Last month we purchased Fidelity Limited Term Bond (FJRLX) in our model portfolio. Part of our strat...
Three Funds That Paced the Rebound
08/27/2008 12:00 am EST
Thurman Smith, editor of Equity Fund Outlook, finds three funds that outperformed the market in its recent rally.
A selective rebound has been under way since mid-July. Even if this is a “bear trap” rally, it might be useful to see which funds have been outperforming the market [through early August].
In most rising markets, Sound Shore (SSHFX) is a bit boring. Over the last 16 years, under the same management, it logged 2.2 more points in annualized return than the Dow Jones Wilshire 5000 with dividends (“the market”). Its value-oriented strategy stops short of being deep value.
Unlike some value rivals, managers Gibbs Kane and John DeGulis say they have no interest in finding the turnaround stories with the potential for the greatest gains if there’s a real risk the company could fail. More generally, they say they’re always somewhat cautious, and thus like to see solid balance sheets and strong free cash flow, and want to have confidence in knowing what a company will earn in the next few years.
In the past year, the fund benefited from avoiding nearly all of the financials that suffered the worst subprime-mortgage damage, as well as homebuilders.
Temporarily out-of-favor firms are the main fare at “any cap” growth BB&T Special Opportunities Equity (BOPAX). George Shipp, in charge since its inception in mid-2003, delivered an annualized return of 15.7%, twice the return of the market. Helping recently was a very small energy exposure. Its light financial exposure was helpful earlier.
Good picks in technology and business services have been productive. This is another very efficient fund, [and] its low risk exposure could encourage its use in rebuilding portfolios before a general market turnaround is evident. Its [high] tax exposure might deter its use in taxable accounts.
Special Opportunities Equity is a load fund, but available no load and with no trading fee at Schwab.
Low-risk blend FMI Large Cap (FMIHX) keeps its cool in difficult markets. Ted Kellner and Patrick English have been running it since inception in late 2001. Since then, its annualized return of 8.2% compares favorably with the 4.9% return for the market, especially considering that the fund’s risk exposure is three-fourths that of the market.
The problem with it for most investors is that when the market is strong, this low-turnover, concentrated fund looks sluggish by comparison to other large-cap choices. FMI Large Cap is a low-worry and tax-efficient choice for investors who want to add to their large-cap position before a general recovery is evident.Subscribe to Equity Fund Outlook here…
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