SIERRA'S CURRENT "FAVORITE" MUTUAL FUNDS

Sierra has unique skills in constructing productive, low-risk portfolios for conservative investors.  We have found that using skillfully-managed mutual funds – rather than individual stocks and bonds – is the best way for conservative investors to participate in a truly diversified mix of productive investment categories, at various stages of the economic cycle.

Sierra’s managed accounts primarily use no-load mutual funds -- funds that are available without sales charge or commission.  (Sierra is not a broker, and we do not work for commissions.)  In addition, we have access to most of the best load funds on a “load-waived” basis, as well as to various institutional funds, which have low internal expenses but normally have high minimums (sometimes as much as $5 million) or are otherwise unavailable to individual investors.

In constructing portfolios, the first step is “Asset Allocation”:  How much of your investment “pie” should go into each broad investment category (“asset class”), such as high-grade bonds, small-cap value stocks, health care stocks, real estate equities, High Yield Corporate Bonds, etc.  We also put unique emphasis on identifying productive Low Volatility funds, which often add an increment of return to the overall client portfolio without adding volatility (risk).

Next comes the Fund Selection step:  Within each asset class, which mutual funds have portfolio managers who add value, with some consistency?

Sierra has access to extensive research tools, including print materials, computer tools, Internet reports, a very complete monthly CD ROM from Morningstar, workshops and meetings for investment professionals, etc.  This allows us to identify the most attractive candidate funds in each category, in some cases well before they come to the attention of the public.

Here are the funds which we are currently using in Sierra client accounts, or are watching for productive opportunities to move back into the funds.  Click on the fund name or symbol for Morningstar info on each fund, including a current chart and yesterday's share price (NAV).  For more information on any fund, please feel free to ask us, by e-mail or phone, 800/729-1467.

LOW-VOLATILITY FUNDS

Kensington Select Income (KIFAX).  Managed by Paul Gray, who also manages the top-performing Kensington Strategic Realty Fund, KIFAX invests in real estate securities, including real estate investment trusts and master limited partnerships, focusing on preferred REIT stocks (nearly 70% the of portfolio) and other securities with high cash flow/yield.  As a result, KIFAX is less volatile than most real estate equity funds.  This fund may also engage in hedging and leveraging in order to pursue its objectives.  KIFAX currently pays a quarterly dividend of 62 cents per share, with any final adjustment made each December; thus, its current (December 2006) annualized distribution rate is about 7.2%, a very attractive yield in today's environment.

As shown in the chart below, KIFAX has had only four down months (so far!) since inception in April 2001, and has been up many months even when the S&P has been down.

Nuveen High Yield Municipal (NHMRX).  This $4.1 billion fund is rated five stars (highest) by Morningstar.  Managed by John V. Miller, this fund skillfully selects low-rated and unrated muni bonds, and buys them below face value, when the manager and his 35 analysts believe the bonds are likely to improve.  This unusual fund has had steady success for over 6.5 years in finding such “bargain” bonds and holding them for gains as well as yield.  On average, the bond values have increased over 4% per year – in addition to the monthly dividends paid by the fund at about 5.3% annualized -- result in a very attractive Total Return which has averaged over 9.5% per year since inception.

As shown in both charts above, although not every month is profitable, NHMRX has consistently exhibited very low volatility.

For taxable accounts, the dividends from NHMRX are federally tax-free, which is an added attraction for taxable accounts.  However, allocating substantial positions to NHMRX makes sense in both taxable accounts and tax-deferred accounts such as IRAs – such a strong average annual rate of Total Return with low volatility is very attractive as a “core” position in any type of account.

If purchased directly, this fund has a substantial 4% commission ("load", or sales charge) and has a Short-Term Redemption (STR) fee of 1% for any shares (other than dividend-reinvestment shares) sold within 18 months of purchase.  Sierra Clients have access to this fund without load or STR fee.

