7-Year Asset Class Forecasts for various classes of stocks and bonds. As of June 30, 2014

According to M* Fair Value Chart HC Facilities REITS are under valued by about 15%. One of the few sectors that appears under valued right now. Most of the stocks pay a nice dividend (5%-ish) and along with its 15% under valued price seems like a nice time to consider taking a position. I own VNQ and so I get some exposure to these REITS, but I was looking for something a little more focused.
Anyone an owner of this sector through funds or individual stocks?
M* Fair Value Chart:

FYI: Cope & Paste 7/11/14: Kristian Grind: WSJ:
Choices Including Nontraded Real-Estate Investment Trusts and 'Liquid Alternative' Funds Have Numerous Risks
Regards,
Ted
Mutual funds that try to emulate hedge funds. Exchange-traded funds that use borrowed money to jack up their bets. Real-estate investment trusts that are hard to unload. Structured notes that look like conventional debt but can be far more risky, and "go anywhere" bond funds that are prone to trade safety for yield.
All these investments have at least one thing in common: They have seen their popularity soar recently as investors seek protection from perceived market dangers—or as fund companies market them heavily. They also are hard to understand, lack transparency, are expensive and don't have proven performance records.
In interviews, financial advisers, analysts and industry experts frequently said these investment types should be treated with extra caution by investors.
"Anything that is complicated is not something that the typical investor should buy," says Samuel Lee, an analyst at Chicago-based investment-research firm Morningstar MORN +0.44% who specializes in ETFs. "There are more opportunities for sophisticated players to take advantage of you."
To be sure, these investments can perform well and could have a place in a portfolio—albeit a small one—as long as they are used correctly. There are plenty of other risky investments marketed to individuals that aren't named here—foreign-exchange trading or options trading, for example.
Investors should ask several questions before they plunk down their money, says Robert Hockett, president and wealth manager at Atlanta-based Cambridge Wealth Counsel, which oversees $260 million in assets: Is it clear what the investment does? Does it come with high fees? Can you sell it easily? And does it have a proven record?
Here is what you need to know about the five investments—and some safer alternatives.
Liquid-Alternative Funds
"Liquid alternative" mutual funds typically employ hedge-fund-like strategies but don't come with the same restrictions. There isn't a high investment minimum, for example, and the funds aren't as difficult to exit as traditional hedge funds.
The category encompasses several different subsets, including so-called long-short funds—equity funds that hold long positions in some stocks while betting against others, and managed-futures funds, which bet on futures contracts. Other funds use leverage, or borrowed money, to ramp up their bets.
Liquid-alternative funds have skyrocketed in popularity, with investors pouring $40 billion into them in 2013, up from $14 billion the previous year, according to Morningstar. This year through June, they have taken in $14.6 billion.
Fund companies say they offer investors a chance to diversify their portfolio and capture at least some of the upside of stock returns in good markets while offering protection in down markets.
But skeptics say the strategies often are too complicated for the average investor to understand, and many are too new to have a proven track record. They also come with high fees: an average of 1.9% of total assets, or $190 per a $10,000 investment, compared with 1.2% for a typical actively managed stock mutual fund and 0.6% for a stock index fund, according to Morningstar.
"They have some ugly baggage and warts they carry," says Mark Balasa of Balasa Dinverno Foltz in Itasca, Ill., a wealth-management firm with $2.8 billion in assets under management. "Advisers are challenged to understand what they do, let alone investors."
Christopher Van Slyke, founder of WorthPointe, a wealth adviser in Austin, Texas, with $325 million of assets under management, says most of the funds he has seen pitched by investment firms don't have more than a six-month track record. He likens them to a "black box" because of their complex investment strategies.
Try instead: If you want some shelter from the risk of a bad decline in stocks, you could always keep more of your money in cash instead. It is safer and a lot cheaper.
Nontraded Real-Estate Investment Trusts
Nontraded real-estate investment trusts are similar to their public counterparts, which trade like stocks and allow investors to invest in an array of commercial properties.
Lately, nontraded REITs have been going gangbusters: In 2013, they raised $19.6 billion, up from $10.3 billion in 2012, according to Robert A. Stanger & Co., a Shrewsbury, N.J.-based investment bank that tracks the industry. Through June of this year, nontraded REITs have raised $8.8 billion.
Investors are attracted to them because of their high dividends—generally as much as 7% on invested capital versus 3% to 4% for publicly traded REITs, according to Green Street Advisors, a research firm in Newport Beach, Calif.
But nontraded REITs can be hard for investors to unload during a real-estate downturn, advisers say. The investments have become a concern of the Financial Industry Regulatory Authority, the industry's self-regulator. Because they are generally illiquid, their performance and value are difficult to understand and the cost is high, the agency has warned.
Disclosure is murkier than with publicly traded REITs. While nontraded REITs report their holdings quarterly, investors don't initially know more than the general asset class they are investing in when they buy in—what is known as a "blind pool."
What's more, say experts, because the REIT isn't trading publicly, it is hard to gauge its value until a liquidity event occurs, such as when the REIT is sold, merged or publicly listed, although the REITs typically use appraisals to report the share value after the offering closes.
Fees also are high, as much as 11% in initial sales charges to pay the retail broker, the dealer and the back-end costs of putting the REIT together, according to Stanger.
Nontraded REITs have a mixed track record. Of seven deals that were merged or sold in 2013, four are worth more now than the initial issuing price of the shares, according to Stanger. A $10 share in the Chambers Street REIT, for example, would now be worth $8.04, while a $10 investment in the Cole REIT would be worth $13.56.
Try instead: Publicly traded REITs aren't nearly as risky and are far more transparent, and they can be a good diversifier in a portfolio, experts say. A mutual fund that holds a basket of commercial real-estate companies also can provide exposure to the market and is liquid, says Dave Homan of Willow Creek Wealth Management in Sebastopol, Calif.
The $24 billion Vanguard REIT ETF, VNQ +0.01% for example, whose holdings include property developers and REITs, has returned an average of 10.5% over the past three years as of July 10, according to Morningstar. The ETF has an annual expense ratio of 0.1%, or $10 per $10,000 invested.
Graphic; http://online.wsj.com/news/interactive/INVESTOR0711?ref=SB10001424052702304642804580015090303169012

