The company's innovative product portfolio is capable of generating top- and bottom-line growth. It has been successful in its restructuring and cost containment actions to mitigate the impact of the industry-wide downturn, as reflected in the better-than-expected fourth-quarter results.

As such, we are maintaining our long-term Outperform recommendation for the stock with a target price of $32.Zacks Investment Research

The company's innovative product portfolio is capable of generating top- and bottom-line growth. It has been successful in its restructuring and cost containment actions to mitigate the impact of the industry-wide downturn, as reflected in the better-than-expected fourth-quarter results.

As such, we are maintaining our long-term Outperform recommendation for the stock with a target price of $32.Zacks Investment Research

Emerging market growth is key to meeting the company's target of deriving 60% of its revenue from outside the U.S. by 2013. As it enters new markets, Rockwell intends to broaden its portfolio of products, services and solutions.

Successful diversification into emerging markets and expansion of product portfolio will drive the company s top-line growth over the long term. We are upgrading the stock to Outperform.Zacks Investment Research

But when the market stops going straight up, that's when you can really get into trouble.

So you need to keep paying attention and exercise common sense over your portfolio.

And as the title suggests, there's no particular magic in making money (or keeping it), just good old-fashioned common sense. The trick is exercising it!

Deciding on what stocks to get into is, of course, important. But once you're in, it doesn't mean your work is over.

Whatever your stocks are, whether they be actual holdings or stocks you're considering, don't stop monitoring the fundamentals of those stocks.

What I mean is: If one of the criteria for getting into a stock in the first place was that it had a low Debt-to-Equity ratio, but you then saw that ratio change to an unacceptable level (a level that would not have put it on your radar screen in the first place), then you should consider getting out of that stock and looking for a new stock to replace it. One that currently does meet your criteria.

For instance, let's say that you use the Zacks Rank as a timing indicator and you look at the Zacks #1 Rank List for immediate movers. If in a few weeks, earnings estimates are moving down and Zacks Ranks it a Zacks #4 ('sell') Rank, take note and consider dumping it.

Sure it was a Zacks #1 ('strong buy') Rank, but it's not a Zacks #1 Rank (or Zacks #2 ('buy') Rank) anymore.

Think about it, if you never would have gotten into a Zacks #4 Rank in the first place, why would you now want to hold onto one?

That's using your common sense.

What if you're a momentum investor and you generally look for stocks trading within 10% of its 52-week high (a great item by the way) and it suddenly falls below that level? Well, if you're only interested in focusing on stocks within 10% of its high and it's now 15% or 20% (or more) off its high ... then move on. The momentum has seemingly shifted and so should your focus.

And don't convince yourself to hang onto your losers either. If a company reported bad earnings and the stock is down -8% to -10% against you, get out. Don't let your love of a stock (or denial) ruin your portfolio. Almost every big losing trade anybody has ever had in their portfolio (-50%, -60% or even -90% or more) could have been exited when they were just beginning to crumble.

If you get out and it zips back up, you can always get back in if you want. But if it keeps going down, you're just losing more and more money. And the price you could have gotten out at earlier is now a price you only wish you could get out at now.

So once you've found the items that have proven to work well for you in picking profitable stocks, be sure to monitor those values. And if they no longer meet the winning criteria, get rid of them fast and find new ones that do.

Here are 5 new stocks that look great and that are currently coming up on some of our best screening strategies that come loaded with the Research Wizard.

TPX Tempur-Pedic Int'l Inc.
WHR Whirlpool Corp.
RCI Rogers Communications, Inc.
ONNN ON Semiconductor Corp.
ENS EnerSys

Once you get into a stock, keep monitoring them. Pay attention to what got you into them in the first place. If your stocks no longer have those values, consider replacing them with new ones that do.

Remember, the key to successful screening is in discovering those screens that have produced profitable results in the past. And that's exactly what you get with the powerful Screening and Backtesting ability of Research Wizard.

Take note: Backtesting isn't available in all screeners (in fact it's rarely available in any screener) but it is available in the Research Wizard.

So sign up now for your free trial to the Research Wizard and pick and choose from some of our profitable strategies, or put your own ideas to the test and start making better decisions today.

Click here to begin a 2-week free trial to the Research Wizard.

Disclosure: Officers, directors and/or employees of Zacks Investment Research may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material. An affiliated investment advisory firm may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material.

Disclosure: Performance information for Zacks' portfolios and strategies are available at: http://www.zacks.com/performance.

Zacks Investment Research

Furthermore, Estee Lauder has a consistent track record of returning cash to shareholders in the form regular dividend payments. Our long-term recommendation on Estee Lauder is Outperform as we anticipate it to perform well above the broader market.

However, intense competition from established as well as regional and local players in its markets may limit the above-market performance of the company.Zacks Investment Research

Funds from Operations (FFO), a widely used metric to gauge the performance of REITs, and obtained after adding depreciation and amortization and other non-cash expenses to net income, was 13 cents during the quarter excluding significant non-cash items, compared to 56 cents in the year-earlier period.

ProLogis’ non-development portfolio leased at quarter end marginally decreased to 92.4% from 92.7% in third quarter 2009. The company’s static development portfolio was 68.2% leased at year-end 2009. With global economies emanating positive signs of revival, ProLogis remains optimistic about its future performance and anticipates strong market occupancies in 2010.

Furthermore, ProLogis has witnessed a growing customer interest in new build-to-suit development projects across the globe. In addition, leasing decisions that were earlier postponed due to volatility in the markets are gradually coming off the shelf. In order to decrease the risk associated with cyclical local real estate markets and economies, and increase the stability and predictability of the earnings, ProLogis has drastically reduced its non-income producing assets on the balance sheet.

During the quarter, development starts included a 667,000 square feet facility for a major home improvement retailer in Southern California and a 504,000 square feet facility for a leading UK retailer in Scotland. Including joint venture partner capital contributions, total expected investment for all build-to-suit developments started in the second half of 2009 is $336 million.

ProLogis expects to start $700 million to $800 million of new developments in 2010, primarily in Europe and Asia. The company also expects to monetize approximately $350 million to $400 million of land in 2010. For full-year 2009, ProLogis completed gross asset sales and property contributions of $1.53 billion, which was well within its original target of $1.5 billion to $1.7 billion.

With improving property values and growing institutional demand for quality properties, ProLogis expects to generate $1.3 billion to $1.5 billion of proceeds in 2010 from sales of existing assets and contributions to funds primarily in the U.S. The company intends to utilize the proceeds to fund its existing development portfolio as well as development starts in 2010.

For full year 2009, ProLogis reduced its overall debt by $2.7 billion. During the fourth quarter, the company issued $600 million of 10-year senior notes and closed on a $108 million secured financing deal in Japan. The company has effectively reduced its 2010 debt maturities in its European funds to approximately €327 million from over €1.8 billion at the beginning of 2009.

For full year 2010, ProLogis expects FFO, excluding significant non-cash items, in the range of 74 cents to 78 cents per share.

5 Great Technology Picks

Dreyfus Technology Growth A (DTGRX) was incepted in October 1997. This technology fund seeks long-term capital growth.

