Three Funds That Are Ready for Primetime

07/26/2007 12:00 am EST


Thurman Smith

Editor, Equity Fund Outlook

Thurman Smith, editor of Equity Fund Outlook, finds three promising funds that have good managements and strong recent track records

Julius Baer International Equity II A (JETAX) is not an exact clone of the closed International Equity (BJBIX) because it excludes smaller firms. Rudolph-Riad Younes and Richard Pell are in charge here also, so expect the same top-down approach and emphasis on central and Eastern Europe.

Currently 87% of invested assets is somewhere in greater Europe. With 403 issues, the fund is perhaps overly diversified. During its first 25 months its annualized return of 29.1% is two points above that of Vanguard Total International Stock Index, a proxy for all foreign markets save Canada, and three points above the average foreign large-cap blend fund.

Victory Special Value A (SSVSX) was launched over 12 years ago, but only in the four years under Les Globits has it become competitive with other mid-cap blend funds. Globits has been with Victory for over 20 years, mostly in the foreign investment area.

As at other Victory funds, Globits feels free to diverge substantially from the crowd. For instance, the fund devotes more than 55% of assets to financials, industrials, and consumer services; that's a higher combined weighting than 90% of its mid-cap blend rivals. But he makes sure the fund is mostly mid-cap and growth-at-a-reasonable-price (blend). He also tries to deliver competitive returns every year. Over his four years, he has done just that.

Globits uses themes to define and trace financial catalysts. The center of many themes is government action. Thus, his purchase of alternative energy firms is not based on expectations that people will be more environmentally aware, but on the effects of the Energy Policy Act of 2005, such as in spending for solar and wind power, where he has invested heavily. Similarly, he believes the Pension Protection Act of 2006 will boost asset managers, another area of emphasis. Special Value is a load fund that is available [as a] no-load and no-trading-fee (NTF) fund at Schwab and with the load at Fidelity and TDAmeritrade.

Over its first year and a half, Rainier Mid Cap Equity (RIMMX) returned the annual equivalent of 32.4%, almost twice that of the average mid-cap growth fund. However, [because of] its 70%-greater-than-market decline in the 2006 May-July correction, its reward/risk efficiency is not over the 12.5 reading needed for the best fund ratings. But the spread between the average mid-cap growth fund and Mid Cap Equity has steadily increased, especially over the last six months.

Team members identify firms with above-average growth rates appearing to trade at only average prices. They then consider both individual companies' and whole industries' typical price multiples over many years, to better filter out stocks that are costly by historical standards. That approach led them away from the red-hot REIT sector in 2006 and to property insurers that looked ready for a rebound after a difficult 2005. The team's sell discipline is equally stringent.

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