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.

Mutual Fund Review: T. Rowe Price Media & Telecom (PRMTX)

Mutual Fund Review: Royce Micro-Cap Fund (RYOTX)

Key Stats

• Managers: W. Whitney George, Jenifer Taylor, David Nadel
• Min. Initial Investment: $2,000 / IRA $1,000
• Front-Load: None
• 12(b)-1 Fee: None
• Expense Ratio: 1.43%
• Assets: $924 million
• Median Market Cap:$322 million
• Turnover: 42%
• Yield: 2.48%

Performance

It comes as no surprise that the Royce Micro-Cap fund has outperformed the S&P 500 because smaller companies have been one of the leading categories over the past few years, but where this fund really shines is relative to its peers over the past two or so years. From 2003 through 2005 this fund primarily mirrored the micro/small-cap category in terms of performance, but beginning in 2006 this fund really started to pull away. In 2006 this fund outperformed its category by a healthy 7.3% margin, and in 2007 it performed over 8% better. This has certainly been a strong performer in this category, and given its Morningstar 5-star rating, this is decent risk-adjusted performance as well.

Morningstar cites some of the strategies that have yielded these results:

Mmanagers Whitney George and Jenifer Taylor hunt down micro-cap companies with solid balance sheets that are trading at reasonable valuations. To balance the risks inherent in the micro-cap universe, management holds a large number of stocks and maintains a three- to five-year time horizon for its picks.

Pros

• No front load
• Relatively low turnover
• Morningstar 5-star rating
• Superior returns in category
• Offers a modest yield

Cons

• Above average expenses
• Very focused fund in volatile micro-cap category
• Newly reopened which could affect investment strategy

The Bottom Line

While the 1.43% expense ratio may seem a bit high, this is actually right in line with many of the micro-cap funds out there. Not only that, but all of the returns shown are as always, net of fees. So even so, it has been worth the higher expense over recent years as it continues to beat its peers by a hefty margin. While performance has been good, it is always worth noting that past performance does not indicate what the future holds, but given its track record and investment strategy, it appears to be one of the best funds if you’re looking to compliment your portfolio with some micro-cap stocks.

This fund should certainly only play a supporting role in your overall portfolio, but you are really doing yourself a disservice if you haven’t had any exposure to small companies over the past decade.

That is why I wanted to highlight the T. Rowe Price Media & Telecom fund (PRMTX). As the name of the fund suggests, it primarily invests in companies in the media and telecom industries. The fund typically seeks media/telecom holdings of around 80% of total holdings, with a focus on large- to mid-cap companies.

Key Stats

• Manager and Tenure: Henry Ellenbogen (2.5 years)
• Min. Initial Investment: $2,500 / IRA $1,000
• Front-Load: None
• 12(b)-1 Fee: None
• Expense Ratio: 0.87%
• Assets: $2.275 billion
• Median Market Cap:$13.6 billion
• Turnover: 55%
• Yield: None

Performance

The performance speaks for itself when looking at the following chart. It is consistently beating its category benchmark, and clearly outperforms the S&P 500 by a large margin. Of course, this isn’t out of the ordinary for a fund that focuses on such a small segment of the market, so a comparison to the broad market isn’t fair. Even so, the margin it regularly beats its peers is enough to grant this fund a top five rank in the category for the past 1, 3 and 10 year averages.

So, how has this fund managed to perform so well? According to Morningstar:

Ellenbogen seeks to buy communications- and media-related companies positioned to benefit from secular trends. He looks for firms trading at discounts to comparable industry peers, but he will pay more for those he thinks are dominant. Ellenbogen will follow in previous manager Rob Gensler’s footsteps by maintaining subsector diversification and looking abroad for opportunities.

Pros

• No front load
• Relatively low expenses
• Morningstar 5-star rating
• Superior returns in category

Cons

• Relatively new management
• Volatile sector
• Somewhat high minimum investment

The Bottom Line

Past performance is no guarantee of future performance, so just because this fund has been on a tear in recent years, that doesn’t mean it will continue. Even so, if you are bullish on the media and telecom sectors, this is one of the top funds in the category. Keep in mind the $2,500/$1,000 minimum investment amounts, because if the minimum investment is more than 5-10% of your total portfolio, you would be taking on more risk that necessary. Otherwise, with this fund offering from T. Rowe Price, it is very affordable and clearly a solid performer if it meets your investment objectives.

The Dupree Intermediate Government Bond Fund (DPIGX) is probably a fund you’ve never heard of. It is nothing to be alarmed about, it is simply a small fund company and this particular fund only has $23 million in assets. Actually, being small can be a great benefit to a fund as it allows the managers to move holdings around without much of a concern. When you have a fund with billions of dollars it is more difficult to make changes, which can hold a fund back in fast moving markets.