At least 80% of this technology fund’s assets are invested in growth companies of any size that are leading producers or stand to benefit from technological innovation. Common stocks, preferred stocks and convertible securities, constitute the majority of the fund’s investments. The fund drops a stock from its portfolio when the company’s fundamentals weaken considerably. This could be due to an earnings or revenue shortfall, industry downturn or change in the competitive landscape, or when the fund managers think the stock is fully valued by the market.

The technology fund has an expense ratio of 1.70% against a category average of 1.84%. As of August 2009, it has a portfolio turnover of 122% against a category average of 177%. The fund’s top holdings include Microsoft Corporation, Apple, Inc. and Google, Inc. For the 1 year period ended October 31, 2009, the fund outperformed its benchmark, the S&P 500 Index.

Barry Mills has been lead manager of the fund since September 2007. Before his current assignment, Mills served as a portfolio manager with Phoenix Funds.

Aim Technology (FTCHX) seeks capital appreciation. It was incepted in January 1984.

The entire technology universe constitutes the investment domain of the technology fund. It focuses on hardware, software, and semiconductors; telecommunications equipment and services; and service-related companies in the sector. The fund seeks out market leaders with robust management teams that have excellent track records, financial strength, and proprietary products or content. The companies chosen usually have a key competitive advantage or are emerging as faster-growing leaders in their fields.

The technology fund has an expense ratio of 1.58% against a category average of 1.84%. It has an annual portfolio turnover of 68% against a category average of 177%. The fund’s top holdings include Apple, Google and Hewlett-Packard Company. For the six-month period ended September 2009, the fund outperformed its broad market index, the S&P 500, but recorded lower returns than its style-specific index, the Merrill Lynch 100 Technology Index.

Warren Tennant has been lead manager of this technology fund since February 2008. Tennant has been associated with AIM advisors and its affiliates since 2000.

MFS Technology A (MTCAX) seeks long-term capital growth. It was incepted in January 1997.

The technology fund invests a large share of its assets in firms that have above average growth potential and will benefit from technological advances and improvements. It may invest in securities issued in initial public offerings; those listed on a securities exchange or traded in the over-the-counter markets. The fund may also buy fixed income securities when relative values make such purchases attractive. The technology fund may also invest in foreign securities and have exposure to foreign currencies due to such purchases. It may invest a relatively large share of its assets in a single issuer though it is diversified.

The technology fund has an expense ratio of 1.67% against a category average of 1.84%. As of August 2009, it has a portfolio turnover of 226% against a category average of 177%. The fund’s top holdings include Google Inc, Oracle Corporation, and Hewlett-Packard Company. For 1 year period ended August 31, 2009, outperformed the S&P 500 but recorded lower returns than the Standard & Poor’s North American Technology Sector Index.

Telis D. Bertsekas has been lead manager of the fund since March 2005. Before his current assignment, Bertsekas was a portfolio manager at American Express Financial Corporation.

Fidelity Select Technology (FSPTX) seeks long-term capital appreciation. It was incepted in July 1981.

The technology fund invests a large share, at least 80% of its assets in firms offering, using, or developing products, processes, or services that will benefit significantly from technological advances and improvements. The technology fund may invest in securities of foreign issuers and is non-diversified.

The technology fund has an expense ratio of 0.90% against a category average of 1.84 v%. As of August 2009, it has a portfolio turnover of 235% against a category average of 177%. The fund’s top holdings include Microsoft Corporation, Apple, Inc and Google, Inc. As of December 2009, the fund had outperformed its benchmark indexes the S&P 500 and the MSCI US Investable Market Information Technology Index for the 1-year, 3-year and 5-year periods. .

Yun-Min Chai has been lead manager of the fund since January 2007. Chai has been with Fidelity Investments since 1997.

Red Oak Technology Select (ROGSX) seeks long-term capital growth. It was incepted in December 1998.

Companies whose product development or operations depend heavily on technology are those whom the technology fund seeks out actively. It also invests in firms who show significant growth in sales and earnings driven by technology-related products and services. The technology fund invests heavily in companies in the technology sector that develop, produce, or distribute products or services related to computers, semi-conductors, and electronics.

The technology fund has an expense ratio of 1.35% against a category average of 1.84 %. As of October 2009, it has a portfolio turnover of 18% against a category average of 177%. The fund’s top holdings include eBay, Inc, Amazon.com, Inc. and Accenture PLC. For the year ended October 31, 2009, the fund outperformed the Lipper Science and Technology Average, as well as the NASDAQ 100 Index, which includes holdings within sectors beyond just technology.

Mark W. Oelschlager has been lead manager of the fund since April 2006. Oelschlager is a Chartered Financial Analyst and has worked with the State Teachers Retirement System of Ohio before his current assignment.

More Top  Techs 

Investors can find more technology funds by checking out the entire list of the Zacks #1 Rank Technology Equity Funds list.

Discover Many More Funds

Learn more about the new Zacks Mutual Fund Rank and discover some of the best market-beating mutual funds by browsing our mutual funds section. This part of Zacks.com offers a variety of tools, including mutual fund research, a new mutual fund screener, helpful answers to frequently asked questions and quick access to prospectuses and other information.

By applying the Zacks Rank to mutual funds, investors can find funds that not only outpaced the market in the past but are also expected to outperform going forward.

Brown-Forman is currently undertaking initiatives to reduce overheads and boost profitability, which augurs well for future operating performance. Furthermore, Brown-Forman has a consistent track record of returning cash to shareholders in the form regular dividend payments.

Our long-term recommendation on Brown-Forman is Outperform as we anticipate it to perform well above the broader market. However, intense competition from established as well as regional and local players in its markets may limit the above-market performance of the company.Zacks Investment Research

From tech to finance, the trend in earnings is positive, but, as expected, not exactly spectacular. While management teams have been less than forthcoming in providing clear road maps in terms of outlooks, the overall quality of earnings has been good. From the management's perspective, it is not easy to provide guidance and visibility when the macro environment is uncertain.

Sign of a Turnaround in a Key Sector

While there have been a number of stand-out earnings reports, such as Intel (INTC) and IBM (IBM), the most heartening from my perspective are the earnings releases from the finance group. And I am not even referring to the blow-out numbers from Goldman Sachs (GS).

I am referring to unmistakable signs of stabilizing credit quality, particularly the favorable trend in charge offs. For those of you not familiar with the term (charge off), it means that the loan originator (the bank) does not expect to make a collection in lieu of this debt and no longer considers it an asset. For the major banks that have reported to date, charge offs as a whole are down sequentially, indicating that this key measure may have already peaked. A similar trend is visible in the banks' non-performing assets, which grew at a much slower rate than the last few quarters.

The deceleration in the growth of non-performing assets and stabilization in charge offs makes us optimistic about the outlook for this key sector of the economy. After all, it was problems in the financial sector, particularly their real estate investments, that was the ground zero of this economic downturn.

Looking for Banking Opportunities

While a number of challenges still remain and the picture is far from clear, I have been heartened by this trend in the banking sector. It is very likely that this key sector could be at the cusp of a turnaround, but that doesn't mean that the group's problems are over.

By 'turnaround' I mean that they are on the mend. However, they will continue to have charge offs and non-performing assets. But if we continue to gain confidence in the banking group's turnaround, then we will be adding more exposure to this very critical sector in our Focus List portfolio in the coming days.

You buy banking stocks when non-performing assets peak. If you wait till there are no non-performing assets on a bank's balance sheet, then it will be too late as far as the stock price is concerned. The stock price will already be reflecting this change.

