Most money managers comb the entire stock market universe looking for potential buys. Not Bing Carlin of Minneapolis-based IAI Regional Fund. Carlin believes that narrower is better when it comes to picking stocks. He limits his selections to the 400 Midwestern companies whose operations, and executives, he knows so intimately.
Such microscopic attention to a finite sector has rewarded Carlin handsomely. IAI Regional has returned an average 15.5 percent annually the past five years, and rose 18.6 percent last year vs. the general market's 16.5 percent.Carlin won't buy just any stock from the North Central Plains, though. He insists on clean balance sheets, low debt, strong market niches and, above all, straightforward, competent management.
Some current Carlin favorites, whose attributes he recently described to Financial World magazine:
Cray Research, the super computer giant, is a sound company that got hurt by its sector's troubles last year, according to Carlin;
Dairy Queen, which has made some successful acquisitions without disturbing its steady earnings growth;
First Bank System, whose restructuring includes a revaluing of its extensive bond portfolio;
Jostens, the leading manufacturer of high school rings, is an unflappable "cash cow," according to Carlin;
Medtronic, the leading pacemaker manufacturer, whose lock on its market gives it all sorts of pricing flexibility;
Network Systems, the Minneapolis software outfit, whose $4 per share in cash and $8 in book value is well above its recent share price and make it a very attractive takeover candidate in Carlin's opinion;
Northwest Airlines, which dominates the Detroit, Memphis and Minneapolis markets and whose management continues to impress Carlin.
Some other hefty positions in IAI's recent 30-stock portfolio: Archer-Daniels-Midland, Cadence Design Systems, G&K Services, Hormel, MCI, MEI Diversified, Northern States Power, Orthomet, 3M, Winnebago.
As a group, world income funds have delivered much better returns in recent years than other types of bond funds. But unfortunately, according to Hueglin's Bond Market Report (44 Wall St., New York, N.Y. 10005), two of the three types of funds that specialize in this market - single country funds and international funds - depend for their own success on the continued bad performance of the U.S. dollar.
"The challenge of investing against the backdrop of a rising U.S. dollar," says Hueglin's, "is best met by the remaining member of the overseas bond triumverate, the global funds. These are funds which are set up to invest in both U.S. and non-U.S. fixed-income securities. In addition to being able to `buy American,' most global funds are also authorized to hedge a portion of their overseas positions, which enables them to insulate themselves from currency losses caused by a rising dollar."
Overseas bond funds come in both open-end and closed-end varieties and are available for initial investments as low as $1,000. Some, like Fidelity and T. Rowe Price, charge no commission. Others, like Putnam and Templeton, do. Many funds that are marketed by brokerage houses charge no commission to buy, but they do when you sell. All world income funds charge half-percent to 1 percent annual management fees.
(Investor's Notebook reflects the opinions of professionals. It does not endorse specific investments, and no endorsement is implied or should be inferred. For more information, contact the individual firms cited.)