TAKING STOCK: Stick with the devil you know

Dear Mr. Berko:

I'm a teacher in Pennsylvania and need your help in selecting a good international mutual fund with TIAA-CREF. The two funds I'm looking at are TIAA-CREF Institutional International and Nuveen Tradewinds Global. The TIAA fund has an expense ratio of 0.34 percent, while the Nuveen fund has an expense ratio of 0.99 percent. I'm 52 and would appreciate your help in deciding in which one to invest my money.

Also, what do you think of this TIAA firm? A neighbor who is a broker at Merrill Lynch wants me to move my account to his firm because he thinks he can do better. My father also has a $37,000 CD coming due and would like to get at least a 5 percent return. What would you recommend for him? He's 79 and can afford to take a little bit of risk.

DS in Bethlehem, Pa.

Dear KH:

TIAA-CREF is a nonprofit corporation that for some reason reminds me of the secretive Church of Scientology, also a nonprofit corporation that generates enormous surplus revenues used for expansion and support of its continuing business and sundry other activities. I'm uncomfortable doing business with a nonprofit financial organization that pays its CEO $8.6 million and is in the business of selling securities and advising people how to invest their money.

However, be mindful of the old saw: "Better the devil you know than the devil you don't." And so, I suggest you remain with TIAA, which can provide you with average results that may be no better than the average results you could get with Merrill Lynch. However, if Merrill decides to become a nonprofit, I would have no objections if you decided to move your account.

Meanwhile, the comparison between Nuveen Tradewinds Global (NWGRX-$26.54) and TIAA-CREF's Institutional International Equity (TRIEX-$15.89) is a no-brainer. TRIEX sticks up from the middle of a cherry pie like a heavily bandaged sore thumb.

TRIEX seeks an above-average long-term total return and typically invests 80 percent of its assets in the benchmark MSCI-EAFEA Index. This doesn't take any brainpower, which is why the annual expense ratio is a low 0.34 percent. But that comes with a cost. Its one-year return is a negative 8.1 percent, and its five-year average annual return is a negative 3.1 percent.

NWGRX invests at least 80 percent of its assets in equity securities of U.S. and non-U.S. companies, and 25 percent of that 80 percent is invested in equity securities of emerging markets. Its annual expenses are nearly triple that of TRIEX. And while its one-year return is minus 3.96 percent, its five-year average annual return is a positive 8.70 percent. However, neither fund has a 10-year record. So hands down and hands up, NWGRX appears to be a far superior investment.

If interest rates are going to rise, most fixed interest rate investments will decline in value as rates increase. However, if rates rise, some banks may earn more money, and Bank of America may be one of those banks. So have your dad look at the Bank of America 7.25 percent Non-Cumulative Convertible Preferred Stock Series L.

This was an IPO in January of 2008 at $1,000 a share. The ticker symbol is BAC-PL, and each share trades at $952 (they have recently traded as low as $625), so that $37,000 will purchase 388 shares. If you use Schwab, Fidelity or Vanguard, the commission costs will be less than $10. Your dad will earn annual dividends of $2,813, which is a 7.6 percent current return, and this convertible has no maturity date.

The preferred is rated BB-plus by Standard and Poor's and will pay your father $703.25 on the 30th of January, April, July and October. Each share is convertible into 20 shares of Bank of America common stock (BAC-$8.02) at $50.

Now, I don't like BAC. I never did and for many reasons may never in the future. However, BAC should earn $0.70 a share this year, could earn $1.10 in 2013 and may be permitted to raise its dividend. This looks positive for its future share price, and a 7.6 percent current return is a fairly good yield on a preferred stock that could grow in value because of improving finances and a potentially improving stock price.


Please address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, FL 33775 or e-mail him at mjberko@yahoo.com. Visit Creators Syndicate website at www.creators.com.

© 2012 Creators Syndicate Inc.

Published: Wed, Apr 11, 2012


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