Our areas of interest are not the Wall Street brokerages and money center banks, but mid-to large-cap commercial banks. While loan growth is expected to remain subdued due to weak demand and heightened credit standards, commercial banks offer attractive long-term upside given their strong economic leverage. We will also be keeping an eye on foreign banks, particularly those with strong presences in the major emerging markets.

Wall Street Firms Unattractive

The political and regulatory backdrop is unfavorable to the Wall Street brokerages. With mid-term elections due later this year and the new regulatory architecture on the drawing board, the long-term outlook for these firms is far from certain.

And as I discussed last week's Wall Street Brings It On Itself, Wall Street's level of current popularity is a boon for politicians. The President's regulatory proposal, generally described as Glass-Steagall lite, will have a major impact on the operations and long-term profitability of these firms. While I generally agree with the thrust of these proposals, I don't think they properly address the 'too-big-to-fail' problem that came to the front in the current downturn.

Portfolio Changes

We dropped a number of stocks from the Focus List portfolio recently, while the Growth & Income portfolio has remained unchanged. The Timely Buys portfolio also had a number of additions/deletions this week.

We deleted three stocks last week and three the week before from the Focus List portfolio. As discussed earlier, we will be looking for opportunities in finance for adding to the Focus List in the coming days.

We dropped China Auto Systems (CAAS) after the Chinese power steering components supplier fell to a Zacks #4 Rank ('sell'). We had only recently added this stock and continue to like its story, but the discipline of the Zacks Rank system forces our hand here. Of the four estimates for 2010, one has been cut in recent days, triggering the downgrade.

We dropped Fuel System Solutions (FSYS) for a similar reason, after it also fell to a Zacks #4 Rank ('sell'). One estimate for 2010, out of a total 8, has been lowered for this alternative energy company, bringing its Zacks Consensus Estimate down to $2.69 from $2.74 in 30 days.

We deleted Haemonetics Corp. (HAE) after it fell to a Zacks #4 Rank ('sell'). While the Zacks Consensus for fiscal 2010 has remained steady at $2.82, one estimate has been cut, triggering the downgrade. We continue to like the healthcare niche in which HAE operates and will be looking for similar opportunities in the future.

The week before, we had deleted three stocks: Corrections Corp. (CXW), McDonald's Corp. (MCD) and Netflix (NFLX). All three of these stocks had been longstanding holdings (McDonald's was part of the Focus List since 2006) and provided impressive returns, but had to be removed to comply with the disciplined Zacks Methodology.

Many investors fail to achieve adequate returns because of their lack of discipline and consistency in making buy/sell decisions. The beauty of the Zacks Methodology is that it provides you with a coherent tool, based on revisions to earnings estimates, to make those tough choices.

Zacks Investment Research

Investors can find such Corporate High Yield funds by checking out the entire list of the Zacks #1 Rank Corporate High Yield Fixed Income Funds.

5 Great High Yield Choices

Legg Mason Western Asset Global High-Yield Bond A (SAHYX) was incepted in February 1995. This high yield fund seeks to maximize current income with capital appreciation as a secondary objective.

A majority of this high yield fund’s assets are invested in high yield bonds issued by U.S. and foreign corporations and foreign governments and their agencies. There are no specifications regarding the average duration of the portfolio and the fund managers select securities which provide the best returns regardless of the timeframe involved. It may also invest up to 35% of its assets in sovereign securities issued by emerging markets.

The high yield fund has an expense ratio of 1.30% against a category average of 1.20%. As of December 2009, it has a portfolio turnover of 52% against a category average of 90%. The fund’s top holdings include Republic of Venezuela, Ford Motor Credit 12% and Morgan Stanley Tri Party. For the quarter ended September 30, 2009, the fund outperformed its benchmark, the Barclays Capital Global High Yield Index.

Kenneth S. Leech has been lead manager of the fund since March 2006. Leech joined Western Asset as Chief Investment Officer in 1990 and was appointed CIO Emeritus in 2008.

Eaton Vance Income Fund of Boston A (EVIBX) seeks to provide as much current income as possible. It was incepted in June 1972.

The high yield fund mainly invests in high yield, high risk corporate bonds. It may invest in a range of other debt securities which generate income. These securities include senior secured floating rate loans and preferred stocks that pay dividends. The high yield fund also invests some its assets in foreign securities, most of which are U.S. dollar denominated. It currently seeks to meet its objective by investing in Boston Income Portfolio.

The high yield fund has an expense ratio of 1.07% against a category average of 1.20%. As of October 2009, it has a portfolio turnover of 54% against a category average of 90%. The fund’s top holdings include AMC Entertainment Inc, Intelsat Ltd, and International Paper Co. During the third quarter of 2009, Eaton Vance Income Fund of Boston posted strong returns, ahead of its Lipper High Current Yield Funds peer group average, though slightly lower than the Index.

Michael W. Weilheimer has been lead manager of this high yield fund since January 1996. Before joining Eaton Vance in 1990, Weilheimer was a vice president of Amroc Investments.

Rydex/SGI High Yield A (SIHAX) seeks high current income. Capital appreciation is a secondary objective. It was incepted in high current income. Capital appreciation is a secondary objective.

At least 80% of the net assets of this high yield fund are invested in a variety of high-yield, high risk debt securities rated medium lower rating categories or of comparable quality in the estimation of the fund managers. However, it does not invest in debt securities that are rated in default at the time of purchase. This high yield fund mainly invests in domestic securities, but it may also look at dollar denominated foreign securities.

The high yield fund has an expense ratio of 1.10% against a category average of 1.20%. As of December 2009, it has a portfolio turnover of 29% against a category average of 90%. The funds top holdings include Catalent Pharma Solutions Inc, Nuveen Investments Inc and Sprint Capital Corporation. As of June 2009, the fund has outperformed the Barclays Capital U.S. Corporate High Yield Bond index for the 1-year, 3-year and 5-year period.

David G. Toussaint has been lead manager of the fund since April 2000. Toussaint is a Chartered Financial Analyst and Certified Public Accountant and has 11 years of investment experience

Federated High Income Bond A (FHIIX) seeks high current income. It was incepted in November 1997.

The high yield pursues its investment objective by investing primarily in a diversified portfolio of high-yield, lower-rated corporate bonds. The fund advisors select securities which offer high yields, relatively low credit risk and high portfolio diversification.

The high yield fund has an expense ratio of 1.24% against a category average of 1.20%. As of December 2009, it has a portfolio turnover of 19% against a category average of 90%. The funds top holdings include HCA Inc, Intelsat 11.25% and Biomet 11.625%. As of September 2009, for the six-month reporting period the fund outperformed its peer group, the Lipper High Current Yield Fund Average.

Mark E. Durbiano has been lead manager of the fund since January 1987. Durbiano is a Chartered Financial Analyst and is vice president of Federated Institutional Trust.

Fidelity High Income (SPHIX) seeks high current income. It was incepted in August 1990.

Income-producing debt securities, preferred stocks and convertible securities are the primary holdings of this high yield fund. It invests in companies which have difficult financial conditions and in both domestic and foreign issuers.

