What Mutual Funds We're Buying

Premium Members at Morningstar.com know what funds we're recommending, but it's natural to be curious to see what funds we're buying amid the bear market. And yes, we are buying just like we've said investors should do in numerous columns over the past few months. I'll start with my own investments and then move on to those of some of my colleagues.

What I'm Buying
With so many smart investors like Warren Buffett and Jeremy Grantham saying that stocks are cheap, I feel confident a lot of funds are going to prove to be good investments today even if we aren't at the bottom.

I've grouped my buy list into two types: stalwarts and rebound plays. The stalwarts have held up better than most, and the rebound plays have gotten smacked but have great managers who still know what they're doing. Which group you choose from should depend on whether your portfolio is full of financials-heavy, beaten-down funds like  Clipper (CFIMX) and  Weitz Value (WVALX) (go with the stalwarts) or funds that sidestepped the mess in favor of healthier companies (go with the rebound plays). For my own portfolio, I'm buying from both columns. I'm also imitating Jeremy Grantham by buying carefully and slowly. (Boosting your 401(k) contribution is one way.)

Stalwarts
 Sequoia Fund (SEQUX), Jensen Fund (JENSX),  Royce Special (RYSEX),  Fairholme (FAIRX),  Vanguard Primecap Core (VPCCX),  Allianz NFJ Small Cap Value (PSVIX),  Artisan International Value (ARTKX), and  Harbor Bond (HABDX) have done brilliant jobs steering through the bear market. The stock funds have generally owned companies with little debt, which makes them far less dependent on wobbly banks. They are run by great stock-pickers whom I trust to find great bargains amid the meltdown.

Rebound Plays
If you own these funds you might be too mad to send them more money. They underestimated the severity of the financial debacle and got burned. Yet, these are all funds that have made money for their investors over the long haul, have protected against losses in other bear markets, and still have the people and strategy in place that have worked well over a long time period. No fund or strategy is risk-free.

These are funds that might come roaring back when financials get off the mat. My rebound bets are  Longleaf Partners (LLPFX),  Selected American (SLADX),  Dodge & Cox Stock (DODGX),  Dodge & Cox International Stock (DODFX), and  Loomis Sayles Bond (LSBRX).

For Selected and Dodge, the problem has been financials. Longleaf has a lot of economically sensitive stocks. Loomis Sayles Bond's problem has been corporate debt. Dan Fuss has been buying investment-grade and junk bonds at a time when everyone is fleeing to Treasuries. Treasuries are likely to offer poor returns in the future.

So far, I've added two new funds to my portfolio this fall: Jensen and Allianz NFJ Small Cap Value. Jensen has great high-quality names that will ride out this storm. Whenever great companies get cheap, it's a good idea to buy. Allianz NFJ Small Cap Value owns a fair number of financials, but they're the ones that stayed sober while others got drunk on leverage and derivatives. I'm also adding to positions in Selected American and  Primecap Odyssey Aggressive Growth (POAGX).

Don Phillips: Buying Sequoia and Longleaf
Morningstar managing director Don Phillips has been buying muni funds and stock funds alike over the past 18 months. He reports that he's been buying Vanguard muni funds and Sequoia, Longleaf Partners, Dodge & Cox Stock, Baron Partners, and Fairholme. In addition, he bought  Vanguard Inflation Protected Securities (VIPSX) and Vanguard Market Neutral.

Dan Culloton: Buying Vanguard Dividend Growth and Clipper
Meantime, our resident Vanguard expert is buying  Vanguard Dividend Growth (VDIGX) and Clipper which he views as complementary. He likes the low-cost play on dividends as well as subadvisor Wellington's stock-selection skills.

"A lot of 'dividend growth' funds stretch the notion of growing dividends to stocks that have a lot of cash and earnings, but no record nor intention of paying a dividend," Dan says. "This one doesn't. I also like the dividend growth strategy; I think it's a good way find steady, profitable companies with redoubtable competitive advantages and decent long-term growth prospects. It helps that a Wellington manager who knows his limitations is at the helm. It has been light on financials because manager Don Kilbride has been suspicious of their dividend growth prospects for a couple of years (prior to the crisis payout ratios and ROEs were at all time highs)."

As for Clipper, Culloton notes Davis and Feinberg's outstanding record and their commitment of $5 million of their own money to the fund.

John Coumarianos: Buying Greenspring Fund
John Coumarianos has been buying  Greenspring Fund (GRSPX) in part because it owns a slug of convertible bonds which have gotten very cheap lately. Convertibles have been pounded because some have credit risk but also because hedge funds love converts and have been forced to liquidate big positions in converts as investors pull their money out.

Ryan Leggio: Buying Jensen Fund
Meanwhile, Ryan Leggio is buying Jensen Fund. He likes its portfolio of high-quality wide-moat businesses. He also likes the fact that he can buy in when the market is trading below Jeremy Grantham's estimate of fair value.

Mike Breen: Buying Longleaf Partners Fund
Mike Breen is a contrarian value investor. So, when one of his longtime favorite funds is having a rough year, Breen is eager for the chance to buy its portfolio on the cheap. Longleaf's managers have said that stocks look particularly cheap this year. True, it's been an awful year, but the fund's long-term record is brilliant.

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