No-Load Mutual Funds

Dreher Capital Management uses NO-Load mutual funds to augment the firm’s ability to diversify.

Investment Styles:

Investment style is the most important determinant used by the firm in selecting mutual funds. Empirical studies have found only two basic investment styles: growth and value. Since these styles have a tendency to produce different results for specific time periods, diversification between them can reduce portfolio volatility. Mutual funds specializing in one or the other styles can assist portfolio managers to achieve their desired exposure levels to each style. A fund that changes from one style to the other is undesirable. The firm has found a few fund managers who got rich using their talents to employ one style of investment selection, and they are not concerned about quarterly or even yearly returns: they are either hard-core growth investors or hard-core value investors, so one always knows what the money is doing.

Number of Companies:

Purchase of a mutual fund in a portfolio provides instant diversification, giving investors exposure to more stocks and industries than possible using their own resources.

Portfolio Balance:

Sector funds (classified as Level IV investments by the firm) can provide specific exposures needed to create balance in the portfolio. For example, consider investors whose Investment Strategies call for a large emphasis on income investments. Intrinsically, these portfolios are sensitive to inflation which can erode the purchasing power of their income and principal. To offset such a risk, investors could purchase a mutual fund specializing in energy companies: the idea being that rising prices would benefit companies that produce something as essential as energy.

Another example would be global or foreign mutual funds for investors desiring exposure to markets wherein Dreher Capital Management has little or no expertise. Technology and biotechnology are two more examples demonstrating how mutual funds can provide an important means for diversification and expand investment acumen.

Historical Return:

By themselves, historical returns are not good criteria for choosing a mutual fund. In fact, as Morningstar has stated, many times historical returns produce a negative correlation with future returns. Empirical evidence, according to Morningstar, has shown that when a mutual fund attracts a sudden increase in funds, fully 90% of the money arrives after the mutual fund has had its biggest gains.

At Dreher Capital Management, the firm would rather buy a fund specializing in one style whose results had languished for a time, rather than the latest “star” portfolio manager of the day.

Screening:

Many of the popular investment magazines screen mutual funds according to a myriad of variables. They produce lists of best funds in down markets, best in up markets, best for income and so forth. Dreher Capital Management believes these lists create an illusion of security. As stated previously, the firm believes all investment entails risk. No screening process can remove risk. Risk comes with the territory.

The firm relies on a few fund managers who have their own money in the funds and who have demonstrated an ability to make money specializing in one investment style.

Management Fees:

Clients should be aware that the use of mutual funds (even NO-Load funds) in their portfolios managed by Dreher Capital Management subjects them to double fees, since they are actually paying the mutual fund a management fee at the same time they are paying Dreher Capital Management.