The fund has an expense ratio of 0.75% against a category average of 1.20%. As of December 2009, it has a portfolio turnover of 27% against a category average of 90%. The fund’s top holdings include Avaya Inc Term Loan, Intelsat Jackson 9.5% and Nextel Communication 7.375%. As of December 2009, the fund had recorded lower returns than its benchmark index for the 1-year, 3-year and 5-year periods.

Fred Hoff has been lead manager of the fund since June 2000. Hoff has been with Fidelity Investments since 1991 and is a portfolio manager with the firm.

Discover Many More Funds

Learn more about the new Zacks Mutual Fund Rank and discover some of the best market-beating mutual funds by browsing our mutual funds section. This part of Zacks.com offers a variety of tools, including mutual fund research, a new mutual fund screener, helpful answers to frequently asked questions and quick access to prospectuses and other information.

By applying the Zacks Rank to mutual funds, investors can find funds that not only outpaced the market in the past but are also expected to outperform going forward.

T. Rowe Price Corporate Income A (PRPIX) seeks to provide high income and capital growth. It was incepted in October 1995.

A large proportion of the fund’s assets, at least 80%, are invested in corporate securities and at least 65% in corporate debts issued by U.S. and foreign companies. In order to achieve its objectives, the fund may invest in a variety of other securities.

The fund has an expense ratio of 0.74% against a category average of 0.89%. As of August 2009, it has a portfolio turnover of 36% against a category average of 220%. The funds top holdings include American Tower Corp, AT&T INC and Bank of America. For the 12 months ended September 30, 2009 the fund recorded lower returns compared to its benchmark, the Barclays Capital U.S. Credit Baa Index.

David A. Tiberii has been lead manager of the fund since October 2003. Tiberii is a vice president of T. Rowe Price Group, Inc and has over 12 years of investment experience.

T. Rowe Price Tax Free High Yield (PRFHX) was incepted in March 1985. The fund seeks a high level of income exempt from federal income tax by investing primarily in long-term, low- to upper-medium-quality municipal securities.

The fund primarily invests in below investment-grade municipal or 'junk' bonds. It may also purchase bonds in default as long as they do not exceed 10% of assets. Its weighted average maturity is expected to exceed 15 years.

The fund has an expense ratio of 0.71% against a category average of 1.12%. As of August 2009, it has a portfolio turnover of 28% against a category average of 45%. The funds top holdings include Buckeye Tobacco Settlement Financing Authority, Indianapolis Airport Authority and Mississippi Business Finance. For the 12-month period ended September 30, 2009, the fund outperformed its benchmark, the Lipper High Yield Municipal Debt Funds Average.

James M. Murphy has been lead manager of the fund since January 2002. Before joining the firm in 2000, Murphy was a portfolio manager for Prudential Investments.

T. Rowe Price Global Stock (PRGSX) seeks long-term growth of capital through investments in securities of established companies throughout the world, including the U.S. It was incepted in December 1995.

The fund invests its assets in a wide range of industries in both developed and emerging markets. It normally invests in at least five countries, one of which is the U.S.

The fund has an expense ratio of 0.87% against a category average of 1.50%. As of October 2009, it has a portfolio turnover of 90% against a category average of 91%. The funds top holdings include America Movil SA, JP Morgan Chase and Rolls-Royce. For the 12-month period ended September 30, 2009, the fund returned lower returns than the MSCI AC World index.

Robert N. Gensler has been lead manager of the fund since April 2005. Gensler was appointed chairman of the investment advisory committee in 2005 and is a vice president with T. Rowe Price.

T. Rowe Price Latin America (PRLAX) seeks long-term growth of capital. It was incepted in December 1993.

A majority of the funds investments, at least 80% of its assets are held in Latin American companies. More than 25% of its assets may be invested in the telecom sector, since such utilities are crucial to a country's economic development. It may also invest in preferred stock since it offers greater liquidity than common stock.

The fund has an expense ratio of 1.22% against a category average of 1.80%. As of October 2009, it has a portfolio turnover of 21% against a category average of 115%. The funds top holdings include Petroleo Brasileriro SA, Itau Unibanco Banco Multiplo and America Movil SA. For the 12-month period ended September 30, 2009, the fund outperformed the MSCI Emerging Market Latin America Index and the Lipper Latin American Funds Average.

Jose Costa Buck has been lead manager of the fund since December 2008.

T. Rowe Price Capital Appreciation (PRWCX) seeks maximum long-term capital appreciation. It was incepted in June 1986.

The fund focuses on established U.S. companies which the fund managers think have significant potential for capital growth. At least half of its assets are invested in common stocks. It may also invest in convertible securities, corporate and government debt, foreign securities, and futures and options.

The fund has an expense ratio of 0.74% against a category average of 1.01%. As of September 2009, it has a portfolio turnover of 94% against a category average of 83%. The funds top holdings include Covidien Plc, Covidien Public Ltd and Exxon Mobil. For the 12-month period ended September 30, 2009, the fund outperformed the S&P 500 Index.

Tobias W. Welo has been lead manager of the fund since January 2008. Welo has been with Fidelity since 2005.

Click here to see all the mutual funds offered by T. Rowe Price. Discover Many More Funds

Learn more about the new Zacks Mutual Fund Rank and discover some of the best market-beating mutual funds by browsing our mutual funds section. This part of Zacks.com offers a variety of tools, including mutual fund research, a new mutual fund screener, helpful answers to frequently asked questions and quick access to prospectuses and other information.

By applying the Zacks Rank to mutual funds, investors can find funds that not only outpaced the market in the past but are also expected to outperform going forward.

Investors can find such Asian funds by checking out the entire list of the Zacks #1 Rank Pacific Equity Funds.

3 Solid Choices  

T. Rowe Price New Asia (PRASX) seeks long-term capital appreciation. It was incepted in September 1990.

This Asian fund invests in companies with a wide range of market capitalizations which are located in Asia excluding Japan, or have major operations in this region. A large share of the assets of this Asian fund may be invested in a single company and it may own more of the company's voting stock than is allowed for a diversified fund.

As of July 2009, the fund had a portfolio turnover of 35% against a category average of 82%. The funds top holdings include T Rowe Price Reserve Investment Fund, Container Corporation of India Ltd and Hengan International. The New Asia Fund gained significantly in the third quarter compared to the MSCI All Country Asia ex-Japan Index and the Lipper Pacific Ex-Japan Funds Average. For the 12-month period ended September 30, 2009, the fund exceeded returns from these two indices.

Anh Lu has been lead manager of this Asian fund since April 2009. Lu has been with T Rowe Price since 2001 and has worked in the investment domain for the last10 years.

Matthews Pacific Tiger Fund (MAPTX) was incepted in September 1994. The Asian fund seeks long-term capital appreciation.

A majority of the fund’s assets, at least 80%, are invested in common and preferred stocks of companies located in the Pacific Tiger countries, excluding Japan. The countries from which the Pacific fund selects companies include China, Hong Kong, India, Indonesia, Malaysia, Pakistan, Philippines, Singapore, South Korea, Taiwan, Thailand and Vietnam.

This Asian fund has an expense ratio of 1.19% against a category average of 1.97%. As of September 2009, it has a portfolio turnover of 17% against a category average of 82%. The funds top holdings include Hang Lung Group, PT Bank Central Asia and LS Corp. For the quarter ended September 30, 2009, the Matthews Pacific Tiger Fund was trailing the MSCI All Country Asia ex Japan Index.

