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Big Fish in Small Ponds
12/01/2014 8:00 am EST
I don’t want to neglect the gems in small categories where there really isn’t much competition, notes Russel Kinnel, editor of Morningstar FundInvestor.
So, for this month's fund review, I’ll look at big fish in small ponds—great funds in smaller niche categories—that you might find useful for your portfolio.
Vanguard Energy (VGENX)
With low costs and seasoned management, this fund has a lot to offer. Wellington’s Karl Bandtel has contributed to this fund for more than 20 years and has served as its lead since 2002.
The fund has beaten its peers and benchmark—all with lower risk—since 2002. To be sure, you’d have to be a contrarian to buy given the dive in energy stocks. However, if you are looking for a little inflation protection and equity upside, this makes a good choice.
Third Avenue Real Estate Value (TAREX)
Real estate is another inflation hedge, only in this case, it has actually rebounded quite nicely from 2008. Co-managers Michael Winer and Jason Wolf take a flexible approach to global real estate investing that takes them well beyond real estate investment companies.
Rather, they often favor real estate operating companies, which tend to have lower yields, but also lower valuations.
They’ve produced great results with their unconventional approach. The chief limitation, though, is that the fund charges 1.33% for those investing less than $100,000.
Vanguard European Stock Index (VEUSX)
European equities are more than a niche, though most investors prefer to get their exposure through a foreign-equity fund rather than one dedicated to Europe.
Either way is fine, but this fund is a great option if you want one dedicated to Europe. It costs a mere 0.12% per year and delivers a well-run diversified fund in return.
Franklin Utilities (FKUTX)
This is a sleepy old-school utilities fund. Lead manager John Kohli looks for healthy yields with limited downside. That means he invests in mainly regulated US electric and natural gas utilities.
Such companies tend to have limited growth potential but also limited downside, though there are no guarantees.
You can see that in play in the fund’s modest 25.6% loss in 2008 followed by a modest rebound of 13.8% in 2009. Yields are modest, too, in the utilities realm these days, but at least you get some stability.
Vanguard Health Care (VGHCX)
This fund is probably my favorite of these funds for its low costs and strong risk/return profile. Unfortunately, healthcare has already had a great run, so you won’t be getting it at the bottom today. This fund costs just 0.35% for Wellington’s excellent healthcare team.
After two decades serving as a team member, Jean Hynes took over for Ed Owens a couple of years ago, but the fund has kept on doing what it’s always done. It buys high-quality health-care stocks and holds on for the long haul.
FPA New Income (FPNIX)
FPA New Income is one of the few appealing funds in the non-traditional-bond category. Part of that appeal is that it isn’t a high-concept unconstrained fund. Those funds have tremendous complexity but dismal returns, as they often bet against falling rates at the wrong time.
FPA New Income manager Tom Atteberry takes a much more simple approach. He doesn’t short anything. Rather, he simply stays defensive when the markets don’t have much to offer. Lately, the fund has taken duration in so much that it’s nearly a money market.
So, the fund isn’t set for big returns, but it has a lot of defenses against losing money. The fund earns a Morningstar Analyst Rating of Silver for its skill at loss aversion.
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