TAKING STOCK: Investment in small-cap growth fund grows nothing but heartache

Dear Mr. Berko:

Our broker and his firm are positive that the market has reached bottom and are very bullish about the next few years. We have a $107,000 CD coming due this week, and our broker wants us to purchase the SunAmerica Small-Cap Growth Fund, which he says is poised for a strong recovery.

We also believe that the market is poised for a strong recovery, but we don't feel good about owning a mutual fund. We need at least 4 percent in income, and our broker believes this SunAmerica fund can grow (conservatively) 7 to 9 percent each year. He says we can take out 4 percent of that growth and that would let the fund grow our income even more.

We would appreciate your thoughts and recommendations.

HT, Wilmington, N.C.

Dear HT:

I think your brokester must have been taking stupid pills and swallowed the whole bottle that morning. How could this schlump in good conscience recommend the SunAmerica Small-Cap Growth Fund (SGWAX-$9.95)? This fund has performed very poorly. But SGWAX will perform well for the broker, paying him a sweet 5.75 percent ($6,100) on your $107,000 purchase. And for the privilege of paying his commission, you get a 13-week performance of -16 percent, a three-year performance of -13 percent and a five-year performance of -12 percent. Certainly this boy could have presented some of SunAmerica's better funds.

But who really knows? You and that numbskull could be right and righteous. There are still quite a few investors out there who remain convinced that the Dow will end higher in 2012 than it began at the beginning of 2012. They also believe that during the coming few years, the Dow will continue higher and reach record highs.

I call these people stupids!

If these stupids are correct, then I may seriously consider applying for monkhood at a monastery in Sikkim. But all the signs of a declining Dow have been waving in the face of investors for over a year -- QE-1, QE-2, and QE-3 notwithstanding. Still, the brightest boob-heads at Merrill Lynch, J.P. Morgan Chase, Citigroup, Bank of America, Goldman Sachs, Morgan Stanley and elsewhere comported themselves like the proverbial three monkeys: Messrs. Hear, Speak and See. And the public was suckered again, because the folks at those brokerages did not want to tell investors they believed the market could tank a couple thousand points. That would be bad for business.

However, on the very outside chance that these stupids are correct and the market does end higher in December than where it began in January, the following list of Pale-Blue Chips may be good short-term investments. (The operative word, remember, is "may.") Each yields more than 4 percent, has a low payout ratio and earns more than twice its dividend. I do believe that each of the following seven issues should have superior long-term potential.

Raytheon (RTN-$42.01) is in the defense electronics business and yields 4 percent. Conoco-Phillips (COP-$66.92) is the third-largest integrated U.S. oil company and yields 4 percent. Lockheed Martin (LMT-$74.91) is in aeronautics, systems integration and military aircraft and yields 5.4 percent. Intel (INTC-$22.82) is the world's largest chip-maker and yields 4 percent. Public Service Enterprises (PEG-$32.27) is a worldwide electric and gas company and yields 4.2 percent. Eli Lilly (LLY- $37.60) is a world-leading pharmaceutical company with a 5.2 percent dividend. Finally, Entergy (ETR-$65.16) is an integrated electric utility with a dividend yielding 5.1 percent.


Please address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, FL 33775 or e-mail him at mjberko@yahoo.com. Visit Creators Syndicate website at www.creators.com.

© 2011 Creators Syndicate Inc.

Published: Wed, Oct 26, 2011