Profit Using High And Low Turnover Funds

Serkadis | 3 October 2009, 8:40 pm

The average annual turnover rate for stock funds is not as high as you might think. According to the 2008 Investment Company Institute fact book, the average annual turnover was 59%, right on the 35-year average and much lower than turnovers experienced in the mid-1980s when they were in the 80% range. Now I dont spend a great deal of time studying mutual funds but that number seems awfully low. As it turns out, its irrelevant. Mutual fund turnover ratios have little correlation with fund quality. There are top performing funds with both high and low turnover ratios. At the end of the day, it matters only that they perform. (Learn about mutual fund turnover in our article Turnover Ratios Weak Indicator Of Fund Quality.)

Baidu (Nasdaq:BIDU)

$13.85B

J.C. Penney (NYSE:JCP)

$7.87B

Blink and Youll Miss It

CGM Focus top holdings are from its latest June 30 quarterly holdings report. Given Mr. Heebners penchant for turning the stocks in his portfolio, its doubtful his current top five are the same. Nonetheless, Ill have a look at the fundamentals for each, assessing their chances for long-term success.

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Ford has had the most success in the past year, gaining market share in 10 out of the last 11 months. As well, the cash-for-clunkers program put some additional wind in its sales. Having said that, the competition for consumers is intense and its $133 billion in debt is staggering. Id avoid it.

Goldman Sachs is flying. Second-quarter earnings were a record $4.93 a share, and Q3 earnings will probably be almost as stellar. FBR Capital Markets analyst Steve Selmach raised 2009 EPS to $16.21 from $14.68 and 2010 EPS from $16 to $18. Even though the companys stock is up 116% year-to-date, Selmach believes it has room to move, and in the long term, so do I.

What can I say about Amazon.com that hasnt already been said? Later this year the companys revenue from merchandise other than books, music and movies will overtake the product categories that made it an internet star. Id never bet against Jeff Bezos. This ones a no-brainer.

Some consider Baidu the Chinese version of Google. Personally, with all the trouble its currently facing over illegal MP3 downloads from its search engine, Id stay away.

Lastly, J.C. Penneys back-to-school sales were disappointing, dropping 7.9% in August. Mike Ullmans a good CEO, but his stores have been too inconsistent. Id pass. (Read Analyzing Retail Stocks to learn about the most important metrics to look at when analyzing retail stocks.)

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