Have Our Fund Tips Panned Out?

In our Fund Spy columns, we cover a wide range of topics. Occasionally we recommend specific funds that are worthy of investors' attention. In most cases, that means pointing investors to unloved funds or categories, hidden gems, or those we believe are primed for a comeback. Conversely, we don't go out of our way to highlight hot sectors. For instance, we haven't been writing much about small-value funds, except to remind investors that they can't keep on soaring forever.

How accurate have our fund calls been? And do the recommendations we made in 2004 still hold true? For the answer, I glanced over some of our columns from the past year. While it's too soon to evaluate how these calls will work out, it's nevertheless useful to remind investors of them. Indeed, many still have merit and could provide investors with ideas as we head into the new year, a time when plenty of new IRA checks are written and where investors generally tinker with their portfolios more than usual. 

I'll start by pointing to a column we wrote about three comeback candidates for 2004. Two of the three funds we named have been strong absolute performers in 2004, although one looks less solid on a relative basis. The third fund we recommended,  ABN AMRO/Montag & Caldwell Growth (MCGFX), continues to struggle because of its mega-cap focus, but we still like the fund. Sooner or later, the market will turn, and large caps will have their day again.

Speaking of which, we followed that column with a broader one on the lagging large-growth group. As I pointed out in the previous paragraph, we definitely arrived early to that party. As a group, the large-cap growth category is likely going to finish 2004 as the worst-performing diversified domestic category--unless something drastic happens between now and the end of the year. Again, we don't know when things will turn, just that plenty of smart managers are moving up the market-cap ladder and increasingly pointing to the narrowing gap in valuations between value and growth stocks.

We had more success pointing investors to overlooked funds. In April, we focused on four undiscovered value funds and then broadened our horizons in May to dig up three lesser-known offerings from a broader universe. These funds have mostly done well in 2004, and we continue to like them for the long run. Moreover, they remain relatively small, too, and still enjoy the flexibility of manageable asset bases. Similarly, great stand-alone funds we pointed investors to continue to hum along and remain worthy of investment, while four funds that we said deserve the heave-ho continue to be worthy of that treatment.

We also shifted our attention overseas by pointing investors to Europe. The three offerings we recommended there have done well in 2004, and we continue to like them for investors who build their own asset allocations. In fact, we continue to hear from overseas managers that European stocks still represent decent values relative to their global counterparts, although it's likely that the easy money has been made. Speaking of easy money, if you're intrigued by the hot returns of funds focused on Eastern Europe, think twice. Most are too expensive and volatile, and it's typically a good idea to get that specific regional exposure from a more diversified offering.

Meanwhile, we're still high on Wasatch's mid-cap offering, we continue to recommend avoiding these five index funds, we remain convinced of the comeback chances of these two, and we still think investors shouldn't forget about these three funds.

Poll Results
In the past week we asked you to vote on who among our finalists should win the Morningstar Manager of the Year Award. In polling for both the domestic-stock and foreign-stock awards, you chose the folks at Dodge & Cox. To see if Morningstar analysts agree, check back in early January to see who we settled on.