Archive for August, 2012
Posted by Matthew Sauer, Esq.
Last week, the Federal Reserve splashed cold water on increasingly optimistic investors when it released sour-sounding minutes from the most recent FOMC meeting. Shortly after, St. Louis Fed President James Bullard warned investors not place too much weight on the commentary, reminding the public the minutes were stale. This week, the monetary authority’s Beige Book report lent credence to Bullard’s view. Some regions fared better than others, but as a whole, news from the twelve Federal Reserve Districts suggested economic activity expanded gradually over the past month. While encouraging, the Beige Book report was actually only the first of the week’s Fed-related headline grabbers. The event most investors and market commentators spent the week holding their breath for was Chairman Bernanke’s Jackson Hole comments. A yearly occurrence, this speech has become increasingly popular since 2010 when Bernanke used it to lay the groundwork for QE2. Between the European crisis, China’s economic wavering, and the contentious political climate in the U.S., the global marketplace is facing plenty of hurdles. Nevertheless, our monetary authorities have been coy on the topic of new stimulus all year. Heading into Friday’s speech there was wide speculation the venue would again be used to unveil new accommodative measures. Disappointing on the surface to many, Bernanke failed to officially outline concrete plans for anything resembling QE3. Instead, he used the stage to touch on issues including the effectiveness of prior easing measures, the U.S.’ discouragingly slow rate of economic growth, and the Fed’s readiness to take action if conditions worsen. Just as the Federal Reserve commanded the spotlight through the final days of August, the shortened first full week of September will be dominated by jobs-related discussion. Nonfarm payrolls will be released on Friday, shedding light on how labor fared during the quiet weeks of August. This month’s numbers will be especially noteworthy considering July’s report which saw the national headline unemployment rate increase to 8.3% despite forecast-beating jobs growth.
Don’t Get Caught in an Investment Scam
Posted by Matthew Sauer, Esq.
Investment scams have been around for a long time. Both old stories of hucksters trying to sell the Brooklyn Bridge and the more sophisticated Ponzi or pyramid schemes often used today provide evidence that there have been and still are people out there who want to take advantage of you. And these scams are often targeted toward older Americans and retirees, who can find themselves vulnerable to the slick approach of many scam artists. Here are some of the ways you may find yourself being set up for fraud. The Free Lunch In 2009, the SEC completed a yearlong examination of the so-called free lunch investment seminar business. The agency looked at 110 securities firms and their branch offices that offer investment “seminars” and use a free meal to boost attendance. It found that 100 percent of the time the “seminars” were actually sales presentations designed to make attendees open new accounts or buy specific products. Half of the time the SEC found that the people leading the seminar made exaggerated or misleading claims about the products they were selling. And a quarter of the time they made investment recommendations that were potentially unsuitable for the investor involved. Outright fraud appeared to be involved 13 percent of the time. While the person leading the seminar may not be doing anything illegal, there’s a good chance that he or she doesn’t have your best interests in mind. One popular product often offered at free lunch seminars is the variable annuity. Variable annuities are complicated investments not to be purchased without adequate research. Not coincidentally, they tend to offer generous commissions to the financial adviser who sells them. Affinity Fraud This is an investment scam that targets members of a specific group. Targeted groups may be from specific religious or ethnic communities or include the elderly or retirees. Often one or two respected members of the group are recruited first to add legitimacy or the people behind the fraud pretend to be members of the group they are targeting. After that the fraud typically involves a good old-fashioned pyramid scheme in which money collected from new investors is used to make some payments to the early investors. This makes everyone feel more secure in their investments. Of course, when the pool of new investors dries up, the folks selling the investment conveniently disappear and the investors find that most or all of their money is gone. Be wary of any investment recommendations from a person who belongs to an organization or group that you also belong to. Always do your own independent homework. Cold-Calling Many businesses, including securities firms, still use cold-calling as a way to generate new business. You may be sitting at home and suddenly the phone rings and before you know it a stranger on the other end is trying to sell you something. Cold-calling like this generally relies on a high-pressure sales pitch delivered quickly, often with unreasonable promises about the return or safety of the investment involved. Unless you have a good relationship with the person on the other end of that phone, never buy an investment product based on a cold call. The Internet There’s no question that the Internet is a powerful tool for investors, allowing you to do extensive research on a company or mutual fund in a short period of time without leaving your desk. But the internet is also a place where people may try to steer you toward certain investments. You may encounter these recommendations, or outright sales pitches, in unsolicited investment newsletters, in online bulletin boards aimed at investors, or in spam e-mail messages you may receive. Be very skeptical about investment recommendations that reach you via the internet. It’s one thing to follow the advice of an online newsletter that you have subscribed to that comes from a financial adviser you know to be reputable. It’s quite another thing to pursue a hot stock tip that showed up without warning one day in your e-mail. Before you make any investment, get financial statements and other information that a publicly-traded company or mutual fund is required to file with the SEC. Verify any claims of new products about to be introduced or big new contracts about to be signed. Call suppliers and customers of the company to see what they have to say. And check out the background of the company’s top management team. Another place worth checking out is the SEC’s page giving you the telltale signs of investment fraud. It’s at http://www.sec.gov/investor/pubs/cyberfraud/signs.htm. If you need more information about this topic, please call us at (800) 548-3797.
