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"My favorite large-cap growth stock would be Apple (AAPL, news, msgs)," he says. "People are still underestimating the power of the growth of this company. They see the iPhone as a product, but it's really a platform. When they rolled out the iPod people thought it was just an MP3 player, but it has completely transformed the music industry. I think they'll do something similar in the phone business."
Other holdings of this concentrated fund -- it owns only about three dozen names -- are classic steady earners like Johnson & Johnson (JNJ, news, msgs), PepsiCo (PEP, news, msgs) and Microsoft (MSFT, news, msgs), the publisher of MSN Money. "We're seeing a shift towards rewarding consistency versus rewarding pure cyclical growth," Biondo says.
One big advantage of companies like these is that they make a large portion of their earnings overseas, which benefits them as the U.S. dollar continues to weaken.
Not so rotten anymore
Bonds are the market's other new best friend. Intermediate-term funds, the most popular type, are ahead an average of 4.4% over the last 12 months, half-again their average over the last three years of 3.0%.Two months ago, when it appeared the Fed was more likely to boost interest rates than cut them, I agreed with my colleague Jim Jubak, who called bonds "rotten." But what actually was rotten at the time was a financial system that encouraged recklessness by lending willy-nilly to buyout artists and overextended homeowners.
The new mood is aptly summarized by Steve Leuthold, manager of Leuthold Core Investment Fund (LCORX), as "LBOver."
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So despite inflation that exceeds the Fed's official comfort zone, it seems willing to cut rates to keep the credit mess from getting worse. Bonds rise when rates fall because their coupons become more valuable.
Farewell, traders
In my personal portfolio, I've made two changes in recent weeks to adjust to the new market. I exchanged a foreign large-cap fund for a domestic one, Fidelity Contrafund (FCNTX). This superb fund is closed to new investors but available in retirement plans.I also cut my stake in emerging-markets stock funds to buy a high-quality intermediate-term bond portfolio, Vanguard Total Bond Market ETF (BND, news, msgs). This exchange-traded fund tracks the Lehman U.S. Aggregate Bond Index. So does iShares Lehman Aggregate Bond Fund (AGG, news, msgs), but Vanguard charges only 0.11% in expenses, compared with the iShares charge of 0.24%. Pennies matter greatly in the single-digit-gains world of bond returns.
Each of these changes represented only a few percentage points of my overall portfolio; this was fine-tuning rather than an overhaul. I already owned domestic growth-stock funds and a bond fund. I'm also still committed to foreign stocks, including emerging markets.
Well-diversified investors haven't been shaken out of this market; only speculators have. Good riddance.
At the time of publication, Tim Middleton owned or controlled investments in the following securities mentioned in this article: Fidelity Contrafund and Vanguard Total Bond Market ETF.
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