Will my shares of Merrill Lynch & Co. have a revival?
- C.M., via the Internet
It has acknowledged that it handled risks badly in subprime mortgages and other structured debt products.
In fact, its global head of fixed income and the co-head of fixed income for the Americas recently left the firm.
But it is still Merrill Lynch: It remains the nation's largest brokerage and a global financial powerhouse.
The investment firm is to report a loss in the third quarter as it takes $5.5 billion in write-downs from collateralized debt obligations, known as CDOs, subprime mortgages and other debt products. It has significantly reduced its involvement in CDOs, which are pools of debt instruments packaged by the company.
Shares of Merrill Lynch (MER) are down 19 percent this year after last year's 37 percent gain.
Not until a mid-September filing for its $1.8 billion acquisition of First Republic Bank did the company reveal its significant financial exposure to mortgages and related troubles.
It plans to cut an unspecified number of jobs at its First Franklin Financial Corp. division. Acquired for $1.3 billion in the past year, First Franklin was one of the nation's biggest subprime mortgage originators.
Despite its problems, the financial giant receives a solid consensus "buy" rating from Wall Street analysts, according to Thomson Financial. That consists of six "strong buys," 10 "buys," two "holds" and one "under perform."
Chairman and chief executive E. Stanley O'Neal said in a recent statement there is "evidence of strong long-term growth trends in each of our global businesses." Merrill Lynch boasts $1.6 trillion in client accounts and 16,000 financial advisers who are consistently ranked as the best earners in the industry.
It has a strong distribution network and has one of the largest capital markets groups and investment banks. It also has half-interest in the BlackRock money management firm it acquired last year.
It also knows when to sell: Aegon NV is buying its Merrill Lynch Life Insurance Co. and ML Life Insurance Co. of New York for $1.3 billion, including excess surplus cash of $425 million.
Next year's projected increase in Merrill Lynch earnings is 6 percent versus the 14 percent forecast for the national investment brokerage industry, according to Thomson. Merrill Lynch's expected five-year annualized growth rate of 11 percent compares with 13 percent expected for its peers.
The Fidelity Fifty Fund has been recommended to me. Is this a good fund?
- M.R., via the Internet As its name implies, it is a highly concentrated fund.
It holds about 50 stock names, and about half of its portfolio is invested in its top 10 holdings. This places considerable emphasis on the stock-picking abilities of its portfolio manager.
Since taking charge in November, Peter Saperstone has improved performance of the fund. It had extended hot streaks in the past but could be inconsistent.
The $1.7 billion Fidelity Fifty Fund (FFTYX) gained 29 percent over the past 12 months and has a three-year annualized return of 17 percent. Both results rank in the top 10 percent of large growth funds.
"I would recommend this fund for investors looking to complement an existing large-cap growth fund that they already own, but it isn't a core holding," said Jim Lowell, editor of the independent Fidelity Investor newsletter in Potomac, Md.
"With such a concentrated portfolio, even a handful of 'dogs' could easily disrupt performance."
Since taking over, Saperstone increased the size of Fidelity Fifty's top positions while reducing the overall number of holdings.
The fund can invest wherever it wishes, but tends to focus on large-cap growth stocks. It enjoyed strong gains in its stock of Navteq Corp., a digital mapmaker. It also has made a significant bet on AT&T; Inc.
Though Saperstone appears to be the right manager for such a concentrated fund, Lowell believes that won't alter its inherent stock-specific risk. Everything rests on its portfolio manager's shoulders. But here's a positive: Since 2001 Saperstone has capably managed Fidelity Advisor Mid Cap Fund, posting a fine record there.
Among Fidelity Fifty's significant sector concentrations, technology hardware represents 19 percent; business services and telecommunications 16 percent each; and media 13 percent. Top stocks are AT&T;, Time Warner Inc., Walt Disney Co., Harman International Industries Inc., Navteq, Hertz Global Holdings Inc., Agilent Technologies Inc., Sears Holdings Corp., Juniper Networks Inc. and American Tower Corp.
The "no-load" (no sales charge) fund requires a $2,500 minimum initial investment and has a low annual expense ratio of 0.83 percent.
What are the differences between international, global and foreign funds? I hear each discussed and I'm not sure if they're the same thing.
F.T., via the Internet
International and foreign funds are the same thing, investing in companies headquartered outside the United States.
Global funds invest in both overseas and domestic stocks. How that portfolio is divided depends on how markets at home and abroad are performing and the fund's stated goals.
"International funds are good for pure international stock exposure, which usually protects you against a falling dollar," said Mark Salzinger, publisher of The No-Load Fund Investor in Brentwood, Tenn.
"They also give the potential benefit of overseas securities that aren't accurately priced [enabling sophisticated managers to snap up bargains] and stronger growth in certain countries."
Salzinger would select a global fund because he likes a fund overall and not so much for international diversification.
"It used to be that fund companies with global stock funds would have one manager handle the U.S. portion and another manage the foreign part," Salzinger said. "Now it is common to have one manager in charge of all the stocks."
His personal choice in a global fund is T. Rowe Price Global Stock Fund (PRGSX), while his favorite foreign fund is Dodge & Cox International Stock Fund (DODFX).
Andrew Leckey writes for Tribune Media Services.