The Best New Funds of 2007

The following first appeared in the Contrarian column of the December issue of Morningstar FundInvestor.

In the wake of the bear market, fund company executives swore off trendy fund launches that burned investors. However, some fund companies have gotten back in the business of shameless fund launches designed to ensnare the greedy and the naive. Although we and many others have been warning about the risks in real estate investment trusts for years, some fund companies couldn't help themselves as evidenced by the massive rollout of REIT funds in 2007.

The good news is that some good funds have been launched in this year, too. Most are dull and functional, but what's wrong with that? Here are a few of my favorites.

Vanguard FTSE All-World ex-US Index (VFWSX)
This fund makes it easier to round out your portfolio with foreign exposure. The fund provides exposure to all the big, developed foreign markets and emerging markets, too. Until recently, you couldn't get that because most foreign index funds tracked the MSCI EAFE Index, which excludes Canada and all emerging markets. Only Vanguard Total International Stock Index (VGTSX) overcame this handicap by adding emerging markets to the mix--but it still lacked Canada. On the downside, this fund's expense ratio of 0.40% is higher than Fidelity's EAFE-tracker.

Marsico Global (MGLBX)
This is the boldest of the funds that made my list. It's easy to see why Marsico would launch the fund. It has U.S. and foreign funds, so why not put them into one global fund? The firm has had success on both fronts. The fund is run by Cory Gilchrist, Tom Marsico, and James Gendelman. Expenses are a supercheap 0.75%--but that's something of a teaser rate. It includes a big fee waiver, and the firm could allow expenses to rise. Still, Marsico has produced fine relative performance over many years, and the fund might well produce great absolute performance if the current large-growth rally is sustained.

Tweedy, Browne Worldwide High Dividend Yield Value (TBHDX)
This fund is well suited to Tweedy's investment process. Tweedy, Brown is a conservative Ben Graham-style value shop, so a global dividend fund makes sense. This fund will differ from Tweedy, Browne Global (TBGVX) in two ways. First, it will invest mainly in large caps. Second, it will not hedge its currency exposure--that's been murder on Tweedy Global. Despite Tweedy's unimpressive-looking mutual fund records, its managers really are skilled conservative investors. Whenever the markets catch a cold, Tweedy is a good safe haven.

Fidelity and Vanguard Income Replacement Funds
Fidelity has launched a series of Income Replacement funds with various end dates and Vanguard has filed to launch some in 2008. The funds designed to provide investors with the income they need in retirement. It's a smart idea that could make income investing easier.

Each Fidelity fund has a date attached to it, but rather than targeting a retirement date, the funds target a mortality date at which the investor will no longer need any money. You can see Fidelity Income Replacment 2020 here. The Fidelity funds liquidate after their maturity date, whereas the Vanguard funds don't. You can elect to receive a monthly payment from the funds. The goal is for the fund to grow and generate enough income that it would pay you, at least at first, from gains and income. As time goes on, the fund would return your principal to you until your entire investment is liquidated. There are some key differences between these funds and annuities. They don't have the same tax-advantaged elements. And they don't require that you lock up your money. You can buy and sell shares just as you would with any other mutual fund. Also, these annuitylike funds are a lot cheaper than actual annuities.

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