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The Best Funds Launched in the Past Three Years

Which of these funds has grown up and is ready for your investment?

Russel Kinnel, 09/26/2011

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%.

Russel Kinnel is Morningstar's director of mutual fund research. He can be reached at russel_kinnel@morningstar.com.

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