|
|
|
|
Extra
The 25 best mutual funds
Build your investment plan around the Kiplinger 25 -- or choose one of our ready-to-go portfolios.
By Steven T. Goldberg, Kiplinger
Continued from Page 1
There are thousands of funds, and the ones that merit your attention number fewer than 100. But even 100 are too many to sort through, so weve made things easier for you by identifying the 25 best stock funds in the business. The list is continued below:
Small-company funds
Aegis Value (AVALX)
Why youd like it: Proven, hyper-demanding stock selection.
Scott Barbee really takes the "value" part of his funds name seriously. The 32-year-old whiz wants stocks that sell below book value (assets minus liabilities) and sport single-digit P/Es. "The cheaper the better," he says. And, oh, yes -- he wants all this and a growing company, too.
What you get for Barbees pickiness is a position among the top 5% of funds investing in small, undervalued companies over the past five years. Almost every fund thats done better is closed to new investors. Assets have ballooned from $2.2 million less than two years ago to more than $500 million today. Rather than rush to buy stocks he thinks might be too expensive, Barbee has allowed the funds cash position to rise to 50% of assets. His concern for price should protect shareholders the next time the bear makes an unwelcome appearance.
Bridgeway Aggressive Investors 2 (BRAIX)
Why youd like it: Unemotional investing that pays off.
John Montgomerys performance numbers are off the charts. All four of his actively managed funds with five-year records rank in the top 1% among their peers for that period. Trouble is, theyre all closed to new investors.
But Aggressive Investors 2, not yet 3 years old, remains open and largely undiscovered, with just $90 million in assets. Montgomery, 48, says he manages it precisely the way he runs the older Aggressive Investors 1, which returned an annualized 22% over the past five years. Montgomery, who started his career as a transportation engineer, is a "quant" -- that is, he programs computers to pick stocks, rather than making subjective judgments about prospects. Investors 2, which focuses on fast-growing companies, is about 15% more volatile than the overall stock market and sports high expenses. But its management fees are tied to performance, so total fees will come down if Investors 2 fails to perform well.
Century Small Cap Select (CSMVX)
Why youd like it: A small-company fund thats still small.
At a time when many great small-company funds are either closed to new investors or so swollen with assets that they should be closed, Century Small Cap stands out, with just $204 million in assets. Lanny Thorndike, 38, has been running the fund for only four years. But in three of those four years Century shot to the top 20% of funds that invest in small companies using a blend of growth and value styles (it was in the top 40% the other year). And it has trounced the small-company Russell 2000 index($RUT.X) by an average of 9 percentage points per year over the past three years, returning an annualized 19%.
Thorndike and his four analysts use their computers to screen 2,600 stocks on the basis of 15 criteria. Each month the computer spits out 50 stocks that Thorndike investigates. Companies that are especially intriguing merit a visit from a team member. On average, one member or another visits one company per week. Thorndike and his colleagues speak with a companys executives, competitors, suppliers and customers before theyll buy a stock.
Meridian Growth (MERDX)
Why youd like it: An old pro brings home the bacon.
Experience counts for a lot in a fund manager, and Richard Aster has much more than most. Aster, 63, has been managing money and analyzing stocks since 1968. He started Meridian Growth 20 years ago and has been at the helm ever since. "There arent many funds you can say that about," he notes.
Superlatives drip off this fund like water from melting icicles: Meridian Growth has earned an annualized 15% since inception, losing money only one year. It has left its peers -- funds that invest in midsize companies using a blend of value and growth styles -- in the dust. Its long-term investors can only be happy, despite less-than-spectacular returns when the market is at its most hyper. Aster seeks companies capable of increasing earnings at a brisk 15% annual pace, but he wont pay top dollar -- hence the mix of value and growth elements in his methodology.
Selected Special Shares (SLSSX)
Why youd like it: A star manager works with a small asset base.
This is Christopher Daviss undiscovered fund. Focusing on faster-growing (though not superfast-growing) midsize companies, Selected Special has just $100 million in assets -- a pittance compared with the more than $6 billion in Daviss Selected American Shares.
Special is a team effort with a twist: Davis and seven colleagues each have authority to make buy and sell decisions independent of the other managers. "We discuss ideas, we share ideas. Theres communication and interaction, but ultimately individual analysts make the decisions," Davis says. His team has been running Special only since mid 2001. But the group has been managing Davis Opportunity, a nearly identical load fund with $422 million in assets, since its inception in 1994. Over the past five years, Opportunitys Class A shares returned 13% annualized, versus an average of 4% for all funds that focus on fast-growing, midsize companies.
All-size company funds
American Century Equity Income (TWEIX)
Why youd like it: Good returns, strong results in down markets.
