Starting in January of 2007, I began highlighting various mutual funds and provided a brief analysis and review of each. Some of the funds are very well-known, while others are small and go practically unnoticed by the investing community. I don’t claim to be an expert fund selector, and none of these funds are recommendations to buy or sell, but I thought it would be interesting to go back and see just how these funds matched up against their benchmarks or the market as a whole.
Mutual Fund Review: Royce Pennsylvania Fund (PENNX) - The mutual fund review series got started with this small-cap offering by the Royce fund family. One of the key quotes from that review was: “Its managers run it as an all-weather vehicle that should suffice to provide an investor’s domestic small-cap exposure. It holds a roughly even mix of micro-caps and standard small caps, and it spreads assets across the value, blend, and growth categories.” Since this fund was highlighted right at the beginning of 2007, we have a full year of performance to look at which encompasses both the great early-year run in the market and the subsequent decline in the 4th quarter. Was it really an all-weather fund?
Looking back at 2007, this fund saw a total return of 2.8%. This clearly underperformed the S&P 500 which returned around 5.5% on the year. But, not so fast. This is a micro to small-cap fund, so the S&P isn’t its benchmark. When comparing it to a small-cap benchmark, the fund actually outperformed by 3.9% as many small cap funds and indicies finished the year around -1%.
The verdict: it looks like it had a strong year and held true to its goals.
Mutual Fund Review: CGM Realty Fund (CGMRX) – Also in January of 2007 we took a look at the CGM Realty Fund. You’re probably thinking the same thing I’m thinking, and that investing in real estate with all that is going on right now is probably the worst place to put your money. From the review: “It’s also worth noting that Heebner makes big bets beyond real estate stocks, and those wagers can shift quickly and dramatically. In recent years, the fund’s 20% non-real-estate stake has been successfully invested in homebuilders or energy stocks. The June 30, 2006, portfolio shows a more-recent enthusiasm for commodities miners, such as Southern Peru Copper.”
So, did Heebner’s active and aggressive strategy pay off? You bet! For 2007 the fund realized an unbelievable 34.4% return, which was more than 49% better than the realty index. Clearly, this fund has done very well by expanding into areas of real estate that go beyond the housing market and builders and has capitalized on tapping into some foreign interests. It is worth noting that so far YTD 2008 the fund is down about 7%, but that is still better than the broad equity markets. The 5-year annualized return is still at a hefty 38.26%
The verdict: Another home run year for Ken Heebner. He has proven for yet another year that his strategy works. Will the same hold true for 2008?
Mutual Fund Review: Amana Trust Income (AMANX) – This large-cap value fund was also reviewed in January of 2007. “What makes this fund different is the philosophy behind it. The Amana Funds invest according to Islamic principles, or Sharia. Generally, these principles require that investors avoid interest (riba) and investments in businesses such as liquor, pornography, gambling, and banks. The Funds avoid bonds and other fixed-income securities. The Funds seek protection against inflation by making long-term equity investments.”
Did this equity fund with a unique approach hold up to the volatile markets? Surprisingly, for a fund that doesn’t invest in fixed income or other instruments that provide interest, this fund did extremely well. For 2007, the fund realized a 14% return. This easily beats the S&P 500 by more than 8% and it outperformed its large-cap value benchmark by almost 13%. This fund continues to provide results with its 3 and 5-year annualized returns at 13.5% and 17.7% respectively.
The verdict: Even with a pure equity portfolio based largely on value companies, this fund had a fantastic year.
Mutual Fund Review: Oakmark Equity & Income (OAKBX) – The Oakmark Equity fund is designed to provide returns from capital appreciation, with reduced volatility from income producing assets. As the review mentions, you’d generally consider a fund that holds 20-30% of its holdings in investment grade or government bonds to lag a stock portfolio. Over the past 10 years, that hasn’t been the case, and this fund has kept pace with, and in many cases, outperformed the market as a whole.
But how did it do this year? Surprisingly, this fund was still able to churn out a nice 12% return in 2007. This beat the S&P by a little more than double, and it was able to squeak out 50 basis points compared to its benchmark, which in this case is a Dow Jones Moderate Portfolio. The 3 and 5 year annualized returns still show 9.76% and 12% returns respectively, which is quite good for an equity & income offering.
The verdict: While this fund didn’t blow away the competition, it held up very well and continued to deliver solid results.
Mutual Fund Review: Janus Contrarian (JSVAX) – Sometimes it pays to go against the grain, and that’s what this fund is all about. The Janus Contrarian Fund purposely invests in companies that are out-of-favor. It is reasonable to see how this strategy can work over an extended period of a common market trend, but how does this work when you see a strong bull market turn south very quickly? Does management have the foresight to make the moves to keep up with the rapidly changing sentiment?