FYI: Copy & Paste 7/12/14: Sarah Max: WSJ
Regards,
Ted
Just 900 fund managers out of nearly 8,000 funds have more than $1 million invested in their own portfolios. What does that mean for you?
Active mutual fund managers talk up the importance of insider ownership for the stocks they buy. It's a vote of confidence, they say, when CEOs put their own net worth on the line.
It stands to reason, then, that mutual fund investors would ask the same of their managers. "It's a positive indicator when managers invest in their own funds," says Stan Mavromates, Americas chief investment officer at Mercer. "It shows real conviction in the stocks and bonds that they're picking."
Since 2005, the Securities and Exchange Commission has required annual disclosure of manager ownership in a fund's statement of additional information. The numbers are given in ranges, from $1 to $10,000 on the low end, to more than $1 million at the top, and they're easy to pull up using Morningstar's FundSpy tool.
The results are shocking. Of the 7,700 funds tracked by Morningstar, nearly half are run by managers who don't have a single penny in their own funds. There are valid reasons to give some managers a pass -- managers of target-date funds or single-state muni bond funds, for example. It's also reasonable for managers of sector funds or niche strategies to have somewhat smaller stakes.
Zero ownership, however, should give investors pause, says Russel Kinnel, Morningstar's director of mutual fund research. And that's what some 35% of U.S. stock funds have, according to Morningstar data. "I can't imagine having 35% of my portfolio invested in companies whose CEOs don't own any stock in their company," says Chris Davis, head of the employee-owned Davis Advisors. All five stock Davis funds have more than $1 million of manager money invested.
WHILE A GOOD DEAL OF RESEARCH has been devoted to the relationship between stock performance and insider ownership, little has been done on the relationship between ownership and performance in the fund world. "We're just starting to test the predictive power of management," says Kinnel. In a 2008 analysis, he found that managers of funds recommended by Morningstar had, on average, $354,000 invested in their own funds. The average stake for managers of funds panned by Morningstar: $52,000.
Fund companies, for their part, don't require managers to own their own funds, but most encourage it. Fidelity says that more than two-thirds of actively managed public funds are run by managers with at least $1 million invested in those portfolios. At Janus, managers are prohibited from owning individual stocks, and incentive pay -- roughly a third of total compensation -- goes straight into the funds they run, to be vested over four years. Managers have the option of reallocating to other funds, but most stay put. "I've never sold a share of the funds I've managed," says Jonathan Coleman, who has more than $1 million in the Janus Triton (JANIX) and Janus Venture funds (JAVTX).
High levels of ownership are particularly common -- and especially important -- at boutique firms, which often offer more "high conviction" funds. The more a manager touts his stock-picking, the more of his money should be in the fund. All but two of the 14 funds at Artisan Funds, for instance, are run by managers who have at least a million bucks in their portfolios. "Everyone here has the feeling that it is their business," says Dan O'Keefe, co-manager of Artisan International Value (ARTKX) and Artisan Global Value (ARTGX).
All told, just 910 funds have at least one manager with a seven-figure stake -- shameful, especially for large-company fund managers. Says Kinnel: "A million dollars isn't that big a hurdle for most managers."