Key Stats

• Manager: Vincent Harrison & Thomas Dupree Sr.
• Min. Initial Investment: $100
• Front-Load: None
• 12(b)-1 Fee: None
• Expense Ratio: 0.45%
• Assets: $23 million
• Average Market Cap: N/A
• Turnover: 18%
• Yield: 5.08%

Performance

With a government bond fund we’re not so much concerned with the actual return as we are with the return relative to the benchmark and its peers. As you can see here, this fund has significantly outperformed its peers in the intermediate government bond category. Over 1% YTD and a 5-year average performance of over 1%. This may not seem like much, but when you’re talking about funds that typically only see total annual returns of between 2-6%, this is a significant factor.

Even when matching it up against the Lehman Brothers Aggregate Bond Index, which includes corporate and foreign bonds, this fund keeps pace with it, or actually outperforms slightly. So, you are getting the AAA quality and safety of government bonds and keeping up or beating the broad-based index. Maximizing returns while minimizing risk is always a good thing.

Pros

• No front load
• Low expenses
• Extremely low initial minimum purchase ($100)
• Excellent returns in its category
• Very low turnover rate of 18% (average for category is 227%)

Cons

• Limited outside brokerage availability
• Fund is drifting slightly toward more long-term holdings

The Bottom Line

Let’s face it, for those of us who still have 20-30 years until retirement, there isn’t much to get excited about when it comes to bond funds. Even so, bonds can play an important role in creating a risk-adjusted portfolio, and this fund can be a good starting point. Granted, there are a lot of bond index funds or ETFs out there that can also do the job, but this fund has displayed solid performance with sound management and reduced risk.

Unfortunately, this fund is only available directly through Dupree or a select number of brokerage firms, so if your brokerage doesn’t offer Dupree funds, it may not be worth the trouble. On the other hand, given the very low minimum purchase, if you are with a broker that does offer this fund family, it makes a great entry level option for building a bond position in your portfolio.

Previously I took a look at the domestic real estate fund CGM Realty. This week I would like to take a look at an international offering that can work as a great diversification tool for your portfolio. While the Fidelity International Real Estate (FIREX) fund is relatively new it has some great attributes to consider.

Key Stats

• Manager: Steven J. Buller
• Min. Initial Investment: $2,500
• Front-Load: None
• 12(b)-1 Fee: None
• Expense Ratio: 0.91%
• Assets: $1.48 billion
• Average Market Cap: $6.5 billion
• Turnover: 234%

Performance

As I mentioned above, this fund is relatively new and has under three years of performance under its belt. Even so, in the short time it has been established it has beat its peers by sizable margins. It outperformed other real estate funds by 3.2% and 8.9% in 2005 and 2006. On top of that it has crushed the S&P 500 by double digits, and by over 27% in 2006 with an annual return of 43%.

While past performance is no indicator for future results it does say something when a brand new fund can crush its peers right out of the gate. Even though there was a recent management change with this fund it is nothing to be concerned about. Steve Buller was actually the initial manager of this fund at inception so a strong manager is still at the helm of this fund.

Steve Buller employs a research-intensive process that focuses on uncovering fundamentally sound firms with talented managers and sunny growth prospects. Buller won’t pay any price for growth though, and lately, he has avoided the sector’s priciest names.

Pros

• No front load
• Relatively low expenses
• Superior performance
• Very diversified compared to similar funds

Cons

• Limited track record
• 90-day redemption fee of 1.5%
• High turnover

The Bottom Line

If you are entertaining the idea of incorporating some real estate holdings into your portfolio this fund could fill that need nicely. It is one of the few real estate funds with an international flair so it can provide a unique element to your portfolio. International real estate doesn’t follow the same domestic trends so it can work as a great hedge.

Since this fund has a very narrow focus it should have a limited role in your portfolio, but consistently decreasing expenses and top performance will likely make this a solid holding that will stand the test of time. With sound management and a great company behind it this would be one of the first places to look for a real estate fund.

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.

Key Stats

• Manager: Various sub-advisors
• Min. Initial Investment: $2,500 / $1,000 IRA
• Front-Load: None
• 12(b)-1 Fee: None
• Expense Ratio: 0.81%
• Assets: $3.57 billion
• Average Market Cap: $22 billion
• Turnover: 8%

Performance

Looking at the past few years this fund has done quite well for what is considered a growth fund. It has outperformed similar funds in the same category in each of the past years ranging from 2-6%. Overall it has even outperformed the S&P 500 by similar margins. So, how can a growth or even balanced fund of funds outperform its peers and the broad market when value has clearly been the big winner?

