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Deathly Investments
Talk about macabre strategies — BusinessWeek's cover story discusses the increasing popularity of
Also know as life settlement-backed securities, these bonds allow people to sell their life insurance policies to investors, who will pay the premiums until the seller dies. Then the investors collect the payouts.
It's a "ghoulish actuarial gamble," according to the magazine, because the quicker the death, the more profit an investor gets.
Most of the transactions are made by small local firms called life settlement providers, which in the past typically sold the policies to hedge funds. But Wall Street sees big money in buying policies, throwing them into a pool, dividing the pool into bonds, and selling the bonds to pension funds, college endowments, and other professional investors, the magazine said.
If the market develops as Wall Street expects, soon ordinary mutual funds will be able to buy death bonds, too.
Junk Funds
After several years of good times,
Junk-bond funds try to generate high income by buying low-rated corporate bonds, which are also known as high-yield bonds.
These funds have been extremely popular recently, because they generally do well when few companies default on their interest payments, the paper said on its Web site. In fact, they've returned more than 9.9% in the past year, versus 5.1% for higher-rated intermediate-term bonds.
But experts say that because of the risks, an individual investor's best option may be sticking with high-yield funds that are more conservative, or broader funds that can edge out of the junk bond market if the going gets tough.
For instance, Lawrence Jones, a Morningstar Inc. analyst, recommends funds that focus on higher-rated junk bonds and conduct extensive research, such as a T. Rowe Price High Yield Fund (PRHYX), which he says is generating a yield of about 7.3% and is run by a team with a strong long-term record.
Mr. Jones also likes another T. Rowe Price High Yield Fund (PHYDX), which is generating a yield of about 6.7%.
Carl Birkelbach, the president of Birkelbach Investment Securities Inc. in Chicago, recommends the Nuveen Municipal Market Opportunity Fund, a closed-end fund that buys higher-yielding municipal bonds and is yielding over 5%.
Borderless Investing
Since foreign stocks came into vogue about four years ago, most mutual fund investors have utilized a foreign-only approach to buying them, the paper said Sunday in its "Investing" column.
In other words, investors who already had meaningful domestic exposure can put new money in separate portfolios dedicated to foreign stocks. And the two portfolios generally operate independently.
But with globalization upon us, some people wonder whether it's time to stop segmenting investment portfolios along regional lines, the column says.
How would borderless investing work?
Instead of putting some money into a domestic fund that looks for the best U.S. energy, technology, health-care, and financial companies and then investing in a separate fund that looks for the best foreign stocks in those sectors, an investor might look to a globally oriented fund that scours the world for the best opportunities in each sector.
In theory, this approach allows fund managers to adhere to a "very Warren Buffett-like principle: to concentrate your bets only in your top ideas, rather than watering them down through your second- and third-choice picks," the paper says.
Best Brokers
In its 15th annual survey, SmartMoney ranked the
The magazine says it looked for the best combination of 21st-century features and old-fashioned service. It created its own accounts to buy and sell both big and small stocks. The rankings are based on the needs of a hypothetical buy-and-hold customer with an account balance of $50,000 who invests in stocks, bonds, and funds.
E-Trade Financial Corp. topped the list of premium brokers, followed by Fidelity Investments, Charles Schwab Corp., Bank of America Corp., TD Ameritrade Holding Corp., Wells Fargo & Co.'s WellsTrade, and Vanguard Group. Among full-service brokers, Edward D. Jones & Co. LP ranked No. 1, followed by Merrill Lynch & Co., UBS AG, A.G. Edwards & Sons Inc., Wachovia Securities, Citigroup Inc.'s Smith Barney, and Morgan Stanley.
TradeKing topped the discount broker list, followed by Scottrade Inc., Firstrade Securities Inc., optionsXpress Inc., Muriel Siebert & Co. Inc., WallStreet-E Inc., and Genesis Securities LLC's SogoInvest.
Stealth Stocks
Forget about following the advice of those expert equity analysts; Kiplinger's says investors are far more likely to
Brokerages that do not see potential investment-banking or commission revenue often ignore these stocks — and they trade at lower prices than they deserve, the magazine says.
It lists seven "under-the-radar" stocks that have little or no following on Wall Street: Sun-Times Media Group Inc., Schweitzer-Mauduit International Inc., Bio-Rad Laboratories Inc., White Mountains Insurance Group Ltd., Sonic Innovations Inc., International Assets Holding Co., and PCS Edventures Inc.
Each stock is covered by two or fewer analysts, and these volatile companies are best suited for risk-tolerant investors, the magazine says.
Wealth Management Media Scan is compiled by Ms. Raab, an American Banker contributor.
The weekly column is designed to keep financial services professionals abreast of wealth management ideas and products that are getting attention in the general market. To provide this perspective, American Banker tracks 15 personal finance publications and information services.
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