Capital Appreciation

Although McKenzie M. Slaughter views investing from an alternative perspective, she still has a feel for traditional approaches. It is a natural position for the founder and CEO of Beyond Capital Markets, a New York independent research and educational firm that advises clients on portfolio diversification to maximize returns and reduce risks. BCM’s coverage includes master limited partnerships, hedge funds, and liquid alternative investments. The latter may include currency, commodity, hedge funds, oil, and energy.

Investors close to retirement age or already in retirement can benefit from these risk-reducing, portfolio-enhancing vehicles. Slaughter says BCM bridges a “knowledge gap by providing manageable steps to true portfolio diversification for institutional and individual investors searching for more active approaches.” Slaughter provided Black Enterprise with three picks that she says provide alternative and traditional approaches to capital appreciation.

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1 UBS Dynamic Alpha Fund Class A (BNAAX)

. This fund is ideal for the individual investor close to retirement (three years out) or in retirement, and who is looking for capital appreciation and current income. It is classified as a multi-alternative fund. “I chose this fund because it is actively managed and has diversified holdings focused on global equities, fixed income, and currencies that use exchange-traded funds and derivative instruments,” says Slaughter. “This presents an opportunity for absolute return.” Holdings are comprised of cyclical stocks such as financial services, defensive stocks, and global investable indices including Euro Stoxx (17.9%), Russell 2000 (17.7%), Msci Taiwan (12.22%), and Nikkei 225 (Ose) (11.85%). The fund’s lower management fees and annual stock turnover rate outperform its peers in the same category at 1.35% versus 1.78% and 65% versus 194%, respectively. Its short-, mid- and long-term performance outperform its peers. “This is not a passive fund so the sales load is high,” Slaughter says. “It has value for investors interested in exploring alternatives.”
Net assets: $280.57 billion
1-year return: 1.29%
3-year return: 13.97%
5-year return: 0.04%

YTD return: 4.30%
Min. initial investment: $1,000
Sales load: 5.50% front load
Expense Ratio: 1.81%

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2 MFS Lifetime Retirement Income A Fund (MLLAX) “This is not a passive index fund, so the sales load [of 5.75%] is high to take advantage of the fund manager’s expertise in active fund management,” says Slaughter. “I think this fund is more advantageous for aggressive investors preparing for retirement three years out.” The fund benefits from a double layer of diversification by investing in related MFS funds including the MFS Research Bond, MFS Government Securities, and MFS Inflation Adjusted Bond. Roughly 71% of the

fund’s holdings are in quality bonds, nearly 20% in U.S. stock, and 5% in foreign stock which meshes well with other types of retirement holdings. The fund, which has a 4 out of 5 Lipper Total Return rating, has a conservative trading method, and an annual stock turnover rate of 20%. Top equity holdings include Apple Inc., Exxon Mobil Corp., Google Inc., Target Corp., and Nestle.

Net assets: $151.83 million
1-year return: 5.17%
3-year return: 14.27%
5-year return: 5.97%

YTD return: 4.57%
Dividend yield: 3.02%
Min. initial investment: $1,000
Sales Load: 5.75% load
Expense Ratio: 0.28%

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3 Bruce Fund (BRUFX) Since its creation in 1983, the no-load, actively managed, mid-value, moderately balanced allocation fund, which has $343 million under management, has weathered busts and booms. During the past five years, BRUFX’s total return was 4.82% versus 1.70% for

the S&P 500 Index. Since 2002, BRUFX’s total return was 16.84% versus 3.7% from S&P. Slaughter says that BRUFX is “ideal for individual investors looking for a mutual fund with traditional investing qualities, mostly made up of domestic stocks: 36.06%, bonds: 29.47%, cash: 17.34%, foreign securities: 2.15%, and convertible and zero coupon government bonds.” As for sector weightings, BRUFX holdings include 8.16% in healthcare, 2.05% in technology, and 4.89% in industrials. Full-year 2011 SEC filings showed that the largest individual holdings were in AMERCO, the parent of U-Haul; Abbott Laboratories; Flotek Industries, an energy services firm; and Mannkind Corp., a therapeutic product maker with a focus on diabetes and cancer.

Net assets: $343.2 million
1-year return: 3.12%
3-year return: 24.27%
5-year return: 4.82%

YTD return: 4.98%
Min. initial investment: $1,000
Sales Load: no front/back load
Expense Ratio: 0.82%