The answer comes from a few different places. First, it isn’t restricted to the very large companies that the S&P tracks and many large growth funds invest in. Since this is a fund of funds it does have some exposure to smaller cap companies as well. This has provided a nice boost in returns over the past five years. Another key factor in these returns is some exposure to foreign markets and high yielding bonds. While these are not significant portions of the portfolio they too provide a boost where pure growth stocks may be lacking.

No matter how you slice it the 3 and 5-year annualized returns of 15.59% and 11.23% respectively are nothing to sneeze at. Even looking back further to the years 2000-2002 when the equity markets saw significant declines this fund fared better and still outperformed the S&P by 2.4-4% margins. While it may not have the explosive upside potential of a pure style fund the diversification allows it to regularly keep pace with the market with some additional downside protection.

Pros

• No load
• Expense ratio lower than category average
• Below average volatility
• Competitive yield for a growth-heavy portfolio
• Solid returns
• Morningstar 5 star rated

Cons

• Not a pure growth fund if that is what you are looking for
• Exposure to foreign investments could hold fund back when international returns lag
• More conservative approach may hold fund back when speculative stocks shine

The Bottom Line

If you are like most investors you have probably turned your focus in recent years to value and international investments where double digit returns can be easily had. The very modest returns in the growth sector has not been very attractive. Experts tend to disagree a bit as to where we are headed; whether growth is going to begin to dominate or if the value trend will continue.

We know that these do tend to run in cycles and during an extended period of one category performing well we can become overweight in our holdings which will leave a gap when the trend reverses. So if you are looking to rebalance your portfolio to ensure it contains some growth stocks again this is a fine option. Since it isn’t a strict growth fund you will see the better returns while still having a position in place ready to take advantage of the market when growth companies move back into dominance.

When investing in bonds interest rates can wreak havoc on volatility. In a rising rate environment you see bond prices going down and when rates are going down the bond prices rise. While they can provide more stability than equities in the form of regular interest payments they can still add volatility to your portfolio. A floating rate fund is perfect for those who are looking for steady income without the underlying volatility associated with other fixed income alternatives.

Key Stats

• Manager: Christine McConnel (5 year tenure)
• Min. Initial Investment: $2,500
• Front-Load: None
• 12(b)-1 Fee: None
• Expense Ratio: 0.81%
• Net Assets: $3.2 billion
• Average Market Cap: N/A
• Turnover: 61%

Performance

Clearly there is nothing very exciting about this chart but there are a few things I would like to point out. You can see the lack of volatility with this fund by how straight the red line is. Over the past few years the yield has not wavered much. Compare that to the green line which is the Lehman Brothers Aggregate index.

As you can see, the broad bond market has been more volatile and had you relied on that index for your fixed income portion of your portfolio you would have underperformed. Given the stability of the underlying price and favorable yield it has proven to be a solid performer.

Pros

• No load
• Expense ratio lower than category average
• Fund offers daily redemptions
• Very low volatility
• Competitive yield

Cons

• Not the absolute best in the category
• Sometimes large cash position can hold back performance
• Yield may lag in decreasing interest rate environment

The Bottom Line

You may find the timing of discussing this fund a bit odd. Since we are currently at a stable and potentially decreasing interest rate environment this may seem a bit off. While it is true that with regular fixed income fund offerings you can realize some capital appreciation when rates are decreasing that doesn’t dismiss the potential for a floating rate fund. And since most floating rate funds restrict when you can sell to quarterly at most, this fund has daily redemptions which provides a significant liquidity advantage over other funds in this asset class.

Trying to time your fixed income allocation with interest rate movements is no different than trying to time your equity buying and selling with market conditions. If you are looking for attractive yields with very low volatility a fund like this can greatly improve your risk-adjusted returns over the long term.

Key Stats

• Manager: David C. Decker (7 year tenure)
• Min. Initial Investment: $2,500 / $1,000 (IRA)
• Front-Load: None
• 12(b)-1 Fee: None
• Expense Ratio: 0.94%
• Net Assets: $5.2 billion
• Average Market Cap: $11.4 billion
• Turnover: 39%

Performance

Looking back over the past five years you can clearly see how strong this fund has performed. During this time it has outperformed the S&P by a significant margin. The fund has a limited track record since it was established in 2000 but in this time the fund has experienced both a strong bear and bull market. This fund outperformed the market every year since inception except in 2002 where it underperformed by about 1.6%.

I would like to see a longer history to compare performance but given the fund has done well in down markets as well as in up markets it shows promise for long-term success. The Janus Contrarian fund is given five stars by Morningstar and since 2003 it has been ranked in the top 1 or 2% of its category. With a 5-year annualized return of 19.11% it clearly has been a top performer in the large-cap blend style.

