A Disastrous Year for the Kip 25
Bill Miller's Legg Mason Opportunity fund is out. FPA Crescent is in.
Let's hope it happens only once in a generation, if not once in a lifetime. Over the past year, virtually nothing has worked for investors. U.S. stocks, foreign stocks, commodities and nearly all kinds of bonds have been hammered. There's been no place to hide.
So it's time to revisit the Kiplinger 25, the list of our recommended mutual funds. With precious few exceptions, they have felt the full fury of the markets' plunge. Because our list didn't include any balanced funds or other hybrids (in order to make it easier for readers to assemble portfolios without mucking up their asset allocations), none of our favorite stock funds owned enough bonds or cash to insulate them from the horrible market decline.
But one domestic fund performed notably worse than the others: Bill Miller's Legg Mason Opportunity. Opportunity shed a mind-boggling 63% over the past year. As a value investor, Miller, whose Legg Mason Value fund once beat the market 15 years in a row, failed to preserve investors' capital for the past two years, a cardinal sin. This is not a question of holding beaten-down stocks that will spring back when the economy and the animal spirits of investors revive. Money that Miller invested in Bear Stearns, Freddie Mac and Countrywide Financial is gone for good. So we have decided to drop Opportunity from our list.
![https://cdn.mos.cms.futurecdn.net/hwgJ7osrMtUWhk5koeVme7-200-80.png](https://cdn.mos.cms.futurecdn.net/hwgJ7osrMtUWhk5koeVme7-320-80.png)
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
We're replacing it with FPA Crescent (symbol FPACX). Manager Steve Romick is one of the best, most disciplined value-investing practitioners in the business. He describes his goal as matching the return of Standard & Poor's 500-stock index while taking on much less risk. In fact, in the 15 years through November 7, his fund returned an annualized 10%, an average of three percentage points per year better than the S&P, with about 25% less volatility.
Morningstar, which categorizes Crescent as a balanced fund, says it beat 99% of its peers over the past 15 years. Romick makes the most of his flexible mandate by selling short (a bet on lower share prices) when he spots risks that are not reflected in stock prices. And he searches among all types of investments for the best values.
For instance, Romick currently sees better value in corporate bonds and bank loans than in stocks. "Either debt is way too cheap, or stocks are too expensive," he says. He recently bought Home Depot bonds yielding 12.3% to maturity in 2009 and bank debt from Michaels Stores yielding 30% to maturity in 2013.
Be aware that Romick will hold large cash balances if he finds no value in the markets. As a result, this fund generally lags in bull markets. In the bond column of the Kiplinger 25, the outlier is Loomis Sayles Bond, which had a terrible year. The fund has been an outstanding performer for many years, but it came unstuck as frightened bond investors dumped corporate bonds, whether high-grade or junk.
We expect Loomis Sayles, led by Dan Fuss, to rebound. But we emphasize that this fund is much riskier than a core bond fund. For something less volatile, we suggest Harbor Bond, managed by Bill Gross and his team at Pimco, or, for money in taxable accounts, Fidelity Intermediate Municipal Income.
Get Kiplinger Today newsletter — free
Profit and prosper with the best of Kiplinger's advice on investing, taxes, retirement, personal finance and much more. Delivered daily. Enter your email in the box and click Sign Me Up.
Andrew Tanzer is an editorial consultant and investment writer. After working as a journalist for 25 years at magazines that included Forbes and Kiplinger’s Personal Finance, he served as a senior research analyst and investment writer at a leading New York-based financial advisor. Andrew currently writes for several large hedge and mutual funds, private wealth advisors, and a major bank. He earned a BA in East Asian Studies from Wesleyan University, an MS in Journalism from the Columbia Graduate School of Journalism, and holds both CFA and CFP® designations.
-
Ford Recalls More Than 90,000 Vehicles. Is Your Truck or SUV on the List?
Ford recalls some Bronco, F-150, Explorer, Edge, Lincoln Nautilus and Lincoln Aviator vehicles due to faulty engine intake valves
By Kathryn Pomroy Published
-
Stock Market Today: Stocks End Mixed Ahead of August Jobs Report
The main indexes struggled for direction Thursday after data showed the labor market continued to cool.
By Karee Venema Published
-
Best Banks for High-Net-Worth Clients
wealth management These banks welcome customers who keep high balances in deposit and investment accounts, showering them with fee breaks and access to financial-planning services.
By Lisa Gerstner Last updated
-
The Kiplinger 25: Our Favorite No-Load Mutual Funds
The Kiplinger 25 The Kiplinger 25 is a list of our top no-load mutual funds that have proven capable of weathering any storm.
By Nellie S. Huang Last updated
-
Stock Market Holidays in 2024: NYSE, NASDAQ and Wall Street Holidays
Markets When are the stock market holidays? Here, we look at which days the NYSE, Nasdaq and bond markets are off in 2024.
By Kyle Woodley Last updated
-
Stock Market Trading Hours: What Time Is the Stock Market Open Today?
Markets When does the market open? It's true the stock market does have regular hours, but trading doesn't necessarily stop when the major exchanges close.
By Michael DeSenne Last updated
-
Bogleheads Stay the Course
Bears and market volatility don’t scare these die-hard Vanguard investors.
By Kim Clark Published
-
The Current I-Bond Rate Until November Is Mildly Attractive. Here's Why.
Investing for Income The current I-bond rate is active until November 2024 and presents an attractive value, if not as attractive as in the recent past.
By David Muhlbaum Last updated
-
What Are I-Bonds? Inflation Made Them Popular. What Now?
savings bonds Inflation has made Series I savings bonds, known as I-bonds, enormously popular with risk-averse investors. So how do they work?
By Lisa Gerstner Last updated
-
This New Sustainable ETF’s Pitch? Give Back Profits.
investing Newday’s ETF partners with UNICEF and other groups.
By Ellen Kennedy Published