How to bar­gain with your bro­ker

The Oklahoman (Sunday) - - BUSINESS -

Dear Mr. Berko: My wife and I are en­gi­neers, and we’re in our late 40s. In June 2015, you rec­om­mended a group of sin­gle-coun­try ex­change-traded funds, and we bought 800 shares of the iShares MSCI Italy Capped ETF at $15. It’s now about

$31, and our stock­bro­ker wants us to sell this ETF and put the money in the Put­nam Global Health Care Fund, which has a 10-year av­er­age an­nual to­tal re­turn of 11.1 per­cent. Please tell us what you think of this trade. If you don’t like Put­nam, what in­vest­ment would you rec­om­mend? We seek cap­i­tal gains but don’t want to own risky stocks. That’s why we buy ETFs or mu­tual funds, be­cause there’s safety in di­ver­si­fi­ca­tion.

–PF, Kanka­kee, Ill

Dear PF: Founded in 1937, the em­i­nently re­spectable Put­nam In­vest­ments has a ster­ling rep­u­ta­tion. I like ev­ery­thing about Put­nam ex­cept its out­landish 5.75 per­cent mu­tual fund com­mis­sions. How­ever, the Put­nam Global Health Care Fund (PHSTX-$59.38) doesn’t have “a 10-year av­er­age an­nual to­tal re­turn of 11.1 per­cent.” Ei­ther your bro­ker’s Slinky’s kinked or he’s smok­ing those left-handed Luckys! PHSTX’s 10-year load­ad­justed re­turn is 9.4 per­cent. Not bad, but it’s a 16.6 per­cent dif­fer­ence.

I rec­om­mended seven Euro­pean ETFs in that col­umn two years ago. For­tu­nately for you, the fund you se­lected, the iShares MSCI Italy Capped ETF (EWI$31.09), is the only is­sue that still trades above its rec­om­mended price. But I think it would be wise to take EWI off the ta­ble. The Ital­ian econ­omy is the eighth-largest in the world and the third­largest in the eu­ro­zone. How­ever, the Ital­ian econ­omy is teth­ered by po­lit­i­cal, so­cial and eco­nomic chains. Italy can’t re­duce its debt bur­den be­cause of ster­ile eco­nomic growth, high un­em­ploy­ment and a lack of la­bor re­form. Add to that con­tin­ued fail­ure to meet spend­ing tar­gets, in­tran­si­gent unions, a low birthrate, a shrink­ing gross do­mes­tic prod­uct and dread­fully cor­rupt lo­cal and na­tional politi­cians and Italy’s econ­omy is just a few clowns short of a cir­cus. All this is com­pounded by an on­go­ing weak­ness in the bank­ing sec­tor and a ris­i­ble fail­ure of Par­lia­ment to bring so­lu­tions to the ta­ble. Italy’s gates are down, and her lights are flash­ing, but the train isn’t com­ing. It seems that Rome and Washington are on the same glide path.

I think your bro­ker gave you good and timely sell­ing ad­vice. Take it. How­ever, his Put­nam Global Health Care

Fund ad­vice would be ex­traor­di­nar­ily ex­pen­sive, be­cause it would cost you a 5.75 per­cent com­mis­sion plus an­nual ex­penses of 1.1 per­cent to own it. I know that bro­kers have pot and mort­gage pay­ments, cars, boats, mo­tor homes and credit cards to pay off and other bills, too. But 5.75 per­cent of a $24,872 pur­chase is $1,430. That would be a lot of bucks to pay when there are far bet­ter no-load funds you could own in the same sec­tor.

Con­sider the fol­low­ing funds. The T. Rowe Price Health Sci­ences Fund (PRHSX-$74.69) has a three-, five- and 10-year per­for­mance record of 13.3 per­cent, 20.8 per­cent and 16 per­cent, re­spec­tively. Fidelity Ad­viser Health Care Fund’s (FHCIX-$47.17) per­for­mance is 10.8 per­cent, 20.8 per­cent and 13.3 per­cent for the same time frame. The Janus Hen­der­son Global Life Sci­ences Fund’s (JAGLX$56.49) record is 10.7 per­cent, 20.9 per­cent and 13.3 per­cent, while the Black­Rock Health Sci­ences Op­por­tu­ni­ties Fund’s (SHSAX-$54.86) record is 13 per­cent, 19.8 per­cent and 13.7 per­cent. All four of th­ese no-loads hand­ily trump the Put­nam Global Health Care Fund’s three-, five- and 10-year re­turns of 7.9 per­cent, 15.3 per­cent and 9.4 per­cent.

Your bro­ker, who prob­a­bly fell out of the fam­ily tree, could buy those funds for you. If you want to keep this guy as your agent, here’s my sug­ges­tion. You’ll prob­a­bly pay him $275 to sell 800 shares of EWI; Charles Sch­wab or Fidelity would charge you only $4.95. Give him the busi­ness, but tell him to in­vest $6,218 in each of the above four no-loads, and tell him you’ll pay a 1 per­cent com­mis­sion ($248) to buy them. If your bro­ker’s of­fice man­ager won’t al­low it — big bro­ker­ages and small in­vestors don’t mix well — then take your busi­ness to Sch­wab, Fidelity or an­other dis­count bro­ker who will be happy as a hog on ice to take your or­ders.

Please ad­dress your fi­nan­cial ques­tions to Mal­colm

Berko, P.O. Box 8303, Largo, FL 33775, or email him at mjberko@ya­hoo.com.

Mal­colm Berko mjberko@ ya­hoo.com

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