Four Loser Funds Worth Sticking With for the Turnaround
You don't make a profit until you sell, as the old saw goes, but the opposite is also true. These four funds, while in the red, are worth holding on to.
It isn't any fun opening a fresh issue only to see one of your funds with a bunch of red numbers after its name in the data tables.
I took a look through the August issue for funds with red numbers but good reasons to hold on. I can't say all of those with red numbers are keepers. I'm not a big fan of CGM Focus (MUTF:CGMFX) or Brandywine (MUTF:BRWIX). But others offer more hope for a rebound. Here, then, are four of the better ones.
Royce Value (MUTF:RYVFX)
Whitney George and Jay Kaplan have been way off the mark with their sector selection, and the fund has dismal year-to-date and 12-month losses to show for it.
They have big overweightings in energy and basic materials-the year's worst-performing sectors. Moreover, they are underweight in health care, which has been the best place to be.
They aren't attempting to make sector calls, exactly, but George does have a bullish view on materials and energy because of demand from China and other emerging markets. So they have been a consistent feature of the fund since its beginning. I worry less about sector issues at funds that have long-term favorites, provided they've still made money over the long haul.
And this fund has. It is in the top 5% of its peer group, with a robust 13.3% annualized return during the past ten years.
FPA Capital (MUTX:FPPTX)
Yes, a 3.2% loss for the past 12 months is disappointing, but I'm not pinning it on the "new guys."
Bob Rodriguez took 2010 off and then came back in more of a supporting role. Yet we have confidence in managers Dennis Bryan and Rikard Ekstrand.
Bryan has been with FPA for nearly 20 years and Rikard for 13, so they aren't really new or inexperienced. The fund, like Royce Value, has been hurt by a big energy investment, but that isn't out of character or inconsistent with Rodriguez's MO.
This closed fund figures to be a good bet in down or flat markets, as the firm is still focused on protecting against big losses while making modest gains in rallies.
Vanguard Precious Metals & Mining (MUTX:VGPMX)
Yes, the theme continues. Basic materials are having a tough go of it, as Europe's problems and signs of a Chinese slowdown are taking the air out of commodity prices.
More worrisome, though, is that this fund has red numbers going out all the way to five years. The fund's unusual combination of mining and metals means its past returns aren't easy to compare with the precious-metals category or the natural-resources category. In fact, the fund combines metals and mining indexes to create its own custom benchmark, and tellingly, the fund is actually ahead of that one for the past ten years.
Graham French is a skilled manager who gives us confidence in the fund, even if its relative performance figures aren't that useful. The fund works best as a broad inflation hedge or play on commodities.
Artisan Small Cap Value (MUTF:ARTVX)
This closed fund is a little different. It does have a significant amount (10%) in basic materials, but the real driver of red ink is its 34% industrials stake. Names like Ryder and FTI Consulting have been brutal this year. Even tech names like Intersil and Sykes have been stung. Thus, stock selection has hurt, too.
Yet go out beyond three years and you'll see top-quintile returns for the past five and ten years. That's why we think this is more of a pothole than a cliff.
Editor's Note: This article was written by Russel Kinnel of Morningstar FundInvestor.
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