Last month we purchased Fidelity Limited Term Bond (FJRLX) in our model portfolio. Part of our strat...
Morningstar: 7 Fantastic Funds
06/19/2015 9:00 am EST
It’s time once more for my annual screen for fantastic funds. The idea is to be very picky and very quantitative, explains Russel Kinnel, director of fund research and editor for Morningstar FundInvestor.
This year, only 50 funds out of a universe of nearly 8,000 passed my tests to qualify as fantastic funds. Here are the screens used:
- Past studies show that funds in the cheapest quintile are a much better bet than the rest of the investment world, so this is the first test.
- Manager investment of more than $1 million in his or her fund. We have tested this and found that funds where at least one manager has invested more than $1 million of his own money are more likely to outperform than those without such alignment of interest.
- Morningstar Risk rating below the High level. Our Morningstar Investor * Return studies found that highly volatile funds are much harder for investors to hold and investor returns tend to trail total returns.
- We also look for a Morningstar Analyst Rating of Bronze or higher; this fundamental, forward-looking rating factors in qualitative and quantitative measures.
- We also want the fund's parent firm to earn a positive grade. You want a good steward with a strong investment culture when you invest for the long haul.
- The best time period for looking at a fund is the manager’s tenure rather than a standardized time period. So, I start with the earliest start date of the managers on a team (through April 2015) and insist that the fund beat the benchmark over that time period.
We have seven newcomers to the list:
American Funds New Economy (ANEFX)
This fund holds appeal as one of American Funds’ smaller funds with $16 billion in assets. We rate it Gold for its seasoned team and sensible approach.
Its goal is to span the globe in search of innovative companies trading at reasonable prices. The fund consistently invests about a third of assets overseas, quite a bit more than you’d typically see at a large-growth fund.
Fidelity Blue Chip Growth (FBGRX)
Sonu Kalra recently passed the five-year tenure mark in style at this Bronze-rated fund. He uses a fairly typical Fidelity growth strategy of seeking out strong earnings growth with a strong emphasis on tech.
In fact, Kalra’s background is in tech as he ran tech funds for Fidelity and managed the tech-laden Fidelity OTC (FOCPX). The big question here is how will his record look after a down market? At Fidelity OTC, he lost 46% in 2008, though he did beat his benchmark over his entire tenure there.
Fidelity International Discovery (FIGRX)
A dip in fees brought this Bronze-rated fund to the Fantastic 50. In 2014, expenses fell to 0.93% from 0.98%, making it a pretty cheap foreign fund.
Bill Kennedy has been on the fund for ten years and he’s outpaced his benchmark by more than 100 basis points a year. Although you can crunch a lot of data in your office, Kennedy is a big believer in getting out and visiting businesses around the globe.
Fidelity Leveraged Company Stock (FLVCX)
As the name makes plain, the idea here is to buy companies with leveraged balance sheets, which can thus provide a boost when prospects improve.
Of course, that’s a dangerous game as recessions can be very hard on leveraged companies. In a way, this is a high-yield fund on steroids. Tom Soviero has thumped the market in his 12 years on the fund, but be prepared to suffer in the next downturn.
Fidelity Low-Priced Stock (FLPSX)
Joel Tillinghast has defied the laws of physics by producing great results long after this fund should have crumbled under the weight of assets.
He crams $46 billion into a portfolio of more than 900 stocks, while maintaining an average market cap that’s right in the middle of the mid-cap universe. That really shouldn’t work, but Tillinghast just keeps on going.
Fidelity OTC (FOCPX)
Gavin Baker passed the five-year post to become eligible for this list. Baker’s aim is to beat the Nasdaq composite by finding its best growth names.
So far, he’s beaten it by about 100 basis points per year. Be warned, though, that the fund’s focus on the odd duck Nasdaq index makes it tech-heavy and probably better used as a niche holding than a core investment.
Oakmark Equity and Income (OAKBX)
This has long been a stellar fund and it finally made it to the cheapest quintile of moderate-allocation funds when expenses fell to 0.74% in 2014.
Clyde McGregor is nearing his 20th year on the fund. The strategy is a typical Oakmark one of seeking good companies trading at sizable discounts to Oakmark’s estimate of their intrinsic value. The fund typically has well more in equity than bonds.
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