Q–My mother left me $5,000, which I thought I invested wisely in Robertson Stephens Contrarian Fund. The fund started a gradual descent from the day I bought it a year and a half ago. Do I bail out with the half of my investment that’s still in it or ride it out? I’d like to make my mom proud of me.
A–I’m sure she had countless others reasons to be proud of you. As far as this fund is concerned, however, it’s been banging along at the bottom of its peer group.
The $276 million Robertson Stephens Contrarian Fund declined 39 percent over the past 12 months and had an annualized three-year decline of 1 percent. Both ranked in the lowest 1 percent of the world stock category.
“I feel that Robertson Stephens has done a disservice because the average investor thinks of a contrarian funds as a bear market fund,” said Edward Foster, director of research for Fabian Investment Resources Newsletter in Huntington Beach, Calif. “This is a fund attempting to make money in out-of-favor sectors, and the six-month time frame in 1995-96 in which it made a lot of money was due to the performance of just one stock, Diamond Fields Resources.”
The correlation between this struggling large-cap contrarian fund and the Standard & Poor’s 500 makes it hard to justify holding on, Foster believes. It isn’t making money in a down market and wasn’t making money in an up market, either.
The fund’s largest industry emphasis areas are gold mining, media and telecommunications, and construction. Country allocations are most heavily in Canada, the United States and, to a lesser degree, South Africa and Australia.
This San Francisco-based fund is “no-load” (no initial sales charge) in its Class A shares and has a level load with 1 percent redemption fee in its first year for C shares.
The best bear market fund, in Foster’s opinion, is the Rydex Ursa Fund, based in Rockville, Md., which should perform exactly the opposite of the S&P 500 by shorting index futures. For example, when the S&P rises 1 percent, the fund should decline 1 percent, and vice versa.
Q–What’s the word on Alltel Corp.? I have owned shares of 360 Degree Communications, which has merged with it.
A–Perhaps its aggressiveness will pay off in the future.
Alltel, a provider of telephone and information-processing services serving 2.5 million customers in 14 states, saw its wireless business nearly quadruple with its recently completed purchase of 360 Degree Communications Co.
It also recently announced the acquisition of Standard Group Inc., a provider of local and long-distance telephone service in Georgia. Coinciding with this growth, construction will soon begin on an 11-story, 215,000-square-foot addition to Alltel’s headquarters in Little Rock, Ark.
Despite all this activity, analysts following the stock of Alltel currently rate it just a little better than a “hold,” according to the I/B/E/S International research firm. These include four “buys” and four “holds.” The company’s earnings are expected to grow less than 1 percent this year, compared to a 14.5 percent increase for the telecommunications service industry. Next year’s projected 17.5 percent growth rate compares to 24.1 percent industrywide.
“This is not a high-profile stock and the firm probably needs to do a better job of getting its story out to the investment community,” said Joseph Abbot, equity strategist with I/B/E/S. “Analysts also don’t seem to think the acquisition of 360 Degree Communications is going to add tremendously to Alltel’s growth rate over the next five years.”
Q–I have my individual retirement account in a living trust. I understand that some financial advisers do not recommend this. What problems may arise?
A–While it can indeed be done legally, naming a living trust or your estate as the beneficiary of your IRA makes all the IRA benefits immediately subject to income tax upon the owner’s death. That’s because benefits are taxed according to the life expectancy of the owner and, in some cases, the beneficiary, but neither a trust nor an estate has a life expectancy.
“This is one of the biggest errors that people make because living trust rules are completely different from IRA rules, and, in my opinion, most lawyers get it wrong,” said attorney and certified public accountant Seymour Goldberg, senior partner with Goldberg & Goldberg P.C., in Garden City, N.Y. “Instead of putting the IRA in the living trust, what should happen is that the IRA is payable to a trust, with the trust as beneficiary.”
Also keep in mind that a spouse or other individual can be a beneficiary of an IRA, with the spouse able to roll over the IRA benefits to his or her own IRA and defer payment of income tax until age 70 1/2. Other named beneficiaries can’t roll over inherited IRAs, but can enjoy a period of deferral until they must pay income tax on the benefits.
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Andrew Leckey, a financial anchor on the CNBC cable television network, answers questions only through the column. Address inquiries to “Successful Investing,” 76 N. Maple Ave., Suite 367, Ridgewood, N.J. 07450, or by e-mail at successinv@aol.com.
