By John Wasik
CHICAGO, April 29 Whether you need to invest a
tax refund or simply want to see if you're on track with your
investments, spring is a great time to get out the broom.
I needed to make a large contribution to my 401(k) to offset
some taxes recently, so I took the opportunity to see that my
portfolio is meeting my objectives.
In my case, I needed to do some rebalancing and check
returns of the funds I owned against benchmarks. Then I checked
to see if my funds tracked my long-term investment policy.
When I first opened my 401(k) about a decade ago, my main
objective was broad-based global income and growth. Then I added
a little gold for inflation protection last year. Now I've
drifted off course, so it's time to ask some questions.
In my global search for a combination of income and
appreciation, I need more exposure to natural resources, the
staple commodities of developing countries.
When I check the International Monetary Fund forecasts, I
see that the "advanced country" sector, which includes the
United States, Canada, Japan and Europe, is only expected to
grow 1.4 percent this year and 2.2 percent next year. That
probably won't beat the rate of U.S. inflation, so I also want
to add more "emerging and developing" countries from Asia,
Africa, Eastern Europe and South America. This group is forecast
to grow from 5.5 percent to 6 percent over the next two years,
barring a worldwide downturn.
After reviewing my portfolio, I see that I need growth from
underdeveloped countries and lower volatility companies that
benefit from global commodity demand. So I'm considering adding
the IQ Global Resources ETF (GRES), which holds energy, mining
and food companies; and the iShares Frontier Markets ETF (FM),
which holds stocks from countries like Kuwait and Vietnam. Each
fund would make up 10 percent of my portfolio.
Not only do I need to rebalance my holdings to about 10
percent per fund and add the two new funds, I need to make some
substitutions to find better-performing, lower-cost funds.
Here's a thumbnail review of what I own:
-iShares Core Total US Bond Market ETF (AGG) - This has been
my all-in-one U.S. bond market fund. I'll keep the allocation
because it's a cheap way to own a big slice of the U.S. bond
market, even though it's been my second-weakest performer with a
7 percent return over a decade.
-American Century International Bond Fund (BEGBX) - A global
bond fund that invests in high-quality corporate and government
securities. It has not been beating its peers over the past
three to five years. It's rated "1" and "2" in its Lipper
Leaders rating (Lipper is owned by Thomson Reuters), the lowest
marks on a scale of 1 to 5. I'm looking for some substitutes.
-Fidelity New Markets Income (FNMIX) - An emerging markets
bond fund rated an overall "5" by Lipper. This has been my best
performer, returning an annualized 11 percent over the past 10
years through April 26. Its portfolio is invested in 80 percent
emerging markets bonds, which gives me a hedge against U.S.
bonds and the dollar. Because the dollar amount of the fund has
grown to nearly 20 percent of my portfolio, though, I'm going to
sell some shares to get back to a 10 percent stake.
-Fidelity Capital & Income (FAGIX) - This corporate junk
bond fund is the riskiest of all of my bond funds, but it's
almost 20 percent of my portfolio and the second-best performer.
I'll sell half of it and invest the proceeds in a
inflation-indexed bond fund (see below). It's rated "4" overall
with a 10 percent annualized return.
-Fidelity International Real Estate Fund (FIREX) - Owns
stocks that hold global real-estate investment trusts (REITs).
This relatively new fund is not pulling its weight, only
returning 0.52 percent annually with a "3" Lipper ranking. I'm
looking for a better-performing substitute, so this one is on
-Fidelity International Stock Fund (FIGRX) - This
international stock fund includes some non-U.S. dividend payers.
It is rated "4" with a nearly 11 percent annualized return for
the decade. It has been propelled by a diverse mix of companies
like Orix Corp (ORXCF) and Royal Dutch Shell B (RDSB). It's a
-Schwab Dividend Equity Fund (SWDSX) - Focusing on
dividend-paying U.S. stocks, this fund makes up about 12 percent
of my portfolio. It's a mediocre fund - rated "3" - so I'm going
to replace it with the Vanguard Dividend Appreciation fund
(VIG), which has better three- and five-year returns at roughly
12 percent and 6 percent, respectively, with a 0.13 percent
annual expense ratio. The Schwab fund has returned 11 percent
and 5 percent, respectively, with a 0.89-percent expense ratio.
-iShares Gold Trust (IAU) - Following the recent slide in
gold, this fund is down more than 5 percent this year. Luckily
it only represents about 2 percent of my portfolio. I'm going to
sell it and exchange it for a Treasury Inflation Protected
Securities fund like the iShares TIP ETF (TIP), which will offer
less volatile inflation protection.