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Four Overlooked Funds That Institutions Love

These funds haven't found a following among individual investors, but the big guys are beating down their doors.

Russel Kinnel, 06/25/2012

Institutional investors sometimes pick up on a good management team before individual investors do. When you see a fund close at a surprisingly low asset base, it might be because it received 3 times that amount from institutional investors via separate accounts.

As John Rekenthaler pointed out, institutional investors make their share of mistakes, too, but you can still get some good ideas from them. They get to know fund management teams and their processes. As a result, they may be willing to move quickly into a new fund because they already know the managers and their strategies from other funds or fund companies. Or it may simply be the case that a fund management team makes its name in separate accounts first and therefore is better known to institutions than individuals.

In any case, there are good funds out there that have largely been off individual investors' radar screens even as institutional investors are piling in. In some cases, those institutional investors appear to be on to something.

Laudus Growth Investors US Large Cap Growth LGILX has just $1 billion in assets despite a truly impressive record. Laudus is Schwab's brand name for subadvised funds; in this case, UBS is the subadvisor. Understandably, neither Schwab nor UBS is a name that inspires visions of great fund management, but each should in this case. Lawrence Kemp and his team at UBS have been an oasis of stability and strong performance. As a result, they are now running nearly $13 billion in this strategy. They manage a focused portfolio of growth stocks without producing excessive volatility. Check out the fund's record since Kemp took the helm in 2002. We rate this hidden gem Bronze.

Artisan Global Value ARTGX is a small slice of a $4.7 billion strategy. Institutions have been attracted to David Samra and Dan O'Keefe's blueprint. They've done a brilliant job at Artisan International Value ARTKX, and it's not hard to see why their approach would work with U.S. stocks. They look for cheap companies with strong balance sheets, and they are quite selective, as evidenced by their compact portfolios. Yet Artisan Global Value has a mere $148 million in assets. Perhaps investors will gravitate toward the fund when it hits its five-year mark in December, as it has outperformed in each of its four calendar years so far. On the other hand, that may be too late. They closed their international value strategy a couple of years ago, and they may be approaching capacity in this fund, too.

With a name like Manning & Napier Pro-Blend Moderate Term EXBAX, this fund clearly isn't run by marketing folks. Manning & Napier runs about $40 billion but has only recently garnered individual investors' attention. The firm has a team of managers that runs all of its funds. It begins by adjusting the fund's asset allocation based on its forecasts and then uses a bottom-up approach to pick stocks and bonds. The firm does a nice job of aligning shareholder interests with its own. For example, an analyst won't receive a bonus if his recommendations are losing money over certain rolling periods, even if the fund has beaten its benchmark.

Western Asset Core Bond WATFX is a $2 billion fund at a management firm with $443 billion in assets. Western runs quite a lot of money for pension funds and routinely competes with PIMCO and BlackRock for business, yet it hasn't received much attention from individual investors. The fund got singed by the 2008 credit debacle as it had more low-quality credits than most of its peers. We feel as though the managers have righted the ship since then, and we rate the fund Silver. 

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Russel Kinnel is Morningstar's director of mutual fund research. He is also the editor of Morningstar FundInvestor, a monthly newsletter dedicated to helping investors pick great mutual funds, build winning portfolios, and monitor their funds for greater gains. (Click here for a free issue). Mr. Kinnel would like to hear from readers, but no financial-planning questions, please. Follow Russel on Twitter: @russkinnel.
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