A. This portfolio run by a famous manager is highly concentrated, which means that the up times and down times are magnified. Lately, however, it has been mostly down times.
The $632 million Gabelli Value Fund "A" (GABVX) is down 14 percent over the past 12 months. It has a three-year annualized return of 2 percent and a five-year annualized return of 7 percent. Those results rank in the lowest one-third of mid-cap growth and value funds.
"We don't recommend this fund because it is too concentrated in media, telecom and industrial stocks and therefore tends to flow with their performance," said Greg Brown, analyst with Morningstar Inc. in Chicago. "For example, right now media and telecom are out of favor, so it is underperforming its peers."
Experienced investor Mario Gabelli, known for his long career of astute stock picking, has run this fund since its 1989 inception. He is a value investor in the mold of Warren Buffett, seeking firms that he estimates are trading at a discount to the present value of their future cash flow. But his industry focus is considerably more limited than Buffett's. Christopher Marangi is the associate portfolio manager.
Indication of Gabelli Value Fund's focus on volatile media stocks is the fact that it has 6 percent of assets in top holding Viacom Inc., just over 5 percent in Cablevision Systems Corp. and 3.5 percent in CBS Corp.
"Gabelli is a very long-term investor, with portfolio turnover in this fund in the single digits," said Brown, who prefers the sibling Gabelli Asset Fund (GABAX) because the portfolio is broader-based. "Low turnover, along with good stock picking, probably accounts for a good amount of the strong longer-term record of Gabelli Value Fund."
Nearly one-third of the fund is invested in media and one-fourth is invested in industrial materials. Top stock holdings are Viacom, Cablevision Systems, CBS, American Express Co., Swedish Match AB, Newmont Mining Corp., Barrick Gold Corp., Honeywell International Inc., Time Warner Inc. and Liberty Entertainment Group.
Gabelli Value Fund "A" requires a 5.75 percent "load" (sales charge) and $1,000 minimum initial investment. Its annual expense ratio is 1.39 percent.
Q. When investing in municipal bonds, how and why do you calculate the tax-equivalent yield? -- H.E., via the Internet
A. A municipal bond is a debt security issued by a state, municipality or county to finance its capital expenditures. It is exempt from federal taxes and from most state and local taxes.
The tax-equivalent yield is the pretax yield that a taxable bond needs for its yield to equal to that of a tax-free municipal bond.
"Munis usually make sense for investors in the 25 percent or higher tax brackets," said Mark Balasa, certified financial planner and co-president of Balasa, Dinverno & Foltz LLC financial advisers in Itasca, Ill. "Below that, the advantage is marginal, and it almost never makes sense in the 15 percent bracket."
To compute the tax-equivalent yield, you take your tax bracket and subtract it from 1, Balasa said. For example, subtracting a 28 percent tax bracket from 1 results in 0.72.
In that example, a muni yielding 4 percent divided by 0.72 results in 5.56 percent. That means a muni yielding 4 percent is the equivalent of a taxable bond that yields 5.56 percent.