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Fund Spy
6 intriguing funds worth a second look
Morningstar analysts recently began following these choices. Here's why.
By Morningstar
At Morningstar, we cover 2,000 mutual funds with Fund Analyst Reports, and we're always looking for interesting offerings to add to coverage. Some of the recent additions to our coverage list are fairly new funds, while others have been around for a while but have done something lately to catch our attention.
Here's a sampling of the most interesting funds that we've placed under analyst coverage recently.
TrendStar Small Cap
Despite the "me-too" sounding name, TrendStar Small Cap (TRESX) has a fair amount going for it. It's run by Tom Laming and James McBride, who had a rather ugly divorce from Kornitzer Capital two years ago. Kornitzer runs the successful Buffalo Small Cap (BUFSX), and Laming and McBride are running this fund in a similar fashion. They combine a top-down approach with a bottom-up, growth-at-a-reasonable-price strategy. So far the fund has outperformed its category by a nice margin. Morningstar analyst Gareth Lyons notes that he's also encouraged that this fund plans to close to new investors at the small size of just $400 million. The fund has $189 million in assets at the moment.
Schneider Value
As analyst Karen Papalois notes, the Schneider Value fund (SCMLX)
is a real hidden gem. It has pretty much everything you want in a mutual fund. A good, experienced manager, a small asset base and reasonable expenses. Manager Arnie Schneider III left Wellington about 10 years ago to set up his own firm. Using a deep-value strategy, he has put up strong results in separate accounts, and he's done the same in the two years and 11 months that this fund has been open for business. With an expense ratio of just 0.85%, this is the bargain of the six new additions to our coverage list, though you need $20,000 to get into this club.
Royce Value
Yes, it's yet another variation on the Royce Value fund's (RYVFX) small-value strategy. Royce reminds me of the way in which Taco Bell is always coming up with a new name for the same combination of beef, salsa, and cheese in a tortilla. So, let's call this Royce's gordita. It distinguishes itself by having a slightly higher upper band of market caps. It goes after stocks between $600 million and $5 billion. However, so far the fund has had most of its assets in small caps, just like 15 other Royce funds. But it could go into mid-caps at any moment! Also, this fund tends to hold around 60 stocks, making it more concentrated than a gaggle of Royce funds. Analyst Todd Trubey writes that managers Whitney George and Jay Kaplan hew to the typical Royce strategy of "finding firms that have strong balance sheets, solid growth prospects, and good valuations."
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What stands out here is performance. The fund's concentration of holdings and small asset base has supercharged returns in both directions. The fund got clocked in 2002 but rebounded to produce stellar returns since. It's not uncommon for the smaller funds in the Royce stable to enjoy strong returns, but the downside is those returns usually mean a fund won't stay small for long.
Schwab YieldPlus
Low money market yields have sent investors searching for bond funds that can stand in for money markets, and many have alighted upon the Schwab YieldPlus (SWYPX) fund. With a duration of just under half a year, this fund is only taking on a touch of interest-rate risk in exchange for higher yields than you'd see in a Treasury bill. Although that sounds mundane, the fund's assets have soared to about $6 billion. Unfortunately, that hasn't led to a lower expense ratio, as the fund still charges a pricey 0.60%. You can find cheaper ultrashort-term bond funds out there.
Nuveen NWQ International Value
With a name like Nuveen NWQ International Value (NAIGX), it's got to be good. Hiding behind that bland moniker and equally pedestrian long-term performance record is an intriguing fund. Nuveen changed horses in October 2002 when it switched the fund over to NWQ Investment Management. Lead manager Paul Hechmer has installed a bold value strategy, and early results have been encouraging.
Senior analyst Bill Rocco writes that "Hechmer and his team look for companies that are undervalued on a variety of metrics, enjoy strong franchises, and have catalysts for improvement such as new management or restructuring plans." NWQ runs a focused portfolio of just 40 stocks. The fund's three-year returns rank in its category's top 10%, though it's still pretty early. Now the bad news: The fund charges a steep 1.75%. I'd wait until that came down before buying.
Constellation Sands Capital Select Growth
The Constellation Sands Capital Select Growth (PTSGX) fund is exactly what the world of growth investing needs: A concentrated, low-turnover strategy run by an experienced hand. Fast-trading momentum funds led a lot of investors to their doom in the bear market, so it's nice to see a fund that stays focused on fundamentals. I like the fact that managers Frank Sands Sr., Frank Sands Jr., and David Levanson invest with conviction, as evidenced by the fact that they have more than 8% in top holding Genentech (DNA, news, msgs). Although very few individual investors have discovered this fund, institutional investors have more than $12 billion with Sands Capital.
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