Saturday, March 20, 2010

SMTS 1st Q Results

We wrote about Somanetics (SMTS) on Feb. 28th here The Long Case for Somanetics, and felt that a good buying opportunity existed in the mid teens.   On Wednesday March 17th, the company announced first quarter results.  The results beat the analyst estimates handily and the company guided sales higher for the year.  The stock reacted by appreciating 19%.
 
We'll continue to monitor SMTS throughout the year and give important updates as they occur.  As for now, things look bullish for this small cap medical technology company.  Thank you for reading. 
 

Saturday, March 13, 2010

The Hidden Cost of Mutual Funds

The Wall Street Journal had a great article detailing how expensive it truly is to own a mutual fund. The average investor knows that when investing in a mutual fund, they will need to pay an expense ratio to compensate the portfolio manager and cover operating expenses. Currently, the average annual expense ratio of a U.S. stock fund is 1.31%.
However, that's not the true bottom line. There are front-load costs not reflected in the annual expense ratio and those expenses can make a fund two or three times as costly as advertised. Unfortunately, the average investor has no idea what these additional costs amount to due to a lack of information. Some of these costs are hard to find, being buried in a thick prospectus. I did my own study of two popular mutual fund companies and ran charts to see how they correlate to the overall market, the S&P 500.  In other words, what makes these funds so special that they need to charge up to 6.48% and 6.80% respectively during the first year of ownership. The popular American Funds - Growth Fund of America sports a 5.75% front load fee on top of other miscellaneous expenses bringing the first year expense to 6.48%.  Below, let's see how the performance stacks up against the S&P 500 low cost index fund (SPY) which costs just .15% to own.
As expected this fund shows a high correlation and just tracks the low cost S&P 500 (SPY) fund that charges just $150.00 on every $100,000 invested, as opposed to an approximate $5,230 first year cost for the American Fund (AGTHX), which includes volume breakpoints.  Where's the value.
 
At Shaw Investments, we do not use high cost mutual funds that give kick backs from the mutual fund company to the advisor selling the fund.  We have a fiduciary duty first and foremost to our clients, and receive no commissions, kickbacks or referral fees and will always consider the costs associated.  Thank you for reading.
 
 

Friday, March 5, 2010

February Employment Report

Last month I wrote about the January employment report here January Employment Report.  That report had some positives as the trend for improved employment was heading in the right direction, to the plus side. Today the Bureau of Labor Statistics (BLS) released the February employment report. 
Nonfarm payroll employment was little changed (-36,000) in February, and the unemployment rate held at 9.7 percent, the U.S. Bureau of Labor Statistics reported today. Employment fell in construction and information, while temporary help services added jobs.  February lost -36K jobs compared to January's loss of -56K, so a slight improvement.  Within the report was this. Professional services contributed 51,00 jobs to the plus side, but 50,000 of them were part-time jobs! The quality of employment is not what it used to be, as many employers are only offering part time positions. The official unemployment rate is 9.7%. However, if you start counting all the people that want a job but gave up, all the people with part-time jobs that want a full-time job, all the people who dropped off the unemployment rolls because their unemployment benefits ran out, etc., you get a closer picture of what the unemployment rate is.  That rate is 16.8%, which is how unemployment feels to the average Joe on the street.  Thank you for reading.