Richard H. Gao has been lead manager of the fund since January 2006. Gao is a portfolio manager with Mathews and has been with the firm since 1997.

Fidelity Advisor Emerging Asia A (FEAAX) seeks to provide long-term growth of capital. It was incepted in March 1994.

Securities of Asian emerging market issuers and other investments that are tied economically to Asian Emerging Markets constitute the primary investments for this Asian fund. It invests primarily in common stocks. The Asian fund avoids maturing economies such as Korea and Taiwan and focuses exposure on Asia’s newly emerging markets.

This Asian fund has an expense ratio of 1.63% against a category average of 1.97%. As of July 2009, it has a portfolio turnover of 126% against a category average of 82%. The funds top holdings include Samsung Electronics Co, Tencent Holdings Ltd and China Life Insurance Company. As of October 31, 2009, the Pacific fund was trailing the MSCI AC (All Country) Asia ex Japan Index for the one year period.

Kevin Chang has been lead manager of the fund since September 2004. Chang has been with Fidelity Investments since 1995.

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By applying the Zacks Rank to mutual funds, investors can find funds that not only outpaced the market in the past but are also expected to outperform going forward.

The Federal Reserve Board on Tuesday announced preliminary unaudited results indicating that the Reserve Banks provided for payments of approximately $46.1 billion of their estimated 2009 net income of $52.1 billion to the U.S. Treasury. This represents a $14.4 billion increase over the 2008 results.

Miscellaneous receipts of the U.S. Treasury; deposits of earnings by the Federal Reserve System, in billions of current dollars. Data source: 1990-2008 from U.S. Treasury (via Budget of the United States). 2009 value as reported by Federal Reserve.

The reported $46.1 billion figure is a 37% increase over the fiscal year 2008 value (as reported by the U.S. Treasury) and nearly double the average annual amount returned from the Fed to the Treasury over the last two decades. The Fed earned some income in 2009 from the limited liability corporations it created to manage some of the unconventional assets it acquired, and also reported some income from its new loans. Coincidentally, the combined income from these items turned out to be exactly equal to the various expenses that the Fed reported, with the result that the $46.1 billion returned to the Treasury is exactly equal to the $46.1 billion that the Fed reported it earned from the interest on its holdings of U.S. Treasury securities, agency debt, and mortgage-backed securities.

From Table 4 of the Monthly Treasury Statements we can also see when during the year the Fed turned these receipts over to the Treasury. The sum of the monthly totals that the Treasury reported it received from the Fed during 2009 comes to $43.8 billion, a little less than the $46.1 billion that the Fed claims it delivered to the Treasury. My guess is that the discrepancy results from the fact that the Treasury has netted out what the Fed describes as "amounts reimbursed by the U.S. Treasury and other entities for services the Reserve Banks provided as fiscal agents" whereas the Fed's $46.1 billion is a gross total that excludes these offsetting payments from the Treasury back to the Fed. In terms of the monthly breakdown of the $43.8 billion number, 77% of it came during the second half of the year.

Miscellaneous receipts of the U.S. Treasury; deposits of earnings by the Federal Reserve System, in billions of current dollars, monthly during 2009. Data source: Table 4 in monthly issues of the Monthly Treasury Statement.

At the beginning of the year, when the Fed's assets were concentrated in the various special new facilities, the Fed was returning less to the Treasury than it had on average over the previous 20 years. The big Treasury receipts began as the special lending facilities were wound down and replaced by outright purchases of Treasuries, agency debt, and MBS.

Federal Reserve assets, in billions of dollars, seasonally unadjusted, from Jan 1, 2007 to December 23, 2009. Wednesday values, from Federal Reserve H41 release. Agency: federal agency debt securities held outright; swaps: central bank liquidity swaps; Maiden 1: net portfolio holdings of Maiden Lane LLC; MMIFL: net portfolio holdings of LLCs funded through the Money Market Investor Funding Facility; MBS: mortgage-backed securities held outright; CPLF: net portfolio holdings of LLCs funded through the Commercial Paper Funding Facility; TALF: loans extended through Term Asset-Backed Securities Loan Facility plus net portfolio holdings of TALF LLC; AIG: sum of credit extended to American International Group, Inc. plus net portfolio holdings of Maiden Lane II and III plus preferred interest in AIA Aurora LLC and ALICO Holdings LLC; ABCP: loans extended to Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility; PDCF: loans extended to primary dealer and other broker-dealer credit; discount: sum of primary credit, secondary credit, and seasonal credit; TAC: term auction credit; RP: repurchase agreements; misc: sum of float, gold stock, special drawing rights certificate account, and Treasury currency outstanding; other FR: Other Federal Reserve assets; treasuries: U.S. Treasury securities held outright.

Federal Reserve holdings, in billions of dollars, of U.S. Treasury securities, agency debt, and mortgage-backed securities as of the last Wednesday of each month for 2009. Data source: Federal Reserve H41 release.

I have suggested that the right way to think about these operations is that the Fed acquired the funds for these operations by borrowing them from banks in the form of the huge expansion of interest-bearing reserves. In essence, the Fed is borrowing short through banks' excess reserves and lending long through the MBS purchases, and profiting from the interest rate spread.

The ultimate rationale for such actions might be that private banks should be conducting this arbitrage on their own, but are prevented from doing so by ongoing financial difficulties. The spread between the MBS yield and the overnight rate can be broken down into two components, the first being a risk premium and the second being a term premium. We can get an idea about the size of the risk premium by looking at the difference between the yield on 30-year fixed mortgages and 10-year Treasury securities. This spread averaged 170 basis points over 1971-2009. It was well above that value in the last half of 2008 and first half of 2009, but currently stands at 134 basis points, somewhat below the historical average. But surely an objective observer would agree that at the moment mortgages are a riskier investment than they typically were over the previous 40 years. When you look at the current risk premium, it seems hard to motivate continuing Fed MBS purchases on the grounds that private banks are asking too big a compensation for mortgage-lending risk.

Yellow line: yield on 30-year fixed-rate mortgages minus yield on 10-year U.S. Treasuries, monthly values, Jan 1990 to Dec 2009. Turquoise line: average value 1971-2009.

The second component of the MBS-overnight spread is the term premium, which we can measure by the difference between the yield on 10-year and 3-month Treasuries. This spread has averaged 176 basis points since 1982, but currently stands at 354 bp, about twice its historical average value.

Red line: yield on 10-year U.S. Treasuries minus yield on 3-month Treasuries, monthly values, Jan 1990 to Dec 2009. Blue line: average value 1982-2009.

Some might think the point of the MBS purchases was not so much to arbitrage an overly high long-term yield as to do something to stimulate the economy, since Fed purchases of short-term T-bills clearly accomplish nothing in the current near-zero interest rate setting. However, the difference between what the Fed has been doing in 2009 and true quantitative easing is that under the latter strategy, the Fed would be funding the MBS purchases with zero-interest money, with the intent of the operations indeed being to get that cash into circulation rather than trying to construct a device to persuade banks to hoard it.

The problem with the Fed's preferred tactic-- borrowing short and lending long-- is the same as that facing anyone else who plays that game: are you sure you're going to be able to continue to roll over the short term debt (i.e., persuade banks to keep holding a trillion in excess reserves) or liquidate your long position (i.e., sell a trillion in MBS back to the market without loss) when the playing field changes?

