Three can't-fail funds
If you had to own just one fund, here's a good bet whether you're a bull, a bear, or somewhere in between.
March 6, 2002: 6:37 p.m. ET
By Staff Writer Martine Costello
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NEW YORK (CNN/Money) - The market has been all over the place, reacting to any kind of news that it gets. After two miserable years, the Dow can barely muster the strength to stay above 10,000. Stocks rallied Friday and Monday, lost ground on Tuesday and came back with a vengeance on Wednesday. Who knows what's next.
If you had to pick just one fund to ride the market for the next 10 years, you might not have a clue about where to start. You could be convinced Wall Street is poised to skyrocket, or you might be just cautiously optimistic. Then again, you could be one of those people who thinks the bear market is here to stay. Here is a fund for every taste.
Betting on a rebound
If you're a lion-hearted investor who believes the economy is turning around, funds that buy growth stocks are the place to be. When the economy is improving, the outlook for earnings improves as well, and Wall Street is willing to pay higher prices.
At Smith Barney Aggressive Growth, manager Rich Freeman looks for stocks with the potential to become long-term winners. He wants an earnings outlook that is solid for at least three years and he wants healthy cash flow as well.
Freeman sees big potential in health care, the fund's largest weighting, with stocks such as UnitedHealth Group (UNH: down $0.48 to $69.55, Research, Estimates) and generic drug maker Forest Labs (FRX: down $1.26 to $78.24, Research, Estimates).
He's also betting on some biotechs he's owned for years, including IDEC Pharmaceuticals (IDEC: Research, Estimates) and Chiron Corp (CHIR: up $0.18 to $47.43, Research, Estimates).
Many of the fund's holdings are long-term plays; Freeman invested when they were small- or mid-cap stocks and continues to believe in them. For example, he bought IDEC and Chiron when they went public in the 1980s and 1990s.
"You want to buy stocks you can own for at least three to five years," said Freeman, who founded the fund in 1983. He likes companies with strong management who aren't afraid to spend on R&D.
The fund has a 10-year annualized return of nearly 17 percent, according to Morningstar. In 1999, when growth was "on," it earned nearly 64 percent. And it holds up in tougher markets: In 2001, it gave up only 5 percent, beating the S&P by nearly 7 percent and other growth funds by 18.5 percent.
One top name he's owned since 1983 is Tyco (TYC: up $0.16 to $34.17, Research, Estimates), which has been fighting investor fears about its financial health and accounting practices. Freeman thinks the concerns are misguided and more a result of fallout from Enron.
"They've done a great job managing their business," Freeman said of Tyco. "I believe in the businesses. I believe in the numbers."
Not sure? 'Blend' your investing dollars
You like the stock rallies. You're jazzed by signs the economy is turning around. But there's a piece of you that has nagging worries about the outlook. Large blend funds, which dabble in growth and value, might be the answer.
Growth stocks may be the movie stars of Wall Street; while value stocks are the character actors, trading cheaply to their true worth. By blending the two styles, these funds are a good choice for an investor who wants to make money but can't take big market swings.
Fidelity Dividend Growth, managed by Charles Mangum, invests in growth stocks like Microsoft (MSFT: up $0.02 to $63.65, Research, Estimates) and value stocks like Philip Morris (MO: down $0.18 to $53.15, Research, Estimates).
"Charles Mangum in bull and bear markets has been consistently able to outshine not only the S&P, but the benchmarks of all of the funds he's managed and his peers in those groups," said Jim Lowell, editor of the investing newsletter Fidelity Investor.
The fund has a five-year annualized return of 14.4 percent, according to Morningstar. It lost 3.7 percent last year but still beat the S&P 500 by 10 percent, and gained 2.3 percent in 2000, a year when most funds lost money.
Mangum is betting on the long-term potential of pharmaceuticals and has a heavier weighting in health care than the S&P. The fund has 17 percent of assets in the sector; the index has 14 percent.
Unlike other Fidelity managers, Mangum isn't afraid to be concentrated: About 38 percent of the fund are in his top 10 stocks. He also sticks with names he believes in, regardless of the changing tide on Wall Street.
Bearish at heart: Cushion the blow with bonds
You see the writing on the wall. You're not swayed by a short-lived stock rally; it's a dead-cat bounce. If you're hunkering down for a long bear market, a "hybrid" fund that invests in both stocks and bonds is a good choice. You'll get equity exposure with ultra-safe bonds as a cushion.
Dodge & Cox Balanced has a buy-and-hold philosophy, preferring to hang onto an investment for at least four or five years, said manager John Gunn. About 60 percent of assets are in stocks, with the rest in bonds.
The fund has a 10-year annualized return of 13.2 percent and beat the S&P by more than 20 percent in the past two years, Morningstar said.
On the equity side, he likes bargain stocks that are out of favor but have long-term potential, such as Hewlett-Packard (HWP: down $0.13 to $20.05, Research, Estimates).
While Gunn is not commenting on HP's proposed merger with Compaq Computer or how Dodge & Cox will vote, he said HP is a global electronic computer company with a major franchise in printing. Another big position is in Xerox (XRX: up $0.21 to $10.33, Research, Estimates).
In bonds, the fund likes more conservative shorter-duration issues as well as some inflation-indexed bonds, which keep up with the rate of inflation. About 40 percent of its fixed-income are in corporate bonds.
"It's a careful way to manage money over time," Gunn said. 
* Disclaimer
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