Mutual Funds
Four funds to love
Three large-caps and an international fund have won the hearts of five fee-only planners.
February 10, 2003: 12:26 PM EST
By Jeanne Sahadi, CNN/ Staff Writer

NEW YORK (CNN/Money) - Love takes patience. But the dividends of a good relationship are without number if you can ride out the bad times with the good.

Much the same can be said of a long-term partnership between your portfolio and a great mutual fund. Sure, the fund may have its bad moments, but when you look at the field of contenders, you realize you've landed yourself a winner because your fund always come out ahead and won't kill you in a down market.

There are thousands of funds to choose from. To help you narrow the field, we asked five certified financial planners to pick their favorite fund, one that's held up very well over time and one they have no qualms recommending to clients, even if the fund has had some bumps along the way.

(Oh, and in case you're worried these guys get paid by the companies whose funds they tout, fear not -- they are all fee-only, meaning they get no commission if a client invests in a fund they recommend.)

First Eagle Global

Slow and steady holds a lot of appeal for planner Kim Dignum. That's why she gives an enthusiastic thumbs-up to manager Jean-Marie Eveillard and his international value fund First Eagle Global, formerly called First Eagle SoGen Global.

"(His fund is) the tortoise in the tortoise-and-hare syndrome," Dignum said.

Citing Eveillard's 24-year tenure at the fund, she said, "He doesn't get caught up in the stock of the week." That was evidenced by his modest performance in the late 1990s when many peers were taking full advantage of the go-go bull market.

But he's had only one negative annual return in the past 10 years -- down a mere 0.26 percent in 1998-- and he's one of only five overseas managers out of hundreds who has earned a profit in the past three years, garnering annual gains of between 9.7 percent and 10.3 percent. In all instances, those returns handily beat the fund's category average and the MSCI EAFE index (which includes the reinvestment of dividends).

First Eagle Global is a hybrid fund, which can invest in stocks, bonds, real estate and precious metals in any country, including the United States. As such, it can play a role in a portfolio of any size, Dignum said. "It's an asset-allocation fund. It's very conservative. Capital preservation is a priority."

(For a recent profile of the famously colorful Eveillard, click here.)


Two words describe why planners Scott Kahan and Ron Roge love Oakmark: Bill Nygren.

"Bill is a great manager. He doesn't overpay for stocks," Roge said. And, he added, he likes the fund's tax-efficiency.

Under Nygren's direction, the no-load large-cap value fund has trumped its competitors and the S&P 500 for the past three years (most impressively in 2001 when its 18.3 percent return beat that of its category average by nearly 23 percentage points and that of the S&P 500 by 30 percentage points.) As a result, it is No.1 in its category in terms of performance on a 3-year annualized basis.

Nygren has only been managing Oakmark since 2000 -- he took over after it had suffered a string of abysmal returns and redemptions to the tune of $6 billion during the bull market -- but he also runs the successful mid-cap value fund Oakmark Select, which he has managed since its inception in 1996 and which is ranked in the top 1 percent of funds in its category in terms of performance on a five-year annualized basis. (Click here to read a profile of Nygren written two months after he took over Oakmark.)

"At this point as long as Bill is there, you can invest in it for many, many years," Kahan said.

Selected American

Investment discipline, a willingness to communicate clearly with investors and a willingness to admit mistakes are three reasons planner Pat Jennerjohn likes Selected American and its top comanager Christopher Davis.

Granted, the large-cap blend fund, which can invest in either growth or value stocks, suffered double-digit declines in 2001 (down 11.2 percent) and 2002 (down 17.1 percent).

But in both instances it outperformed its category average and the S&P 500. And on a 1-year, 3-year, 5-year and 10-year annualized basis, its performance ranks in the top 10 percent of large-cap blend funds.


Planner Mark Balasa admits a bias towards index investing -- he especially likes the Vanguard S&P 500 fund for large-cap growth exposure and Barclays iShare Russell 1000 Value for large-cap value.

But among actively managed funds he has great admiration for Clipper, a large-cap value fund managed by a team led by James Gipson, whom Balasa describes as a contrarian investor who doesn't allow for style drift and keeps Clipper tax-efficient.

"It's so consistent what (Gipson's) done. He's proven to be very good at riding the waves," Balasa said. And by "waves" he means those years when value investing was out of favor during much of the 1990s. Nevertheless, Clipper has turned in a very strong long-term record.

Clipper has far outperformed the S&P 500 for on a 3-year, 5-year and 10-year annualized basis and its performance is ranked in the top 1 percent among funds in its category over the past 3-year, 5-year and 10-year periods.

Other top picks

Of course, no portfolio can survive on one fund alone.

So, with that in mind, here are some of the planners' favorite funds in leading categories other than large-cap stocks for a diversified portfolio.

Small caps: Among small-cap funds, Dignum likes Sentinel Small Company, a growth fund that is a staple on her annual list of recommended funds. "The risk is relatively low with a great potential return," Dignum said.

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Jennerjohn and Kahan favor the value-oriented Royce Total Return, which Jennerjohn describes as "a wonderful all-weather small cap fund."

Balasa favors Bogle Small-Cap Growth, which is in the top 5 percent of its category on a 3-year annualized basis. Roge, meanwhile, opts for Baron Small Cap, a growth fund whose manager Clifford Greenberg "understands what (business) models are going to work." It ranks in top 20 percent of its category in terms of performance over a five-year period.

International funds: International funds that also won kudos include Julius Baer International, which Roge likes for its emphasis in the past year on Eastern Europe and for the fact that co-manager "Richard Pell is not going to chase performance like some of the funds have done." For more of an emphasis on smaller-cap international stocks, Roge opts for First Eagle Overseas, also run by Eveillard, whom he calls "one of the truly deep value investors along the lines of Warren Buffet."

Harbor International got Balasa's vote, both for its value orientation, which he thinks will be more in favor going forward, and for its solid long-term track record. It is ranked in the top 2 percent of funds in its category on a 10-year annualized basis.

Bond funds: Bond funds that got the nod include Dodge & Cox Income, which Kahan likes for its low expenses, the 14-year tenure of its managers and its focus on high-quality intermediate term bonds. In terms of performance, it ranks in the top 5 percent of funds in its category over a five-year and 10-year period.

For another good all-weather fund, Jennerjohn picked Janus Flexible Income. The manager of the multisector bond fund, Ronald Speaker, "invests in sectors he thinks will do well," she said, and that can help protect investors against interest rate risk when rates finally start coming off their historic lows. When it comes to returns, the fund ranks in the top 5 percent of its category over the past 10-year period.

Roge and Balasa recommended Pimco Total Return, run by the much-lauded veteran bond manager Bill Gross, for bond investments in a tax-deferred account. The key reason is Gross' category-beating long-term record. The intermediate-term bond fund ranks in the top 1 percent of its category over a 10-year period.  Top of page

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