If you like to stay ahead of the curve, then newly launched mutual funds are worth a look. Amid the garbage -- funds with high fees, unseasoned managers, a trendy focus -- are usually a few gems. Buy one of this year's jewels and you're assured of a capable manager with an easy-to-handle asset base, most likely for years to come. And you may just latch on to a promising fund that others won't discover for a few years. So let's take a look at my picks for 2008.
Experience counts. Launched at the end of June, Champlain Mid Cap (symbol CIPMX) has just $3 million in assets, allowing managers Scott Brayman and Van Harissis to be as nimble as they wish in buying and selling stocks. The duo built their reputation at Champlain Small Company fund, which has consistently trounced the average small-company growth fund since its launch late in 2004. The key question is whether they can translate their success with small-company investing to so-called mid caps -- in their case, companies with stock-market capitalizations of less than $15 billion. The record of other small-cap managers who have made the leap is encouraging but not a slam-dunk. Ron Baron did just fine with larger companies, as did T. Rowe Price's Greg McCrickard. However, the Buffalo and Wasatch fund groups have achieved less-impressive results with midsize companies.
Champlain's disciplined approach -- the fund looks for growth at a reasonable price -- ought to work well with mid caps. And I respect the managers for closing Champlain Small Company to new investors before its growing assets made it a victim of its own success. Mid Cap's expense ratio is 1.3%.
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This fall, the broker-sold American Funds is launching a complement to its EuroPacific Growth fund. International Growth & Income looks to be more value- and dividend-oriented than EuroPacific. Given how well the American team has done with value funds over the years, I'm enthused by the prospects for this new entry. International will initially have three managers. Each is experienced, and two of the three also work on Income Fund of America. No, the managers won't have the flexibility that Champlain Mid Cap enjoys with its tiny asset base, and the fund's holdings will no doubt overlap with those of other American funds. But that's not a bad thing. In fact, International Growth & Income has the look of a nice portfolio anchor. As I write this, the expense ratio had not been disclosed.
I'm also a big fan of Dodge & Cox Global Stock (DODWX). The new fund combines the firm's domestic- and foreign-stock funds' portfolios into one global fund. I like the idea of getting exposure to both great groups in one entity. The fund is headed by seasoned managers.
Dodge & Cox has been in a slump the past two years, but it's really no different from previous slumps. In 1998, Dodge & Cox Stock trailed Standard & Poor's 500-stock index by 23 percentage points. But after that awful period, the fund sailed through seven consecutive years of top-quartile returns. The firm's strategy is to buy great companies when they are not doing well and valuations are low, gradually easing in. After a rough stretch has been the best time of all to get into Dodge & Cox funds.
One does it all. If you want to simplify your holdings (or if you have a relative asking for your advice), consider Vanguard Total World Stock Index. It does probably the best job yet of covering the whole globe with one fund. It invests in the FTSE All-World index, which has a 55% weighting in companies outside the U.S., including a good representation in emerging-markets stocks. Total World Stock Index is available both as a mutual fund (VTWSX) and as an exchange-traded fund (VT). The ETF's expense ratio is a supercheap 0.25%; the mutual fund costs 0.45% per year plus a one-time purchase fee of 0.25%. Either way, World Stock is simple and cheap -- and you can buy it and forget about it.
Columnist Russel Kinnel is director of mutual fund research for Morningstar and editor of its monthly FundInvestor newsletter.
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