You needn't be a high roller to begin building a mutual-fund portfolio. Although many of the big fund shops demand at least $2,500 to open an account, a handful of funds will still let you start small.
In the case of the Pax World Balanced, one of the oldest socially screened funds, the cost of entry is a mere $250. With that, you get a diversified portfolio that contains stocks, bonds and a little cash. Chris Brown, manager of the $2.3-billion fund (symbol PAXWX) since 1998, avoids companies that derive significant revenue from weapons, gambling or tobacco, and favors companies that have good track records on issues such as the environment and employment practices. "We buy forward-thinking companies," says Brown. "We believe this extra level of scrutiny gives us a better picture of the company, which could translate to better financial performance."
Brown first decides how to position the fund based on his view of the economy. Right now, he's bullish, with a relatively high 71% weighting in stocks (the fund's maximum allowable stock allocation is 75%), 27% in bonds, and 2% in cash. Next, Brown picks sectors he believes will outpace the overall market. "We're very theme- and sector-driven," he says. Currently, he is optimistic about growth overseas and so, for example, holds shares of America Movil (AMX), the largest wireless provider in Latin America. Brown is also playing the ethanol boom with agricultural-equipment giant Deere (DE). Brown looks for growing companies with solid balance sheets, plenty of free cash flow and reasonably priced shares.
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Large companies dominate Pax World Balanced. Of the fund's 103 stock holdings, 65% are large companies, 32% are midsize companies and only 3% are small, according to Morningstar. Foreign firms make up 15% of the stock portfolio. Pax's bonds are mostly short-term, government-agency IOUs, such as those issued by Federal National Mortgage Association (FNMA), which provides mortgages for low- and moderate-income families.
Brown's record so far is promising. Since he took over in April 1998, Pax World has returned an annualized 8% through May 31. That's an average of three percentage points a year greater than the return of the all-stock Standard & Poor's 500-stock index. Over the past five years to June 5, the fund returned an annualized 9%, ranking it among the top 22% of all balanced funds, according to Morningstar. Annual expenses are a reasonable 0.96%.
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