5.75% front end load. Ouch, unless you can buy it with no fee.

FYI: The Columbia Contrarian Core fund may not always look contrarian, but that's because of manager Guy Pope's strict buy-and-sell discipline.
Regards,
Ted
http://online.barrons.com/news/articles/SB50001424053111903684104580024382471486608#printMode
M* Snapshot Of LCCAX: http://quotes.morningstar.com/fund/lccax/f?t=lccax
Lipper Snapshot Of LCCAX: http://www.marketwatch.com/investing/fund/lccax
Fund Is Ranked # 83 In The (LCB) Category By U.S. News & World Report:
http://money.usnews.com/funds/mutual-funds/large-blend/columbia-contrarian-core-fund/lccax

FYI:
Regards,
Ted
http://online.wsj.com/articles/u-s-stock-futures-edge-higher-1405081647#printMode
Markets At A Glance: http://markets.wsj.com/us

FYI: The answer, so far, is yes; cultural constants preserve the firm's uncompromising ethos.
Regards,
Ted
http://news.morningstar.com/articlenet/article.aspx?id=655356

Hi Bee. You know as well as anyone that, as goes gold and treasuries goes PRPFX. It's positive history over the past 10-15 years is due to positive trends in those categories. I believe those days are gone, so I sold this fund about 2 years ago. Could be a good short term hold to park money, but there are better conservative vehicles for longer term investors, IMHO.

Added to DSEEX ( thanks for the initial heads up davidrmoran ) and to SFGIX ( thanks for the initial heads up to David Snowball. Researching small cap Permian producers.

Glad you mentioned the ticker, MS; I'd forgotten that Dbl I shares can be had with a low minimum ($5k) in IRAs.

FWIW, here is a relatively recent and long article on Onex.
http://www.businessweek.com/articles/2014-06-26/gerry-schwartzs-private-equity-firm-onex-thrives-in-the-shadows

Added to Oaktree (OAK). Considering the following Canadian companies:
Onex (Private Equity)
Dundee (Holding Co.)
Dream Unlimited (REOC) and
Boardwalk REIT
Also, pondering MONIF.
Would appreciated comments from others on any of these names.
GLTA

I like Oaktree and have been adding a bit in the upper $40's. It is a long-term holding.
I'm not familiar with Onex, but Dundee, Dream and Boardwalk (I own CapREIT instead of Boardwalk, but Boardwalk is a good company) are all solid choices.
I've owned Monitise a few times. Once I did well, once I didn't and the last time was very brief about a month or so ago and was out flat. I think the company has potential still, but the change in business model recently really has caused expectations to be re-set lower - the stock's down about half since the high earlier this year and was down 20+% a day or two ago after earnings were disappointing. It's definitely a volatile stock.
The new co-CEO situation looked promising, but the stock gained no traction on the news. You have Visa (Visa Europe and Visa owning around a combined 11-12%), Mastercard (small investment) as investors and Omega (Leon Cooperman's hedge fund) owning over 10%. Capital Research (the American Funds) now appearing as large shareholder with almost 3%. Doug Kass is also highly bullish on Monitise.
That said, stock is down nearly 10% again this morning. I still think the story eventually ends well for Monitise, but the journey now appears longer (a lot longer, perhaps?) than expected. I'm not looking to get back into it (getting in at this point at probably around 75 cents or wherever it opens this morning may be work out great, who knows, but I'm just not looking for another go-around with it) and instead just focusing on things that are less speculative/ long-term holdings - FIS (and I'd consider FISV too, if it paid a dividend), V, MA and AXP.
Cooperman is apparently going to be on CNBC's "Delivering Alpha" next week and I'd guess he will try to talk up the company. While CNBC's ratings are in decline, if he does talk up Monitise, that will likely be good for a move higher but it becomes whether or not that move is sustainable.

