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What Mutual Funds We're Buying

Morningstar analysts go bargain-hunting.

Russel Kinnel, 12/02/2008

Morningstar.com Premium Members know what funds we're recommending, but it's natural to be curious to see what funds we're buying amid the bear market. And yes, we are buying just like we've said investors should do in numerous columns over the past few months. I'll start with my own investments and then move on to those of some of my colleagues.

What I'm Buying
With so many smart investors like Warren Buffett and Jeremy Grantham saying that stocks are cheap, I feel confident a lot of funds are going to prove to be good investments today even if we aren't at the bottom.

I've grouped my buy list into two types: stalwarts and rebound plays. The stalwarts have held up better than most, and the rebound plays have gotten smacked but have great managers who still know what they're doing. Which group you choose from should depend on whether your portfolio is full of financials-heavy, beaten-down funds like Clipper CFIMX and Weitz Value WVALX (go with the stalwarts) or funds that sidestepped the mess in favor of healthier companies (go with the rebound plays). For my own portfolio, I'm buying from both columns. I'm also imitating Jeremy Grantham by buying carefully and slowly. (Boosting your 401(k) contribution is one way.)

Sequoia Fund SEQUX, Jensen Fund JENSX, Royce Special RYSEX, Fairholme FAIRX, Vanguard Primecap Core VPCCX, Allianz NFJ Small Cap Value PSVIX, Artisan International Value ARTKX, and Harbor Bond HABDX have done brilliant jobs steering through the bear market. The stock funds have generally owned companies with little debt, which makes them far less dependent on wobbly banks. They are run by great stock-pickers whom I trust to find great bargains amid the meltdown.

Rebound Plays
If you own these funds you might be too mad to send them more money. They underestimated the severity of the financial debacle and got burned. Yet, these are all funds that have made money for their investors over the long haul, have protected against losses in other bear markets, and still have the people and strategy in place that have worked well over a long time period. No fund or strategy is risk-free.

These are funds that might come roaring back when financials get off the mat. My rebound bets are Longleaf Partners LLPFX, Selected American SLADX, Dodge & Cox Stock DODGX, Dodge & Cox International Stock DODFX, and Loomis Sayles Bond LSBRX.

For Selected and Dodge, the problem has been financials. Longleaf has a lot of economically sensitive stocks. Loomis Sayles Bond's problem has been corporate debt. Dan Fuss has been buying investment-grade and junk bonds at a time when everyone is fleeing to Treasuries. Treasuries are likely to offer poor returns in the future.

So far, I've added two new funds to my portfolio this fall: Jensen and Allianz NFJ Small Cap Value. Jensen has great high-quality names that will ride out this storm. Whenever great companies get cheap, it's a good idea to buy. Allianz NFJ Small Cap Value owns a fair number of financials, but they're the ones that stayed sober while others got drunk on leverage and derivatives. I'm also adding to positions in Selected American and Primecap Odyssey Aggressive Growth POAGXPAGEBREAK.

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