PIMCo Floating Income Institutional (PFIIX).  From inception, this excellent new fund has averaged about 7% compounded, with very low volatility and downside risk, and low correlation to swings in the bond market.  Sierra uses institutional class shares ($5MIL minimum) with no load to our clients.

Vanguard Wellesley Income (VWINX).  This famous “balanced fund”, with $8.5 billion in assets, has a policy of maintaining a ratio of 40% stocks (all of which must be dividend-paying) and 60% high-grade bonds, mostly Treasuries or government agencies.  Wellesley pays a quarterly dividend, and its recent rate of payout was about 4.5% annualized.  Under Sierra’s Defensive Timing discipline, downside risk is likely to be limited to less than 4% when the fund turns down.

Weitz Fixed Income (WEFIX).  This small, excellent intermediate-term bond fund recently had about 52% of its portfolio in U.S. government agency notes, with 20% in cash and the balance in short- and intermediate-term corporate paper.  This fund has unusually low volatility and downside risk, and its NAV will continue to rise (most weeks) as long as the policy of the Fed is to reduce short-term interest rates further.  When that ends, the NAV will stop rising, and the Total Return of WEFIX will regress to its dividend yield. 

WEFIX pays a quarterly dividend, and its recent annualized payout yield was about 3.8%.  Its normal minimum investment is $25,000, but Sierra can buy the fund for client accounts in any amount.

 

HIGH YIELD CORPORATE BONDS

Evergreen High Yield (EKHAX).  Evergreen High-Yield is a relatively newer fund to Sierra portfolios.  EKHAX was selected for inclusion in Sierra portfolios because of its productivity and recent low volatility during periods when many other high-yield bond funds were in decline.  Evergreen High-Yield normally invests at least 65% of assets in bonds and debentures. Many of these debt securities may be rated below investment-grade. The fund may invest up to 50% of assets in foreign securities.

Federated High Income (FHIIX).  Managed by Mark E. Durbiano for 16 years, FHIIX had impressive success in the mid-1990’s, and ranks in the high-yield category’s top quartile.  FHIIX pays a monthly dividend, and its recent payout yield was about 8.9% annualized.  Downside risk with Sierra's daily monitoring and Defensive TimingSM is less than 3%; indeed, sometimes our “sell” signals come less than 1.5% off the recent highest day.

Fidelity Advisor High Income Advantage (FAHYX and FAHCX). Managed by Margaret Eagle for 13 years (and now with her understudy Thomas Soviero taking over), this superb fund has one of the best long-term performance records in the HYCB category, up 5.6% on average (before timing) over the ten years ended 3/31/03.  Normally a load fund sold through brokers, Sierra uses Institutional Class shares of FAHCX with no load to our clients.  FAHCX pays monthly dividends at a recent annualized yield of about 8.1%.  Downside risk with Sierra's Defensive TimingSM   is less than 3%; indeed, sometimes our “sell” signals come less than 1.5% off the recent highest day.

Franklin AGE High Income (AGEFX). (Sierra text to come.) Recent yield 9%.

ING High Yield Opportunity (NHYFX).  The fund is permitted to invest up to 35% of its portfolio in common stocks, investment grade debt obligations of all types, and other securities. The Fund typically may invest up to 10% of assets in foreign debt securities.  

NHYFX pays a monthly dividend; its recent payout rate was 11.6% annualized.  Downside risk with Sierra's daily monitoring and Defensive TimingSM is less than 3%; indeed, sometimes our “sell” signals come less than 1.5% off the recent highest day.

John Hancock High Yield (JHHBX).  John Hancock High Yield (JHHBX) seeks current income without undue risk.  Equities, which can occupy up to 20% of the fund’s portfolio, can play a larger role with this fund than with most of its high-yield brethren, giving it an advantage in strong equity markets.

JHHBX pays monthly dividends at a recent annualized yield of about 10.9%.  Downside risk with Sierra's daily monitoring and Defensive TimingSM is less than 3%; often our “sell” signals come less than 1.5% off the recent highest day.

