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To print article, click Print on your browser's File menu. Go back Posted 11/14/2005 |
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Fund Spy The 5 best new funds of 2005 Morningstar's list includes some boutique funds of which you've never heard. By Morningstar Recently, I wrote about the worst new funds of 2005 (Registration may be required.) In this column, I'll treat you to the best. I've chosen them based mainly on three things: management, strategy and expenses. I'm OK with buying new funds, but rarely do I like to invest with new management. Thus, most of these funds boast managers with plenty of experience. I threw out funds with expense ratios above 1.5% because that's just too much to pay. A couple have expense ratios at or near that level, but there is the chance that fees will come down if assets grow. I found five particularly attractive ones, and I've ranked them in order of how willing I'd be to invest right away.
Vanguard Primecap Core Vanguard Primecap Core (VPCCX) is clearly compelling as it has a stable, outstanding management team in place and low costs to boot. This fund is run by the same management team that has done so well at Vanguard Primecap (VPMCX) and Vanguard Capital Opportunity (VHCOX), both of which are closed. The fund has a slight variation on those funds' styles. This varies slightly from Primecap in that it emphasizes cyclical value industries a little more, whereas Primecap Core is more focused on secular growth. With an expense ratio of 0.75%, it looks tough to beat. Related news and commentary on MSN Money
Champlain Small Company Scott Brayman, who enjoyed considerable success at Sentinel Small Company (SAGWX), runs Champlain Small Company (CIPSX). Brayman left Sentinel last year and fielded a nine-person team at his new firm, Champlain Investment Partners. At Sentinel, Brayman put up top-decile returns from 1996 to 2004. Brayman looks for strong management teams that generate solid returns on capital. At Sentinel, his strategy held up nicely through the bear market. He also brought some of his analysts from Sentinel over to his new shop. I also like the fact that this fund has a mere $15 million in assets, whereas Brayman ran more than $1 billion at Sentinel. Thus, he's got plenty of flexibility at this point. On the downside, the fund charges an expense ratio of 1.4%, though that figures to come down a little should assets grow. Presidio Fund The story with the Presidio Fund (PRSDX) is somewhat similar to that at Champlain. You've got a manager who did well on another fund before setting out on his own. In this case, manager Kevin O'Boyle did a fine job at Meridian Value (MVALX) from 1995 to 2003. We haven't written an analysis yet, but it looks like O'Boyle is following the same strategy he used at Meridian. (More information is available on Presidio's Web site.) He hunts in the bargain bin by searching for companies that have suffered earnings disappointment yet produce solid returns on invested capital. It looks like expenses are 1.5%, though, so I'd like to see it cheaper. Fidelity Strategic Real Return With inflation on the rise and the availability of more tools to fight it, lots of shops are coming out with some variation on Fidelity Strategic Real Return's (FSRRX) theme. This fund looks to fight inflation by investing in a mix of real-estate investment trusts, commodity-linked securities, Treasury Inflation-Protected Securities and floating rate loans. The fund charges 0.85% in expenses, making it cheaper than pure commodity funds but also more expensive than most TIPs funds. Fidelity has an outstanding bond group, so this all-in-one fund is certainly intriguing. We'd be more enthusiastic, though, if Bill Eigen had stuck around to run it. Eigen was originally slated to run this fund but left Fidelity before it was actually launched in September. Eigen had proved to be quite adept at shifting among multiple asset classes. Pimco Fundamental IndexPLUS Total Return Pimco Fundamental IndexPLUS Total Return (PIXAX) is an intriguing new wrinkle (.pdf file) in indexing. It tracks the Research Affiliates' RA Fundamental 1000 Index, which is weighted on fundamental factors rather than market capitalization. Designed by Rob Arnott, the index uses factors such as sales, cash flow, book values and dividends. The end result is an index that is lower in market cap and more value like than the Standard & Poor's 500 Index ($INX). Pimco then layers on its own value-added strategy in short duration bonds in similar fashion to Pimco StocksPlus (PSTKX). I'm not ready to give the fund a full endorsement, though. For me, the appeal of an index fund comes down to getting positive answers to three questions: Is it diversified? Are trading costs low? Is the expense ratio low? At this point, the answers are yes, I don't know, and no. The class A and D shares charge 1.15%. That's a big disadvantage to give up when there are index funds to be had for 0.09% and 0.10%, though I'm confident Bill Gross will be able to make up at least some of that ground. |
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