In the case of JSVAX, the answer is yes. This fund ripped off a 2007 annual return of over 21%. Clearly, we don’t need to explain that this is significantly better than the market as a whole for the year, but it is impressive that the fund could adjust or at least weather the changes that began in October of 2007. To be able to maintain an over 20% return on the year and keep the 3-year annualized return over 19% is excellent.
The verdict: Again, this fund has proven that you can go against what the markets are saying and come away with superior returns.
Mutual Fund Review: Fidelity Floating Rate High Income (FFRHX) – The Fidelity Floating Rate High Income Fund, a recipe for disaster in 2007. This fund is in the bank loan category, and clearly with the subprime mess and all of the foreclosures and defaults taking place, you’d be a fool to invest in a floating rate fund, right? The typical benefits of a floating rate fund come from the lack of volatility. When you track the performance on a chart, you end up with almost a straight line of growth. But, what did the credit crisis do to the volatility in 2007?
Clearly, in the second half of the year this fund saw a drastic correction. In the last part of the year the fund lost over 2.5%, but even so, the fund closed out 2007 with a positive 2.7% return. Of course, this positive return came as a result of some volatility, which most people in this fund didn’t appreciate seeing, but to still close the year on a positive note is not terrible. The yield is now over 6%, but that unfortunately comes from the current fixed income market and changes in interest rates. This fund is actually negative so far on the year, so there are plenty of better fixed income alternatives out there.
The verdict: While the fund did see a positive return and still beat its peers by about 1%, more traditional fixed income investments have been the place to be in recent months.
Mutual Fund Review: T. Rowe Price Spectrum Growth (PRSGX) – While value stocks have been the name of the game for the past few years, the second half of 2007 favored growth stocks. This should bode well for this fund, but is it too diversified for its own good? From the review: “While the fund is focused on an overall collection of large-cap growth stocks, it has been able to boost performance while reducing volatility by incorporating many other funds from the family. The Spectrum Growth fund holds a good portion of value, equity income and emerging market stocks that keep this from being a strict large-cap growth fund.”
2007 wasn’t too bad for this fund as it managed to end the year with an 8.7% return. This was able to beat the S&P and its benchmarks by a few percentage points, which is always good. Even so, the performance was not stellar, but you have to blame part of that on the 4th quarter of 2007, where the fund lost over 2.5%. The 3 and 5-year annualized returns still keep it ahead of the broad markets by a few points.
The verdict: I’m not terribly impressed, but I also can’t complain. It has done a good job at keeping pace with, or beating its benchmark, but there are a lot of funds in this category that can do that.
Mutual Fund Review: Fidelity International Real Estate (FIREX) – We know the dire situation of the domestic real estate market, but what about international real estate? Plus, the CGM fund was able to see tremendous gains, so this fund should have fared quite well also. Unfortunately, that was not the case for the Fidelity International Real Estate Fund. This relatively new fund doesn’t have the aggressive and experienced manager at the helm, so the fund wasn’t able to make a positive out of a very negative market.
While the fund did end the year with a -8.3% return, it is actually a lot better than it appears. While it clearly did worse than the equity markets, this is a specialty fund needs to be compared to an appropriate real estate benchmark. When compared to that benchmark, this fund actually outperformed its peers by over 6%. So yes, it did lose money, but not nearly as much as similar funds.
The verdict: Clearly a loser this year, but the bright spot is that it did perform better than many of its peers. If you insist on having international real estate, this is certainly a reasonable option, but don’t expect monster positive returns in the current market.
Mutual Fund Review: Dupree Intermediate Government Bond (DPIGX) – A government bond fund, it doesn’t get less exciting than this. Most people simply ignore bonds, and government bonds in particular. If you have 30 years until retirement, investments like these will l likely have little to do with your overall portfolio. Even so, a fund like this can certainly bring some stability to your portfolio during volatile times such as this, and this fund is a prime example of that.
2007 was the year of the high-quality bond, at least in the second half of the year. With equities taking a plunge, fixed income investments like government bonds thrived, and this fund was no exception. It closed out 2007 with an 8.2% return, beat its government bond peers by over 2% and even beat the LB Aggregate Bond Index, which includes corporate and higher-yielding bonds by over 1%.
The verdict: While it is a relatively boring investment, it does its job, and it does it well.
Funds Reviewed 3 Months Ago or Less
There are two more mutual fund reviews, but the last two were done over just the past few months, so it is too early to really reflect on their performance. If you’re interested, you can still check them out and see how they are doing during this volatile period.
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About the Author: Jeremy Vohwinkle is a Chartered Retirement Planning Counselor® and spent a few years working as a financial planner. Today, he helps people make the most of their money by writing about personal finance here and elsewhere on the web. Jeremy is also Coach at Adaptu and a regular contributor for other publications such as Intuit, and American Express. Be sure to follow Jeremy on Twitter or Google+.