Five Great Funds for 2008
The coming year doesn't look like it will be a barn burner for the stock market. But that doesn't mean you can't find great funds to buy.
The following are my five favorites for 2008. Two themes dominate: All these funds emphasize stocks of growing companies, and all specialize in large or midsize companies.
1. Marsico Global (symbol MGLBX). Want to know where Tom Marsico invests? According to a recent proxy filing, he's the biggest single shareholder in this newly minted fund.
Marsico has been a premier growth fund manager for two decades -- first running Janus Twenty and then his own fund firm. Since Marsico Focus's inception at the end of 1997, it has returned an annualized 10% -- beating Standard & Poor's 500-stock index by an average of four percentage points per year. Marsico's firm has had similar success with midcap and foreign funds.
Global is the firm's most promising fund for next year. It has the most flexibility. It can invest in any company regardless of its location -- and it does.
As of October 31, 55% of assets were in the U.S. China and Brazil accounted for a bit less than 10% each. Early results are promising: Since its inception last July 2 through December. 27, the fund gained 18%.
Global lead manager Cory Gilchrist has a terrific record running Marsico 21st Century (MXXIX), a member of the Kiplinger 25. Marsico, himself, and Jim Gendelman, who runs Marsico International Opportunities (MIOFX), are co-managers -- and the entire Marsico team contributes to this fund.
I'm a big believer in the notion that new funds run by first-class managers tend to excel. This fund has just a little more than $50 million in assets -- making it much easier to maneuver than Marsico's other funds.
2. T. Rowe Price Global Stock (PRGSX). There's more than a little similarity between this fund and Marsico Global. Both are go-anywhere, global funds that invest in all kinds of stocks, especially those of growing companies.
Global Stock manager Robert Gensler isn't as experienced as Marsico, but Price is the best large, no-load fund shop in the country. And Gensler put up great numbers running T. Rowe Price Media & Telecom (PRMTX) for five years before switching to Global Stock in April 2005.
He has been magnificent with Global Stock. From the start of his tenure through December 27, the fund has returned an annualized 26% -- an average of ten percentage points per year ahead of the typical global stock fund, according to Morningstar.
Gensler spends much of his time jetting around the world. Less than 40% of Global Stock's assets are in the U.S., and almost 25% are in emerging markets. Gensler likes to trade: Turnover last year was 141%. And he still likes telecom stocks, which make up almost 20% of the fund.
What's most surprising about Global Stock is how little attention it has attracted. Assets stand at less than $900 million.
3. Bridgeway Aggressive Investors 2 (BRAIX). This computer-driven fund is over its 2006 slump -- and then some. Investors pulled money out in 2006, when the fund returned just 5%, trailing the S&P 500 by ten percentage points. Big mistake. In 2007, the fund surged 34% through December 27, leaving the S&P in the dust.
The trick with this volatile fund, a member of the Kiplinger 25, is to buy it and hold it -- and not fret when it lags. The fund is roughly twice as volatile as the S&P, which means monthly returns bounce around wildly. But so far that volatility hasn't translated into poor performance -- even during bear markets.
The fund is a near-clone of Bridgeway Aggressive Investors 1 (BRAGX), which fell 27% in the 2000-2002 bear market-20 percentage points less than the S&P plunged. Aggressive Investors 1, which is closed to new investors, has returned an annualized 18% over the past ten years -- making it the third-best diversified U.S. stock fund.
Manager John Montgomery and his team program computers to pick companies of all shapes and sizes, but both Aggressive Investors's funds are tilted toward growth stocks. That means this is precisely their kind of market.
4. Vanguard Primecap Core (VPCCX). Primecap Core had a poor 2007, returning 8% through December 27. That's more than a percentage point better than the S&P, but 5.5 percentage points behind the average large-company growth fund.
The reason for the lackluster performance? The fund, a Kiplinger 25 member, emphasizes steady growers, such as health care stocks, which haven't done as well this year as stocks of faster-growing companies.
As the economy slows in 2008, look for Primecap Core to regain its luster. The fund is similar to Vanguard Primecap (VPMCX) -- which has returned an annualized 10% over the past ten years, putting it in the top 5% of large-company growth funds.
Primecap Core is run by a group of managers who left the top-performing American funds, which are available only through financial advisers, in the mid-1980s. Primecap has produced excellent results since its launch in 1984. That kind of long record gives you confidence. One more plus: Core's expenses are just 0.60% annually.
5. Legg Mason Opportunity (LMOPX). I just wrote a piece on Bill Miller, so there's no need to go into detail. The short version: He's been wrong so far about financial stocks bouncing back, but only a fool would bet against his long-term record.
Legg Mason Value (LMVTX), Miller's older and better-known fund, now holds $17 billion. Opportunity's assets are less than half that, making it easier to manage. Opportunity has beaten Value every year since its inception at the end of 1999.