Motley Fool | Active vs. Passive, Foolanthropy and CVS
Q: What are "actively managed" mutual funds? - M.L., Omaha, Neb.A: Actively managed funds are run by professionals who try to maximize performance by handpicking investments. Investments in passively managed funds, on the other hand, simply mirr
Ask the Fool | Active vs. Passive
Q:
What are "actively managed" mutual funds?
A:
Actively managed funds are run by professionals who try to maximize performance by handpicking investments. Investments in passively managed funds, on the other hand, simply mirror the components of an existing index (thus their more common name, index funds). For example, an index fund based on the Standard & Poor's 500 will hold the 500 stocks in that index, in the same proportion as the index. The thing we love to point out is that the vast majority of actively managed stock funds underperform the overall stock market - and the index funds that match it. Perhaps the biggest reason is costs, since passively managed funds do not need to employ lots of analysts just to mimic an index. Most investors are generally better off having at least some assets in index investments.
Learn more about mutual funds and index funds at www.indexfunds.com and research them at www.morningstar.com. Also, check out our free Motley Fool Champion Funds newsletter - which recommends exceptional low-fee mutual funds - at www.championfunds.fool.com.
A: It's a mutual fund that buys goodies such as Treasury bills, short-term commercial debt, and certificates of deposit. It sticks to short-term, high-quality investments and is relatively safe. Money market yields vary according to short-term interest rates and typically have better rates than those offered by standard bank accounts. But they fall dramatically short of the stock market's average annual return of 10 percent. They are great for short-term savings, but are ill-suited for long-term investments. Learn more about short-term savings and find good rates for your money at www.fool.com/savings and www.bankrate.com.
Fool's School | Foolanthropy
The Motley Fool has raised nearly $3 million for charity over the last decade. Our annual charity drive, now focused on financial literacy, is again under way. Here are some impressive organizations:
Mercy Corps' Silent Disasters program notes that over the next 10 years, 1 billion young people in developing countries will compete for, at most, 300 million new jobs. Through innovative approaches incorporating financial literacy, mentoring and job-skill training, Mercy Corps is preparing the next generation with the tools they will need to define what their economic futures will look like.
Junior Achievement Worldwide has been inspiring and preparing young people to succeed for more than 88 years by partnering with businesses and educators to provide in-school and after-school programs bridging the gap between the classroom and the real world. In the United States and more than 100 countries, it is synonymous with financial literacy, entrepreneurship, and work-readiness education for students in kindergarten through 12th grade.
Corporation for Enterprise Development ties financial education to personal savings. Special accounts for young people provide financial instruction while teaching children the practical discipline of saving. Savings are matched. And when young people see their account balances grow and watch peers tap their accounts for college, starting businesses and buying homes, they realize they can take control of their own lives.
Operation Hope's Bank on Our Future program offers financial education for students ages 9 to 18 at no cost to school districts, with a focus on underserved urban communities. The program spans checking and savings accounts, credit, investing and dignity. Classes are taught by volunteers who deliver messages of empowerment, responsibility and hope.
Share Our Strength's Operation Frontline program teaches low-income families how to use their limited financial resources wisely through hands-on courses in financial literacy and food budgeting.
Learn more about these organizations and how to support them at www.foolanthropy.com.
Foolish Trivia
I got my start in 1874, making and selling corsets. Today, based in New York, I am a leading seller of sportswear, swimwear and intimate apparel to department stores, membership clubs, discounters, specialty stores and others. Brand names under my roof include Calvin Klein, Chaps, Lejaby, Nautica, Speedo, Warner's, Olga, Catalina, Anne Cole, Lifeguard and Michael Kors. Most I own or have licensed in perpetuity. I also operate 75 Calvin Klein underwear retail stores worldwide. Drowning in debt, I filed for bankruptcy protection in 2001, emerging in 2003. I have been growing briskly since then. Who am I?
Last Week's Trivia Answer: I was born in Georgia in 1979, and a year later my three stores racked up $7 million in sales. Today I am the third-largest retailer in the world and the second-largest in the United States, with 2,207 retail stores in all 50 states, China, Mexico, Canada and more. My annual sales top $75 billion. More than 22 million people visit one of my stores each week. My stores are typically larger than 100,000 square feet and contain about 40,000 different products. I employ about 350,000 people. I buy wood only from responsibly managed forests and not from endangered ones. Who am I? (Answer: Home Depot)
The Motley Fool Take | CVS Is in the Zone
CVS Caremark (NYSE: CVS) has been on a roll ever since CVS tied the knot with Caremark last year. The synergies between selling prescriptions, helping customers manage their benefits, and getting a few extra items thrown in the shopping cart are looking irresistible.
The company recently posted third-quarter sales of $20.5 billion, up 83 percent from a year earlier. Diluted earnings per share jumped 37 percent. During the last nine months, sales rose 71 percent and earnings per share advanced 22 percent. Investors have noticed the stellar performance, boosting the stock about 25 percent since the beginning of the year.
The company is adding Minute Clinics to its retail stores as fast as it can. Since last quarter, CVS has contracted an additional $600 million in new businesses for 2008. Even the Save-On and Osco stores acquired from Albertsons last year are showing sales and profit-margin improvements.
Competitors are trying to take a share of this market. Wal-Mart continues to lower prescription prices, and Walgreens is building stores like crazy. But CVS has a competitive advantage in the number and quality of the "touch-points" it has with prescription-consuming customers. As long as it can provide good service to this rapidly growing customer base, it appears unstoppable in the near term.