A Trio of Funds for All Seasons
Want a set-and-forget portfolio? These three mutual funds have enough stability that you can depend on their being well managed rain or shine.
So, you're going to travel the Silk Road for ten years or hang out on a South Pacific island, and you need to get your portfolio in order before you go. If you could buy only three mutual funds, you'd want ones with enough stability that you could depend on their being well managed while you're away. If I were you, I'd look for firms whose analysts and managers stay their whole careers. I'd also look for low costs and good stewardship -- two other things that can work to an investor's advantage year in and year out. Here's where I'd sock my money. (In case you're wondering, I do in fact own all three of these funds, although I don't plan on being out of town for more than a few weeks.)
You might recognize the Primecap name, but probably not Primecap Odyssey Aggressive Growth (symbol POAGX). It's from the same team that has produced outstanding returns at Vanguard Primecap and Vanguard Capital Opportunity, but this fund isn't offered through Vanguard. I'm a big fan of the Primecap folks -- Howard Schow, Theo Kolokotrones, Joel Fried and Alfred Mordecai -- because they really know how to pick growth stocks. They do thorough fundamental research and are stingy about paying a high price for a stock because pricey stocks can fall a long way on just a little bad news. Thus, they often buy in a contrarian fashion after the bad news. What's exciting about this fund is that it looks a lot like Capital Opportunity and Vanguard Primecap did in their youth, before asset growth nudged them into large-company land. Primecap Odyssey Aggressive Growth has about half its assets in small caps, 31% in mid caps and the rest in large caps. It has a small asset base ($326 million) and modest expenses of 0.99%. This fund oozes potential.
I've owned Selected American Shares (SLADX) since I joined Morningstar in 1994. It's been in our 401(k) plan all that time, with good reason. Chris Davis and Ken Feinberg are outstanding value managers in the Warren Buffett mold. They look at the price they are paying for the whole business and hardly ever sell once they get in. They held AIG and Tyco through the stocks' swoons and then back up again as new management led investors to focus on the quality of the businesses rather than the misdeeds of previous managers. Don't get in if you can't stomach an occasional controversial stock. Davis and Feinberg have their eyes on the prize way, way into the future, and they figure you have to accept a little controversy in order to beat Standard & Poor's 500-stock index. Fortunately, they have done just that. The ten-year return of the fund's Class S shares is an annualized 10%, which is well ahead of the S&P and the average large-company fund that blends value and growth characteristics. Despite their years of experience, Feinberg and Davis are still in their forties, so I figure it's a good bet they'll still be buying great companies on the cheap long after your return from Tahiti.
I know, I know. Talk about obvious. Dodge & Cox International (DODFX) is the best-selling fund so far in 2007. It feels kind of creepy for a contrarian like me to be running with the crowd, but I dare you to name a better foreign fund -- one with lower costs, more-stable management and a better strategy. Almost all of Dodge's professionals stay for their whole careers, and that stability has enabled Dodge to do a terrific job picking stocks. Other funds just don't have the same smarts and experience. Also, Dodge is wonderfully risk-averse and shareholder-oriented. If there's a bear market when you're away -- and I wouldn't be surprised, given how hot foreign markets have been -- I'm confident you'll still have more money after ten years than you put in.
Columnist Russel Kinnel is director of mutual fund research for Morningstar and editor of its monthly FundInvestor newsletter.