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Buying a Good Manager's Weakest Fund

Here's one way to make a contrarian play.

Russel Kinnel, 05/30/2006

This article originally appeared in Morningstar FundInvestor, an award-winning newsletter that presents investment strategies and tracks 500 funds.

A couple of years ago at the Morningstar Investment Conference, Bridgeway manager John Montgomery pointed out that inflows track recent returns: The top-performing fund gets the most money, and the worst gets redeemed. However, he noted, investors would have been smarter to do the opposite, because then they'd be buying relatively cheaper securities and selling pricier ones.

With that in mind, I screened for some good managers' lowest-returning funds in absolute terms over the trailing three years.

Bridgeway Blue-Chip 35 BRLIX

Star Rating 3-Yr Ret % 5-Yr Ret % Manager Name
9.69 1.55 John Montgomery

This fund is a simple way to bet on a mega-cap rebound. It's an index of the 35 largest stocks, and it charges just 15 basis points. If you've already got an S&P 500 fund or an actively managed fund with lots of blue chips, I wouldn't bother adding this one. On the other hand, if you have a small-cap-heavy portfolio, a slug of this will go a long way to balancing things out.

Selected American SLASX

Star Rating 3-Yr Ret % 5-Yr Ret % Manager Name
17.98 5.73 Davis/Feinberg

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