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Good Funds Hiding in Plain Sight

Overlooked funds from Vanguard, T. Rowe Price, and Fidelity.

This article was originally published in the August 2018 issue of Morningstar FundInvestor. Download a complimentary copy of FundInvestor by visiting the website.

In the past, I've written about hidden gems so that you can find good funds you might have overlooked and funds with small asset bases that have plenty of room to grow. One downside to this view is that some of those funds were not readily accessible through mutual fund supermarkets--after all, that's why some of them had small asset bases to begin with.

So, I thought I'd flip the script and focus on relatively small funds from the three no-load giants: Vanguard, Fidelity, and T. Rowe Price. You won't have any problems accessing these funds. I was a little surprised by how many Morningstar Medalists the three fund shops had with less than $4 billion in assets under management.

To be sure, you might not get the benefit of small size with these funds, as their portfolios might overlap with some large funds' portfolios. Also, I didn't attempt to limit my list to only those funds with asset-bloat-sensitive strategies. For me, it was enough to simply call your attention to some good funds that are accessible but quite possibly overlooked.

I left out funds of funds, funds with high minimum investment levels, generic copies of better funds, and really narrow niche funds that not many investors would want.

Golden Munis Where's the love for munis? The three funds with Morningstar Analyst Ratings of Gold that are under $4 billion are all municipal-bond funds. The three from Fidelity and T. Rowe Price offer low costs, deep management, and sound processes.

However, they do lean to the cautious side, and that has made recent returns rather pedestrian as the U.S. economy has been growing steadily since 2009. When we hit a recession, though, the defenses of

Silver-Rated Large Caps Large-cap equity is really at the heart of these three fund giants, and that may explain why some of these funds have largely gone unnoticed. There's plenty of competition, and modest improvements in performance and management sometimes get lost in the shuffle.

We raised Vanguard U.S. Value to Silver in January because its super-low 0.23% expense ratio and its quantitative process make for an appealing vehicle. Vanguard's quant group runs an array of value and growth screens to come up with a diffuse portfolio of companies with appealing value characteristics. Since the quant team became the sole subadvisor in 2010, the fund has performed nicely versus benchmark and peers.

Matt Fruhan took over Fidelity Large Cap Stock in 2005, and he's beaten the S&P 500 benchmark and peers since then by looking for secular-growth stocks and cyclical stocks with rebound potential. Thus, the fund has a diffuse 180-stock mix of value and blend names.

Silver-Rated Core Bond Funds

We have more-cautious bond funds that have not yet found enthusiastic backing among investors.

Fidelity Limited Term Municipal Income is one exception. Its fees are only average, but its performance has been strong, in part because it takes on slightly more interest-rate risk than its peers while remaining cautious on credit risk.

A Gem for Retired Investors

Shorter-Tenured Managers Playing to Fund Companies' Strengths Bronze-rated funds from our big three are often run by managers with shorter tenures than the Silver- and Gold-rated funds from the same firms. Yet, because they are investing in areas that are firm strengths with lots of good analyst and trading support, they still merit medalist ratings. In addition, they have pretty low costs.

Other promising funds where the managers have more modest tenures and experience levels are

A Promising Foreign Index Fund

Vanguard's dividend-oriented index funds for U.S. equities have been tremendous successes. Thus, it isn't too big a stretch to see good things for

2 From Jeff Rottinghaus

Jeff Rottinghaus tackles the S&P 500 head-on with

A Useful Watchlist Chances are you've missed a few of these funds. Besides giving you ideas for right now, this works as a good watchlist of promising funds to buy when you need to replace a fund whose prospects have gone south.

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