Mainstay High Yield (MHCAX).  With over $1 billion under management, MHCAX has one of the best long-term performance records in the HYCB category.  Normally a load fund sold through brokers, Sierra uses Class A shares with no load to the client.  

This fund pays monthly dividends at a recent annualized yield of about 9.7%.  Downside risk with Sierra's daily monitoring and Defensive TimingSM is less than 3%; often our “sell” signals come less than 1.5% off the recent highest day.

Nations HighYield (NYPAX). (Sierra text to come.) Recent yield 9.2%

Northeast Investors Trust (NTHEX).  This exceptional fund has been managed by Ernest Monrad since 1960!  His son Bruce has been co-manager since 1993.  NTHEX has one of the best long-term performance records in the HYCB category, up 6.7% on average over the ten years ended 3/31/03 (before timing).  This unusual fund is permitted to invest up to 25% of its assets in stocks, and to use up to 25% leverage.  These special factors make the fund a good diversifier when used with other HYCB funds. 

NTHEX pays quarterly dividends at a recent annualized yield of about 8.8%.  Downside risk with Sierra's daily monitoring and Defensive TimingSM is less than 3%; indeed, sometimes our “sell” signals come less than 1.5% off the recent highest day.

As you can see in the foregoing chart, a buy-and-hold approach was quite productive in Northeast Investors Trust for several years into its peak in mid-1998.  At that point the High Yield Corporate Bond sector had become fully valued, as the economy was strong and there was a lot of investor complacency.  From then until October 2002, the HYCB sector was generally unproductive – high yields were offset by declining bond values, as the investment markets began to anticipate a weakening economy – and Sierra’s daily monitoring and Defensive Timing discipline became important to protect capital, and to participate in the interim rallies.

Oppenheimer High Yield (OPPHX).  This $1 billion portfolio is more skillfully managed than most High Yield bond funds, and in the August 2001 rally was among the leaders.  OPPHX pays a monthly dividend, and its recent payout yield was about 9.2%.  As with most HYCB funds, in any sustained market decline, we estimate the downside risk for OPPHX with Sierra's Defensive TimingSM will be only about 2%-3%.

PIMCo High Yield (PIHYX). (Sierra text to come.) Recent yield 8.0%.

SEI Institutional High Yield (SHYAX).  Managed by Richard J. Lindquist for the past 8 years, SHYAX seeks total return, i.e., yield plus price appreciation, and is tailored for institutional investors.  The portfolio may contain convertible bonds, mortgage and asset-backed securities, zero-coupon bonds and variable or floating-rate securities. The fund may also invest in debt securities of foreign issuers.  SHYAX pays a monthly dividend, and its recent payout yield was about 8.6% annualized.

 

SAFE HAVEN FUNDS

First Trust Cash (FTC).  A commingled account at First Trust, not a mutual fund; FDIC insured to $100,000 per owner.   PIMCo Low Duration (see below) pays a much better yield, so during bad market episodes Sierra typically will move assets from FTC to PIMCo Low Duration or other safe haven funds, or the "Low-Volatility" funds described earlier, to await the next “buy” signal in stock or bond funds.

Dreyfus Short-Term Income (DSTIX).  Available at Charles Schwab without transaction fees (unless sold within 90 days), DSTIX is similar to PIMCo Low Duration, at recent annualized dividend rate of about 4.8%.

PIMCo Low Duration (PTLDX).  This fund invests in bonds of low maturity, recently averaging about 48 months, to keep volatility to a minimum.  Dividend payout was recently about 3.6% annualized.

 

HIGH-GRADE U.S. BOND FUNDS

PIMCo Real Return Bond (PRRIX).  PIMCO Real Return was included in most portfolios both as a “safe-haven” during these difficult times and as part of our allocation to quality bond funds.  The fund normally invests at least 65% of assets in inflation-indexed bonds issued by U.S. and foreign governments. It may invest up to 35% of assets in other fixed-income securities including debt denominated in foreign currencies.  The fund pays monthly dividends at a recent annualized yield of about 4.0%.  PRRIX normally requires a minimum purchase of $5 million for the institutional share class that is used by Sierra. 

