Four Funds That Could Reap Rewards

03/27/2007 12:00 am EST

Focus:

Thurman Smith

Editor, Equity Fund Outlook

Ticker Symbols PRGSX, PRPFX, PGVFX, VMVIX, VOE

Thurman Smith, editor of Equity Fund Outlook, finds four funds (and one related ETF) covering diverse areas of the market that have had strong track records and may continue to shine.

T. Rowe Price Global Stock (PRGSX) is a worthy contender in the large-cap growth-style camp. Robert Gensler has been in charge since April 2005. Over his 1.9-year tenure, Global Stock has delivered an annualized return of 26.9% vs. only 17.0% for the average global fund. Gensler goes for growth so there are occasional rough patches, such as the correction last May-June in which his emerging-markets and smaller stocks suffered. The fund rebounded on the coattails of some of those emerging-markets stocks, and good domestic stock selection.

Gensler does not panic in downturns, but rather looks for buying opportunities in firms he owns and that he thinks still have good prospects. Examples last year were wireless telephony in emerging countries and investment firms in the US likely to benefit from long-term industry trends, such as growth in derivative securities. Foreign stocks comprise 54% of assets, about average for global funds. Its $16-billion average market cap, significantly less than the group norm, reflects his interest in firms across the capitalization spectrum.

When the market climate is gloomy, all weather Permanent Portfolio (PRPFX) often shines as its allocation by charter is only 30% in stocks. The rest is in gold, silver, Swiss Franc assets, and US Treasuries or other dollar assets. The fund will appeal to investors who value very low risk and high reward-risk efficiency and won’t get impatient in rising markets when the fund lags. Over the last five years, which included a big market drop in 2002, its 85.9% return beat the market’s 38.5%. But since the low in October 2002, its 14.0% annualized return fell short of the 17.5% return of the market.

All-cap Polaris Global Value (PGVFX) would enhance most any account that can accept market risk. Boston-based Bernie Horn has developed a selection process over the fund’s 18 years that looks for firms that are undervalued with respect to their cash flow. His process has excluded technology firms for several years, but included lots of business- and consumer-services firms. Horn goes wherever his process leads him, so the country allocations may not resemble those of the indexes. As he has found more opportunities abroad in the last year, only a third is invested domestically. Very low turnover and tax efficiency are added attractions.

Vanguard Mid Cap Value Index (VMVIX) is interesting because this subset of the market has been the most rewarding since at least 1992. There are several mid-cap value indexes. This fund uses the MSCI Mid Cap Value US index, which back testing and real-time tracking have shown to have returned the annual equivalent of 15.3% over the last 14.75 years. This beats even small-cap value, the other subset of the market with strong long-term returns. Thus VMVIX is a good core position for both taxable and tax-advantaged accounts. VOE is the ETF version; its expense ratio is 0.13%, vs. 0.25% for the fund.

Subscribe to Equity Fund Outlook here…

Related Articles on