Funds That Focus on Innovators

Invest in a collection of groundbreaking companies via these actively managed funds and ETFs.

Given the difficulties in determining whether a company can translate innovation into profits, you may prefer professional help in spotting the next big thing. Two mutual funds, Fidelity New Millennium (symbol FMILX (opens in new tab)) and Baron Opportunity (BIOPX (opens in new tab)), are worth a look. New Millennium manager John Roth holds a mix of sometimes-volatile, high-growth companies balanced with steadier, bargain-priced fare. Among his holdings: Tesla Motors (TSLA (opens in new tab)), Google (GOOG (opens in new tab)) and Illumina (ILMN (opens in new tab)). He also owns KEYW Holding (KEYW (opens in new tab)), a cyber-security play. Roth keeps his stakes in the most speculative com­panies small at the outset, increasing his investment only as a company proves itself. “The more long term the bet, the smaller the position,” he says. From the time Roth became New Millennium’s manager in July 2006 through December 31, the fund returned 9.6% annualized, compared with 7.4% for Standard & Poor’s 500-stock index.

Baron Opportunity manager Mike Lippert invests thematically. Current themes include DNA sequencing (Illumina is a top holding) and Big Data, a catchall phrase that refers to collecting and applying advanced analytics to massive quantities of fast-moving data. Lippert owns Acxiom Corp. (ACXM (opens in new tab)), a marketing company at the forefront of behavioral, or targeted, advertising, which harnesses information about consumers to serve up ads that are relevant to their interests. Other themes Lippert likes include mobile technology, cloud computing and electric cars. “You have to go where the growth is,” says Lippert, “but you have to be patient for some of these things to play out.”

A host of exchange-traded funds allow you to sample up-and-coming themes while diversifying your investment among several holdings. You can invest in cloud computing—external data storage that’s accessible from anywhere through the Internet—via First Trust ISE Cloud Computing Index (SKYY (opens in new tab)). The Robo-Stox Global Robotics & Automation ETF (ROBO (opens in new tab)) includes companies in such businesses as unmanned vehicles, 3D printers and medical robots.

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Anne Kates Smith
Executive Editor, Kiplinger's Personal Finance

Anne Kates Smith brings Wall Street to Main Street, with decades of experience covering investments and personal finance for real people trying to navigate fast-changing markets, preserve financial security or plan for the future. She oversees the magazine's investing coverage,  authors Kiplinger’s biannual stock-market outlooks and writes the "Your Mind and Your Money" column, a take on behavioral finance and how investors can get out of their own way. Smith began her journalism career as a writer and columnist for USA Today. Prior to joining Kiplinger, she was a senior editor at U.S. News & World Report and a contributing columnist for TheStreet. Smith is a graduate of St. John's College in Annapolis, Md., the third-oldest college in America.