JimH, will be all in cash sooner than later if this keeps up. I haven't liked stocks all year and then just recently start dabbling in two equity funds???? If that is not the sign of a top (when bears throw in the towel) I don't know what is. Luckily I had NHMRX this year albeit after today may be completely out of that one. Today the junk ETFs are getting hit a bit. They have been very resilient during past selloffs and Katy Bar The Door for everything if junk bonds finally turn. I watch my drawdown more than anything and still a tad under 1% in my entire account and won't let it get above 1.25% (if that) before 100% back in cash. Good luck.

I'm finding myself thinking more about capital preservation these days.
I have also noticed Precious Metals (more so) and LT Treasuries (to a lesser degree) seems to be acting as uncorrelated assets to equities more often than not. At times like these, I use a fund like PRPFX and compare it's relative performance against my other funds and look for signs of weakness (where my equity fund crosses over or underperforms relative to a fund like PRPFX).
In the past I have often scaled back on my equity position putting a larger weighting in a fund like PRPFX (or a multisector bond fund like PONDX) as a way to protect assets. PRPFX is up 6% YTD and 11% over the last 1 year time frame. Over a 3 year time frame is has provided capital preservation at best while many sectors of the markets roared ahead of this fund by as much as 60%.
If we are headed for a revision, a fund like PRPFX is not a bad place to be. If we are merely consolidating, a PRPFX like fund is still not a bad place to be.
Here's a chart showing PRPFX vs. VFINX (S&P 500 index) over the last month...VFINX is still out performing PONDX (my multisector bond fund), but having trouble outperforming PRPFX. Obliviously this is a short timeframe, but the relative out performance of PRPFX is, to me, worth noting. In this case PRPFX's PM and LT treasuries are serving an important role at this particular moment.
Are you using any funds for these stated purposes...either capital preservation or as a fund that protects on the downside?

Both approaches sound good to me. Suspect one needs to take more of a long term view with funds. As several have pointed out above, valuations can stay above average for quite a while and folks can get frustrated (eg., ARIVX, COBYX). Longer term, I believe value wins out. Here's chart from GVAL book:

Added to Oaktree (OAK). Considering the following Canadian companies:
Onex (Private Equity)
Dundee (Holding Co.)
Dream Unlimited (REOC) and
Boardwalk REIT
Also, pondering MONIF.
Would appreciated comments from others on any of these names.
GLTA

I like Oaktree and have been adding a bit in the upper $40's. It is a long-term holding.
I'm not familiar with Onex, but Dundee, Dream and Boardwalk (I own CapREIT instead of Boardwalk, but Boardwalk is a good company) are all solid choices.
I've owned Monitise a few times. Once I did well, once I didn't and the last time was very brief about a month or so ago and was out flat. I think the company has potential still, but the change in business model recently really has caused expectations to be re-set lower - the stock's down about half since the high earlier this year and was down 20+% a day or two ago after earnings were disappointing. It's definitely a volatile stock.
The new co-CEO situation looked promising, but the stock gained no traction on the news. You have Visa (Visa Europe and Visa owning around a combined 11-12%), Mastercard (small investment) as investors and Omega (Leon Cooperman's hedge fund) owning over 10%. Capital Research (the American Funds) now appearing as large shareholder with almost 3%. Doug Kass is also highly bullish on Monitise.
That said, stock is down nearly 10% again this morning. I still think the story eventually ends well for Monitise, but the journey now appears longer (a lot longer, perhaps?) than expected. I'm not looking to get back into it (getting in at this point at probably around 75 cents or wherever it opens this morning may be work out great, who knows, but I'm just not looking for another go-around with it) and instead just focusing on things that are less speculative/ long-term holdings - FIS (and I'd consider FISV too, if it paid a dividend), V, MA and AXP.
Cooperman is apparently going to be on CNBC's "Delivering Alpha" next week and I'd guess he will try to talk up the company. While CNBC's ratings are in decline, if he does talk up Monitise, that will likely be good for a move higher but it becomes whether or not that move is sustainable.

