Investing in a new mutual fund often requires a leap of faith. But if the fund has a veteran manager, charges low fees or offers an investment strategy that can add some pizazz to your portfolio, the jump may be worth making.
For years, the name Bill Miller was synonymous with excellence. Under his guidance, Legg Mason Value beat Standard & Poor’s 500-stock index for 15 straight years, a record no other fund has come close to matching. But Value imploded in 2008, losing 55% and tarnishing Miller’s reputation. Miller no longer runs Value, but another fund he manages, Legg Mason Opportunity, skyrocketed 68% in 2013.
Now the legendary bargain hunter is launching a new fund, Miller Income Opportunity Trust (the symbol and launch date are not yet available). According to a filing with the Securities and Exchange Commission, Income Opportunity will invest in multiple asset classes in search of high income as well as appreciation. Joining as co-manager will be Miller’s son, William Miller IV. As with Miller’s other funds, fees will be high. Annual expenses for the Class C shares are expected to be 2.0%. Plus, the fund will charge a 1% redemption fee on C shares sold within a year of purchase. Still, if you’re a fan of the elder Miller and believe he’s gotten his mojo back, you might want give his new fund a shot.
If you’re worried about the stock market’s wobbly start in 2014 but you want to stay in the game, then you may be interested in funds launched in December by two industry behemoths. Fidelity Event Driven Opportunities (symbol FARNX) invests in companies that have gone through a transition, such as a spinoff or merger. These special situations should correlate less with the overall market than most stocks do, says manager Arvind Navaratnam, who favors companies that are “mispriced” and undervalued. Navaratnam got his start in private equity (investing in non-publicly traded companies), but this is his first crack at running a mutual fund, which means there’s no track record to judge. But Fidelity has a long history of launching stock funds that deliver superior results right out of the gate. The no-load fund charges 1.30% for annual expenses. Holdings have not been disclosed yet.
Vanguard Global Minimum Volatility (VMVFX) is an actively managed fund that uses computer models to identify U.S. and foreign stocks with below-average price swings. “With this fund, you don’t have to abandon stocks or focus on a single type of firm to reduce volatility,” says John Ameriks, head of in-house actively managed funds at Vanguard. Annual expenses are just 0.30% for the investor share class. As of December 31, the fund had 45% of its assets in the U.S. The biggest holdings were Telstra (TLSYY), an Australian telecommunications company; Markel (MKL), a U.S. specialty insurer; and Comverse (CNSI), a U.S. telecom-support firm.
The most senior of the intriguing new funds, Artisan Global Small Cap (ARTWX), opened last June. The fund invests in small, growing firms (defined as having market values of less than $4 billion) based all over the world. One of its three managers is Mark Yockey, who has compiled a superb record running Artisan International, a large-company-oriented fund, since 1995. Expectations are high for the new fund, Artisan’s eighth with a global or foreign focus. “Artisan has done this before,” says David Snowball, publisher of the Mutual Fund Observer, a Web site that tracks the fund industry. “As each team succeeds with one fund, they apply the same discipline to a slightly different subset of the market. Each one has worked brilliantly.” Global Small Cap’s annual expenses are 1.5%, about average for its category. At last word, the fund had a whopping 31% of its assets in emerging markets and only 13% in the U.S. The top three holdings are SIIC Environment, a Singapore firm that designs and manages water-related facilities; Victrex, a U.K.-based thermoplastics manufacturer; and Huhtamaki Group, a Finland-based packaging company.
Although exchange-traded funds rarely come with star managers—ETFs typically track an index—a couple of new ones look intriguing. Start with iShares MSCI USA Quality Factor (QUAL), one of the latest of the so-called fundamental index funds, which own stocks based on factors such as a company’s sales, earnings or dividends. The ETF stands out because of its unusually low fees. Launched last July, Quality Factor charges just 0.15% a year, well below the average 0.47% charged by fundamental index ETFs. Matt Hougan, who heads up editorial efforts for ETF.com, which keeps tabs on the industry, says the fund has a Warren Buffett-like strategy: It invests in companies with high returns on equity, solid earnings growth and low debt levels. “It could be very attractive to people who otherwise would go to a value-oriented mutual fund,” he says. The fund’s top holdings are Google (GOOG), Apple (AAPL) and ExxonMobil (XOM).
Since 2007, Charles Schwab has offered five mutual funds that follow a fundamental indexing strategy. But last year, the company, best known for its discount brokerage unit, rolled out ETF versions of the funds, as well as a new addition, Schwab Fundamental U.S. Broad Market (FNDB). This sixth fund (available only as an ETF) invests in companies of all sizes. Like the other fundamental ETFs from Schwab, Broad Market tracks a benchmark created by Russell and fundamental-indexing pioneer Research Affiliates that weights stocks based on sales, cash flow and dividends, plus share buybacks. As such, the ETF tends to own high-quality companies, often priced below their intrinsic value. Biggest holdings are ExxonMobil, Chevron (CVX) and Microsoft (MSFT). Annual fees are just 0.32%, and if you buy shares through a Schwab account, you won’t have to pay a brokerage commission.
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