Three Overlooked Funds Worth Watching
These funds haven't garnered much attention--yet.
With such a large number of mutual funds available, many good funds fail to register on investors' radar screens. These overlooked funds often boast the same charms as more-popular offerings, including experienced management, without the burden of a large asset base. A smaller asset base typically gives these funds far more flexibility, allowing them to sample stocks from across the market-cap spectrum.
Three funds that fit this mold include Oak Value, T. Rowe Price New America Growth, and Third Avenue International Value.
This fund's managers keep it simple. Like many of their value brethren, they intend to ferret out stocks that are trading at a discount to their estimate of intrinsic value. They also love to see free cash flow--growth is a plus but not a necessity--and have traditionally favored insurance, media, and consumer-product stocks. For instance, the fund has sizable stakes in Warren Buffett's Berkshire Hathaway B (BRK.B) and EW Scripps (SSP), owner of the Food Network and other media outlets. The latter is a great example of how the fund's managers invest. While the stock has delivered a commanding 15% annualized gain for the trailing three-year period--enough for some managers to cash in their chips--the managers here have kept the stock because their estimate of the underlying business value has also appreciated. They have no trouble selling overvalued stocks, but they won't turn tail just because a stock has risen quickly.
Manager Joe Milano is a growth investor but knows that even growth has a price. Since taking over this offering about two years ago, Milano has been able to put the fund's flexibility to good use, driving it to a 35% gain in 2003. But it's not the fund's performance that's worth focusing on. (In fact, such strong absolute performance likely isn't sustainable.) Rather, investors looking for a core-growth fund will like the diverse makeup of this portfolio, which includes a generous sampling of service stocks. Moreover, the fund is much smaller than T. Rowe's other heavyweights-- Growth Stock (PRGFX) and Blue Chip Growth (TRBCX)--which are mostly pure-play large-cap funds. Here’s hoping that T. Rowe will keep this fund’s asset base small enough to preserve its flexibility.
Third Avenue founder Marty Whitman is noted for his successful cheapskate ways, and the same thriftiness also permeates manager Amit Wadhwaney's approach at this offering. Managed as an all-cap offering, this fund has shown the same penchant as its siblings for hoarding atypical stocks trading at a deep discount to intrinsic value. A recent case in point: top holding Tranz Rail Holdings, a New Zealand-based freight railroad company that isn’t widely held or researched. Buy-and-hold enthusiasts are also likely to warm to Wadhwaney's infrequent trading style--the fund's turnover hasn't exceeded 4% during his tenure. Of course, the fund's quirkiness means you should expect it to lag from time to time. But outside of its still-high expenses--which we would expect to decline as assets continue to rise--there’s a lot to like here.
New Articles on Morningstar.com
We've been writing a whole bunch of interesting and worthwhile articles lately on Morningstar.com, and I realize it's hard to keep up with all of them. In case you've missed some, here are a few highlights.
Premium members can read about a significant change to our large-growth picks.
And for those following regulatory activity in the fund industry, here’s our view on some recent SEC proposals:
"Our Take on the SEC's Short-Term Trading Proposal", by Langdon Healy
"Is 12b-1 on the Chopping Block?", by Bridget B. Hughes
"Is Your Fund Board Looking Out for You?", by Christopher J. Traulsen
Kunal Kapoor does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.