The 10 Mutual Funds That Least Resemble the S&P 500
We went looking for stock funds that go their own way.
Diversification is a fine thing, but it's tricky. Do it right, and you can reduce overall risk while nudging up returns. But do it wrong, and you're just throwing money away on a goofy investment.
Conventional wisdom holds that if you're starting to build a portfolio, you should begin with large-cap funds and then add some small caps and bonds, whose performance will be less like those large-cap giants. After that, adding diversification gets trickier because you get into more obscure areas, some of which can quite volatile on their own. Some planners suggest some commodity plays, such as a natural-resources fund or a precious-metals fund. Such vehicles behave quite differently from the S&P 500, and that can be a good thing.
But another way to add diversification is to buy a more traditional equity fund that doesn't act like the stock market. There aren't many, but there are a handful of U.S. stock funds from our nine Morningstar Style Box categories (small value, large blend, etc.) that have a low R-squared relative to the S&P 500. R-squared measures how much a fund's moves are explained by an index. An S&P 500 index fund will have an R-squared of 100, while a money market fund will have an R-squared of zero. Note: You can find a fund's R-squared figure in the Risk Measures section of a fund's Quicktake.
Russel Kinnel does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.