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So what do the newsletter investment gurus have to say about 2003

- Alan Lavine and Gail Liberman

Sheldon Jacobs, editor of The No-Load Fund Investor, Ardsley, N.Y., says to stay away from long-term bond funds. The reason: Interest rates could rise and bond prices will fall.

"The chances of bond prices declining over time are far greater than rising," says Jacobs in his most recent report. "We urge you to stay away from long-term bond funds. Investors with sufficient capital to diversify into individual investment grade bonds are better off doing so. The bonds can be held to maturity to avoid price declines."

For investors who want to hedge their bonds against falling prices or those who want to speculate on lower bond prices, Jacobs suggest the following investments:

  • Rydex Juno Fund. The fund is designed to profit when interest rates rise and bond prices fall. It uses futures and options to profit on the downside.

  • ProFunds Rising Rate Opportunity Fund. The fund moves in the opposite direction of the 30-year Treasury bond. It uses leverage, which means it borrows money to invest. As a result, it will track 125 percent of the opposite daily price movement of long-term bonds.

    Jim Lowell, editor of Fidelity Investor, Potomac Md., sees a mixed economic bag for 2003. Overall, he is optimistic. He says to play it safe until further notice.

    "The economy resilience is one reason I'm confident about getting through the worst bear market of recent memory," Lowell says in his most recent report. "But critical to the market being able to maintain October's gains, let alone sustain the rally, will be signs of increased capital spending and no decrease in consumer spending."

    Lowell likes the following Fidelity funds: Dividend Growth, Contra Fund and Low-Priced Stock Fund.

    Walter Frank, chief investment officer of Moneyletter, Ashland, Ma., expects bond funds that invest in high-yield bonds to do well in 2003. High-yield or junk bond funds invest in bonds issued by companies with poor credit ratings. These bond funds yield over 10 percent. The junk bonds do well when the economy and stock market improve. Otherwise you can lose your shirt.

    Frank reports that high-yield bond fund managers say the default rate on junk bonds is declining. Now that there is more confidence the economy will do well, money is moving into junk bonds and driving up prices. Overall, Frank expects better performance from high-yield bond funds in 2003.

    Funds he recommends include Fidelity High-Yield, Vanguard High-Yield, Buffalo High-Yield and Columbia High-Yield.


    Alan Lavine and Gail Liberman are husband and wife columnist and authors of The Complete Idiot's Guide To Making Money With Mutual Funds, (Alpha Books).

    To read more columns, please visit the column archive.

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