Keep these less-well-known funds in mind.
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I recently pointed to worthwhile funds that our analysts have recently brought under coverage. As we continue to write initial reports on such offerings, I've found another quartet worthy of attention. To be clear, I don't consider these funds (or those appearing in earlier articles) on par with our Fund Analyst Picks, which are our top choices within their categories because of their unique strategies, strong Morningstar Investor Returns, and solid stewardship profiles. However, each fund mentioned below possesses enough strong qualities, including interesting approaches and/or managers or advisors that have had success in similar formats, to deserve spots on short watch lists of up-and-comers.
Ivy Asset Strategy WASAX
This fund may appeal to investors seeking a fund with a wide purview. Its managers crunch data on factors such as global economic growth and capital flows to determine which regions and asset classes (they'll invest in metals and commodities, in addition to stocks and bonds) have the greatest return potential. For instance, they've steered the fund into stocks that will benefit from growth in emerging markets, including direct investments as well as secondary plays in developed countries such as Boeing BA. The fund has put up a great long-term record, too. Much of its recent success owes to being in the right place at the right time; in addition to its emerging-markets emphasis, the fund has also favored non-U.S. currencies, which have benefited as the dollar has weakened. Its relative success during the 2000-02 bear market suggests management can keep it afloat in less-than-ideal conditions, though. The fund is actually rather inexpensive, too. Its 1.13%-of-assets expense ratio ranks in the world-allocation group's cheapest 20%.
Manning & Napier Pro-Blend Mod Term EXBAX
Rochester, NY-based Manning & Napier Advisors has built up a very strong record over time with a strong bottom-up equity research effort, helping the firm's large-blend Pro-Blend Maximum Term EXHAX to amass a great record. The firm actually has a suite of 'Pro-Blend' funds, and nearly all of them sport strong records. This version, which invests in stocks as well as bonds and cash, has not only delivered total returns that outpace its peers', but it has also been remarkably consistent in absolute terms. Its standard deviation of returns, which measures volatility, for the 10-year period ended July 31, 2007, was the fifth lowest out of 311 funds in the moderate-allocation category. The fund's expense ratio isn't unreasonable, but it isn't low, either. We expect that 1.16%-of-assets levy could come down as its assets grow.PAGEBREAK
PIMCO Developing Local Markets PLMDX
Now may not be the ideal time to buy an emerging-markets bond fund, given that the area has been so hot and you aren't getting much additional compensation for the extra risk. However, PIMCO, which is clearly one of the top research operations in this space and others, has come up with a relatively compelling option in this fund for when things cool off. While developing countries have traditionally issued greenback-denominated bonds, investor interest has led more of these nations to bring out local-currency fare in recent years. PIMCO saw this trend as an opportunity for investors because these bonds often carry higher yields and offer investors more diversification benefits than external obligations. The fund's managers also stick to short-term bonds, which will shield the fund from a lot of interest-rate risk. And, just like at Analyst Pick Emerging Markets Bond PEBIX, they don't invest much in lower-rated countries, which have higher risks of default. Of course, investors here are exposed to currency fluctuations, so it's advisable to tread carefully.
Templeton Income TINCX
Templeton was one of the first shops to invest in non-U.S. stocks, and the firm launched Global Bond TPINX way back in 1986, so it's a bit surprising that the firm had not introduced a world-allocation option before this fund's debut two years ago. Regardless of the timing, there's some potential in this vehicle designed for income-oriented investors. Equity manager Lisa Myers applies the deep-value approach that's behind all Templeton stock funds here but overlays it with an emphasis on dividend-paying firms. In addition to boosting its yield, focusing on such names also gives the fund more of a foreign flavor than other Templeton global funds because non-U.S. firms tend to feature higher payouts. On the bond side, Michael Hasenstab doesn't take much credit or interest-rate risk, but some of his other moves--investing in emerging markets and non-dollar bonds--introduce risks that many other world-allocation funds do not. Fortunately, he has handled these risks well at Global Bond. However, the fund's rather high expense ratio of 1.2% detracts from its appeal because expenses are subtracted from income. Maybe as this fund gains assets, expenses will come down.
Paul Herbert, CFA, is a senior analyst with Morningstar.