PIMCo Total Return (PTTRX).  Managed by the legendary Bill Gross of Pacific Investment Management Co. (PIMCo) in Newport Beach, CA, this $29 billion dollar fund is the largest bond fund in the world.  Continuously adjusting a huge portfolio comprised of the highest-grade bonds, Gross has compiled a superb performance record, averaging 8.0% (before timing) over the ten years ended 3/31/03, with much less volatility than a typical long-term bond fund.  PTTRX pays monthly dividends at a recent annualized yield of about 4.1%.  Downside risk with Sierra's daily monitoring and Defensive TimingSM is only about 3.5%.

SAFECO California Tax-Free Income Fund (SFCAX).  SFCAX invests in municipal bonds whose interest is exempt from federal and California state income taxes.  Interestingly, SAFECO California Tax-Free Income Fund has a current tax-free yield of about 4.4% -- certainly not that much different from the taxable yield of high-grade bond instruments.  Stephen Bauer has been the fund’s portfolio manager from inception in 1983, and has found that investing in investment-grade municipal bonds and buying those bonds at a discount will offer the portfolio call protection and relative stability of principal.

Weitz Fixed Income (WEFIX).  See description of WEFIX under "Low-Volatility Funds".

 

INTERNATIONAL AND GLOBAL BOND FUNDS

Federated Int'l High Income (IHIAX). (Sierra text to come.) Recent yield about 9.3%. 

Oppenheimer International Bond (OIBAX).  This fund invests primarily in bonds issued by European governments, with some holdings of emerging markets country debt.  OIBAX does not generally hedge the currency risk back into the dollar, so when the Euro goes up, that benefits the fund, and in periods when the Euro goes down, that hurts the fund.  The fund’s overall volatility is low, and we expect it to do well most of the time for the next few years.  OIBAX pays a monthly dividend, recently at a rate of about 4.1% annualized.  Normally a load fund, Sierra accesses OIBAX on a load-waived basis for our client accounts.

Payden Emerging Markets Bond (PYEMX). (Sierra text to come.) Qtrly divs.; recent yield about 6.2%.

PIMCo Emerging Markets Bond Institutional Class (PEBIX).  One of the newer funds that specialize in the bonds of emerging-market countries, the PIMCo fund has been performing in the top group in recent years, averaging over 14%.  With a very attentive management style, Mohamed El-Erian has gotten good results and avoided big problems, earning a five-star rating from Morningstar.

PEBIX pays a monthly dividend, and its recent payout yield was about 6.5% annualized.  Sierra clients have access to the Institutional share class (symbol PEBIX), which benefits from a low expense ratio and normally requires a $5 million initial investment.

PIMCo Foreign Bond Institutional (PFORX).  With a top-performing long-term record in its peer group, PFORX invests in high-quality bonds of developed foreign countries, including both government bonds (“sovereign bonds”) and some corporate bonds.  As a matter of policy, PFORX hedges away 100% of currency risk.  Average annual return (before timing) over the five years ended 3/31/03 was about 9.2%.   PFORX pays monthly dividends at a recent annualized yield of about 4.1%.  Downside risk for this fund with Sierra's daily monitoring and Defensive TimingSM is only about 3%.

T. Rowe Price International Bond (RPIBX).  To complement our holdings in PIMCo Foreign Bond Institutional Fund (PFORX) – which as a matter of policy always fully hedges currency risk – for many clients, we will sometimes also use RPIBX, which does not hedge currency risk.  Like PFORX, this fund pays a monthly dividend (recent annualized payout yield was about 2.6%) and will rise in value as the European Central Bank continues to ease interest rates in order to re-stimulate the European economy.  But RPIBX will also benefit in months when the Euro, the Yen and the British pound are stronger than the U.S. dollar – and we expect the dollar to gradually decline over the next 6-9 months.  

