Last month we purchased Fidelity Limited Term Bond (FJRLX) in our model portfolio. Part of our strat...
4 Great Funds You’ve Never Heard Of
06/02/2011 9:00 am EST
This quartet of small, under-the-radar winners has proven its mettle through thick and thin, writes Richard Band, editor of Profitable Investing.
I’m always on the lookout for tomorrow’s winners in the mutual-fund derby.
Typically, financial journalists spill most of their ink on funds that have already attracted huge amounts of assets. But that’s a surefire recipe for mediocrity.
As funds get bigger, they become more unwieldy. Equity managers, in particular, find themselves pressured to invest in a longer and longer list of stocks, diluting the impact of their top picks.
So I prefer to concentrate my search on smaller funds that haven’t yet made it to the cover of Money or Kiplinger’s.
After a double in the major market indexes since March 2009, bargains are scarce. Accordingly, I’m searching for little-known funds that not only have turned in outstanding profits, but also have shown less volatility than their peers. It’s the “eat well, sleep well” formula I’ve advocated all along.
Here are my four top picks: three stock funds and a bond fund. At present, all sport less than $400 million in assets. However, I predict these funds will grow by leaps and bounds as the buzz begins to spread:
Ave Maria Rising Dividend (AVEDX; 1-866/283-6274, $1,000)
This growth-and-income fund owns shares of companies whose practices are in harmony with (or at least don’t conflict with) Catholic ethical teachings.
Ordinarily, I’m skeptical of funds that attempt to screen out certain businesses on “social responsibility” grounds. However, AVEDX has compiled a superb record over the past five years.
Not only did the fund lose far less than the market in 2008, but it has also kept pace with the recovery since March 2009. (AVEDX is up 108% from the low.) That’s an extraordinary feat for a conservative fund, and it suggests that manager George Schwartz is on to something with his strategy of buying companies that steadily increase their dividends.
I like the low $1,000 initial minimum, too—perfect for gifts to minors. Current yield: 1.1%.
Manning & Napier International (EXITX; 800/466-3863, $2,000)
Thanks to the falling dollar, the past decade has been relatively kind to funds that invest overseas. EXITX, though, stands out from the pack, having created 50% more wealth than the average foreign large-cap value fund tracked by Morningstar in the ten years ended March 31.
Had you plunked $10,000 into the Manning fund a decade ago, you would now be sitting on a nest egg worth $21,800. EXITX also fell less than its rivals in crisis-scarred 2008, a testimony to skipper Christian Andreach’s defensive leanings.
Robeco All-Cap Value (BPAVX; 888/261-4073, $2,500)
What draws me to this fund is its flexible strategy.
Unlike many stock funds, whose charters require them to stick with large companies, small companies, technology, utilities, and so on, portfolio manager Duilio Ramallo is free to go wherever he finds value. He can even invest up to 20% of the portfolio overseas, although currently BPAVX is nowhere near that (about 8% foreign).
In today’s market, an all-cap mandate makes sense more than ever—there aren’t a lot of bargains to go around. The last thing you want is for your manager to buy overvalued merchandise in order to satisfy an arbitrary capitalization requirement. And yet, that’s what I suspect many folks who run dedicated large-cap or small-cap funds are doing.
Ramallo has proved his mettle in real time. His fund outperformed the S&P 500 by a whopping ten percentage points in misery-choked 2008, then trounced the bogey by 4 percentage points on the way back in 2009. Trust him to steer you gently through any turbulence that may lie in store during the next few years.
TCW Core Fixed Income Fund (TGFNX; 800/386-3829, $2,000)
Sometimes, you want a bond fund you can just “set and forget.” TGFNX is one.
This fund generally sticks with intermediate maturities (five to eight years), but can rotate from one sector of the bond market to another as the business cycle shifts.
The flexibility pays off: In 2008, when most bonds (other than Treasuries) got pounded, TGFNX came out with a 3.6% return. Current yield: 4.4%, which makes the fund a handy choice for retirees and other income seekers.
For best results, average into the three stock funds during market weakness over the next two or three months. All four funds are available fee-free through Fidelity, Schwab and TD Ameritrade, as well as certain other discount brokers.
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