Q. I’d hoped that my shares of Ariel Appreciation Fund would do better. What’s the prognosis for them?
C.L., via the Internet
A. Portfolio manager John Rogers Jr. has a mind of his own.
His avoidance of energy stocks and fondness for media stocks hasn’t been a recipe for terrific returns lately. But this fund that espouses investment for the long term wasn’t designed to shoot out the lights with hot growth stocks. It seeks discount-priced stocks of consistent, strong brands with relatively low volatility potential.
The $2.7 billion Ariel Appreciation Fund (CAAPX) is up 12 percent over the past 12 months and has a three-year annualized return of 10 percent. Both results rank in the lower one-fourth of mid-cap growth and value funds.
“This is a Morningstar analyst pick we strongly endorse because its fundamentals are strong,” said Todd Trubey, analyst with Morningstar Inc. in Chicago. “Rogers is one of a group of portfolio managers who really attempt to follow the teachings and practices of Warren Buffett, and is someone we feel can produce great returns over long periods.”
The fund owns no energy, software, technology hardware, telecommunications or utilities stocks. Its major concentrations are one-fourth in financial services, 20 percent in business services and 18 percent in media.
Rogers, who also manages the Ariel Fund, has more than 20 years of investment experience, with an emphasis on small- and mid-cap stocks.
As is sometimes the case with Buffett himself, such an unswerving strategy can lead to returns that are “quite lumpy,” Trubey said. While holdings of the Carnival Corp. cruise line and media companies have hurt returns, Rogers confidently used the downturn as a buying opportunity.
This “no-load” (no sales charge) fund requires a $1,000 minimum initial investment and has an annual expense ratio of 1.14 percent.
Q. My company is offering a Roth 401(k) plan. How is it different from a regular 401(k)?
P.L., via the Internet
A. Not many companies offer a Roth 401(k) in addition to a traditional 401(k). But many are considering it since Congress passed legislation this summer assuring it will be a permanent investment vehicle.
With a Roth 401(k), your contributions are made with after-tax dollars, but the account will grow tax free. Withdrawals taken during retirement will not be subject to income tax, provided you’re at least 59 1/2 years old, and you have held the account for five years or more.
With a traditional 401(k), tax-free contributions face income taxes upon withdrawal.
“For workers whose tax brackets are expected to be higher in retirement than when they’re working, the Roth 401(k) is the better tax decision,” said David Wray, president of the Chicago-based Profit Sharing/401(k) Council of America.
But if you anticipate being in a lower tax rate in retirement, stick with the traditional 401(k), Wray said.
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Andrew Leckey is a Tribune Media Services columnist. E-mail him at [email protected].