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Five Great Funds for Your Tax Refund

It's a good time to build up your savings.

Russel Kinnel, 05/05/2009

So, you just got your tax refund. I know it's tempting to spend it, but remember you've got some ground to make up in saving for retirement, so I'd suggest that you consider investing it. Here are a few of my favorite ideas for that refund check.

I've listed them in descending order of investment minimum in order to accommodate refunds of all sizes.

Third Avenue Small-Cap Value TASCX
If you don't already own a small-cap fund, this is a good time to get one. Nearly all of them are open to new investors and last year's bear market brought down valuations a bit. I'm a fan of Curtis Jensen's "cheap but safe" approach. Since the fund launched in 1997, it has returned 110% versus its benchmark's 69% gain. Jensen has more than $1 million in the fund, which requires a $10,000 minimum investment.

PIMCO All Asset PASDX
The wild swings of the market have revived interest in active asset allocation. History suggests that individual investors usually do a poor job of making active allocation bets, so it's better to leave it someone who's shown he can do it. Rob Arnott uses quantitative models to suggest shifts in assets and he uses a wide array of asset classes for the job. He chooses among stocks, bonds, commodities, emerging-markets debt, convertibles, and TIPS. He's made a lot of good calls, and the fund has beaten its peers in four of the past five calendar years. The biggest knock is that the fund's expenses are a little higher than I'd like, though they are coming down. Still, I'd rather see people put a slug of their portfolio in this fund rather than make drastic changes to the whole thing. That's the path to ruin. The minimum for this fund is $2,500.

Dodge & Cox Income DODIX
We had some bond managers visit us last week and they said investment-grade corporate debt is probably the most attractive spot in the bond market owing to fairly high yields and limited default risks. This fund is a good way to play that. This fund has about 40% of assets in corporates. The firm has excellent credit analysts, and the fund is cheap. It has a $2,500 minimum and charges just 0.43%.PAGEBREAK

Manning & Napier World Opportunities EXWAX
This fund has an outstanding track record--it hasn't really had a bad year since 1998. We like the stability of the fund and the management team behind it. This fund uses a bottom-up approach that focuses on absolute, not relative, value. Its analysts are assigned by global industry and have an all-cap purview. They use a series of discounted cash-flow models to identify stocks that they think are trading at more than a 25% discount to fair value. While this fund doesn't have a high level of manager investment, the management team has millions invested firmwide. The minimum investment is $2,000.

Artisan International Inv ARTIX
This fund's losses in 2008 were right in line with the category average of about 47% so you might wonder why I would bother. The reason is that Mark Yockey still has one of the best track records around. He's crushed his benchmark since this fund was launched in 1995 and he had a great six-year record before that at United International Growth. Last year's losses stemmed, in part, from his fondness for emerging markets and smaller developed markets, but that's part of his appeal. His attention to growth and valuations means the fund straddles the border between blend and growth.

I wrote the first analysis on this fund in 1996 and said, "Yockey's strong track record makes this one of the most appealing new entrants in the foreign-fund sweepstakes." Substitute "established funds" for "new entrants" and the statement still fits today.

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