But at the moment, borrowing short and lending long proved to be a very profitable trade for 2009.

It is becoming increasingly clear that the economic turnaround we saw with the positive third-quarter GDP growth is sustainable. We are seeing evidence of that in the manufacturing as well as the all-important non-manufacturing sectors of the economy. While the recovery is fragile and needs fiscal support, at least through this year, I remain convinced of the unlikelihood of the so-called double-dip scenario.

Growth is expected to falter as the fiscal stimulus wanes in the second half of this year, but we see enough resilience in the rest of the economy to shoulder the responsibility going forward.

The much-improved retail sales numbers over the holidays was more evidence, if any was needed, that the consumer is very much alive. The year-over-year comparison was no doubt easy, but expectations had steadily been going up over the preceding months after positive retail sales numbers. The heartening aspect of December retail sales was the fact that the improvement came in the face of continuing jobs losses and credit market issues.

Jobs Report Was Not a Disaster

As discussed in my Market Overreacts to BLS Numbers blog post and then again in today's RoundTable Review (Jobs Data & Earnings Season), Friday's jobs report was not all bad news. The headline miss was no doubt a disappointment, but there were enough bits of positive details to take the edge off.

Firstly, a positive revision to the November report resulted in the first job gain since December 2007. Secondly, the growing temporary jobs numbers, a leading indicator of full-time hiring, is indicative of a stabilizing and improving labor market.

I am not trying to put a positive spin on an otherwise very bad labor market. After all, we have lost in excess of 7.5 million jobs since December 2007; and even optimistic projections put a return to pre-crisis levels in the labor market way out in the future. All I am saying is that while it is bad to lose an additional 85,000 jobs in December, as Friday's report indicated, the labor market is getting close to turning the corner. We should start seeing positive monthly payroll numbers in the coming months.

What this all adds up to is consolidating and stabilizing the gains made, thus far, in the economy and in the markets. Coming off of the extreme levels of volatility in the last two years, I expect this year to bring in a lot more stability.

Positive Earnings Not Just Due to Easy Comparisons

Earnings have been coming in ahead of expectations in the last few quarters. In fact, the third-quarter earnings beats were something of a record with almost 80% of the companies coming in ahead of expectations. Better cost controls, particularly on the payroll side, instead of top-line growth, has mostly been driving the earnings out-performance to date.

In addition to some evidence of revenue growth, I would also be very interested in management's pronouncements on visibility and outlook. After all, if growth in the broader economy is to remain on track following the tapering off of the fiscal stimulus from the second-half of 2010 onwards, we would expect corporate managements to get more confident of the future.

All evidence remains supportive of this consolidation/stabilization theme. Fourth-quarter 2009 earnings are expected to be up in excess of 80% from the year-earlier period. But the impressive growth is not solely due to the ugliness of the fourth-quarter 2008 results. The structural improvements that we have been witnessing over the few quarters are very much at play.

2010 to Bring Significant Earnings Growth

When all is said and done, earnings of S&P 500 companies for the full-year 2009 would be below the 2008 level by 9.3%. In 2008, earnings fell a whopping 22.2% from the 2007 level, highlighting the full brunt of one of the most severe recessions in recent history.

But that is history. Markets don't look in the rearview mirror. Estimates for 2010 and 2011 are steadily going up, with upward revisions outpacing downward revisions. At present levels, we have earnings for the S&P 500 companies expected to go up in excess of 26% in 2010. Current expectations peg earnings growth in 2011, admittedly a distant item at present, at almost 21%.

Portfolio Changes

Last week, we made four changes to the Focus list portfolio, while the Growth & Income portfolio remained unchanged. The Timely Buys portfolio also had a number of additions/deletions this week.

We added two and deleted two stocks from the Focus List portfolio.

We added China Auto Systems (CAAS), a power steering components supplier to the Chinese auto industry. China just overtook the U.S. as the largest auto market in the world and this components supplier provides a perfect vehicle to play this growth market.

We also added W&T Offshore (WTI), an exploration and production company focused on operating in the Gulf of Mexico region.

We deleted Goldman Sachs (GS) to reflect negative estimate cuts. In the last 30 days, roughly twice as many estimates have been cut as have been raised.

We deleted Schweitzer-Mauduit (SWM) after the stock's downgrade to a Zacks #4 ("sell") Rank. While we continue to like this company, the discipline of Zacks Rank forced us to take a solid gain on this name.

Zacks Investment Research

The fund normally invests at least 80% of the value of its total assets in gold bullion and the equity securities of companies engaged in the exploration, mining, processing, fabrication or distribution of gold. It normally invests in companies with a large capitalization, but may also invest in mid and small-sized companies. The fund invests the remaining 20% of its total assets in other precious metals, including silver, platinum, and palladium, and in the equity securities of companies engaged in activities related to them.

The fund has an expense ratio of 1.67%. As of July 2009, it has a portfolio turnover of 86%.

David R. Powers has been lead manager of the fund since December 2007. Powers is a Chartered Financial Analyst and joined ING Investment Management in June 2007 as a senior sector analyst on the fundamental research team.

ING Russia Fund A (LETRX) was incepted in July 1996. The fund seeks long-term capital appreciation through investment primarily in equity securities of Russian companies.

The fund invests at least 80% of its total assets in equity securities of Russian companies. It may invest in companies with any market capitalization. The fund may invest the other 20% of its assets in debt securities issued by Russian companies and debt securities issued or guaranteed by the Russian government without any restrictions based on investment quality or maturity of the debt securities. The fund may also invest in the equity securities of issuers outside of Russia, which the fund believes will experience growth in revenue and profits from participation in the development of the economies of the former Soviet Union.

The fund declares dividends and capital gains annually. It has an expense ratio of 2.52%.

Jan-Wim Derks has been lead manager of the fund since January 2001. Derks is director of global emerging markets equities at ING Investment Management – Europe and has been with the firm since 1997.

ING T. Rowe Price Equity Income A (ITEAX) seeks high total return for taxable investors on an after-tax basis through a diversified portfolio of stocks. It was incepted in December 1998.

The fund normally operates as a diversified fund and invests at least 80% of its total assets in a portfolio of equity securities whose returns depend upon stock market prices. The portfolio managers manage the fund's portfolio in a manner that attempts to reduce net realized capital gains each year. An emphasis is placed on common stocks of companies which have strong appreciation potential. The fund expects investments to be in common stocks of large, mid-sized, and small companies. The portfolio managers attempt to minimize tax consequences to investors by focusing on low-dividend paying stocks and by reducing annual portfolio turnover.

Shareholders have to make a minimum initial investment of $1,000 to enter this Zacks #1 Rank ("Strong Buy") fund As of September 2009 it has a portfolio turnover of 12%.

Brian C. Rogers has been lead manager of the fund since March 1999. Rogers received his M.B.A. degree from Harvard University and joined T. Rowe Price in 1982.

Click here to see all the mutual funds offered by ING. 

Discover Many More Funds

Learn more about the new Zacks Mutual Fund Rank and discover some of the best market-beating mutual funds by browsing our mutual funds section. This part of Zacks.com offers a variety of tools, including mutual fund research, a new mutual fund screener, helpful answers to frequently asked questions and quick access to prospectuses and other information.

