So much for a 10 percent market correction.

A pullback never materialized like many anticipated during the first half of 2014, and that played into the hands of local stock experts who have turned the Hono­lulu Star-Advertiser’s 13th annual investment contest into a three-horse race.

Heading into the final six months of the contest, three of the four experts have gains exceeding 20 percent as they outpace the major indexes.

Norm Caris, managing director for Los Angeles-based investment bank B. Riley & Co. and a Kauai resident, held onto first in a competitive race with a 25.9 percent return as his hypothetical $20,000 portfolio grew to $25,181.39.

Barry Hyman, vice president, private client group, for the Maui branch of FIM Group Ltd., was second as his portfolio grew 21.9 percent to $24,373.78. Dwight Melton, co-founder of the Hawaii Stocks and Options Group and the two-time defending champion, pulled into the running with a 19.1 percent increase in the second quarter that left him up 20.9 percent at midyear with $24,181.66. And Richard Dole, chief executive officer of Hon­olulu-based investment bank Dole Capital LLC, gained 3.2 percent to $20,641.18.

"We still expect a correction at some point," Caris said.

The Dow Jones industrial average, the most widely followed index, managed just a total return of 2.7 percent in the quarter. But it was a solid quarter for the broader Standard & Poor’s 500 index, up 7.1 percent, and the Nasdaq composite index, ahead 6.2 percent.

Mining stocks were worth their weight in gold during the second quarter as investors who owned those commodities were richly rewarded.

Caris’ portfolio included Direxion Daily Gold Miners, a gold fund, and jumped 33.5 percent in the quarter while NovaGold Resources, a mineral exploration company that primarily focuses on gold, increased 16.6 percent.

Hyman said mining companies, as well as global real estate investment trusts with yields above 6 percent and global holding companies selling at significant discounts to their breakup values, are still undervalued.

"These are three areas providing sufficient upside to compensate investors for implied risks," Hyman said.

During the second quarter, Silver Wheaton, a silver mining operator, led the way for Hyman with a 16.5 percent gain. And for the current quarter, Hyman has added American Realty Capital Properties, a real estate investment trust paying a 7.8 percent dividend yield, among his new selections.

Despite the success of Melton, who has won the investment contest the last two years and five of 12 years overall, Hyman eschews the index investment philosophy of his rival.

"What is important is the outlook for the investments an investor owns, not the outlook for indexes," Hyman said. "Unless, of course, you are investing in indexes rather than doing diligent work to scour the investment universe for individual extraordinary opportunities. As index levels have become even more overvalued than they were at the beginning of the year, index investing is taking on ever more risk of permanent loss of capital. I would advise investors to be very selective and not to invest in most broad indexes at current levels."

It was Melton’s index investing, however, that scored him a robust quarter with double-digit gains for his indexes in semiconductors (up 25.8 percent), Nasdaq 100 (up 21.7 percent), technology (up 17.6 percent) and health care (up 11.8 percent).

For the current quarter, he sold his technology index and replaced it with an energy index.

"A modern and growing world requires a lot of energy, and according to the Energy Information Administration, the amount of power we are going to consume will skyrocket over the next few decades," Melton said. "Given that long-term bullish demand picture, it makes sense for investors — even those in retirement — to bet on the energy sector for the long haul."

Caris is still rolling with Ford, which was up 11.4 percent in the second quarter.

"We still like the same companies we did in the first half," Caris said. "They are performing well and are not expensive relative to the market. A good example of that is Ford. The company is definitely thinking outside the box with creative new products like the new aluminum F-150. It is the best-managed auto company, selling around nine times next year’s earnings, and it pays a good dividend (2.8 percent)."

Dole, who has maintained his same picks all year, eked out a 0.6 percent gain in the quarter but did get solid returns from Newport (up 10.5 percent), a manufacturer of scientific and technical instruments; utility services provider Exelon (up 9.7 percent); and Hono­lulu-based ocean shipper Matson (up 9.4 percent). Like Melton, Dole also favors energy, health care and technology.

"Segments of the energy sector that benefit from the shale oil and gas boom in the U.S., health care due to an aging U.S. population, and information technology based on higher anticipated capital spending, all continue to offer promise," Dole said.

BEST INVESTMENT IDEAS OF 2014

Hawaii stock experts began the year with a $20,000 hypothetical portfolio:

NORM CARIS
B. Riley & Co. Managing Director
+25.9% YTD return

Buying: 150 shares of Matson (MATX) at $26.84 (-4,053.17) to cover the short sale and 335 shares of BlackBerry (BBRY) at 10.24 ($3,430.40).

** Short sale. A short sale means the shares are borrowed and then sold. The borrowed stock is reflected as negative (owned) shares and the proceeds from the sale of those shares is reflected as cash. The cash total includes proceeds from the short sales. Note: Stock picks represent Caris’ views and not those of B. Riley & Co. He is personally invested in his picks.

BARRY HYMAN
FIM Group LTD. Vice President, Private Client Group
+21.9% YTD return

Buying: 68 shares of Pargesa Holding SA (PRGAF) at $89.9845 ($6,118.95), 146 shares of Vodafone Group Plc (VOD) at $33.39 ($4,874.94), 292 shares of American Realty Capital Properties (ARCP) at $12.53 ($3,658.76) and 50 additional shares of Cheung Kong Holdings (CHEUY) at $17.72 ($886.00). Selling: 200 shares of Silver Wheaton (SLW) at $26.27 ($5,2817.18), 44 shares of Groupe Bruzelles Lambert (GBLBF) at $102.98 ($4,702.20), 460 shares of Blackrock Real Asset Equity (BCF) at $9.39 ($4,401.74) and 46 shares of U.S. Global Investors (GROW) at $176.00.

DWIGHT MELTON
Hawaii Stocks and Options Group Co-founder
+20.9% YTD return

Buying: 45 shares of Direxion Energy Bull 3X (ERX) at $130.13 ($5,855.85). Selling: 53 shares of Direxion Technology Bull (TECL) at $112.36 ($5,955.08).

RICHARD DOLE
Dole Capital LLC Chief Executive
+3.2% YTD return

Changes: None.

* Cash gets highest rate listed by Bankrate.com, CIT Bank (0.95%), at the start of quarter.

Note: Total returns and sold stocks include reinvested dividends.