Well, yeah, maybe, but who says that you have to put all of your bond allocation in that one fund? You can spread out your sector allocations any way that you want to (as Skeet, with some 52 funds, would be the first to tell you). I'm less than impressed.

Agreed Old_Joe. Even John Bogle, who I believe 'invented' the first bond index fund, agrees with the author that this index is too heavily weighted toward US government bonds. So Bogle's solution is very simple: he says couple the total bond index fund with a corporate bond index fund, and you have the problem solved. Bogle also entertains the idea of 'fixing the total bond market index', but feels the resistance to that would be too great, as the Barclay's Index is very much ingrained in the financial world. So he says take one third to two thirds of the money you would have in the total bond index and put it in a corporate bond index. Now you own two bond index funds, with a more correct aggregate weighting of government vs. corporate bonds.

@Charles: thanks for your take on this with individual stocks.
For someone not purchasing individual stocks, but taking an approach with stock index funds or exchange traded funds, how would you let the Shiller CAPE ratio influence your investing decisions?
One approach some take is to let the Shiller P/E influence their asset allocation, backing off on equities when the Shiller P/E is elevated. Based on this (Shiller P/E way above long term historic levels of 16.5), some only have 50% or so of their normal allocation to equities right now. Another possible approach is choosing funds that have lower P/E ratios, such as GVAL, the DoubleLine DSENX, the exchange traded note CAPE, investing in the 4 U.S. stock sectors with the lowest Shiller P/Es, and choosing a traditional value fund (based on low P/E and low price/book ratios)

Hi Jungster,
Thanks for joining the commentary.
I’m not sure if this will disappoint you, but I’m not a “walking encyclopedia of stock market platitudes”. But I do try to integrate appropriate ones into my MFO postings.
Since I usually document my market prospective with a heavy dose of statistics and academic references, I feel that these posts tend to the dry end of the writing spectrum. I feel that the addition of market wit and wisdom helps to make these posts more entertaining and more enjoyable as well as educational. That’s just my opinion of my own writing style.
I surely am not an encyclopedia of investment sayings. I get many of them from a Mark Skousen book titled “The Maxims of Wall Street”. I extracted the Ellis quote from Chapter 5 of the Roger Gibson book titled “Asset Allocation: Balancing Financial Risk”. I thought Ellis’ comment was pithy.
Take care.

Historically, there is a bond returns pecking order: short term government bonds generate about 0.5% annually above inflation, short term corporate bonds deliver 0.8%, long term treasuries produce about 3.0%, and long term corporate bonds reward 3.5%, all reported annually and all incrementally above inflation rates.

@MJG, thanks for the link to the Vanguard study, just saw this post.
Interesting info about bonds, and the expected return of each category above inflation.
Very much appreciate if you happen to have a reference for that bond info. I've been looking for that type of info, but haven't found it
thanks

>>>The most powerful weapons in an investor’s arsenal are time and patience. <<<
You are a walking encyclopedia of stock market platitudes. Not a criticism, just an observation. Let's see, when I was approaching my 38th birthday in the spring of 1985 I was unemployed and had around $2200-$2300 in my account. I actually had a negative net worth if you take into consideration credit card debt, etc. Taking your beloved index approach with my account coupled with "time and patience" would put me about where almost 30 years later? Not in a very secure financial situation that's for sure.
Edit: Stock market platitudes aren't all that bad. For instance, I think the best wealth creation tool out there is the tax free compounding of your capital over time (but please no patience as that leads to subpar returns) You talk to some of the traders on the trading forums and tax free accounts ala IRAs etc are foreign concepts to them.