Mutual Funds
Ten Great Broker-Sold Funds
Is your adviser packing your portfolio with the best?
By Katy Marquardt, Staff Writer
Andrew Tanzer, Senior Associate Editor
From Kiplinger's Personal Finance magazine, December 2006
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We write almost exclusively about no-load funds -- and for good reason. If you invest in funds that charge loads, or sales commissions, you incur higher fees of one sort or another. Higher costs mean lower returns for you.
Traditionally, brokers and other advisers who depend on commissions sold load funds. As a result, load-loathing investors were shut out of some great funds. Increasingly, though, advisers have access to such funds for their clients without paying a sales fee. Clients usually pay the adviser a flat fee based on total assets managed.
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For example, the American Funds, the nation's largest load-fund family, has offered Class F shares through advisers since 2001. Don Phillips, managing director of Morningstar, says many traditional load-fund sponsors report that as much as 70% to 80% of their assets are arriving with the loads waived.
In picking the ten best commission-charging stock funds, we focused on managers' long-term records. We gave extra points to those managers who consistently beat their peers as opposed to those who simply delivered the highest returns over a given period. We generally favored funds with below-average fees, and we shunned funds and fund complexes with humongous or rapidly growing asset bases (hence, the difficult decision to exclude American Funds from our list).
We're not suggesting that you buy any of these funds directly and pay a sales fee. But if you work with an adviser who hasn't recommended one or more of these funds, you ought to ask, Why not?
Quick on the trigger
No one has ever accused Manu Daftary of trying to mimic the stock market. The captain of Quaker Strategic Growth (QUAGX) is idiosyncratic and quick to seize an opportunity. He trades at a frenetic pace and invests in companies of any size. And he sells stocks short when he thinks the shares are overvalued.
It's tough to argue with the results: Since 1997, Quaker has clocked Standard & Poor's 500-stock index by an average of nine percentage points a year. Daftary, who was born in India and now lives in Boston, rocketed to fame when he was recognized as the fund manager with the second-longest record (eight years) of beating the S&P 500, after Legg Mason's Bill Miller (both managers trail the index this year).
Daftary's guiding principle is that shares of companies that beat analyst estimates will shoot up. Daftary thinks Wall Street greatly underestimates the earnings power of ConocoPhillips, a large holding. One of his favorites among small companies is American Ecology, which holds hazardous-waste-disposal contracts with the U.S. Department of Defense.
Freedom to roam
When you entrust your assets to Mike Avery, of Ivy Asset Strategy (WASAX), you're basically extending him carte blanche to invest abroad or at home in just about anything -- stocks, gold, bonds or cash. (The fund's smallish bond position is run by Daniel Vrabac.) All those investments boil down to a single bottom line: an annualized 12% return over the past five years to October 2, almost twice the S&P 500's gain.
From his perch in the Midwest, Avery takes a global overview. As the U.S. economy started to pick up steam in 2003, Avery figured that rising infrastructure spending and industrial growth in China and elsewhere in Asia was the big global story. What are they short of? he asked, and loaded up on shares of energy, metals and industrial-materials companies. Avery slashed fund holdings in those sectors last spring, not because the story had changed but because share prices had become frothy. Good timing!
His new focus is the rising middle class in China, India and other emerging nations. This guided him to China Life, the country's leading insurance company; China Mobile, the biggest cell-phone company; and Las Vegas Sands, a leader in the burgeoning Macau gambling scene.