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Which Few New Equity Funds Have Raised Serious Money?

And have they been good buys?

Bridget B. Hughes, CFA, 07/12/2011

Since the beginning of 2008, more than 1,000 new funds have been launched in the United States alone. These new mutual funds range from bond funds to equity funds to alternative mutual funds, and from narrowly focused specialty funds to one-stop target-date or other asset-allocation funds.

In the past three years, bond funds have been the main recipient of investor flows due to the bear market that began in 2007. Equity funds, as a group, have generally suffered redemptions until recently.

A relatively small cache of equity funds, however, have managed to accumulate a meaningful level of assets, in excess of $1 billion each. Some of these, such as the Fidelity Series and Strategic Advisers funds, are funds of funds that are available only to a fund company's target-date or asset-allocation lineups. But some are truer success stories, at least in terms of asset gathering, are those that appealed to investors for one reason or another during or in the wake of one of the most-destructive global bear markets. Following are a few of those examples.

American Funds International Growth and Income IGAAX--$5.1 billion
This fund launched at the beginning of October 2008, already in the midst of a harsh bear market and at the onset of 2008's brutal fourth quarter. It kept its loss to less than 10% in its first quarter of existence. Over its full life span, it is up more than 40% cumulatively, which puts it ahead of more than 95% of its foreign large-blend fund peers between October 2008 and June 2011. It benefited from a large cash balance at its launch and during the rest of the bear market, which officially ended in March 2009. But it also has been strong in subsequent rallies thanks to strong stock-picking.

Coming from one of the most well-regarded and largest fund families (by assets), the fund's growth isn't too surprising. That's especially true given the successful long-term track records on several of American Funds' other international mutual funds, particularly that of American Funds Capital World Growth and Income CWGIX, which applies a similar strategy to both U.S. and international stocks. Here, the management team shoots for a pre-expense yield of 3.5%, which the fund generates primarily by investing in dividend-paying stocks. With yields on bonds at historically low levels in many parts of the world, including the U.S., dividend payers could end up in high demand. Furthermore, many investors say mega-cap blue chips are among the world's most reasonably priced stocks.

Dodge & Cox Global Stock DODWX--$2.0 billion
With the benefit of hindsight, it's clear that Dodge & Cox came to market with this fund at an unfortunate time: May 2008. Stocks had already fallen, but Dodge & Cox made things worse here by overweighting financial stocks, which suffered horribly in 2008's fourth quarter. (The fund lost 24% of its value that quarter.) Even considering the market's run-up that began in March 2009 and the fund's top-quartile 49% gain for that full calendar year, this mutual fund is still down more than 5% cumulatively since its launch. That setback places the fund at the world-stock category's bottom third since its inception. However, it has beaten its benchmark during that time.

The fund's pedigree has kept it in the fund-flow game, however. While it has suffered mild net redemptions in certain months (mostly during 2009's first half), it has more regularly taken in new cash from investors. Dodge & Cox's other funds, including Dodge & Cox Stock DODGX and Dodge & Cox International DODFX, boast superior long-term results (even though they were also weak in 2008); and this fund shares the same proven investment philosophy. Its management team also overlaps with the other funds'. Like its siblings, it also has a low expense ratio, giving it a leg up against the competition.

IVA Worldwide IVWAX--$10.1 billion in assets--and
IVA International IVIOX--$2.4 billion
Launched at the beginning of October 2008, like the American fund, IVA's quick growth in assets in the past 33 months is remarkable, especially considering it arrived a year into the most recent bear market. True, IVA Worldwide (and IVA International at times) can and does hold bonds. But the fund tends to own high-yield bonds, not government issues that find homes in other world-allocation funds and that tend to provide ballast in uncertain times. From the get-go, the fund has experienced a steady stream of inflows, and new investment spiked in February 2011, when the fund said it would close its doors to new investors later that month. (The funds are still getting inflows through existing advisor relationships, though they are smaller.)

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