Funds Spotlight – Gabelli Utilities Fund (GABUX)
Posted by Matthew Sauer, Esq.
We have made some exciting changes to the Fidelity Independent Adviser. In our newest issues, readers will find two brand new portfolios and the addition of hundreds of new mutual funds. In an effort to ensure investors have as much insight into these new products as possible, we have spent the last few weeks highlighting newcomers in the FIA hotline. Last week, we looked at the Yacktman Focused Fund (YAFFX). This time, we turn our attention to the Gabelli Utilities Fund (GABUX) As its name implies, the Gabelli Utilities Fund is designed to target companies hailing from the utilities industry. The firms comprising this corner of the marketplace are notable for not only their relatively defensive nature, but also their attractive yields. Therefore, it is not surprising to see that GABUX’s top objective is to provide capital appreciation as well as current income. Though the fund is designed to focus on a specific sector, it does so in a relatively aggressive manner. Rather than taking aim at top utilities names, the fund dedicates the bulk of its portfolio to small and midsized companies. This quality may make it a more volatile option than more traditional utility mutual funds. Typically, during periods of market turmoil, the utilities sector draws crowds of nervous investors. GABUX may look attractive in the event that European fears reignite and turmoil returns. For now, however, the fund should be watched from the sidelines. Morningstar gives GABUX three stars and places the fund in the Mid-Cap Value section of its style box. The Gabelli Utilities Fund is currently listed in our Fidelity Independent Adviser’s Power Index as a “Sell” fund with a Power Index number of 67. If you would like more information on this unique proprietary rating system we employ in our newsletter, please call us at (800) 548-3797 and an adviser would be happy to speak with you. Historical Performance (as of 8/29/12) YTD 1 year 3 years* 5 years* GABUX 1.92 6.13 9.94 3.71 +/- MSCI World NR USD -8.40 -4.19 2.20 5.10 +/- Category (SU) -3.59 -5.32 -1.35 1.93 *3 and 5 Year Returns are annualized. Past performance is no assurance of future results. Top 10 Holdings (as of 06/30/12) Represents 20.90% of total portfolio; 251 holdings total National Fuel Gas Co. NextEra Energy Inc. Goodrich Corp. Edison International Southwest Gas Corp. Energy Transfer Equity Exelon Corp. AES Corp. Northeast Utilities General Electric Co. Operations and Expenses Gabelli Utilities Fund has an annual holdings turnover of 22%. It has no load and an expense ratio of 1.40%. The minimum initial investment for this fund is $1,000. Management Gabelli Utilities Fund is managed by Mario J. Gabelli, CFA. Mr. Gabelli Graduated from Fordham University and earned an MBA from Columbia University School of Business. Fidelity Independent Adviser’s Power Rankings Power Index: 67 Power Trend: Positive Recommendation: Sell (Sources: Morningstar, janus.com) Do you have questions pertaining to the Fidelity Independent Adviser hotline or newsletter? Call us today at (800) 548-3797.