Which of these funds has grown up and is ready for your investment?
Each year I let you know about the best new funds launched in that year. Today, I'd like to update you on how the funds that were highlighted in the past three such articles are looking. Things are starting to take shape as it has become clearer what the portfolios look like, though we still don't have a lot of performance to go on.
I reviewed 19 funds. To save you time, I've taken them from most ready to buy to those with more work to do. I'd encourage you to read our analyses on the funds for the full scoop on them. I can't really do them justice in one paragraph, but I think this can help you get some ideas worth pursuing.
Dodge & Cox Global Stock DODWX is a fine bet right now. It's an easier choice than most new funds because it takes two proven strategies and glues them together. In addition, the fund came out of the box with a cheap expense ratio of 0.69%, whereas other funds tend to launch with high expenses--meaning that the first shareholders bear most of the burden of the launches. I visited Dodge & Cox the week after the U.S. downgrade and was struck by how calm they were amid the turmoil. The better you know your investments, the less worried you are when the markets get crazy.
PIMCO EqS Pathfinder PTHDX is a compelling fund from Mutual Series veterans Anne Gudefin and Chuck Lahr. They are excellent value investors as proved by their track records at Mutual Series. One surprise for me is that the two have kept their cash stake pretty low so far. It looks like that's partly because they've tapped into PIMCO's expertise at hedging risk and so don't need as much as they might have at Mutual Series. This fund has 13% in cash now. Interestingly, they have built a small analyst staff of three plus a large trading desk of 10. Besides the hedging support, they are also able to tap merger arbitrage, macroeconomic, and currency analytics at PIMCO that wouldn't have been at their disposal at Mutual Series.
DoubleLine Total Return Bond DBLTX can finally put its fight with TCW behind it. The jury awarded Jeffrey Gundlach about $60 million in backpay though one matter was left to the judge to decide. That one outstanding matter isn't likely to add up to a huge amount of damages, though. Thus, the worry that DoubleLine could suffer a crippling blow is gone. Amid all the tumult, Gundlach and team have continued to produce impressive performance that few managers have matched. He has done so by cobbling together less-liquid higher-risk mortgage securities that collectively have worked well but do make it a pretty aggressive fund.
American Funds International Growth and Income IGAAX is a similar story to Dodge & Cox Global. Dividends and foreign investing have long been staples of American's strategies, but this is the first time they are together in an all-equity format. You have experienced managers and low costs, too. The fund aims for a 3.5% yield. That's potentially a challenge, but yields are higher overseas than in the United States.
Hotchkis and Wiley High Yield HWHAX is a nice little boutique. You have two former PIMCO managers running a good fund with around $300 million in assets. High yield is a little like stocks in that issue selection is critical and a small asset base can mean greater flexibility. Ray Kennedy and Mark Hudoff are off to a strong start by combining cautious and aggressive positions.
PIMCO Global Advantage Strategy Bond PSAIX is founded on the smart idea that weighting a global bond fund or index based on gross domestic product is better than market-weighted. That way, your exposure is related to a company's economic footprint; the traditional market weight means you are leaning on the most indebted nations. As a result, the fund has a fair amount in emerging markets and foreign currency risk, but that doesn't sound so bad either. So far, it's off to a fine start. This fund's Institutional shares are a better deal even if you have to pay a fee to get in. They charge 0.70% in expenses, while the retail D and A shares charge 1.1%.
Vanguard Explorer Value VEVFX doesn't boast household name fund managers, but it does have promise. The fund brings together three well-established separate account managers to run this small-cap portfolio. The fund charges a mere 0.56%, so you're getting that exposure cheaply. This fund has a mere $116 million in assets, so it doesn't feel bloated the way that Vanguard Explorer VEXPX does.
Vanguard Total World Stock Index VTWSX and Vanguard FTSE All-World ex-US Small Cap Index VFSVX are two nice broad index funds that won't disappoint you. However, with expense ratios of 0.45% and 0.55%, they aren't the cheapest at Vanguard. You could build comparable exposure a little more cheaply. The small-cap index oddly has 14% of assets in Canada, so be sure to delve into both funds' quirks before you buy.
Artisan Growth Opportunities ARTRX has outstanding managers, but it has work to do on the expense front. Andrew Stephens, James Hamel, Matthew Kamm, and Jason White have produced great results at now-closed small- and mid-cap funds. I feel very good about them, but the fund is charging 1.50% and even that is with a fee waiver that expires next February.
