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By Jason Stipp and Christine Benz | 02-26-2015 04:00 PM

12 Contrarian Fund Picks for Your IRA

Morningstar's Christine Benz recommends these tried-and-true value-leaning stock funds, still-open foreign-stock favorites, and TIPS funds for investors who want to tilt against the grain.

Jason Stipp: I'm Jason Stipp for Morningstar. Investors have until April 15 to fund an IRA for the 2014 tax year. Here with some ideas on what you might want to invest in is Morningstar's Christine Benz, our director of personal finance.

Christine, thanks for being here.

Christine Benz: Jason, it's great to be here.

Stipp: Investors do have until April 15 for funding IRAs for 2014 or they might be getting an early start on 2015--both great ideas. But before we talk about specific ideas for today's market, let's just talk generally: If I'm a strategic, long-term investor, what kinds of things should I have in my IRA?

Benz: Well, I think you really want to think about your life stage and what sorts of core holdings make sense for you, given your life stage. I think the starting point for figuring out what to put in your IRA is to take a look at all of your assets together. I think our X-Ray tool does a great job of helping you see what that looks like in terms of your asset-class exposures. Just see whether you are on track relative to, say, a target-date fund geared toward someone in your age range or the allocations in our Lifetime Allocation Indexes. Just do that first read, and then I think it makes a lot of sense if you determine that you're probably light on bonds relative to where you need to be, that you might look at using your IRA to add to those holdings where you are light. But start with that--look at your overall asset-class exposure and then use that to determine where you go next.

Stipp: And then within that asset class, you may want to tilt one way or the other and maybe be a little contrarian--go against the grain and maybe do a little bit better than the market. Maybe not outsized bets, but just making small bets and tilting. You have a few ideas on how you might want to do that. So, let's say I've looked at my portfolio and I need to add a little bit to equities. How would I be contrarian in doing that? The market for equities has been pretty good.

Benz: It has been. One easy way to ensure that you are not overpaying--or at least to help insulate against overpaying--is to steer your portfolio toward the value side of the [Morningstar] Style Box. If you are a value-oriented stock-picker, you could look for companies with high star ratings, meaning that they look pretty cheap in our scoring system, currently. Or you could simply look for value-leaning diversified stock funds--that would be another way to go. A couple of tried-and-true names that we often recommend would be Dodge & Cox Stock (DODGX)--a very large fund, but one that has scaled up very capably. Oakmark Select (OAKLX) would be another idea. Oakmark Fund (OAKMX) is another idea. [These funds are] just good, sturdy, core value-leaning holdings. I think Oakmark Fund may actually land in the blend column, but we think of it as one of our favorite value-oriented funds.

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