Q–When my husband was in the Army, we began investing in USAA mutual funds. What’s your opinion of USAA Cornerstone Strategy Fund? We’ll use it for the education of our children, currently two and six years of age.
A–A hybrid with its own personality, the $1.5 billion USAA Cornerstone Strategy Fund is up 12.42 percent over the past 12 months and has a three-year annualized return of 16.64 percent. Both returns rank in the lower 15 percent of all mid-cap value funds.
This is an asset-allocation vehicle divided among five different classes: gold stocks, foreign stocks, real estate stocks, basic value stocks and U.S. government securities. It is always about 75 percent in stocks and around 25 percent bonds. The goal is to provide a core holding with diversification and exposure to investments with a low correlation to the Standard & Poor’s 500.
“USAA Cornerstone is a hybrid balanced fund with below average risk and less-than-high-flying returns,” explained Michael Breen, an analyst with the Morningstar Mutual Funds investment advisory. “It would make a decent core holding.”
It currently has most of its stock holdings in the U.S. and Canada, followed by Europe. Major sector holdings are real estate investment trusts, telephone firms, international oil companies, major regional banks and diversified machinery companies. Top stocks are Bristol-Myers Squibb, American Home Products, Deere & Co., Monsanto Co., Caterpillar Inc. and B.F. Goodrich.
All bonds are U.S. Treasuries. This San Antonio-based fund has “no load” (no initial investment charge) and requires a $3,000 minimum initial investment.
Q–What do you think of the shares of Richfood Holdings Inc. as an investment?
A–This is a profitable company taking on significant change in order to grow.
Richfood Holdings is one of the nation’s biggest wholesale food distributors, providing more than 37,000 national and private-label food and non-food items to more than 1,400 supermarkets.
It is the largest purchaser of groceries in the Mid-Atlantic market and the most profitable wholesaler in this country, having posted average sales and revenue growth of 25 percent over the past several years. Earnings were up 12.8 percent in its fiscal year ended May 2, 1998, to a record $69.2 million.
It has been actively selling non-grocery retail holdings obtained in its 1998 acquisition of Dart Group. That deal was done primarily for Dart’s 37 Shoppers Food Warehouse stores in Washington, D.C., and northern Virginia.
There has recently been movement in Richfood stock based on talk that it could soon sell its stake in troubled Crown Books Corp., a unit that is filing for Chapter 11 bankruptcy protection. Richfood plans to sell its more healthy Trak Auto Corp. business within the next two months and has already sold Total Beverage to RSS Acquisition Inc.
Consensus recommendation on the shares of Richfood among the analysts covering it is a “buy,” according to the
I/B/E/S International research firm. This includes four “strong buys,” one “buy” and one “hold.”
For the current fiscal year, the company’s earnings are expected to grow at a 14 percent clip, versus 12 percent for its industry. Next year’s 14 percent gain compares to 18 percent industrywide. The five-year projected growth rate is 15 percent.
Q–I’m turning 70 1/2 years old this fall and have an individual retirement account CD. Since I must start to withdraw from it this year, I’d like to donate the funds to a charity or two. I don’t know how to have the funds transferred without being taxed. I don’t mind paying tax, but I feel the charities will be shortchanged unnecessarily and I’d like to avoid that. Any suggestions?
A–Sorry. Distributions from your IRA are a taxable event. “You can contribute it to a charity after you pay the tax, but there’s no way to avoid the tax liability,” said Ellen Breslow, director of individual retirement planning for Salomon Smith Barney. “This is a fairly common question, because there are a lot of people who don’t need the IRA money at age 70 1/2.”
Incidentally, outside of an IRA, one of the best tax-planning opportunities is the deduction for the charitable contribution of appreciated long-term capital gain property. This includes both tangible personal property such as artwork, and intangible property such as stocks and bonds. By making that type of contribution, you get to deduct the full fair-market value of the gift, while appreciation in value is not taxed. It’s better to give appreciated securities outright rather than sell them and contribute the proceeds, for that way you’ll avoid tax on appreciation and the charitable organization gets full value of the stock.
Property that has gone down in value should not be contributed directly to a charity, but sold first to create a realized loss. Proceeds could then be contributed to a charity and the amount of the proceeds can be deducted.
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Andrew Leckey, a financial anchor on the CNBC Cable Television Network, answers reader questions only through the column. Address inquiries to Andrew Leckey, “Successful Investing,” 76 N. Maple Ave., Suite 367, Ridgewood, N.J. 07450; or e-mail: successinv@aol.com.
