3 Fund Trades That Will Save You Money

CALPERs, you are ready to graduate from Bogle University.

The giant California pension fund announced in September that it was liquidating its investments in hedge funds. Why? They have high costs and low returns--not really a great combination. Of course, if you’d listened to Jack Bogle (or many of us at Morningstar), you know how important costs are to long-term investment success.

I’ve picked out a three big, pricey funds that are cluttering up the portfolios of many an investor. Then I picked a much better and cheaper fund as a replacement. (I chose actively managed funds but of course you can save even more in most cases by going with a good index fund.) This will increase your chances of future outperformance and achieving your goals.

Sell Federated Kaufmann (KAUFX), Buy Fidelity Mid-Cap Stock (FMCSX)
This trade saves you even more as it takes you from a 1.95% expense ratio to a 0.78% expense ratio. John Roth has a solid four-year record at Fidelity Mid-Cap Stock and an even more impressive eight-year record at Fidelity New Millennium (FMILX). That fund has significantly outperformed Kaufmann, and Fidelity Mid-Cap Stock likewise looks like a good bet versus Kaufmann.

Sell Principal SAM Balanced (SABPX), Buy Vanguard Wellington (VWELX)
At first glance, Principal SAM Balanced looks like a decent deal. Its annual report expense ratio is a modest 68%. However, when you include under­lying fund fees for this fund of funds, the prospectus net expense ratio rises to 1.36%. That’s a lot. Why pay it when 0.26% gets you Vanguard Wellington? The fund is a well-managed 65/35 mix of stocks and bonds that has consistently produced strong results. It’s run by veterans Ed Bousa and John Keogh, who have proved to be steady hands through market tumult.

Sell Gabelli Equity Income (GABEX), Buy T. Rowe Price Dividend Growth (PRDGX)
Mario Gabelli is a good manager, but he’s also the highest-paid CEO in the asset-management business. You don’t get there without charging a lot for your funds. So, instead of paying 1.39% for Gabelli's, I'd rather pay 0.66% for T. Rowe Price Dividend Growth. Tom Huber has done an excellent job running this fund since 2000. He looks for companies with strong cash flows and healthy balance sheets that will enable those firms to boost dividends. He balances growth potential with current payout levels so you end up with a mix of value and growth stocks. The fund has flown under the radar with just $4.4 billion in total assets, giving it a great outlook.

For a list of the open-end funds we cover, click here.
For a list of the closed-end funds we cover, click here.
For a list of the exchange-traded funds we cover, click here.
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