Dear Mr. Berko: Because the 401(k) where I work has a lousy choice of funds (list enclosed), I am moving $30,000 of the $91,000 into an individual retirement account to seek a better return. The stockbroker recommended $10,000 each in Macquarie Infrastructure, the Fidelity Select Banking Portfolio and American Electric Power. Please comment on these choices.
— T.W., Kankakee, Ill.
Dear T.W.: I know that the messenger sometimes gets shot, but several employees where you work ought to down a few gum ticklers and then have a face-to-face with the boss or human resources. If the boss knows that those high-cost mutual funds have such ratty performance records and has done nothing about it, he may eventually face some heavy legal costs. And if he hasn’t any idea how cruddy those funds have performed, I think he should appreciate that knowledge and make the proper changes.
Macquarie Infrastructure (MIC-$77) is a $1.8 billion-revenue company with 3,200 employees that owns a cluster of businesses that focus on the United States’ infrastructure, hence the name. MIC owns Atlantic Aviation, which provides fuel, hangaring and other airport services at 69 airports across the United States. MIC also owns a liquid storage and terminal business, a Hawaiian energy business and various solar and wind facilities. The revenues of these four businesses are expected to grow between 4 and 5 percent a year. And Wall Street projects above-average growth in earnings and dividends. This is possible by expanding free cash flow and smartly improving net profit margins. MIC’s net profit margins have grown from 5 percent two years ago to 7.9 percent last year. Net profit margins are expected to be 8.7 percent this year and 10.5 percent by 2021. Meanwhile, the current 6.7 percent dividend yield, which should increase annually, makes it easy to own MIC and wait for future capital gains. SunTrust Banks, Barclays, BB&T Capital Markets, Oppenheimer and Jefferies have “buy” recommendations. There could be 20 points waiting for you in the coming two to three years, plus that sweet dividend. Your broker has made a good recommendation. Go for it; invest 10 grand.
Fidelity Select Banking Portfolio (FSRBX-$30.90) is really a stinky fund, which is why its 10-year annualized return is an embarrassing 2.8 percent. Imagine if you had invested $10,000 in FSRBX 10 years ago and reinvested all the dividends and capital gains; this fund would be worth $12,672 today, versus $21,000 for the Standard & Poor’s 500. And that piteous 10-year return includes last year’s 39.5 percent gain from FSRBX’s top nine positions — Wells Fargo, Bank of America, JPMorgan Chase, Citigroup, Huntington Bancshares, U.S. Bancorp, Capital One, M&T Bank and PNC. Holy moly, a tattooed teenager with a sixth-grade education would do better tossing darts at a target with 100 bank names printed on it.
