Highlights of the Current Issue
of The No-Load Fund Investor

From The No-Load Fund Investor, 6/09...

Emerging Gains

Global equity markets continued to rally in May. While the U.S. stock market rose about 5%, various international markets performed even better, for three main reasons.

One, the U.S. dollar fell about 5% versus the currencies of the country’s major trading partners, increasing the value of foreign holdings to U.S. investors. Two, economic performance in China and political stability in India helped those two markets as well as net exporters of commodities among the emerging markets.

Three, investors have become less risk averse, and have therefore increased their demand for emerging-market equities as well as other types of risky assets. Commodity and commodity-related stocks rallied strongly, for example, as did financial-services stocks and high-yield bonds. Meanwhile, intermediate- and long-term U.S. Treasuries continued to see their yields rise and their prices fall.

After being attractively valued before the current rally began in early March, the equity market is now only fairly valued. Also, though we continue to like the long-term story for particular emerging markets and commodities from current price levels, developed-market economies, though apparently stabilizing (at least for now), aren’t currently strong enough to justify continued strong price gains in these rising areas. So, we wouldn’t chase the rallies at this point.

Target Retirement Funds

Target Retirement funds (also called Target Date funds) have received considerable criticism in Congress and the media over the past year for not protecting the financial well-being of their shareholders, especially ones close to or already in retirement. Nevertheless, such products from top no-load fund families continue to draw large inflows from investors attracted by their many virtues.

Target Retirement funds are asset-allocation funds that comprise other mutual funds instead of individual stocks and bonds. In other words, they are “funds of funds.” At their best, Target Retirement funds provide effective diversification through reasonable, professional asset allocations. They also feature low investment minimums, along with simplicity for recordkeeping. The most cost-effective ones charge no expenses other than a proportionate amount of the expenses of the underlying funds.

The portfolio of a Target Retirement fund adjusts to a more conservative allocation as the years pass toward and beyond a target date. If the target date is many years in the future, the equity allocation is usually high (at least 80%). Over time, the equity allocation declines gradually, while bond funds receive an increasing percentage as the shareholders prepare to leave the workforce and sustain themselves for a retirement that could last for decades.

Fidelity, T. Rowe Price and Vanguard offer extensive lineups of Target Retirement funds. In total, assets in such funds at these three providers totaled about $117 billion at the end of March. The recent criticism refers especially to recent performance of such funds with an imminent target date: generally the year 2010.

These are designed for investors planning to retire from the workforce within the next few years. Critics (including some disappointed shareholders) point out that 2010 Target Retirement funds produced large losses in 2008 despite the expectation of a conservative mix among equities, bonds and cash. Sadly, these losses make a financially comfortable retirement less likely for the funds’ shareholders, some of whom cannot easily attempt to make up their lost wealth by delaying retirement, spending less or investing more.

Our June issue contains a comprehensive analysis of recent performance of leading Target Retirement funds.

Model Portfolios

Sample Model Portfolio from the Current Issue
of The No-Load Fund Investor

Wealth Builder Portfolio

Top Twenty No-Loads

Among stock and bond funds rated in Investor newsletter only.
Includes low-loads. Lastest 12 months.

#   Fund                                Obj.     % Change
---------------------------------------------------------
1.  Federated Prudent Bear A             agg gr  24.3
2.  Rydex Inverse S&P 500 Strat Inv      agg gr  24.2
3.  ProFunds Ultra Bear Inv              agg gr  21.6
4.  Rydex Inverse NASDAQ-100 Strat       agg gr  16.6
5.  Reynolds Blue Chip                   agg gr  11.7
6.  iShares COMEX Gold                   sector  10.1
7.  Price Trsy Long                      fix-inc  9.7
8.  Price Trsy Inter                     fix-inc  9.4
9.  Paydenfunds GNMA R                   fix-inc  9.1
10. Fidelity GNMA                        fix-inc  9.1
11. iShares Barclays 7-10 Treas          fix-inc  8.9
12. Vangd GNMA                           fix-inc  8.4
13. Fidelity Gov Inc                     fix-inc  8.4
14. Fidelity Spart Inter Treas Idx       fix-inc  8.4
15. Amer Cent Ginnie Mae                 fix-inc  8.3
16. Vangd Inter Trsy                     fix-inc  8.3
17. Fidelity Spart Long Treas Idx        fix-inc  8.3
18. Vangd LT Trsy                        fix-inc  8.1
19. USAA GNMA                            fix-inc  8.0
20. Janus Flex Bond                      fix-inc  8.0