By applying the Zacks Rank to mutual funds, investors can find funds that not only outpaced the market in the past but are also expected to outperform going forward.

Investors can find such funds by checking out the entire list of the Investors can find such funds by checking out the entire list of the Zacks #1 Rank Japanese Equity Funds.

3 Excellent Picks

Hennessy Sparx Japan Smaller Cos (SPJSX) was incepted in August 2007. The fund seeks long-term capital appreciation.

The fund normally invests at least 80% of net assets in securities of smaller capitalization Japanese companies. These are those companies which have market capitalizations, at the time of initial purchase by the fund, within the range of companies in the MSCI Small Cap Japan index. It may invest up to 20% of net assets in companies with larger market capitalizations.

Shareholders have to make a minimum initial investment of $3,000 to enter this Zacks #1 Rank ("Strong Buy") fund. As of July 2009, it has a portfolio turnover of 150%.

Shuhei Abe has been lead manager of the fund since August 2007. After beginning the SPARX Group in 1989, Abe founded SPARX USA in 1994 and has been a portfolio manager of the fund since its inception.

Fidelity Japan Smaller Companies (FJSCX) seeks long-term capital growth. It was incepted in November 1995.

The fund invests at least 80% of assets in securities of Japanese issuers and other investments that are tied economically to Japan It invests in smaller market capitalization companies. The companies are similar to companies in the Tokyo Stock Exchange Second Section Stock Price Index or the Japanese Association of Securities Dealers Automated Quotations (JASDAQ) Stock Index.

The fund has an expense ratio of 1.05% against a category average of 1.77%. As of April 2009, its portfolio turnover was 273%.

Nicolas Price has been lead manager of the fund since October 2008. Price has worked with Fidelity Investments since 1993.

Matthews Japan Fund A (MJFOX) seeks long-term capital appreciation. It was incepted in December 1998.

The fund invests at least 80% of its assets, which include borrowings for investment purposes, in the common and preferred stocks of companies located in Japan.

The fund has an expense ratio of 1.32%. As of September 2009, it has a portfolio turnover of 175%.

Taizo Ishida has been lead manager of the fund since September 2006. Before joining Matthews in 2006, Ishida spent six years at Wellington Management Company as a Vice President and Portfolio Manager.

Discover Many More Funds

Learn more about the new Zacks Mutual Fund Rank and discover some of the best market-beating mutual funds by browsing our mutual funds section. This part of Zacks.com offers a variety of tools, including mutual fund research, a new mutual fund screener, helpful answers to frequently asked questions and quick access to prospectuses and other information.

By applying the Zacks Rank to mutual funds, investors can find funds that not only outpaced the market in the past but are also expected to outperform going forward.

Investors can find such funds by checking out the entire list of the Zacks #1 Rank Chinese Equity Funds list.

3 Excellent Picks

Columbia Greater China A (NGCAX) seeks long-term growth of capital. It was incepted in May 1997.

The fund invests at least 80% of its net assets in stocks of companies whose principal activities are in the Greater China Region. It may invest in stocks of any size whose earnings the advisor believes are in a growth trend or are undervalued.

The fund has an expense ratio of 1.69%. As of August 2009, it has a portfolio turnover of 39%.

Jasmine Huang has been lead manager of the fund since May 2005. Huang is a Chartered Financial Analyst and a Certified Public Accountant and has been with Columbia Management Advisors, LLC since September 2003.

Aim China A (AACFX) was incepted in April 2006. The fund seeks long-term capital appreciation.

The fund invests at least 80% of its assets in a diversified portfolio of equity and equity-related transferable securities, including warrants and convertible securities of companies with substantial exposure to China. It does not expect to invest more than 25% of assets in debt securities. The fund may hold a portion of assets in cash or cash equivalents, including shares of affiliated money market funds.

Shareholders have to make a minimum initial investment of $1,000 to enter this Zacks #1 Rank ("Strong Buy") fund. It has an expense ratio of 2.05%.

Samantha Ho has been lead manager of the fund since March 2006. Ho is a Chartered Financial Analyst and was a Portfolio Manager at Manulife Asset Management (HK) Ltd prior to her current assignment.

ProFunds UltraChina Inv (UGPIX) seeks to provide daily investment results, before fees and expenses that correspond to the performance of the Bank of New York Mellon China Select ADR Index. It was incepted in February 2008.

The fund invests at least 80% of net assets into financial instruments with economic characteristics that, in combination, are similar to those of the Bank of New York Mellon China Select ADR Index. It may use leveraged investment techniques and sampling techniques in seeking its investment objective. It is non-diversified

The fund has an expense ratio of 1.86%. As of July 2009, it has a portfolio turnover of 349%.

Howard S. Rubin has been lead manager of the fund since December 2009. Rubin is a Chartered Financial Analyst and has been a senior portfolio manager with ProFund Advisors since November 2004

Discover Many More Funds

Learn more about the new Zacks Mutual Fund Rank and discover some of the best market-beating mutual funds by browsing our mutual funds section. This part of Zacks.com offers a variety of tools, including mutual fund research, a new mutual fund screener, helpful answers to frequently asked questions and quick access to prospectuses and other information.

By applying the Zacks Rank to mutual funds, investors can find funds that not only outpaced the market in the past but are also expected to outperform going forward.

The news, if you missed it, was reported here. U.S. Commodity Funds, the company best known for creating the U.S. Oil ETF (NYSEArca: USO) and the U.S. Natural Gas ETF (NYSEArca: UNG), has licensed a new actively managed commodity index developed by a company called SummerHaven, which was itself launched by Yale University Professor K. Geert Rouwenhorst.

That’s interesting, because Rouwenhorst is one-half of the two-person academic team that wrote the most important academic papers establishing commodities as a legitimate asset class. The other half, Yale Professor Gary Gorton, is a senior adviser to SummerHaven. Rouwenhorst/Gorton are the Fama/French of the commodity world.

The paper that broke things open for commodities was Facts and Fantasies about Commodity Futures, published in 2005. In the paper, Gorton and Rouwenhorst created an equally weighted index of commodity futures and studied its performance from July 1959 through December 2004. They found that commodity futures delivered similar returns to equities but were negatively correlated with both stock and bond returns. Here’s the killer line from their conclusion:

“In addition to offering high returns, the historical risk of an investment in commodity futures has been relatively low – especially if evaluated in terms of its contribution to a portfolio of stocks and bonds. A diversified investment in commodity futures has slightly lower risk than stocks – as measured by standard deviation. And because the distribution of commodity returns is positively skewed relative to equity returns, commodity futures have less downside risk.”

For institutional and retail investors alike, this was manna from heaven: equitylike returns that are noncorrelated to other markets. The data was robust, it was convincing, and billions and billions of dollars flowed into broad-based, passively managed commodity index products.

But while investors fixated on Facts and Fantasies, Gorton and Rouwenhorst didn’t stop.

In 2007, they published a paper called “The Fundamentals of Commodity Futures Returns.” (You can download the full paper from SSRN here, or read an excellent summary of the piece here.) In this paper, Gorton and Rouwenhorst, along with Fumio Hayashi of Hitotsubashi University, found that, historically, it’s been relatively easy to improve on a simple naïve index return by focusing instead only on commodities with low levels of inventory.

Common Sense

This intuitively makes sense: Commodity pricing is driven by actual supply and demand, and actual commodity users will pay a premium to get supply now when materials are scarce.