Templeton Global Bond (TPINX).  TPINX invests primarily in sovereign bonds issued by European governments, with up to 20% in U.S. bonds and 15%-20% in higher-rated emerging markets sovereign debt.  It generally hedges currency risk back into the dollar.  The fund’s overall volatility is low, and we expect it to do well most of the time for the next few years.  TPINX pays a monthly dividend, recently at a rate of about 5.3% annualized.  Normally a load fund, Sierra accesses TPINX on a load-waived basis for our client accounts.

 

U.S. EQUITY FUNDS

Babson Enterprise (BABEX).  was selected because of its excellent relative recent performance and manageable downside.  Portfolio manager Lance James invests in small capitalization value stocks from $15 million to $300 million.  BABEX has proved to be one of the better performing equity funds last year, and for 1999 and 2001, with gains of 12% and 29%, respectively.  Of course, this won't always be the case.

Brazos Microcap (BJMIX).  This excellent microcap fund closed to new investors in May 2001, after performing near the top of its category since inception at the end of 1997 and carrying five stars from Morningstar.  Although individual microcap stocks can be volatile, BJMIX diversifies its portfolio extensively and has succeeded in keeping the fund’s volatility fairly low.  To preserve the right to use this excellent fund in the future, before BJMIX closed we bought small place-holder positions in most Sierra managed accounts.

CGM Focus (CGMFX).  Ken Heebner, the well-respected lead manager of the CGM funds, created this aggressive non-diversified fund in September 1997 to concentrate on his favorite 15-20 selections, mostly small- and mid-cap stocks, with a few foreign stocks.  The fund may use short sales and derivatives to reduce overall portfolio risk through hedging.  Nevertheless, due to the relatively low level of diversification within this portfolio, it is riskier than many other equity funds, and its performance is uniquely dependent on Heebner’s selection and relatively frequent trading.  Although returns have been excellent over the full life of the fund, CGMFX is capable of dropping 10% or more in value in just a few days when market forces turn adverse.

We have used small allocations of CGMFX in some of our larger Customized portfolios.  Downside risk with Sierra’s daily monitoring and Defensive Timing is about 8%-10%.

FBR Small Cap Financial (FBRSX).  The portfolio manager of FBR Small Cap Financial, David Ellison, ran up a stunning, world-class performance record during his eleven years as the manager of Fidelity Select Home Finance, before leaving to start FBRSX in 1997.  FBRSX invests in the stocks of small savings & loan companies.  These are companies in the path of industry consolidation, so each is a potential merger target.  FBRSX tends to trend very well, both in up markets and down markets.  We have positions in FBRSX in our Balanced Program accounts and in most Customized accounts.  Downside risk for FBRSX with Sierra's daily monitoring and Defensive TimingSM is about 8%.  Although FBRSX has a Short-Term Redemption fee, we consider that an acceptable risk given the fund’s excellent risk-return pattern.

Fremont U.S. Microcap (FUSMX and FIMCX).  seeks capital appreciation among companies in the smallest 10% of market capitalization.  Fund manager, David Kern has done an excellent job of picking stocks in that universe.  FUSMX has a three-year average annual return in the upper teens, in spite of a poor 2000 and a disappointing first-quarter 2001, earning a Five Star rating from Morningstar.  We’ve noticed over the years that the micro-cap sector, including Fremont Institutional U.S. Micro-Cap, trends well and is unlikely to stumble badly when the market has a one-day sharp decline.  On the other hand, as is the case with all equity funds, FUSMX is not immune from major market declines and has declined in past adverse market episodes – which is why we monitor this and all funds on a daily basis.

Because FUSMX occasionally closes to new investors, we hold small place-holder positions in many Balanced Program accounts and Customized accounts.

Mutual Financial Services (TEFAX).  Mutual Financial Services has benefited from mergers and acquisitions among financial service companies, including banks, savings and loan organizations, brokerage firms, finance companies, and insurance companies.  Unlike many other funds investing in financial service stocks, Mutual Financial Services uses a pure "value" strategy, seeking out companies with assets that are likely to appreciate significantly if properly exploited by either new management or ownership.  TEFAX is normally sold with a load or commission; Sierra is able to purchase the fund for our clients on a load-waived basis.  As with most U.S. equity funds, Sierra's Defensive TimingSM discipline will not react to most swings of 4-6%, but in a normal downturn, we expect to "duck" out of the fund less than 8% off its high.

