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Are the 10 Hottest-Selling Mutual Funds Keepers or Dogs?

A close-up look at the mutual funds with the greatest inflows in 2007.

Russel Kinnel, 06/26/2007

Last year, I took a look at the hottest-selling funds and was encouraged to see that most of them were good choices. Things weren't always that way. Go back to 1999 and investors couldn't get enough tripe.

I took a look at the top sellers for 2007 through May and found that once more investors are choosing some excellent funds with low costs and solid management. That's not to suggest that you should buy a fund simply because it's popular, but if you do own one of these you've made a decent choice.

So, without further ado I'll go over the 10 best-selling retail funds.

Dodge & Cox International Stock DODFX
As someone who bought this fund soon after it was launched, I'd like to say this to the legions of people considering buying the fund: Stay out of my fund! Alas, I have to admit this is an outstanding fund, though I doubt the next 10 years will produce annualized returns to match those from the past five years because that would require 10 more years of rallying stocks and a plummeting dollar. It's mighty rare for that to happen. So, if you have modest expectations and a long-term time horizon, this is a fine investment. I'm not expecting the fund to close anytime soon either. Dodge doesn't have big separate accounts matching this strategy the way it does its domestic-stock fund, so it might even let this fund go beyond the asset level at which Dodge & Cox Stock DODGX closed to new investment.

American Funds Capital Income Builder CAIBX
As with Dodge & Cox International Stock, this fund is a fine choice, but it, too, is unlikely to maintain recent performance. The good thing about a fund like this drawing a lot of sales is that it is run in a conservative way so that even when macro trends turn against it, it should hold up well enough to keep shareholders from bailing. For example, the fund is about two thirds stock and one third cash and bonds. That and the tremendous diversification of its equity holdings enabled it to stay in the black during the bear market. So, if you're looking for dependability rather than huge upside, this is a fine choice.

American Funds Capital World G/I CWGIX
With international funds comprising the top three spots, there's definitely a trendy component to investors' newfound love for things foreign. However, it's good to know they are at least picking strong, conservative funds. This fund doesn't have a bond component like Income Builder, so it will definitely be hurting when markets go south. For example, it lost 5.0% in 2001 and another 7.2% in 2002. However, that's way better than most world-stock funds and a pretty modest hit for a long-term investor.

Vanguard Total Stock Market Index VTSMX
This fund's focus on large-cap U.S. stocks makes it particularly untrendy. So, nice call, Bogleheads. In fact, the contrarian in me makes me think this fund may well exceed those above for the next five or 10 years. This fund's low expense ratio of 0.19% drops to a supercheap 0.09% if you have $100,000 to invest.

Vanguard Total Bond Market Index VBMFX
The bond market is even less trendy of late as interest rates have spiked. In fact, this fund is only up 0.34% for the year to date. That might knock it off the best-sellers list before the year is through but those who hold on for the long term ought to be happy.PAGEBREAK

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