8 Five-Star Mutual Funds on Fire

by William Ehart | August 11, 2010 1:00 am

With stock market returns moderating following the explosive rally off the March 2009 lows, it pays to seek those funds that are still outperforming. The S&P 500 returned 14%, including dividends in the year ended July 31, but more than 100 funds rated 5 stars by Morningstar returned 20% or more in the same period, according to a screen run on Fidelity’s free Mutual Fund Evaluator.

The eight funds below are just a sampling. All but one are no-load with and all have reasonable expense ratios. Some can be had for a minimum initial investment of just $1,000.

As the selected funds suggest, real estate, small-cap and emerging markets stocks were among the market leaders for the year, with high-yield and emerging-markets bonds also providing eye-popping returns. Most of the funds below outperformed their categories substantially.

#1 – PIMCO Small-Cap StocksPLUS D (PCKDX[1]) +33.9%

Manager: William H. Gross (since 2006)
Total assets: $318.1 million
Load: none
Expenses: 1.09%
Minimum initial investment: $1,000
Morningstar rating: 5 Stars
Morningstar category: Small Blend

This fund’s management style may sound complicated, but its returns and the track record of manager bond king Bill Gross speak for themselves. The fund seeks to outperform the Russell 2000 Index of small-cap stocks using index-linked derivatives backed by short- to intermediate-term high-quality bonds. Leave it to Gross to figure that one out. You can have access to this megainvestor’s golden touch for just a $1,000 initial investment.

#2 – John Hancock Global Opportunities A (JGPAX[2]) +33.3%

Manager: Timothy M. Malloy (2005), Christopher C. Arbuthnot (2008), Roger C. Hamilton (2008)
Total assets: $640.4 million
Load: 5.0%
Expenses: 1.57%
Minimum initial investment: $2,500
Morningstar rating: 5 Stars
Morningstar category: World Stock
Top 5 Holdings (percent of net assets) as of May 31:
OGX Petroleo E Gas Participacoes (7.2%)
Sirius XM Radio (6.7%)
Vodafone (5.0%)
Warren Resources (4.7%)
Monsanto (4.3%)

John Hancock Global Opportunities more than doubled the return of both the S&P 500 and the Morningstar World Stock category over the past year, surging 33.3%. With returns like that, the fund’s 5.0% sales charge is worth it. The fund seeks value in U.S. and foreign stocks of any size, with at least 40% of the portfolio invested overseas. The seasoned management team uses bottom-up analysis to find companies at a substantial discount to their long-term intrinsic values that also have catalysts for growth. The minimum initial investment is just $2,500.

#3 – Fidelity Real Estate Income (FRIFX[3]) +28.3%

Manager: Mark P. Snyderman (since 2003)
Total assets: $1.0 billion
Load: none
Expenses: 1.0%
Minimum initial investment: $2,500
Morningstar rating: 5 Stars
Morningstar category: Real Estate
Yield: 5.3%
Top 5 Holdings (percent of net assets) as of April 30:
MFA Financial (1.7%)
Acadia Realty Trust (1.5%)
Ventas (1.3%)
Equity Lifestyle Properties (1.3%)
Mfa Mortgage Investments Pfd (0.9%)

Fidelity Real Estate Income’s longtime manager Mark Snyderman more than doubled the return of the S&P 500 over the past year. The fund seeks higher-than-average income with capital appreciation a secondary objective, using fundamental analysis and the manager’s assessment of market and economic conditions to guide investment decisions. It invests in preferred and common stocks of real estate investment trusts (REITS) as well as bonds. The fund has the flexibility to invest in U.S. and foreign companies.

#4 – Matthews Asia Dividend (MAPIX[4]) +26.9%

Manager: Jesper Madsen, Andrew Foster (both since 2006)
Total assets: $1.0 billion
Load: none
Expenses: 1.30%
Minimum initial investment: $2,500
Morningstar rating: 5 Stars
Morningstar category: Diversified Pacific/Asia
Yield: 3.3%
Top 5 Holdings (percent of net assets) as of March 31:
Cheung Kong Infrastructure Holdings (3.2%)
China Mobile (3.1%)
Globe Telecom (3.1%)
Chunghwa Telecom (2.6%)
Monex Group (2.6%)

Matthews Asia Dividend nearly doubled the return of the S&P 500 and the Morningstar Diversified Pacific/Asia category over the past year. The fund invests in high-quality companies with solid balance sheets and a commitment to paying dividends. Capital appreciation comes first, income second. Lead manager Jesper Madsen prefers companies tied to local growth rather than exporters. His investment mandate is wide, with the ability to invest far afield in countries such as Sri Lanka and Vietnam. This stellar performer is available for a low minimum initial investment of $2,500.