Looking for stock-market gains, but afraid of losing money? American Century Equity Income outpaced the S&P by 12 percentage points a year over the past five years, but did so with about one-third less volatility than the index. The fund is not a leader in strong markets. But oh, baby, does it shine in bad times. Its worst loss ever: a mere 5% in 2002.
Lead manager Phil Davidson, 48, has 24 years under his belt running money and has piloted this fund since its inception in 1994. He buys high-quality companies that are temporarily out of favor. "Were looking for companies with transitory problems, not life-threatening ones," says Davidson. He and partner Scott Moore, 39, are partial to high-yielding stocks.
But the fund isnt all about stocks. About 20% of its assets are in securities that can be converted into stock. Convertibles typically deliver above-average yields but arent as risky as common stocks.
Brandywine Fund (BRWIX)
Why youd like it: Momentum investing by experienced pros.
Bill DAlonzo and his two dozen analysts are information junkies, conducting 1,000 phone and face-to-face interviews with corporate officials weekly. Why? Their gunslinging style of investing in fast-growing companies with rapidly rising share prices is fraught with peril. What goes up fast often comes down even faster, so DAlonzo and company keep their trigger fingers poised. The typical holding period for Brandywine, not surprisingly, is a short six months.
The size of a company is not of particular concern to DAlonzo. And unlike many other investors who jump on to stocks with earnings and share-price momentum, he tries to exercise restraint at the cash register. "We dont allow ourselves to fall into the trap of buying a company thats growing 80% if it has a price-earnings ratio of 60," says DAlonzo, 49.
The Brandywine team must be doing something right. Brandywine returned an annualized 8% over the past five years, while the S&P 500 gained zilch. Yet the fund has been 25% less volatile than the index.
Legg Mason Opportunity Primary (LMOPX)
Why youd like it: The best manager of the past decade.
Bill Millers older fund, Legg Mason Value, has topped the S&P an amazing 13 straight years. Value is a relatively conventional fund. The newer and smaller Opportunity gives the world Bill Miller unchained. At Opportunity, Miller can make outsize bets on any type of security he likes -- or doesnt like. (He can and does short stocks and indexes -- that is, bet that they will fall.)
So far so good. Since its inception at the end of 1999, Opportunity has beaten Value every year by anywhere from three to 24 percentage points. Its topped the S&P 500 by even wider margins (it soared 67% in 2003). The price you pay for these numbers is volatility thats off the charts -- few other funds are as unpredictable as this one over the short term. And the 1.94% expense ratio is unusually high. (Because of a high 12b-1 fee, Opportunity is not legally a no-load fund.) You wouldnt want to make it the cornerstone of your portfolio. But in measured doses, Opportunity is knocking.
Masters Select Equity (MSEFX)
Why youd like it: Six star managers under one roof.
This is a buy-and-forget fund. Managers from Brandywine, Legg Mason Opportunity, Longleaf Partners, Selected American Shares, Strong Common Stock and TCW Galileo Select Equity -- six top-notch investment minds, but each with decidedly different points of view -- contribute five to 15 of their favorite picks to Masters Select. The result is a fund that mixes shares of large companies with those of small and midsize companies, as well as rapidly growing companies and more problematic companies that sell at bargain prices.
Masters is the brainchild of newsletter publisher, money manager and Kiplingers columnist Ken Gregory, 45, who hires and fires the managers. Compared with all diversified U.S. stock funds, Masters Select has consistently finished in the top half of the pack since its 1996 launch. It returned an annualized 7% over the past five years.
Olstein Financial Alert C (OFALX)
Why youd like it: By-the-numbers investing, well executed.
Picture a fast-talking, in-your-face guy from the Bronx, and youve pegged Bob Olstein. Like the man, the fund that bears his name is truly one of a kind. Olstein possesses one of the sharpest minds in the country for financial numbers, and built his reputation decades ago uncovering financial chicanery and sleights of hand by some of the biggest companies. And guess what? When he turned his hand to investing money instead of just analyzing figures, he was a natural.
Thanks to his background, Olstein invests strictly by the numbers -- no visits or calls to companies. "We care what management is doing, not what theyre saying," says Olstein. His one unwavering rule is that the stocks he buys must be cheap, at least by his calculations.
Olsteins record is superb. Financial Alert has delivered better returns than the average stock fund every year since its 1995 launch. Over the past five years, it clobbered the S&P by an average of 15 percentage points per year, at the price of 30% more volatility. The high 2.21% expense ratio includes a sizable 12b-1 fee that prevents Financial Alert from being marketed as a no-load fund. Olstein is hardly defensive about his funds high cost. "When you have a heart attack, do you look for the cheapest heart specialist?"