PBHG Clipper Focus Institutional (PBFOX).  This fund was started in September 1998 by the same team that has managed the famous Clipper Fund very successfully for the past 15 years.  The difference is that Clipper Fund typically holds up to 20% in bonds and cash, whereas PBHG Clipper Focus is fully invested in the stocks selected by the team.  So far, PBFOX has performed like a large-cap value fund, with low volatility and extra return from the skill of the managers.

After value stocks bottomed in March 2000, PBFOX has maintained a rising trend even during the ensuing tough eighteen bear-market months that deviled many equity managers.  An institutional fund, PBFOX tends to be concentrated in its top 15 stock selections, and recently was focused on financial services, consumer staples, industrial cyclicals and certain services sectors.  PBFOX pays a small quarterly dividend.

UAM FPA Crescent (FPACX).  This small “hybrid" fund has performed very well in recent quarters with low volatility.  It recently held about 61% small-cap “value” stocks (mostly U.S.), 21% in cash equivalents, and 15% in convertibles.  In any sustained market decline, we estimate the downside risk for this fund with Sierra's Defensive TimingSM will be about 7%-8%.  Although FPACX has a Short-Term Redemption fee, we consider that an acceptable risk given the fund’s excellent risk-return pattern.

 

INTERNATIONAL AND GLOBAL 
EQUITY FUNDS

Credit Suisse Emerging Markets (WPEMX).  When manager Richard Watt took over this fund in February 2000, he brought significant experience in the field and hence changed the portfolio to align with his growth-oriented approach.  With country allocations in South Korea and Taiwan, the fund has been able to capture gains in one of the best-performing emerging markets in 2001.  The CSWP fund family converted to “all-load” in mid-December 2001, but Sierra still has access to these funds on a load-waived basis.

Franklin Mutual European (MEURX).  Normally a load fund sold through brokers, Sierra is grand fathered to use Class Z shares with no load to the client.  As a matter of policy, MEURX hedges away all foreign currency risk.   The fund is managed by a team recruited and trained by the legendary Michael Price, to invest on a “value” philosophy.  The fund thus tends to have significantly less downside risk than other European equity funds, and indeed less than the S&P 500.  In any extended market decline, downside risk for this fund with Sierra's Defensive TimingSM is only about 6%.  It performed very well during 1999, up 47%, and held its own very well during the March 2000 - September 2001 portion of the bear market.

Goldman Sacks International Growth Opportunity (GISAX). (Sierra text to come.)

Ivy European Opportunity (IEOAX).    This aggressive new fund has performed extremely well, with over 50% of its portfolio recently in European technology stocks.  Because Ivy European Opportunity does not hedge currency risk, it will benefit when the Euro rises against the dollar, and vice-versa.  Normally a load fund, Sierra buys IEOAX on a load-waived basis.  As with most international equity funds, Sierra's Defensive TimingSM discipline will not react to most swings of 4-6%, but in a normal downturn, we expect to "duck" out of the fund less than 8% off its high.

Oppenheimer Developing Markets (ODMAX).  Managed by Rajeev Bhaman since inception in late 1996 with an emphasis on mid-cap value stocks, Morningstar writes that “this [fund] is a great choice for those who believe in the emerging markets story”, and so do we.  Normally a load fund sold through brokers, Sierra has access to ODMAX for our clients on a load-waived basis.

Oppenheimer International Small Company (OSMAX).  This fund invests primarily in European stocks (about 64%) with market caps under $1 billion, with about 20% in Asia, 8% in Latin America, etc.  Small-cap foreign equities tend to do often better than U.S. equities for several years coming out of global economic recessions, which appears to be the situation now (spring 2002).  Normally a load fund, Sierra accesses OSMAX on a load-waived basis for our clients.

