In the quest for the best-performing mutual funds over the last five years, the prizes go mostly to managers who avoided technology stocks, were wary of risk, stuck with mid-range asset classes, and went for value rather than growth. That's what shows up in BusinessWeek's annual Mutual Fund Scoreboard, according to Mara Der Hovanesian, BW's markets and investments editor.
Der Hovanesian says the fund families that show up most often in the Scoreboard's A list include T. Rowe Price, Vanguard, Fidelity sector funds, and Royce family. A few sector funds score high, among them a real estate fund from Undiscovered Managers, in emerging markets Matthews Korea Fund, in technology the Kinetics Internet Fund and ICON Information Technology Fund, and in the health sector the PIMCO RCM Biotechnology Fund.
These were among the many points Der Hovanesian made in an investing chat presented Jan. 28 by BusinessWeek Online and Standard & Poor's on America Online, in response to questions from the audience and from Jack Dierdorff of BW Online. Edited excerpts from this chat follow. A complete transcript of this chat is available from BusinessWeek Online on AOL, keyword: BW Talk.
Q: Tell us what funds came out best in BW's just-released Mutual Fund Scoreboard and the January 27, 2003, issue's accompanying Special Report, "The Best Mutual Funds".
A:What funds came out were a lot of funds that have been on the A list for a couple of years because the managers have a conservative and more value-oriented style of picking stocks. They mostly shunned the tech sector and stuck with middle-range asset classes. Those funds, for instance, include the Ariel Fund, the Osterweis Fund, PBHG Mid-Cap Value, and Royce Low-Priced Stock Fund.
Q: I am looking for a small-cap blended fund. Any suggestions?
A:I don't recommend any stocks or any funds for investors, but I can tell you which small-cap funds are on our A list. They include Bridgeway Ultra Small Company Fund, up on average 12% per year for the past five. Legg Mason Special Investment Trust and Neuberger Berman Genesis are other options.... And you can find fund info galore on BusinessWeek Online's Investing channel.
Q: What's a good fund for investing in China?
A:The best foreign funds in our Scoreboard include the Driehaus Asia Pacific Growth Fund -- it doesn't invest in China strictly, but in terms of an Asian fund, it's one of the best, according to our research.
Q: Your opinion, please, on the Janus Fund and Janus Twenty?
A:The Janus Fund is a C rating, mainly because it overemphasized large-cap tech stocks in the late '90s. The Janus Twenty, despite its limited number of stocks, gets a B rating because it tended to have a little more diversity. But both funds have capitalized on their gains of the late '90s. They haven't fared as well in the last couple of years -- down in the double digits.
Q: Did any sector funds come out with a high score in the latest analysis?
A:Yes, a handful. A couple of real estate funds, including one from Undiscovered Managers, and in emerging markets Matthews Korea Fund. In technology, the Kinetics Internet Fund and also ICON Information Technology Fund. In the health sector, PIMCO RCM Biotechnology Fund.
Q: Is Vanguard Health Care a good fund as far as health-care funds go?
A:Vanguard Health Care also gets an overall A rating from BusinessWeek. It has a 15% annualized return for the past five years. It's also rated 5-star by Morningstar. The manager has been there since 1984, so that's a good sign. He also focuses on blue-chip stocks, which helps because it's a volatile sector.
Q: Any comments on the Oakmark family of funds?
A:Oakmark funds have been redeemed of late as their value style of investing has come back into vogue. We give them generally high marks, except for the Oakmark Small-Cap Fund, which has seriously lagged behind its peers. The international small-cap fund is an A-rated fund, both overall and in its category.
Q: Are hedge funds hurting conventional stock funds?
A:The myth is that hedge-fund managers are exacerbating volatility in the market, but that hasn't been proven to any great extent. And anyway, if you're a long-term investor, it shouldn't really matter. The only thing that can really hurt a mutual fund's performance is if the manager isn't picking good stuff.
Q: On the basis of the Scoreboard, who are some of the outstanding managers as of now?
A:Some of the best managers we've highlighted include Jerome Heppelmann of the PBHG Mid-Cap Value Fund; Harry Hagy and his team at Dodge & Cox; the team at Clipper, including James Gipson; and David Winters' team at Franklin's Mutual Series.
Q: Your thoughts on the T. Rowe Price Mid-Cap Growth Fund?
A:This fund is rated B+ by BusinessWeek for the category and overall performance. It's up about 5% annualized. T. Rowe tends to run solid, conservative funds. It has really low volatility, and the managers are really attentive to not overpaying for stocks.
Q: What fund families show up most frequently on the A list in the BW Scoreboard?
A:T. Rowe Price, Vanguard, Fidelity sector funds, and the Royce family.
Q: How is the Dodge & Cox Balanced Fund rated?
A:That's one of our A funds. It's up 8% in average annual return for the past five years. It gets an A rating because it has the best returns for the level of risk it took.
Q: How about bond funds, Mara -- the second installment in the BW Scoreboard?
A:The best bond funds turned out this year to invest mainly in government securities -- not a lot of high-yield risky stuff on the list -- though an emerging market bond fund or two surfaced, including the GMO Emerging Country Debt Fund (an institutional fund) and the PIMCO Emerging Markets Bond Fund.
Q: Yet some advisers urge investing in high-yield -- junk -- bond funds to diversify the risk. Did any of these score at all well?
A:Yes. Among the peer group, there are a handful of options, including Columbia High Yield and Janus High Yield funds.
Q: What were the best-scoring funds in government securities?
A:The best long-bond fund is offered by Vanguard. It is, in fact, an index fund, and is up 8% per year for the past five years. There are several choices among intermediate government bond funds, however, including PIMCO Real Return, Federated Total Return, and T. Rowe Price U.S. Treasury Bond funds.
Q: Remind us what type of fund looks best in the Scoreboard.
A:Funds that make the Scoreboard are run by managers who have a consistent strategy for investing in stocks, so they're able to straddle both the bull and bear markets, and they don't take on a lot of risk.
Edited by Jack Dierdorff