The professors determined that commodity inventory levels are reflected by the degree of backwardation or contango associated with a given commodity: When inventories are low, commodities tend to trade in backwardation (tomorrow’s corn costs more than next year’s); when inventories are high, commodities tend to trade in contango (cheap corn today, pricey corn next year).

They then compared the returns of an equal-weighted portfolio of 33 commodities futures from 1969 to 2006 with an equally weighted portfolio composed only of commodities trading in backwardation. They found that the backwardation portfolio outperformed the equally weighted index by an average of 5.4 percent per year; by comparison, an equally weighted portfolio of commodities trading in contango under-performed by 4.8 percent per year.

They also showed that using momentum as a screen for selecting commodities generated high returns. They suggested that commodities may show strong momentum returns because it takes a long time for commodity inventories to recover from shocks.

Put this way, the insights seem fairly basic, and it has surprised me over the years that investors have stuck with classic, broadly diversified commodity indexes—particularly those that simply buy front-month futures—in the face of this data.

I’m a fan of indexes, but simply because broad-based indexing is the best strategy for stocks does not mean it is the best strategy for commodities, or that all indexes are created equal. The commodity markets are different from the equity markets. They are driven by different factors. The fact that commodities are consumed and produced on a daily basis should be enough to tell you that the rules of stock investing may not apply.

It’s been almost four years since the first commodity index ETF hit the market, and there are billions of dollars invested in the funds. It will be exciting for this index fan to see a new active wrinkle hit the market.

Investors can find such funds by checking out the entire list of the Zacks #1 Rank Income Equity Funds.

3 Solid Samples

ING T. Rowe Price Equity Income A (ITEAX) seeks high total return for taxable investors on an after-tax basis through a diversified portfolio of stocks. It was incepted in December 1998.

The fund operates as a diversified fund and invests at least 80% of its total assets in a portfolio of equity securities whose returns depend upon stock market prices. The portfolio managers manage the fund's portfolio in a manner that attempts to reduce net realized capital gains each year. An emphasis is placed on common stocks of companies which have strong appreciation potential. The fund expects investments to be in common stocks of large, mid-sized, and small companies.

The fund has an expense ratio of 1.42%. As of September 2009, it has a portfolio turnover of 12%.

Brian C. Rogers has been lead manager of the fund since March 1999. Rogers joined T. Rowe Price in 1982 and has day-to-day responsibility for managing the Fund.

RiverSource Diversified Eqty Inc A (INDZX) was incepted in October 1990. The fund seeks current income and long-term growth of capital.

The fund invests primarily in large-cap stocks with steady dividend yields in its efforts to provide an income stream and capital appreciation. It may also seek opportunities in small and mid-cap stocks. The fund invests in value stocks believed to be attractively priced compared to the rest of the market.

The fund offers dividends quarterly. Capital gains, if any distributed by the end of the calendar year. It has an expense ratio of 0.99%.

Laton Spahr has been lead manager of the fund since February 2004. Spahr joined RiverSource Investments in 2001 as a Security Analyst and holds the Chartered Financial Analyst designation.

Huntington Income Equity Tr (HIEFX) seeks high current income and moderate appreciation of capital. It was incepted in July 1989.

The fund primarily invests at least 80% of its assets in income-producing equity securities such as common stock and preferred stock. It also invests in investment grade corporate debt obligations such as bonds, notes and debentures. The fund may invest up to 10% of its total assets in debt obligations rated below investment grade. At least 65% of its total assets are invested in income-producing equity securities.

Shareholders have to make a minimum initial investment of $1,000 to enter this Zacks #1 Rank ("Strong Buy") fund. As of September 2009, it has a portfolio turnover of 72%.

Craig J Hardy has been lead manager of the fund since November 2003. Hardy is a Chartered Financial Analyst and is a senior portfolio manager and vice president at Huntington.

Discover Many More Funds

Learn more about the new Zacks Mutual Fund Rank and discover some of the best market-beating mutual funds by browsing our mutual funds section. This part of Zacks.com offers a variety of tools, including mutual fund research, a new mutual fund screener, helpful answers to frequently asked questions and quick access to prospectuses and other information.

By applying the Zacks Rank to mutual funds, investors can find funds that not only outpaced the market in the past but are also expected to outperform going forward.

Needless to say, we sold the stock.

Part of the risk inherent in investing is the chance of unexpected events occurring. During the past 2 months, it certainly feels like we have seen more than our fair share. For example, there was no way to predict that Multi Fineline Electronix (MFLX) would flip-flop on its guidance in a period of just 5 weeks.

During a bull market, it's easy to weather unusual events because the rest of the portfolio is performing well. But bear markets amplify the bad news.

The key to dealing with such events is to not get frustrated, but rather stick to long-term strategies that have proven to work over time.

This is what we are doing. You can see it the recent addition of Omnicare (OCR), a stock with rising earnings estimates that is trading a cheap valuation.

You can also see it in Shanda Interactive (SNDA). Not only is the stock bucking the bear market, but several analysts just raised their full-year forecasts.

I realize many of you are frustrated by the markets, and so am I. Unexpected events don't help matters. But we are going to get through this, and you will see your long-term wealth increase. In the meantime, we'll react to whatever the markets - or company presidents - throw at us.

Zacks Elite Portfolios

As stated above, Mantech International was sold from the Focus List.

CBIZ Inc. (CBZ) was also sold. Earnings estimates have been cut recently, which is surprising given news reports about increased demand for accountants. CBZ is the type of company that should benefit from the economic and regulatory environment, but that does not seem to be the case.

We added American Italian Pasta Co. (AIPC) and Omnicare (OCR) to the Focus List.

As the name implies, AIPC makes pasta. The company is growing and should benefit from the greater number of consumers choosing to eat at home.

OCR provides geriatric pharmaceutical services. The stock recently dropped on worries about changes to Medicare payments. We believe this drop provides a great buying opportunity as the stock is trading at just 9x earnings. Furthermore, nearly all of the 10 covering analysts have raised their full-year forecasts within the past week.

In the Growth & Income Portfolio, General Mills (GIS) and Abbott Laboratories (ABT) were added. We chose both stocks for their fiscal stability. GIS also looked attractive since earnings estimates have been revised upward in recent weeks.

The Markets

Stocks continue to be oversold. Fears about corporate bankruptcies and bad economic data are weighing on traders' minds. Furthermore, bargain hunters are stepping up to the plate because they are afraid stocks will fall even further.

It's a sad state of affairs when 6 Dow components trade for less than $6.

I was really hoping that my call for the Dow Jones Industrial Average ($DJI) to hit 6,300 would prove to be overly pessimistic. Unfortunately, it's now looking like a question of when, not if, we'll hit this level. Let's hope the average holds support at 6,300.

Support at 700 for the S&P 500 (SPX) came and went. The problem is that earnings estimates keep getting cut and the bargain hunters are tired of being burned by lower lows.

Charles Rotblut, CFA is the Senior Market Analyst for Zacks.com. He can be reached at crotblut@zacks.com. Zacks Investment Research

It is a pervasive myth that has left the savings of countless small investors in ruins. More likely than not, it is a piece of information you've relied on while making investment decisions. Maybe you told yourself it was too good to be true, but deep down you wanted it to be true, and so you believed it.

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