Templeton Global Smaller Companies (TEMGX).  This fund invests primarily in foreign stocks, with about 38% recently in Europe, 29% in Asia, and some participation in other parts of the world, including about 24% in the U.S.  The Templeton team has for many years been considered one of the better research groups for foreign stocks, and small-cap foreign stocks tend to benefit each time the world comes out of economic recession, which appears to be the case now (spring 2002).  Normally a load fund, Sierra accesses this fund on a load-waived basis for our client accounts.

Tocqueville International Value (TIVFX).  This fund invests primarily in low-PE stocks in Japan (22% recently) and the rest of Asia (55%), with some participation in Europe (15%) and the rest of the world (8%).  Relatively small, this fund has in recent months benefited from the global swing from growth stocks to “value”, and has shown very little volatility during periods when the U.S. stock market has swung down.  Although TIVFX has a Short-Term Redemption fee, we consider that an acceptable risk given the fund’s excellent risk-return pattern.

UAM Acadian Emerging Markets (VGFAX).  This fund invests primarily in Pacific Rim stocks (61% recently, spring 2002) with 24% in Latin America, 5% in Emerging Europe and 10% elsewhere in the world.  Emerging markets equities tend to do well for several years coming out of global economic recessions, which appears to be the situation now (spring 2002) – and often better than U.S. equities.  Although AEMGX has a Short-Term Redemption fee, we consider that an acceptable risk given this fund’s strong performance relative to its peer group.

 

REAL ESTATE EQUITY FUNDS

Investing in this sector of the economy was very productive for us in 1996 and 1997.  Then, when real estate equities underwent a two-year dry spell of being out of favor – Sierra avoided the sector for most of that period.  Currently, revenues and profits of Real Estate Investment Trusts (REITs) are doing well compared to the rest of the U.S. economy, and we believe the real estate equity sector is ripe for a sustained rebound.

For most of the past four years, real estate equities have maintained a very appealing low-volatility, high-return uptrend, significantly outperforming the major stock market indices.  It appears that major institutional investors have been searching for sectors with unexploited “value”, and have begun increasing their allocations to REITs and real estate operating companies.  And real estate equity funds have relatively low correlation with the general stock market indices, so when the Dow is down, these funds often provide a diversifying influence.

Alpine International Real Estate (EGLRX).  [Description forthcoming]

Alpine U.S. Real Estate (EUEYX). (Sierra text to come.)

CGM Realty (CGMRX).  Ken Heebner has managed this excellent fund since inception five years ago, and he runs a concentrated portfolio, with about 35% in just the top five holdings.  As a result, this fund is more erratic than some of its peers.  Long-term Sierra clients will recognize the fund, which we have used before to allocate some exposure to the real estate equity sector.  CGMRX pays a quarterly dividend, recently annualizing at about 3.5%.

Kensington Select Income (KIFAX).  See description of KIFAX under "Low-Volatility Funds".

 

COMMODITY and NATURAL RESOURCES FUNDS

Ivy Global Natural Resources (IGNAX).  IGNAX is a small fund with an unusually diversified portfolio within the natural resources sector (most of its competitors are loaded with energy stocks, IGNAX recently had about 42% in energy).  About half the portfolio holdings are U.S. and Canadian stocks.  IGNAX has a large capital loss carry forward, which means it can realize substantial future capital gains from selling stocks without tax incidence to investors.  Normally a load fund sold through brokers, Sierra clients have access IGNAX on a load-waived basis.  As with most international equity funds, Sierra's Defensive TimingSM discipline will not react to most swings of 4-6%, but in a normal downturn, we expect to "duck" out of the fund less than 8% off its high.

PIMCo Commodity Real Return Fund (PCRIX). (Sierra text to come.)

 

SIERRA INVESTMENT MANAGEMENT, INC.
3420 OCEAN PARK BOULEVARD, SUITE 3060
SANTA MONICA, CA 90405
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