Here, we turn to an all-star list of of leading advisors for their top mutual fund recommendations. Dan Wiener, Mark Skousen, Walter Frank, Dan Ascani, and Sheldon Jacobs, each highlight some of today's the best opportunities for mutual fund investors.
(For more on the advisors cited below, please click on their photos..)
A reader recently asked Dan Wiener, editor of The
Independent Adviser for Vanguard Investors, "If you had to pick one or
two funds to hold over a period of 20 to 30 years in a small IRA for a child,
and which wouldn't be augmented in the future, what would those funds be?"
Here's his answer, "Ah, the proverbial 'one fund' question. Of course, not
knowing how much money you have to make your initial, and presumably only
investment, I'll have to hedge. For those with enough money to buy a high
minimum fund, I'd note that I've held Vanguard Health Care (VHCIX) for my own children for more than a decade. For
a lower minimum, my top pick is Vanguard Strategic Equity (VSEQX). I would use this fund as a core holding given
that you have a long time horizon and your children will be able to withstand
the higher volatility that normally accompanies an investment in mid-cap and
small-cap stocks. I would supplement this with a large-cap fund like Vanguard
Growth & Income (VGIAX), which is 500 Index-like, but performs better.
Both are low-minimum funds. Alternatively, skip Growth & Income and buy
Vanguard STAR (VGSTX) as your Strategic Equity diversifier, where you'll get
large caps in large doses, a smattering of bonds, and some exposure to foreign
markets."
"Junk bonds and emerging market debt have made a remarkable
recovery, and our favorite play is Debt Strategies Fund (DSU NYSE)," notes Mark Skousen, editor of
Forecasts & Strategies
. "The fund pays a 10.18% yield. It is run
by Joe Matteo at Merrill Lynch and has an excellent track record with a 16% return
over the past three years, compared to a 1% annual return by the S&P 500
during the same period. The fund may not be hurt badly by rising interest rates
because its net asset value is more a function of economic performance than
of rates. Lower-grade corporate bonds are more sensitive to credit-worthiness than
the Fed's tightening. By purchasing DSU you spread your risk, as
it has not more than a 2% position in any one corporate bond. We suggest only buying on
dips below its net asset value, currently at $6.80 per
share."
"Back in 2000, not many fund groups were introducing new emerging
markets funds for areas such as the former Soviet Union, Egypt, Israel, Jordon,
Lebanon, and Turkey," notes Walter Frank in MONEYLETTER.
"But T. Rowe Price saw an opportunity and launched the Emerging Europe and
Mediterranean Fund (TREMX ).
Fund manager, Christopher Alderson, felt that the breadth and liquidity of
these markets have improved markedly. He also believed that the Middle East
in particular has gotten a bum rap from investors. He saw very well run
and profitable firms there that were selling at large discounts, only because
of where they were located. Israel has the largest country allocation in
the portfolio. In addition, the fund's allocation to Egypt has jumped to 18%.
The fund's top holding, Luukoil (at 10.1% of assets), dominates the Russian
energy sector. Israel-based Teva Pharmaceuticals is the number-two holding. Alderson
sees good opportunities in banking, especially in home mortgages, as people
increasingly buy homes in emerging markets. He also favors wireless
communications. The fund has been on a tear since inception. Its 20.4%
year-to-date total return puts it ahead of 94% of its competitiors. Moreover, a
better than 32% annualized total return for the trailing three years ranks it in
the top 3% of its peers."
"I want you to buy the iShares S&P SmallCap 600/Barra
Growth Index Fund (IJT ASE)," says Dan Ascani in the
The Skeptical Investor
. "This high-powered ETF tracks
the performance of some of the fastest-growing stocks in the S&P SmallCap
600 Index. Virtually the entire small-cap growth sector is booming. Firms in the small-cap
index are expected to post year-over-year profit growth of nearly
40% in this quarter, head-and-shoulders above the 15.7% earnings growth forecast for the blue
chip S&P 500. You would think that with this kind of red-hot earnings
growth, the small-cap sector would be overvalued relative to the broad stock market.
But nothing could be further from the truth. Collectively, the stocks in
this small-cap ETF recently changed hands at just 17 times earnings. That's quite a
bit cheaper than the S&P 500, which trades at more than 23 times earnings. This
means we are zeroing in on some fast-growing stocks--that are still bargain priced--in one of the
hottest sectors of the stock market."
"Enhanced index funds attempt to provide higher returns than a
specific stock index," notes Sheldon Jacobs in The No Load Fund
Investor. "The most promising of these funds hew closely to the industry
exposures and market caps of their respective banchmark index while attempting
to gain an advantage through superior stock picking. We have found four that are
more value oriented than their respective indexes and are definitely worth
considering. Vanguard Strategic Equity (VSEQX ) picks stocks with a
computer model attempting to outperform a Morgan Stanley index of small- and
mid-size companies. Vanguard Growth & Income (VGIAX) attempts to
beat the S&P 500 and has accomplished this goal in each of the past five
years. American Century Income & Growth (AICRX )
attempts to beat the S&P 5090 index. However, it favors companies with
higher-than-average dividends. As a result, its yield is relatively high for a growth and
income fund. American Century Equity Growth (AEYCX) is a
lower-yielding version of Income & Growth. Also, its roster of holding has
slightly higher valuations and faster earnings growth than its sibling. It has
beaten the S&P 500 every year since 2001."