Q. What’s the outlook for ING Small Cap Opportunities Fund “B” shares? I invested in this fund in 1999, when it was doing well. I’ve lost a lot of money since then.
S.R., Wadsworth
A. It has become a lot less wild and crazy lately. After providing a huge gain of 147 percent in the first year you owned it, it stumbled in the bear market of 2001-02.
Some quirky bets on speculative stocks and initial public offerings didn’t pay off. In addition, it has a high annual expense ratio of 2.18 percent for its “B” shares.
The previous portfolio manager was shown the door, to be replaced by Matt Price and David Campbell last April.
They have institutional experience from Furman Capital Management, but not a long track record at a retail mutual fund.
Expect them to be more disciplined than their predecessor, emphasizing firms with positive earnings growth or about to become profitable.
The $93 million ING Small Cap Opportunities “B” (NSPBX) gained 23 percent over the past 12 months and had a three-year annualized decline of 27 percent. Both rank in the lowest 10 percent of small-company growth funds.
“Even with a slightly improved management team, I don’t think that any investor needs to purchase a fund that costs this much,” said Brian Portnoy, senior analyst with Chicago-based Morningstar Inc. “Between its bland investment portfolio and high expenses, it isn’t a fund we’re excited about.”
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One-fifth of the ING Small Cap Opportunities portfolio is in health-care stocks, followed by consumer services and business services. Top holdings were recently Pharmaceutical Product Development, CBRL Group, Cognizant Technology Solutions, Performance Food Group, Foundry Networks, Westamerica Bancorp, Avid Technology, Southwest Bancorp of Texas, Packeteer and iShares Russell 2000 Index.
The “B” shares require a 5 percent “load” (sales charge) and $1,000 initial minimum.
Q. I’m self-employed and have no employees. I’ve been contributing to a SEP-IRA for years and recently set up a solo 401(k). Can I make contributions to both in the same year?
D.P., via the Internet.
A. A simplified employee pension (SEP) individual retirement account is a low-cost pension plan for small businesses that allows an employer to contribute toward his own or employees’ retirement.
The solo 401(k) plan provides a tax break to the smallest business owners and is limited to those with a small business and no employees, or a spouse as an employee.
“While the solo 401(k) lets you contribute more with lower income than the SEP-IRA, you may not want to bother with both because the combined contribution limit is $40,000,” said Ed Slott, CPA and editor of Ed Slott’s IRA Advisor (www.irahelp.com).
Solo 401(k)s make sense for those earning less than $160,000. They can contribute 25 percent of their income as the employer, plus up to $12,000 as an employee, up to the $40,000 total limit.
If you make $160,000 or more, stick with the SEP-IRA. That’s because once you contribute to the $40,000 limit, there’s nothing more you can do–unless you want to make the $2,000 “catch-up” contribution for those 50 or older. You aren’t allowed to do that with a SEP-IRA.
“I don’t know that making the $2,000 additional contribution is worth opening up a new account,” said Slott. “And if you’re not 50, there’s really no reason to open a new account.”
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Andrew Leckey answers questions only through the column. Address inquiries to Andrew Leckey, #184, 369-B Third St., San Rafael, CA 94901-3581, or [email protected].