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The Nine Best New Funds of 2010

Some promising ideas for your 2011 watchlist.

Russel Kinnel, 12/28/2010

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Most new funds are trendy or poorly managed. To make matters worse, many start with a big price tag that suggests one should pay a premium for less-proven investments. Yet every class has a few keepers. Searching through this year's new funds, I found nine promising ones. While the funds are new, the managers are experienced investors with strong track records at other funds. Thus, you aren't gambling on an unknown. On the downside, because they are new, some of these funds have less-than-great expense ratios, so you'd be buying in hopes that asset growth would drive costs down.

We haven't made any of them Analyst Picks, but certainly some make good investments today. Others have more to prove but are worth watching. I'll run through the nine with those that seem most ready for investment from the start.

DoubleLine Total Return Bond DBLTX
Expense Ratio: 0.49%
Manager: Jeffrey Gundlach
In 2009, Jeffrey Gundlach produced great performance at TCW Total Return Bond TGLMX, but he was fired in December. Gundlach launched his own firm and resumed his strategy at this fund in April, and he has continued his remarkable stretch of uncanny returns. In between, he sparred with TCW in a painful divorce that must have scared away potential investors from both firms. There's no doubting Gundlach's skill, but you certainly are taking a risk on whether he has a flawed management style that one day might harm performance. Recently, Doubleline revealed that TCW's allegations that they stole proprietary secrets has spurred a criminal investigation. On the plus side, it hasn't dented performance, and it might well never be a problem for shareholders. In any case, if you buy now, you are going to have to monitor events closely or you could wait and see if the investigation leads to charges.

PIMCO EqS Pathfinder PTHDX
Expense Ratio: 1.24%
Managers: Anne Gudefin and Charles Lahr
It's great to see the Mutual Series style available in no-load format once more. Anne Gudefin and Charles Lahr did excellent work at Mutual Series, and they ought to do well here. They've started to build up a small analyst staff to help them, and they also are tapping PIMCO's macroeconomic expertise to give them a leg up. Lahr said PIMCO helped keep him from jumping into Greek equities too soon when a debt panic threw the country into crisis. Their cautious approach is welcome in this time of turmoil, but their moves into cash mean they aren't likely to get a big pop when stocks rally.

Vanguard Explorer Value VEVFX
Expense Ratio: 0.59%
Managers: Thomas Duncan, William Teichner, Amy Minella, Eugene Fox, Robert Kirkpatrick, Eduardo Brea, and Brian Walton
Because Vanguard Explorer VEXPX has a mild growth tilt, Vanguard rolled out a small-cap fund with a value tilt. This fund has the Russell 2500 Value Index as its benchmark. That means small- and mid-cap stocks in the value and blend boxes are fair game, and so far the portfolio seems pretty evenly spread across the lower half of the Morningstar Style Box. The fund is split among three subadvisors: Frontier, Cardinal, and Sterling Capital Management. The only relevant track records are Sterling's at BB&T Mid Cap Value OVEAX and Cardinal's at Brown Cardinal Small Companies BIACX. Both funds have modestly outperformed their benchmarks under current management.

All three subadvisors ply relative value strategies that emphasize strong cash flow, low valuations, and solid management. As you might expect from three subadvisors, the fund has a diverse portfolio of 175 stocks, none of which accounts for more than 2% of the fund's assets. The two things that stand out about the portfolio are that it is purely invested in the United States, and it has a significant REIT weighting.PAGEBREAK

Evermore Global Value EVGBX
Load: 5%
Expense Ratio: 1.6%
Manager: David Marcus
A decade ago, David Marcus was running funds for Mutual Series. Then he left to run a hedge fund and subsequently ran businesses and invested on behalf of a wealthy Swedish family. His investment style has changed a little, emphasizing the quality of management more than is traditional for Mutual Series investors. It's a promising fund, but Evermore needs to lower expenses here before I'll be enticed.

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