|April 24, 2012
By Karen DeMasters
Each financial advisor who manages mutual funds for his clients has a favorite or two that fulfills a specific goal in their clients’ portfolios. Financial Advisormagazine recently asked several advisors to reveal their favorites. The advisors, who report they are satisfied with the expenses compared to the returns, have been using some of the funds for many years.
Bob Mecca, CFP, of Robert A. Mecca & Associates LLC in Hoffman Estates, Ill., wants funds that have a relatively low risk as measured by beta and other factors, do not mirror indexes, have historically outpaced the competition and have been in the top quartile of mutual funds for a period of time. Mecca publishes a weekly e-mail commentary called Mecca on Money.
Mecca says he likes low-risk funds, especially in the current market environment, and he wants ones where the fund and the manager have been around for a long period of time.
One of his favorites is the Vanguard Wellesley Balanced Fund, which is comprised of about 60% bonds and 40% stocks. Since its inception, the fund has done relatively well with low risk. It invests mostly in large-cap value companies.
At the same time, Mecca notes that he has all types of clients and not all funds are appropriate for everyone. He has his special ‘Mecca 40′ funds, which have historically outpaced index funds with relatively low risk.
David Loesser, CFP and president of The Estate Planning Group in Washington’s Crossing, Pa., has three favorite funds he feels make a good mix in his clients’ portfolios.
Doubleline Total Return Bond Fund is a relatively new fund but the manager, Jeffrey Gundach, has been around for a long time and Loesser likes his track record.
“We like it because it has low standard deviation and little volatility. It is conservative, so it’s excellent for a core holding in a retirement portfolio,” he says. Templeton Global Bond Fund, managed by Michael Hasenstab, is another that Loesser likes for its diversifying value. It holds debt in foreign countries and has a low correlation to the stock market, he says.
Finally, MFS Emerging Market Debt Fund is good because it uses bonds from emerging markets and is still moderately correlated to the S&P 500, Loesser says.
Different mutual funds have different purposes, and Lili Vasileff, CFP, registered investment advisor and founder of Divorce and Money Matters in Greenwich, Conn., says she judges funds by their performance relative to their peers and relative to the stock market.
She has three she feels are a nice mix for her target audience, divorced women. The Yachtman Fund has a conservative allocation and modest appreciation. It is a large value fund that does not have a lot of turnover.
She also likes the Janus Triton Fund, a small growth fund with higher turnover. “It tends to favor up-and-coming growth companies and faster-growing companies and can counter the large-cap fund,” Vasileff says.
Vanguard Prime Cap Fund is another she likes because it is one of the highest-rated Vanguard funds. It is a large growth fund with a long history and low turnover. “It is fairly middle-of-the-road conservative,” she adds.
Leuthold Core Fund moves in and out of sectors when necessary, which makes it one of the favorites for James Holtzman, CFP, an advisor and shareholder with Legend Financial Advisors in Pittsburgh.
“I have been using this fund for 15 years. It is not overly expensive, has a good standard deviation and a good return,” he says. “Leuthold is good at giving advisors information on what they are doing and they will close [a fund] if it becomes too big and unwieldy.” It is an aggressive fund with a diverse mix of large-, small- and medium-cap investments.
Another fund Holtzman likes is Ivy Asset Strategy, which is mostly large cap and is fairly aggressive. The fund changes holdings frequently but is good at informing advisors on its activities, he says. It has the ability to hedge its bets and sell when it needs to.
Sam McFall, investment analyst and investment officer with Bryn Mawr Trust in Bryn Mawr, Pa., says his firm recently added BBH Core Select Fund to some of its clients’ portfolios because it invests in mega-cap companies that will not be impacted as much by the cyclical nature of the market.
It has a strong track record for good returns and can be the anchor for U.S. large-cap exposure, he says.
The firm also recently added Legg Mason Brandywine Global Opportunities Bond Fund to its mix because it is a high-quality fund that is truly global, iand includes U.S. debt, McFall says.
“By bringing in a high-quality fund of this type, you may lose a little on the return but you reduce risk. We are looking for small boutique managers who add value to our portfolios,” he notes.
The third fund in the mix is Wasatch Emerging Markets Small Cap, which he says is an unusual fund because not many are dedicated to small caps in emerging markets.
“Emerging markets are going to be the global growth area to come and this fund targets consumer sectors rather than technology,” McCall says.