Lipper Research Senior Analyst Don Cassidy on "Business for Breakfast" 1060 KRCN - Leisure Funds?

A. Thank you, I did, and I hope you and all of our listeners in B4B-landdid as well.

Q. Speaking of long weekends, are there ways investors can use sector fundsto invest in the leisure part of the economy?

A. Definitely. Not very many, but there are some pretty good performers.

Q. What would be the concept behind investing in a "leisure fund"?

A. We are a consumer society; in particular the Baby Boomer generation isgoing to be retiring soon, and they will be spending more on leisureactivities.

Q. What kinds of stocks might a leisure fund invest in, then?

A. Their prospectuses usually have pretty broad language, but here are someof the major types of companies that would be permitted:

• Hotel chains
• Cruise ship companies
• Casinos
• Airlines
• Car rental firms
• Companies manufacturing motor homes, campers, trailers
• Campground companies
• Publishers
• Arts and crafts stores
• Restaurant companies
• Makers of fishing and hunting gear
• Ski and other resorts
• Travel agencies and Web site bookers like Sabre.com
• ... and so on

Q. So, what are the names of some of these kinds of funds?

A. This is not a recommendation of course, but first the no-load funds:

• Icon Leisure & Consumer Staples (headquartered right here in metro Denver)
• Fidelity Select Leisure
• Rydex Leisure
• And a load fund: AIM Leisure (formerly INVESCO)

Q. And how are they performing?

A. For the six years since basically the top of the market in early 2000(January 31),

• Average of those four funds: +32.4%
• S&P 500 funds: -0.7%
• Lipper 1000: +19.6%

Q. How about lately?

A. For '04 and '05, these seemed to lag a bit... For the two years to January31, 2006:

• Average of those four funds: +14.5%
• S&P 500 funds: +10.1%
• Lipper 1000: +22.2%

Q. Why do you think that is?

A. Well, there has been a lot of talk that "the consumer is tapped out ondebt" and that home refinancings are no longer able to help spending and soon. The four funds are still beating the S&P 500 by a little, but not theaverage of all the largest 1,000 funds. Probably these funds don't own theoil stocks or the coppers or many international infrastructure stocks,which have beaten the market lately.

Q. When an investor buys any kind of a sector fund, doesn't that entailabove-average risk?

A. Definitely. Any sector fund is, by nature, less than broadlydiversified. So, it will tend to have its phases of being more in or out offavor, and it will usually be more volatile than a broadly diversifiedfund.

Q. But you still think these are a good idea?

A. Well, they have worked nicely for me over the years. I see four majorareas of the economy that grow faster than average, and I like to be inthem, in effect to overweight those areas that the megatrends favor:

• Leisure, and consumer in general
• Healthcare (aging, plus biotechnology, etc.)
• Financial services (more wealth, more services, consolidation,mergers)
• Technology (drives the economy, but can be fast-moving up ordown!)

Q. You mentioned "consumer in general" ...

A. Right, and there are a few more funds focused there, that do not havethe exact word "leisure" in their names:

• Dreyfus Premier Consumer
• Vanguard Consumer Discretionary
• Fidelity Advisor Consumer
• Icon Consumer Discretionary
• and a few ETFs as well.

Q. How did the leisure funds do in the last bear market?

A. They held up pretty well. In the worst year, 2002, those were down just15% while the S&P and the Lipper 1000 were down 22%. And remember, that wasright after 9/11--when hotel stocks and travel in general were not doingwell. So, I think these kinds of funds have some staying power, and I likethe demographics behind them. If you had another some sort of terroristevent, of course, they would probably take a hit.

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Don Cassidy is a Senior Research Analyst at Lipper specializing in fund flows, exchange-traded funds, (ETFs), closed-end funds, equity fund performance, and author of Trading on Volume (McGraw-HIll).