downloads from its search engine, I'd stay away.
CGM Focus' top holdings are from its latest June 30 quarterly holdings report. Given Mr. Heebner's penchant for turning the stocks in his portfolio, it's doubtful his current top five are the same. Nonetheless, I'll have a look at the fundamentals for each, assessing their chances for long-term success.
Ford has had the most success in the past year, gaining market share in 10 out of the last 11 months. As well, the cash-for-clunkers program put some additional wind in its sales. Having said that, the competition for consumers is intense and its $133 billion in debt is staggering. I'd avoid it.
Goldman Sachs is flying. Second-quarter earnings were a record $4.93 a share, and Q3 earnings will probably be almost as stellar. FBR Capital Markets analyst Steve Selmach raised 2009 EPS to $16.21 from $14.68 and 2010 EPS from $16 to $18. Even though the company's stock is up 116% year-to-date, Selmach believes it has room to move, and in the long term, so do I.
What can I say about Amazon.com that hasn't already been said? Later this year the company's revenue from merchandise other than books, music and movies will overtake the product categories that made it an internet star. I'd never bet against Jeff Bezos. This one's a no-brainer.
Lastly, J.C. Penney's back-to-school sales were disappointing, dropping 7.9% in August. Mike Ullman's a good CEO, but his stores have been too inconsistent. I'd pass. (Read Analyzing Retail Stocks to learn about the most important metrics to look at when analyzing retail stocks.)
Amana Trust Growth Top Five Holdings
Some consider Baidu the Chinese version of Google. Personally, with all the trouble it's currently facing over illegal MP3 downloads from its search engine, I'd stay away.
|Hewlett Packard (NYSE:HPQ)||$111.00B|
An Islamic Point Of View
The Amana Trust Growth fund is a different breed. In existence since 1994, it invests based on Islamic principles, which prohibit it from buying companies involved in liquor, gambling, insurance and all interest-based financial institutions including banks. Managed by Nicholas Kaiser since inception, you can bet the top stocks in his fund won't be changing that often with such a low turnover rate. Kaiser's top five are far safer than Heebner's. With the exception of Humana, these stocks are all giant caps whose profits in the latest twelve months totaled $22.6 billion. As for Humana, it hasn't done much year-to-date due to uncertainties created by the ongoing health care reform debate. Up 4.4% compared to 18.6% for the S&P 500, it's a cash cow with almost as much cash per share as its $39.75 stock price. Fear is keeping this one down. I'd dive in.
Out of 10 stocks, I like two of Heebner's (Amazon and Goldman Sachs) and all five of Kaiser's. Those alone would make a strong portfolio.
Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!
Stock AnalysisStuck on oil? Take a look at these six stocks—three that present risk vs. three that offer some resiliency.
EconomicsEmerging markets have been hammered lately, but these three countries (and their large and young populations) are worth monitoring.
Stock AnalysisPepsiCo has long been known as one of the most resilient stocks throughout the broader market. Is this still the case today?
InvestingHow do bond exchange traded fund (ETF) distributions work? It’s a question I get a lot. First, let’s explain what we mean by distributions.
Stock AnalysisThese three stocks are resilient, fundamentally sound and also pay generous dividends.
Investing NewsAre stocks cheap right now? Be wary of those who are telling you what you want to hear. Here's why.
Investing NewsHere are four stocks that offer good value and will likely outperform the majority of stocks throughout the broader market over the next several years.
Investing NewsHere are three resilient, dividend-paying companies that may mitigate some worry in an uncertain investing environment.
Stock AnalysisIf you're not sure where Ford and General Motors are going, you might want to look at this auto investment option instead.
Mutual Funds & ETFsExplore detailed analyses of the top buy-and-hold exchange traded funds, and learn about their characteristics, statistics and suitability.
When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>
The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>
The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>
The difference between subscribed share capital and issued share capital is the former relates to the amount of stock for ... Read Full Answer >>