Although the chance to invest in a mutual fund composed of pure direct marketing stocks is probably a long way off, the proliferation of so-called sector funds — mutual funds that buy stocks of companies in the same industry — gives investors an option to choosing individual stocks.
Mutual funds offer more diversification and reduce risk by spreading the investment among the dozens of individual stocks of companies that share similar selection criteria. Mutual funds can be managed based on investment objective — growth, for instance — or, in the case of sector funds, industry type.
Fidelity Investments, Boston, offers the widest range of sector fund choices with its select portfolios. The Fidelity Select Multimedia Portfolio, with a ticker symbol of FBMPX, holds positions in DM News Portfolio stocks Big Flower, Donnelley & Sons, Harte-Hanks, Reader's Digest and Valassis Communications as well as the stocks of advertising holding companies Interpublic, Omnicom, WPP Group and Young & Rubicam, which maintain direct marketing divisions.
The Fidelity Select Business Services & Outsourcing Portfolio (FBSOX) holds the first two of those ad agencies as well as direct marketing-related firms EDS, Lycos, Pegasus Systems, N2K and Dun & Bradstreet. For Internet junkies, the Fidelity Select Developing Communications Portfolio (FSDCX) counts America Online and Yahoo among its top 10 holdings, and it also holds Dell Computer and Amazon.com.
ICON Funds, Englewood, CO, offers the most comprehensive group of DM stocks in its ICON Consumer Cyclicals Fund (ICCCX). The fund holds Acxiom, Advo, Catalina Marketing, CDW Computer, Fingerhut, Global Direct Mail, Land's End, Micro Warehouse, Interpublic, Omnicom and True North Communications.
Marketing and advertising services is just one of eight industries out of a possible 20 included in the fund that bases its investments on industry rotation. The fund moves out of industries once stocks of those companies become overvalued and into industries whose stocks are considered bargains. ICON chief investment officer Craig Callahan said DM stocks are currently a good value and he expects the fund will hold this industry for the next two years.
“When the market declined in August, people feared recession and the stocks fell way too much,” he said. “We stayed fully invested, and the stocks are starting to come back. Any sell-off has been overdone in our opinion.''
ICON Funds are currently available only through financial advisers and require a $50,000 minimum investment. Starting Dec. 1, however, the funds will be open to individual investors and require a minimum investment of $1,000.
Other mutual fund companies are adding sector funds on a regular basis. The Invesco Leisure Fund (FLISX) and T. Rowe Price New Horizons Fund (PRNHX) may appeal to DM investors while companies like Vanguard, Scudder Kemper and Rydex are increasing their offerings and could have funds with DM holdings.
While all the funds mentioned above hold DM stocks, the majority of each fund's holdings are in non-DM stocks. To get a better idea of a fund's overall holdings, request an annual or semi-annual report that lists every stock a fund holds and its relative percentage. Fidelity reports are available online at www.fidelity.com.
May & Speh has dropped out of the DM News Portfolio after its acquisition by Acxiom. It is replaced by DRTV catalog and direct mail marketer ValueVision. GroupOne Software was acquired by CNET in September but maintains its company name and stock ticker symbol.