3 Funds for an IRA
Where are we seeing good ideas?
Editor's note: Since this video was recorded, the U.S. tax filing and IRA contribution deadlines have been extended to May 17, 2021.
Susan Dziubinski: Hi, I'm Susan Dziubinski with Morningstar. Investors have until April 15 to make an IRA contribution if they want it to count for 2020. Joining me today to share three ideas for an IRA is Russ Kinnel. Russ is Morningstar's director of manager research and editor of Morningstar FundInvestor.
Hi, Russ. Thanks for being here today.
Russ Kinnel: Glad to be here.
Dziubinski: Russ, your first idea is a bond fund, and bond funds are great ideas for the IRA wrapper because you really get to take advantage of the tax efficiency. Specifically, you've chosen a multisector bond fund. Can you talk a little bit about what multisector bond funds bring to the table today in this low interest-rate environment that we're in?
Kinnel: Yeah, these are aggressive funds that take on a fair amount of risk to get that yield. They will buy foreign bonds. They will buy emerging-markets bonds. They will buy high-yield debt. They will sometimes do currency plays. So, they've got a lot going on. But the well-run ones are very rewarding in the long run. So, I like Loomis Sayles Bond (LSBDX) because Dan Fuss is--even though he's retiring at the moment--we like the team behind him, grown to know the rest of the team, and we have a lot of confidence that it will continue to be a good investment even after Fuss retires.
Dziubinski: Now, interestingly, your two other picks are international stock funds. What do you think of U.S. stocks today? By choosing international funds, are you making a statement about the U.S. stock market?
Kinnel: Only a little. I think U.S. stocks, particularly growth stocks, have had a tremendous run. So, I think foreign is probably a good way to go. If nothing else, at least rebalance your portfolio so that you don't lose that foreign weighting. Yeah, I think foreign is maybe a little more attractive than the U.S. today.
Dziubinski: And your first pick in that space is Artisan International Small-Mid (ARTJX) fund, and that lands in Morningstar's foreign small/mid category. And it has an experienced manager who is focusing on disruptive companies. What else do you like about it?
Kinnel: This is a very aggressive fund run by a manager who had a lot of success at Oppenheimer, put up strong returns there, and now has built a team at Artisan. So, I think, if you want a really aggressive fund with tremendous return potential, this is a great fund. It's not necessarily a fund you want to make at the core of your portfolio, but if you want an aggressive fund with high return potential, I think this is a fund that's still got a nice runway. It's not a big asset base and a lot of return potential. When we think of growth companies, we tend to think of the U.S., but there's a lot of really good ones outside the U.S. as well.
Dziubinski: And then, lastly, you like Vanguard International Dividend Appreciation Index (VIAAX) fund. This is also an international fund, but it skews more toward larger companies with growing dividends. What should we know about this fund?
Kinnel: I deliberately chose an index fund because, on the one hand, when you think about the IRA, you may think about "Let's put any tax-inefficient funds in there," and that's fine. But your real goal, of course, is to get your goals to maximize returns within your risk parameters. And index funds do a great job at that. An index fund like this has that nice low maintenance--buy and not worry about it. In this case, Dividend Appreciation is a nice strategy because it leads you into high-quality companies and therefore tends to have some nice defensive characteristics as well as low costs, which we know work in all environments.
Dziubinski: And this fund in particular is also available as an ETF ((VIGI)), is that right?
Kinnel: That's right. So, you could buy as an ETF or as an open-end fund through Vanguard.
Dziubinski: Great. Well, Russ, thank you so much for these great IRA ideas today. We appreciate it.
Kinnel: You're welcome.
Dziubinski: I'm Susan Dziubinski for Morningstar. Thank you for tuning in.