Pimco CommodityRealReturn Strategy (PCRDX) and T. Rowe Price New Era (PRNEX)

Pimco CommodityRealReturn Strategy is another Kiplinger 25 fund and it's discussed in a 05/05/08 article by Andrew Tanzer, "This Fund is on Fire". This fund tracks the Dow Jones-AIG Commodity index while at the same time it invests in Treasury Inflation-Protected Securities (i.e., TIPS).

Obviously, commodity prices have soared and so the results of this fund have been dramatic. In addition to pure performance, one of the advantages of a commodities/natural resources fund is that it tends to move independently from equities in general.

Nevertheless, I don't like this choice for the typical portfolio. While it tracks an index the index is heavily weighted on oil. This fund is likely to be very volatile. I think a better choice is the T. Rowe Price New Era (PRNEX) fund. This fund invests in companies that are involved with natural resources rather than investing directly in the commodities themselves. It has a great long term track record and allows you to get natural resources exposure without as much risk.

Longleaf Partners (LLPFX) and Dodge and Cox Stock (DODGX)

These two Kiplinger 25 funds only recently reopened to investors. These are both the kind of large cap value funds that you can feel comfortable recommending to relatives. My own preference, however, is for funds that are more bold and distinct. Morningstar compares them (along with the recently reopened Sequoia SEQIX) in a 04/28/08 article by Dan Culloten, "Fund Junkies' Dilemma: Which Reopened Fund Do I Buy?" Unfortunately, he doesn't really address the issue of how weak these funds have performed over the past five years. You don't want to jump from hot fund to hot fund but you also don't want to rely on past glory (which may be a particular issue with Sequoia).

Senior Market Credentials and Designations

"Bill targets scammers who victimize the elderly" by Kathy Kristof, 04/27/08 Los Angeles Times

In the past several years, a virtual alphabet soup of "professional designations" have cropped up purporting to signal that the bearer has some specialized training and expertise in investment planning for retirees.

This article addresses the confusing proliferation of professional designations, particularly those that purport to indicate a specialty in working with senior citizens. Professional credentials and designations can be an important tool both for the consumer (to help differentiate between one professional and the next) and the professional (as the pursuit of such a credential or designation typically requires a significant amount of study).

With regard to a senior specialization, however, I wouldn't put too much weight on any that is currently available. This isn't to say that none of them are valid. The Chartered Advisor for Senior Living from the American College is probably the most rigorous of the currently available designations. I just think that the more generalized (with respect to age) designations (such as the CFP for financial planning, CLU for life insurance, and RHU for health insurance) are more useful at this time.

CGM Focus (CGMFX)

CGM Focus is another Kiplinger 25 fund and another one of my favorites. It's one of the more volatile funds that I like but the long term returns are very impressive. The 04/28/08 issue of Fortune magazine has an article by Jon Birger on "Where to put your money now" that talks about fund manager Ken Heebner's latest big bet - steel.

For Heebner, steel is essentially a proxy for infrastructure - a bet that developing nations like China, India, Brazil, and Saudi Arabia will continue to build new hospitals, roads, bridges, and power plants. "We've never had a global steel shortage before, but all the ingredients for one are present today," he says. Heebner thinks heightened demand could eventually push steel prices up to $2,000 a ton from $800 today.

Bond Rating Services and the Mortgage Meltdown

There's an important article in this week's New York Times Magazine explaining the role of bond ratings services like Moody's in the current mortgage mess. As "Triple-A Failure" by Roger Lowenstein, 04/27/08 New York Times Magazine, explains:

By providing the mortgage industry with an entree to Wall Street, the agencies also transformed what had been among the sleepiest corners of finance. No longer did mortgage banks have to wait 10 or 20 or 30 years to get their money back from homeowners. Now they sold their loans into securitized pools and — their capital thus replenished — wrote new loans at a much quicker pace.

The article concludes:

This leaves an awkward question, with respect to insanely complex structured securities: What can they rely on? The agencies seem utterly too involved to serve as a neutral arbiter, and the banks are sure to invent new and equally hard-to-assess vehicles in the future. Vickie Tillman, the executive vice president of S.&P., told Congress last fall that in addition to the housing slump, “ahistorical behavorial modes” by homeowners were to blame for the wave of downgrades. She cited S.&P.’s data going back to the 1970s, as if consumers were at fault for not living up to the past. The real problem is that the agencies’ mathematical formulas look backward while life is lived forward. That is unlikely to change.

Fairholme (FAIRX)

One of the Kiplinger 25 funds is Fairholme (FAIRX). This is a fund that I like a lot. Morningstar (where I always do further research on funds) gives it five stars and says "This mutual fund is one of the very best." If you take a look at the top five holdings you get a very good idea of what they're up to (their holdings are very concentrated). On the one hand, you have smart money bets like Berkshire Hathaway (18.42% of assets), Sears Holdings (6.04% of assets), and Leucadia National (4.54% of assets). These are largely bets on very smart people like Warren Buffett and Eddie Lampert. On the other hand you have story bets like Canadian Natural Resources (15.12% of assets) and EchoStar Communications (8.70% of assets). I don't think you need to agree with these bets to like the fund. Let's face it, Sears Holdings is a very scary holding right now - it's roughly half of what it was a year ago and it could clearly be half of what it is now (I'm not saying necessarily or even probably but clearly possibly). I like that Fairholme goes for where the opportunities are and isn't just a closet index fund.

Kiplinger's 25 Best Funds

The May 2008 issue of Kiplinger has their list of the 25 best mutual funds. I think most people should invest in mutual funds and Kiplinger's list is one of the better mass media places to start. I like that they're willing to commit to a list short enough to show they mean it but long enough to offer you choices. Of course, I wouldn't recommend adding any of these to your portfolio without additional due diligence.