(May 2) – “I usually pooh-pooh notions of beating the market and proclaim the virtues of market-tracking index funds. But clearly, not everybody agrees. So, once a year, I relent,” writes Jonathan Clements in today’s Wall Street Journal.
“If you are still looking for that superstar fund, check out the 62 funds below. This is the fifth year I have published such a list. The impetus remains the same: helping investors cut through the clutter of 7,000 stock funds and find a few good long-run performers.
To that end, I once again used a series of computer screens to generate a short list of funds that might appeal to folks who invest without a broker’s help. The resulting funds don’t come with any seal of approval. Rather, the list is intended as a starting point for further research. You, dear reader, have to decide which funds — if any — are actually worth buying.
“Indeed, if past performance is any guide, being a little picky could come in handy. The 64 funds on last year’s list returned an average 30.8% over the 12 months through March 31, handily ahead of the 24% gain for the Wilshire 5000 index, which includes most regularly traded U.S. stocks. But 55% of the funds trailed their category average, and seven posted a loss.
“As with last year’s list, I picked out the funds using Morningstar Principia Pro Plus, a software program sold by Chicago’s Morningstar Inc.
“How were the funds selected? I eliminated all funds that don’t seem like a useful addition to a well-diversified portfolio. Out went funds that focus on a single foreign region or a single industry sector. I also nixed all global funds, which combine U.S. and foreign stocks. When building a portfolio, international funds seem like a better bet, because they give you a pure play on foreign markets. Next, I tossed out funds that have an investment minimum above $5,000, levy annual expenses over 1.4% or charge a sales commission. After all, this is a list for do-it-yourself investors. Why would you want to crimp your returns by paying commissions and high fees?
“Finally, I threw out funds that had failed to outperform 60% of comparable funds over the past three and five years. Also eliminated were funds where the managers had, on average, been on the job for less than five years.
“How should you use the resulting list? With great care. For instance, be leery of funds whose record is built on just one or two years of fabulous returns. Also, think twice before investing in actively managed funds that have grown large and possibly sluggish.”