#5 – TCW Emerging Markets Income N (TGINX[5]) +26.3%

Managers: Penelope D. Foley, David I. Robbins, Javier Segovia (all since 12/17/2009)
Total assets: $668.5 million
Load: none
Expenses: 1.30%
Minimum initial investment: $2,000
Morningstar rating: 5 Stars
Morningstar category: Emerging Markets Bond
Yield: 5.7%%
Top Holdings (percent of net assets) as of June 30:
Republic of Korea 5.75% (2.8%)
Gaz Cap Sa 6.51% (2.5%)
Foederative Republik Brasilien 10% (2.4%)
Grupo Televisa S.A.B. 8.49% (2.3%)
BBVA Bancomer S A Cayman Is 144A 7.25% (2.2%)

TCW Emerging Markets Income nearly doubled the return of the S&P 500 and strongly outperformed Morningstar’s Emerging Markets Bond category over the past year. The fund seeks high total return by investing in private and government debt in emerging markets rated BB or lower by S&P or BA or lower by Moody’s. This top performer is accessible to investors with just a $2,000 initial investment. Note, however, that the fund has a new management team.

#6 – PIMCO Income D (PONDX[6]) +24.1%

Manager: Daniel J. Ivascyn (2007)
Total assets: $1.6 billion
Load: none
Expenses: 0.70%
Minimum initial investment: $1,000
Morningstar rating: 5 Stars
Morningstar category: Multisector Bond
Yield: 6.4%
Top sectors and percent of net assets as of March 31:
Mortgage Pass-thru (44.6%)
Mortgage CMO (24.0%)
U.S. Corporate (20.1%)
Foreign Corporate (4.9%)
Asset-backed (4.6%)

PIMCO Income can do just about anything in the fixed-income space and obviously made all the right moves over the past year, clocking the return of the S&P 500 and the Morningstar Multisector Bond category. Investment grade, junk, government, foreign (including emerging markets) bonds and derivatives are all fair game for the fund, with no requirement to any particular sector. The expertise of this famed fund family, headed by Bill Gross, is available to investors for just a $1,000 initial investment.

#7 – Gabelli Asset (GABAX[7]) +21.6%

Manager: Mario J. Gabelli (1986), Kevin Dreyer (2009)
Total assets: $2.2 billion
Load: none
Expenses: 1.40%
Minimum initial investment: $1,000
Morningstar rating: 5 Stars
Morningstar category: Large blend
Top 5 Holdings (percent of net assets) as of March 31:
News Corp. (2.2%)
Cablevision Systems (2.1%)
Deere (2.0%)
DirecTV (1.9%)
Rogers Communications (1.8%)

Mario Gabelli is still at it after decades at the helm of his flagship Gabelli Asset Fund, outperforming the S&P 500 by more than 7% over the past year. The Barron’s Roundtable regular typically overweighs media companies such as longtime favorite Cablevision systems. The low minimum initial investment of $1,000 lets you in easy. A bottom-up stock picker, Gabelli looks for companies selling below their private market value. You can share this value investing guru’s performance for just a $1,000 initial investment.

#8 – Metropolitan West High Yield Bond M (MWHYX[8]) +20.7%

Manager: Steven Kane (2002), Laird Landmann (2002), Jamie Farnham (2002), Gino Nucci (2004)
Total assets: $1.0 billion
Load: none
Expenses: 0.80%
Minimum initial investment: $5,000
Morningstar rating: 5 Stars
Morningstar category: High Yield Bond
Yield: 8.3%
Top Sectors (percent of net assets) as of March 31:
U.S. Corporate (83.2%)
Asset-backed (7.1%)
Foreign Corporate (5.3%)
Convertible (2.7%)
Municipal (1.6%)

Metropolitan West High Yield extended its successful long-term track record over the past year, keeping pace with the Morningstar High Yield Bond category and beating the S&P 500 by nearly 7 percentage points. The fund seeks total return consistent with capital preservation. It limits interest-rate risk by keeping portfolio duration between two and eight years. The minimum initial investment is a little high at $5,000 but worth it for those with more money to spread around in a diversified portfolio.

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