Four Strong Funds That Passed My Tests
See which funds recently passed the Fund Spy quantitative tests.
With all the data out there, it's easy to get overwhelmed or to place too much emphasis on the wrong thing. That's why I wrote Fund Spy. In the book, I suggested applying a handful of tests when you buy a mutual fund and then using those same tests to decide whether to stay or bail. Specifically, you should look for funds with expense ratios in the cheapest quintile, performance that beats the benchmark since the longest tenured manager came on board, manager investment in the fund of at least $500,000, stewardship grades of A or B, risk that is not High as measured by the Morningstar star rating, and, of course, a good manager.
In the book, I shared 20 funds that passed the test. It's been a wild 12 months since then, so I've run the test again and found a few new names that make the grade. You can find the original 20 in the Fund Spy book.
American Funds New World (NEWFX)
This fund has a conservative take on investing in emerging markets. It made its way through the test by losing less than most in 2008. The fund gets its emerging-markets exposure in two ways: indirectly through developed-country companies that do a lot of business there and directly through emerging-markets stocks and bonds. Naturally that means it usually lags pure emerging-markets funds in emerging-markets rallies but holds up better in declines. In 2008, it lost 46.3%--8.1% less than the typical emerging-markets fund. But this year its 44.4% gain through September lags its average peer by 16.9%. What's attractive here besides the caution is the skill and depth of management. You'd be hard pressed to find an emerging-markets fund with more talented and experienced investors behind it. With an expense ratio of 0.95%, it's also one of the cheapest actively managed emerging-markets funds.
Russel Kinnel has a position in the following securities mentioned above: VASVX, NEWFX. Find out about Morningstar’s editorial policies.