Investors Share Their Hidden Gems

This week, we asked readers to share their favorite hidden-gem fund picks. (By "hidden gem," we generally mean a fund that is relatively undiscovered by the masses and hasn't yet amassed a large asset base.) We also asked our readers to give some reasons why they think these funds deserve more attention than they're getting.

What we found was that our readers' picks were very wide ranging, as one might expect. After all, a lot of what constitutes a hidden gem is in the eye of the beholder, as every investor has unique investing preferences, risk tolerance, and time horizon. What one investor considers an overlooked or undervalued opportunity, another may feel is being avoided for good reason.

Among our readers' picks were actively managed funds as well as passive strategies. In addition, some respondents mentioned that discounts among closed-end funds had recently earned CEFs a place on their list of favorites.

To read the full thread and weigh in yourself, please click here.

Passive Fund Picks "I have 20% of my portfolio in Vanguard Consumer Staples Index VCSAX," said FrankinSD, who points out that this low-cost fund, which tracks the MSCI US Investable Market Index (IMI)/Consumer Staples 25/50 Index, has outperformed the S&P 500 during corrections such as 2008 and also holds its own in rising markets. "Beyond all of that, it has an investment strategy that makes good sense," explains FrankinSD. "People are going to keep eating, drinking, and taking their medicine regardless of what the rest of the market is doing."

Aubergine

mentioned

Retired at 48 likes EGShares Emerging Markets Consumer Fund ECON, which tracks the Dow Jones Emerging Markets Consumer Titans 30 Index. Companies in the index are not dependent on oil or gold prices for growth, retired at 48 points out. "[This ETF] invests where the generic growth in EM is: rising populations; and rising middle class; decent balance sheets. ... EM market has been weak for several years, but ECON performance is better than most EMs, if not the tops ... holding well."

Newhandle

devotes a small percentage of portfolio assets to utilities fund Hennessey Gas Utility Fund Index GASFX, which tracks the American Gas Association Stock Index. "This fund gives me a bit extra exposure to utilities (excluding telecommunications) and major and minor companies in the category."

Actively Managed Fund Picks

Among

retired at 48

's actively managed fund picks is Seafarer Overseas Growth and Income SFGIX, a diversified emerging-markets fund run by Andrew Foster, the former lead manager of Silver-rated

Chief K

likes

Chief K

's picks; this fund offers a mix of emerging-markets and developed-markets stocks alongside a sliver of emerging-markets debt.

Another conservative-allocation fund mentioned was James Balanced: Golden Rainbow GLRIX. Reader xgrock points out that although the fund is not currently covered by Morningstar analysts, "Discussants have certainly noticed it, and several declare it one of the very best, most reliable, and most consistent performers in the category, a 'keeper.'"

Another reader pick was the Bruce Fund BRUFX, which falls into Morningstar's moderate-allocation category but has historically had a portfolio that does not easily lend itself to categorization. Rogern, who has owned for years, says Bruce is "a low-cost, long-established, top-performing (over longer terms) small fund ... my first choice of hidden-gem picks."

Among

JHAsheville

's picks are emerging-markets bond fund

JHAsheville

said.

Aquinas mentioned Vanguard Tax-Managed Balanced Fund VTMFX, a conservative-allocation fund that invests roughly half of its portfolio in equities and the other half in munis. According to this reader, "it's highly tax-efficient and very much a set-it-and-forget-it fund." Dawgie's hidden-gem pick is Dreman Contrarian Small Cap Value DRSVX. "I consider [its small asset base] a plus for a fund that focuses on small caps."

Closed-End Fund Picks

Yogibearbull

mentioned that the entire closed-end bond fund category looks attractive at "juicy discounts." (Morningstar analyst Jason Kephart points out in his recent article "There's a Fire (Sale) in Bond ETFs" that August's spike in stock market volatility has pushed bond CEF prices further from their NAVs, with many reaching discounts not seen since the financial crisis.)

Yogibearbull

's four favorite CEFs are

Farhorizons echoed yogibearbull's enthusiasm for Templeton Global Income, adding that this closed-end fund has "low fees" and a "great manager"; in addition, it is "in my opinion, attractive at current valuations with a strong dollar now," this reader said. "I'm happy to invest a small percentage of my net worth on this one for a 10-plus year hold."

"With all the deep discounts that abound among closed-end funds, we seem to have wide possibilities," added richardsok, who mentioned Cohen & Steers Closed-End Opportunity FOF, YieldShares High Income ETF YYY, as well as Avenue Income Credit Strategy ACP and Babson Capital Global Short Duration High Yield BGH.