Champlain Mid Cap CIPMX is a similar story to Artisan Growth above. You have good managers moving up in cap, although here they charge 10 basis points less. The fund has outperformed since its 2008 launch. More important, you get Scott Brayman applying the same moderate growth strategy that worked so well at Champlain Small Company CIPSX. Brayman is willing to close funds before assets grow too big, a good trait to find in a mid-cap manager.
Tweedy Browne Global Value II Currency Unhedged TBCUX gives you Tweedy's dependable value strategy without the currency hedges. The fund has put up nice performance so far. Its sibling's history indicates it should lose less in downturns and gain a little less in rallies to produce good overall risk-adjusted performance.
Akre Focus AKREX manager Chuck Akre took his time in getting fully invested, so it's worth taking a look again to see where he's making his bets. Two words: consumer cyclical. He has 41% of the stock portfolio in consumer cyclical names such as Ross Stores ROST, Lamar Advertising LAMR, and O'Reilly Automotive ORLY. On the one hand, I'd say he's vulnerable to a double dip, but it isn't like he's buying at the top of the food chain. Akre is worried about the threat of inflation and has picked stocks that should be insulated from it. Check out his record at FBR Focus FBRVX, and you'll see that most of his bets have been on the money.
Evermore Global Value EVGBX couldn't have gotten off to a worse start. It has lost 15% over the trailing 12 months, as manager David Marcus is a Europhile who likes financials. That has been ugly, but Marcus is a Mutual Series veteran who has since added greater emphasis on management than you typically see from a Mutual Series manager. There won't always be a cloud over Europe, and the same goes for this fund.
Artisan Global Equity ARTHX, comanaged by Mark Yockey and Barry Dargan, is off to a decent start thanks in part to an underweighting of U.S. stocks. The fund is clearly being steered to the growth side, as you might expect given both managers' approaches elsewhere. (Dargan came over from MFS International Growth MGRAX.) They've had some of the same big European names weighing down other funds, such as Schneider Electric SU and Bayer BAYN, but Hong Kong names like Sands China and AIA Group have helped.
Fairholme Focused Income FOCIX has kept us guessing about exactly what it is. Is it a short-term bond fund, a multisector bond fund, or an allocation fund? The answer appears to be a conservative-allocation fund, although there's little about it that's conservative. Bruce Berkowitz has 19% of the fund in stocks and 55% in junk bonds, with the rest in cash. It turns out, though, that "focused" is the more important word than "income." The fund has 24% of assets in bonds from MBIA MBI. He also has big bets on bonds from Sears, Emigrant Bancorp, CIT Group, and Bank of America BAC stock. In short, this is going to be a very quirky fund, but it will probably ultimately prove profitable for shareholders given Berkowitz's record.
Hartford International Value HILAX manager Ted Jayne is playing things fairly close to the vest so far. The fund's largest country weightings are not so different from EAFE's with the United Kingdom, Japan, and Germany leading the way. Sector weights have also been pretty well in line with the category and benchmark. The fund has outperformed so far, and I'll be watching to see if Jayne strikes out on a bold course or if we get more of the same.
Jensen Value JNVSX has experienced management, but this fund brings a new wrinkle--hence its place near the bottom of the list. Longtime quality growth shop Jensen is running this quant value strategy. I want to see more results before buying, even though it has run private accounts in this strategy since 2007. So far, it has modestly outperformed. The strategy here is to maintain focus on return on equity but with much greater emphasis on valuations. It has produced a wider range of cap exposure than the large-cap-focused Jensen JENSX. Stay tuned.
Third Avenue Focused Credit Investor TFCVX has some promise, but its 1.20% expense ratio takes it down to the bottom of my list. That's a steep hurdle for any bond fund to overcome. In fact, it's the highest expense ratio among no-load high-yield funds with at least $1 billion in assets. So far, it hasn't overcome. The fund portfolio is just under 100 names, but it still is focused relative to many bond funds, as its top weightings are greater than you'd typically see. The fund's top three holdings tell you that this is a fund that goes off the beaten path: Koosharem Corp at 4.78%, Marscio Capital at 3%, and Echostar at 2.9%.