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Favorite Boutiques Launch New Funds

They aren't all created equal, and fees need to come down.

Bridget B. Hughes, CFA, 04/26/2011

Investors have far more choices than they did just a few months ago. Nearly 100 mutual funds have been launched since the end of 2010.

While there has been some variety in the strategies offered, a couple of trends are clear. The most-populated category so far this year, for example, is the long-short group, thanks to a smattering of absolute-return funds (and there are more of these to come). Another trend is investing internationally, particularly in emerging markets.

Investment boutiques, which tend not to launch funds as regularly as the larger fund families, have taken part. Fairholme Allocation FAAFX, launched on Dec. 31, 2010, has already amassed nearly $200 million as of the end of March 2011. That's not surprising, given managers Bruce Berkowitz's and Charles Fernandez's spectacular long-term record on Fairholme FAIRX.

Another boutique, Ariel Investments, launched Ariel Discovery ARDFX, which takes a deeper-value approach than other Ariel offerings and invests in micro-cap stocks. While the fund's inception date is Jan. 31, 2011, its manager David Maley had been managing money in this style for several years prior, even preceding his 2009 start at Ariel. Similarly, TCW International Small Cap TGICX was created at the end of February 2011 for manager Rohit Sah, who had just joined the firm after compiling a strong but volatile seven-year performance record at Oppenheimer International Small Company OSMAX.

Below are four more noteworthy new additions. One common attribute is that not one is a bargain, though some have more-reasonable fees than others.

FMI International FMIJX
FMI International is just the third mutual fund managed by Fiduciary Management, a 30-year-old investment firm in Milwaukee. The firm's management committee, which includes all of FMI's analysts regardless of tenure, will use a value-oriented approach to pick large-cap international stocks here. They expect to have a compact portfolio, typically between 15 and 25 stocks. (It had 23 at the end of March 2011). That kind of focus makes the fund one of the few truly concentrated international funds.

While concentration can make for a riskier investment and sometimes contributes to volatility, the management team here has had much success with its similarly styled large-blend fund FMI Large Cap FMIHX. That fund boasts one of the category's best long-term performance records and has suffered limited volatility along the way, thanks in part to the managers' willingness to keep cash in the portfolio as well as their preference for steady-Eddie firms, such as top picks 3M Company MMM, and Wal-Mart WMT. Generally, FMI Large Cap holds up better than peers in downturns but lags in rallies.

Investors can likely expect a similar performance pattern from International. Although a complete portfolio is not yet available, the fund's top-10 holdings include similarly stable companies, such as Nestle NSRGY and Diageo DEO. According to the fund's prospectus, emerging-markets stocks won't be a big piece of the portfolio, which should mute volatility here.

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