Q. Is the Heartland Value Fund a good bet? It was suggested to me.
–C.R., via the Internet
A. The past year has been a solid one for this fund, which employs a clear ongoing strategy to invest in micro- and small-cap stocks.
It has, however, been volatile over the long haul, and its $1.77 billion asset size is enormous for a fund that must move nimbly among small equities.
The Heartland Value Fund (HRTVX) has a one-year return of 19 percent to rank in the top 10 percent of small value funds. Its three-year annualized return of 13 percent places it in the lowest 15 percent of its peers.
Its management team consists of the experienced William Nasgovitz, on board since 1984; Bradford Evans, since 2004; and Hugh Denison, since May. They seek financially sound companies with low prices relative to their history and potential, paying special attention to top management.
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“I don’t recommend the Heartland Value Fund, even though its strategy is consistently applied and it has been effective, because there have been serious regulatory issues with this fund company,” said Marta Norton, analyst with Morningstar Inc. in Chicago. “While it is encouraging that insider trading charges against it were dropped, there are still outstanding fraud charges.”
In late 2003, the Securities and Exchange Commission brought a civil fraud action against Heartland Funds President Nasgovitz and client Ray Krueger related to the collapse of two of the firm’s municipal bond funds in 2000, Norton noted. Insider trading claims were dismissed Aug. 31, and the firm is disputing the remaining SEC charges.
The fund company’s board has since been overhauled, but Morningstar recommends that investors consider selling their stakes in Heartland Funds until all charges are resolved.
One-fourth of Heartland Value Fund’s portfolio was recently in business services, with industrial materials, financial services and technology hardware other concentrations.
This “no-load” (no sales charge) fund requires a $5,000 minimum initial purchase and has an annual expense ratio of 1.17 percent.
Q. I’m new to bond investing and would like to know what the term “coupon” refers to.
–T.L., via the Internet
A. Bonds used to be issued as large sheets of paper with coupons attached at the bottom. Investors would clip off coupons every six months and mail them in to receive their money.
The coupon represents the amount, generally paid out semiannually, that the issuer is committed to paying the bondholder until the bond reaches maturity.
“The coupon is just one of the things to which a bondholder should pay attention, since the quality of the bond and its maturity are other moving parts that affect its price,” said Harold Evensky, certified financial planner with Evensky & Katz in Coral Gables, Fla. “Too often investors focus solely on what the bond is paying.”
Interest-rate risk plays an important role in bond investing. When current rates are higher than your bond’s coupon rate, your bond will sell for less than its face value. When current rates go down, your bond becomes more valuable.
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Andrew Leckey is a Tribune Media Services columnist. E-mail him at [email protected].