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[David's portfolio, continued]

You've already read what passes as my investing strategy.  In what follows, I'll lay out which funds I used to pursue that strategy.  I think of my portfolio in three distinct lumps: retirement funds, non-retirement funds and stocks.


Most of my retirement money is invested in TIAA-CREF annuities.  As many of you know, my day job is as a professor of Communication at Augustana College, in Rock Island, Illinois.  (And what could an academic specialization in propaganda and persuasion possibly contribute to thinking about funds . . . hmmm?) One of the benefits of working at the college – in addition to constant mental stimulation, sparkling colleagues and a really nice tuition exchange agreement with a couple hundred other schools – is the college’s contribution of an amount equal to 10% of my salary into a TIAA-CREF account.  I add to TIAA-CREF, though modestly, through our 403(b).  About 75% of my money is in the CREF Stock account and nearly 25% in TIAA Real Estate.  The TIAA-CREF account returned a bit over 16% last year, despite the fact that only 75% of it was invested in equities. 


In each case, the targets are the same: about 75% in equities with international equities constituting about one-third and U.S. equities two-thirds.  The non-equity stuff is in fairly odd places (emerging markets bonds, international real estate and so on) since I'm more concerned with diversification and total returns than with income per se.  In 2006, my asset-weighted returns were a bit over 17% with each set of funds.  My biggest holdings, in descending order, and a rationale for them:

Fidelity Low-Priced Stock I have never, ever, ever made money betting against Mr. Tillinghast.  Never.  So I’ve quit trying.  I know it's bloated ($40 billion), it owns 800 stocks and can't be considered a small cap fund anymore.  But as long as Mr. T. stays around, I will.
Fidelity Dividend Growth This is a vote of confidence in the folks at Morningstar who argue that Mr. Mangum has assembled one of the most undervalued large cap portfolios around.  Investors have been fleeing in droves, which leaves a substantially smaller asset base and that helps given his tendency to concentrate.
Fidelity Diversified International A fairly GARP-y fund with a willingness to move about in order to find good investments.  Mr. Fraser, the previous manager, built a sterling record.  Mr. Bowers, improbably, has improved on it (top 3% of international large-growth funds during his tenure).  Like Low-Priced Stock, it's bloated ($47 billion in assets), closed and ought to be wallowing about by now.  But isn't.
Price Global Stock One of Price’s best managers took over a struggling fund.  I’d been impressed with his work at Media & Telecomm and Global Tech and, profitably, followed him here in '05.  This is a fairly high risk portfolio, he's willing to sink substantial amounts into emerging markets (20% at one point) and smaller companies which distinguishes it from the typical, namby-pamby "let's invest in European and American blue chips" global fund.
Price International Discovery In the absence of a good core international fund at Price, I’ve chosen to combine International Discovery with Global to cover a range of market caps and markets.  Collectively they have a growth bias, but they’re not nuts.
Fidelity International Real Estate A good diversifier and a beneficiary of a weakening US dollar.  As more nations adopt REIT-ing laws, it strikes me that there's a prospect for a fairly sustained run. Its founding manager just rejoined the fund.
Price Spectrum Income, a fund of Price funds I have, in the past, made strategic bets on high yield and emerging markets bonds but nothing right now strikes me as particularly undervalued and attractive.  Spectrum Income allows broad exposure to various income-oriented investments (dividend-paying stocks, international and domestic bonds, and so on) which is fine until something compelling presents itself.
Fidelity Strategic Real Return Strategic Real Return attempts to hedge against inflation by investing in a combination of inflation-protected securities, commodity futures, adjustable rate notes, and real estate.  Along with International Real Estate and a much smaller position in New Markets Income (e.m. bonds), this constitutes the core of my non-equity exposure.


For simplicity's sake, my non-retirement money is divided pretty evenly between just four funds:

Artisan International Value  Artisan is a first-rate boutique, both the manager (Mr. Samra) and his new co-manager had successful stints at Oakmark, the portfolio is fairly focused, their investment discipline is clear and they're able to invest pretty much anywhere.
Baron Partners A hedge fund reincarnated as a non-diversified growth fund which has the ability to leverage or short (but rarely does).  The Baron folks are really good growth investors and, like the managers of my other funds, are heavily invested in their own products.
Muhlenkamp My largest holding, despite a couple hefty withdrawals (for a new roof and a trip to meet relatives in Ireland).  Mr. Muhlenkamp has done a spectacular job over the years by making macro-level judgments about the economy, demographics and interest rates, and looking for relatively strong companies (measured by return on equity) at relatively low prices (measured by p/e ratios).  He crashes about one year in four and makes me very happy in the other three.
Price Spectrum Income This serves as my emergency fund.  The fund hasn’t yet lost money in any calendar year and returns clock in at about 7% per year, which pretty consistently outperforms traditional cash management options such as CDs, ultra-short bond funds and money market accounts.  Given that my job at Augustana College is pretty secure, I can afford the limited risks posed by this fund’s greater volatility.


Finally, there are some stocks.  Six or so.  I don’t suffer from the delusion that I’m a great stock-picker or that I’ve found the road to El Dorado.  Instead, I use my stock account as an outlet for my desire to do something.  With relatively tiny amounts involved and guidance from the nice folks at Morningstar, I can dismiss First Data (FDC) to the outer darkness then watch Western Union (WU) with an eagle eye before swooping in to make a thrilling $500 purchase.  All of which allows me to resist the temptation to do anything disastrously stupid (Mongolian currency ETFs, anybody?) with my fund accounts.  I've had okay success by investing in the most deeply discounted stocks from among the universe that Morningstar defines as having (1) wide economic moats, (2) average or above average corporate stewardship grades and (3) average or below-average risk.

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