OCTOBER 3, 2010
Market Jitters? Funds for Nervous Investors.
By BRETT ARENDS
If you're feeling nervous or confused by this market, you're not alone. Savers are holding more than $7.5 trillion on the sidelines, in bank accounts and money-market funds -- even though they're earning next to nothing in interest. After the events of the past two years, they don't know what to do.
Ross MacDonald
Can you trust bonds at these sky-high levels? What about stocks? (The Dow Jones Industrial Average is nearly back to pre-Lehman Brothers levels.) Do you need to be in emerging markets, or gold -- or is it too late?
It's at moments like this that one sees the big flaw in the standard investment advice usually dished out to the public. We're supposed to trust mutual-fund managers to pick the individual stocks and bonds that go into our mutual funds. But when it comes to how much we should actually invest in various funds -- how much into blue-chip stocks, emerging markets, bonds and so on -- we're on our own. Yet this "asset allocation" decision is most likely to make or break a portfolio.
What can you do?
Some people rely on simplistic cookie-cutter rules: So much to bonds, so much to international stocks, and so on. Others put their faith in a financial adviser: But what's to say that your financial adviser is an expert in international markets?
In a perfect world, you'd have a wise, all-knowing financial genius handling all these matters for you. There are a handful of mutual funds that try to offer this. There are no guarantees, but an experienced investment manager with a published track record is given broad freedom to put the clients' money where he thinks the risks are lowest and the potential rewards the highest. He's not tied to any benchmark. If he likes European corporate bonds, he can buy plenty. If he doesn't, he doesn't have to buy any at all.
Looking for ideas? Here are five. Fees are often quite high, and several come with an upfront sales fee. (Minimum investments may be lower for individual retirement accounts.)
Remember: Freedom to beat the market also means freedom to get beaten. Each fund is only as good as its manager. But if he disappoints you, you can fire him with the click of a mouse.
1. Wells Fargo Advantage Asset Allocation (EAAFX):
It sounds boring, but in reality this fund's investments are managed by GMO, the elite Boston fund company chaired by Jeremy Grantham -- the manager best known for predicting the last two crashes with uncanny accuracy. Most of GMO's clients are big institutions and rich people. They have included Vice President Dick Cheney and Sen. John Kerry.
This fund will get you a piece of GMO: The firm will invest your money across domestic and overseas equities and bonds and even in-house hedge funds. The results? It lost just 22% -- or about half as much as the stock market -- in 2008, and rallied 24% in 2009.
Minimum investment: $1,000. Net expense ratio: 0.87%. Maximum sales load: 5.75%. Contact: wellsfargoadvantagefunds.com, 1-800-359-3379.
2. IVA Worldwide Fund (IVWAX):
Manager Charles de Vaulx made his reputation a decade ago as the rising star at First Eagle funds, before quitting to help launch his own firm. His flagship IVA Worldwide fund opened in the teeth of the crisis two years ago. Since then, it has gained nearly 40%, while world markets overall are only up about 9%.
Mr. de Vaulx and his co-manager, Chuck de Lardamelle, found rich pickings during the meltdown. They play a conservative game, but they'll go a long way off the beaten path to find investments where they think the potential rewards outweigh the risks. Current holdings range from gold bullion to Singaporean government bonds to MasterCard stock.
Minimum investment: $5,000. Net expense ratio: 1.34%. Maximum sales load: 5%. Contact: ivafunds.com, 1-877-874-2999.
3. FPA Crescent (FPACX):
Manager Steven Romick was holding around half the fund on the sidelines when the crash came in 2008 -- and then took advantage of the meltdown to load up on bargains, especially among corporate bonds, near the lows. The net result: The fund fell a modest 21% in '08, then bounced 28% in '09. Mr. Romick has built a terrific long-term reputation as a cautious, "deep value" investor: He'll only invest in opportunities he really likes, and if he can't find them, he's happy to hold cash. Over 10 years, the fund has gained a remarkable 160%. Right now, he's holding a lot of blue-chip stocks, 23% cash, and he wants to make changes so he can own gold, too.
Minimum investment: $1,500. Net expense ratio: 1.34%. Maximum sales load: None. Contact: fpafunds.com, 1-800-982-4372.
4. Ivy Asset Strategy (WASAX):
You could call this a growth fund with a difference. Managers Michael Avery and Ryan Caldwell are willing to take bold bets based on their reading of big financial or economic trends, but then they'll use derivatives to limit their risks of loss. And they're known for switching bets fast when they feel they need to.
In the right hands it works: The fund rocketed 40% in 2007, lost a (comparatively) modest 26% in 2008 and made 23% last year. Overall, it has more than doubled investors' money over the past decade. Right now, they're making big bets on Asia, especially China, and on gold.
Minimum investment: $500. Net expense ratio: 1.05%. Maximum sales load: 5.75%. Contact: ivyfunds.com, 1-800-777-6472.
5. Leuthold Asset Allocation (LAALX):
Minneapolis-based Steven Leuthold has been managing investments for more than 40 years. His flagship Leuthold Core fund has doubled investors' money in the past 10 years, but it's closed to new investors. The asset-allocation fund is a lesser-known, similar cousin. The fund typically has at least 30% stocks, and 30% bonds, and can hedge market risk. Mr. Leuthold is known for going his own way, and for using mathematical investment models: He crunches a lot of numbers. The fund fell 31% in 2008, but boomed 30% in the recovery. Right now, the fund holds few bonds, and is cautious on stocks.
Minimum investment: $10,000. Net expense ratio: 1.52%. Maximum sales load: None. Contact: leutholdfunds.com, 1-800-273-6886.
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