So Far, So Good With These Young Funds

The turn of the calendar from one year to the next is often a time of reflection for people, including the many investors who have enjoyed big returns on the strength of 2013's better-than-expected market performance. For those happy with how their funds have performed in recent years, there may be no reason to reassess their fund choices, aside from those associated with rebalancing their portfolios following last year's runup in stock prices. But for investors whose funds have consistently underwhelmed--and who don't otherwise have good reasons to hang on to them--a search for new blood may be in order.

If one of your New Year's resolutions is to find replacements for some of the underperforming funds in your portfolio, one of the best places to start your search is Morningstar.com's Premium Fund Screener, which allows Premium Members to identify funds based on a variety of criteria, such as historical returns, manager tenure, Morningstar Risk rating, and much more. One of the great things about the tool is that it often helps readers identify funds they're unfamiliar with--such as those that are newer or that have smaller asset bases--in addition to those that are better known.

Investing in newer funds with shorter track records may not appeal to every investor--especially those who lean heavily on long-term performance numbers--but dismissing newer funds outright based on their age could mean missing out on a good thing. After all, newer funds often have smaller asset bases and/or experienced managers able to implement approaches or tap parts of the market that larger, better established funds can't.

With this in mind, let's take a look at some funds introduced since 2009 that have earned Morningstar Analyst Ratings of Bronze or better, meaning that our analysts expect them to outperform on a risk-adjusted basis over time. Premium Members can see the list, which excludes non-investor share classes and funds that are currently closed to new investors, by clicking here.

Below are three of the best performers among this group, each of which currently carries a 5-star Morningstar rating, albeit one earned over a fairly limited time frame. The fact that these funds have yet to be tested in a wide variety of market conditions needs to be kept in mind. But in the short run, at least, it's been so far, so good.

Thornburg Developing World (THDAX)
Category: Diversified Emerging Markets
Morningstar Analyst Rating: Bronze
Inception: Dec. 16, 2009
A three-pronged, multi-cap approach has served this fund well so far in its young life. Manager Lewis Kaufman looks for stocks that qualify as established and financially sound names selling below their earnings power or net assets, blue-chip growth stocks selling below their historical price multiples, or fast-growing companies establishing leadership in their industries. The portfolio is more diversified across the market-cap spectrum than the typical emerging-markets equity fund (43% of holdings came from the small- or mid-cap arena as of Oct. 31, more than double the category average). However, Morningstar fund analyst William Rocco cautions that the fund "has had a stylistic edge during most of its history--because of its all-cap orientation and other factors--and its strategy will likely be out of favor at times in the future." The fund may come with a load, and annual expenses for A-class shares are 1.48%.

PIMCO CommoditiesPLUS Strategy (PCLAX)
Category: Commodities Broad Basket
Morningstar Analyst Rating: Bronze
May 28, 2010
This fund provides commodities exposure by tracking a broad commodities index through the use of derivatives. Its benchmark is weighted more heavily toward energy than another popularly used index. Manager Nicholas Johnson also employs some active strategies to try to outperform the index. The fund invests the collateral for its derivatives in short-term bonds, keeping interest-rate risk on the low side. Over the past three years, the typical broad-basket commodities fund has lost about 6% per year on average, while this fund's returns have essentially been flat, making it a top performer in the category. The fund may come with a load, and annual expenses for A-class shares are 1.24%.

Royce Special Equity Multi-Cap
Category: Large Blend
Morningstar Analyst Rating: Bronze
Dec. 31, 2010
Charlie Dreifus, who also manages Royce Special Equity (RYSEX), a Gold-rated small-cap fund, uses a value-oriented approach built around a low-turnover, concentrated portfolio of companies that are conservatively run and that can fare well in any economic environment. It's an approach that's paid off so far with his newer charge, landing the fund in the top 5% of all large-blend funds over the trailing three-year period ending Jan. 6. Morningstar director of fund research Russ Kinnel sings the praises of this fund in a recent video about good funds with small asset bases. The downside to that small asset base (below $200 million at last count) is that investors often end up paying more for the greater flexibility that a smaller asset base affords the fund manager--in this case 1.36% in annual fees, high for a large-cap no-load fund.