Specialized funds
Third Avenue Real Estate Value (TAREX)
Why youd like it: A nontraditional approach to real estate.
Mike Winer runs what may be the best no-load real estate fund. Over the past five years, Third Avenue returned 20% per year compounded. Thats four percentage points per year more than the average returns of the pack. And Third Avenue achieved its gains with 25% less volatility than its peers.
Most real estate funds focus on high-yielding REITs, but Winer puts the bulk of his money into real estate operating companies. Unlike REITs, operating companies arent required to distribute nearly all of their profits to shareholders; the companies can retain profits to finance growth. "Thats a distinct advantage," says Winer, 48, who has a long and diverse background in real estate. He has done accounting for real estate firms, has run a real estate development business and has served as a real estate stock analyst.
Vanguard Health Care (VGHCX)
Why youd like it: Its a conservative way to play the health sector.
The numbers speak for themselves. Barring disaster, Vanguard Health Care celebrated its 20th anniversary on May 23 by claiming the title as the top-performing fund of any kind over the past 20 years. Its also the No. 1 no-load fund over the past 10 years, with an annualized return of 21%. And heres the kicker: It delivered those returns with one-third less volatility than that of the S&P. Vanguard Health even turned a profit during the 2000-02 bear market.
The funds reclusive manager, Edward Owens, employs a value-oriented strategy for a growing industry. He buys stocks of large and midsize health-care companies when theyre out of favor. "Im a frequent buyer of stocks that have blown up," Owens told Kiplingers in a rare interview. His fund is loaded with drug-company stocks, which have lagged during the stock-market revival. Owens has 25% of the funds assets in foreign markets, where hes finding better values. Incidentally, the fund requires an initial minimum investment of $25,000, and its 1% redemption fee applies on shares sold within five years of purchase.
International funds
Artisan International
Foreign stocks beat their U.S. counterparts in 2002 and 2003, and are running ahead again this year. Two of the top overseas funds the past few years have been managed very differently from outposts in San Francisco and Chicago. From California, Artisan International (ARTIX)s Mark Yockey and his team have set a torrid pace investing in growth stocks. "We invest in good companies that will grow over the long term," says Yockey, 47, who lately has been loading up on insurance and media stocks. The fund returned an annualized 7% over the past half decade, while Morgan Stanleys Europe, Australasia and Far East (EAFE) index -- a widely watched measure of foreign stock performance -- gained an annualized 2%.
Oakmark International
On the other side of the investing-style spectrum stands LaSalle Streets Oakmark International (OAKIX), which specializes in undervalued foreign stocks. Managers David Herro, 43, and Mike Welsh, 41, seek stocks that are priced at least 40% below what they think a company is worth. Lately, they have been finding a lot of bargain-priced blue chips in Europe -- theyre particularly high on European drug makers. Over the past five years, Oakmark gained an annualized 14%, creaming the EAFE index by 12 points per year.
Masters Select International
If you want just one overseas fund, choose Masters Select International (MSILX). Beneath its tent are five fine stock pickers, including Artisans Yockey and Oakmarks Herro, representing a variety of investment styles. They and the other three -- Bill Fries of Thornburg International Value, Dan Jaworski of Marshall International Stock and Theodore Tyson of Mastholm Asset Management -- each contribute eight to 15 of their best choices to this fund. Over the past five years, Masters has outpaced the EAFE index by 10 percentage points per year.
Tweedy, Browne Global Value
The managers of Tweedy, Browne Global Value (TBGVX) are dyed-in-the-wool bargain hunters. Brothers Christopher and William Browne and John Spears focus on stocks that sell at low price-to-earnings, price-to-book-value and price-to-cash-flow ratios. They generally keep 10% to 15% of assets in U.S. stocks. They also hedge all the funds exposure to foreign currencies, meaning that performance depends on their stock-picking skills, not currency moves. Over the past decade, Tweedy, Browne outpaced the EAFE index by seven percentage points per year.
T. Rowe Price International Discovery
To improve potential returns, it makes sense to keep a small part of your overseas investments in a fund that focuses on small companies. Small companies tend to be neglected by analysts, which gives savvy managers more opportunities to uncover hidden gems. T. Rowe Price International Discovery (PRIDX), launched in 1988, clobbered the EAFE index by 15 percentage points per year over the past five years and outpaced the average returns of foreign, small-company funds by six points per year.--Reporter: Katy Marquardt
Return to Page 1
The best bond funds for rising interest rates
6 steps to a perfect portfolio
2004, The Kiplinger Washington Editors, Inc.
|
|
|
|