Pros

• No load
• Low minimum investment, especially in IRAs
• 5 stars by Morningstar
• Outstanding past performance
• Low turnover

Cons

• Above average expense ratio
• Less than 10 years since inception
• A concentrated portfolio means that performance could be hindered if a few stocks have trouble

The Bottom Line

If you are looking for a large-cap blend fund to compliment your core holdings this could fill the position quite well. While it uses an interesting contrarian strategy it clearly has shown it can do so effectively. If you are comfortable with a little risk associated with the strategy and active management for the type of returns this fund has seen over the past few years I would take a look at this fund to see if it has a place in your portfolio.

Key Stats

• Manager: Clyde McGregor (11 year tenure)
• Min. Initial Investment: $1000
• Front-Load: None
• 12(b)-1 Fee: None
• Expense Ratio: 0.86%
• Net Assets: $11.23 billion
• Average Market Cap: $2.4 billion
• Turnover: 81%

Performance

This fund has done quite well considering it generally holds between 25-50% of government or highly-rated bonds in its investment mix. A fund that relies that heavily on bonds would generally be thought to lag considerably behind equities. Here we have a 5-year average return of 10.84% and a 10-year annualized return of 13% which is quite good considering the allocation. As you can see by the chart the line is very smooth indicating the low volatility.

What I find even more impressive is when you look back 10 years:

As you can see in this chart it has done phenomenal over the longer time period. It is up over 200% in the past 10 years and significantly beats its peers during this period. The most important thing to consider is the period from 2000 through 2002. During this time the market took a significant downturn, and even similar moderate portfolios saw little or no gains through these years. This fund on the other hand thrived during these years and continued to make sizable returns.

To get a better understanding of how this fund reduces volatility I wanted to compare it to the S&P 500 during the same 10 years. So here is a look at the Vanguard 500 Index Fund (VFINX):

When looking at both of the above charts it is easy to see how volatility can affect returns. The S&P, while still performing quite well over the past 10 years reached its returns in a different way. It had sharp upward movement subsequent downward trends, but as we know, over the long-term it goes higher. The Oakmark fund achieves its returns with a more slow and steady approach. By taking out some of the volatility of pure equities it can reduce or eliminate sharp losses so it doesn’t have to spend the next few years recovering those losses. In fact, over this 10-year period you would have made close to $12,000 more on a $10,000 investment had you been invested in the Oakmark fund 10 years ago versus a strict S&P 500 index fund.

Pros

• No load
• Low minimum investment ($1,000)
• Superb performance
• Stable management
• Morningstar 5-star rated
• Low volatility

Cons

• Expense ratio of 0.86% is a bit higher than some offerings
• Rapid growth in assets could impact future performance
• High turnover may make this inappropriate for taxable accounts

The Bottom Line

Some people don’t like risk and it can be difficult to reduce risk while maximizing returns. This fund is a great example of how you can combine stocks and bonds to create a solid portfolio that can keep up with the stock market while reducing the volatility that can make investors uneasy. While not for everyone, this fund could provide a solid starting point for new investors building a retirement portfolio. With broad exposure to stocks and bonds while offering a low minimum initial investment of only $1,000 it is a great option for immediate diversification.

Key Stats

• Manager: Nicholas Kaiser (16 year tenure)
• Min. Initial Investment: $250
• Front-Load: None
• 12(b)-1 Fee: None
• Expense Ratio: 1.49%
• Net Assets: $111 million
• Average Market Cap: $2.4 billion
• Turnover: 10%

Performance

With relatively strong competition in the large-cap value arena over the past few years this fund has held up very well generally among the better funds in this category.

With respectable 3 and 5-year annualized returns it has outpaced the S&P 500 by a reasonable margin during this time. With the exception of 2002 the fund has also done very well against its peers.

While I don’t want to dwell on past results you can see that strong management has put together a solid fund even while following constraints imposed by the strict adherence to Islamic principles, especially with no exposure to certain industries altogether.

Pros

• No load
• Very low minimum investment ($250)
• Socially responsible based on Islamic beliefs
• Solid performance
• Stable management
• Morningstar 5-star rated

Cons

• Expense ratio of 1.49% is a bit high
• Very small asset base
• Lack of exposure to interest bearing investments and certain industries reduce diversification

The Bottom Line

I wanted to highlight this fund for a few reasons. First, good things can come in small packages. With only just over $100 million in assets this fund is quite small yet packs a punch. Second, this fund company can maintain sold investment returns even when adhering to a strict set of cultural guidelines. This philosophy is important to many people and it is good to see that there are options available. Finally, with an incredibly low minimum of $250 this fund opens the doors to new investors who otherwise don’t have the relatively high minimums required by most no-load fund companies.