Actively managed funds can be a smart choice in transitional market environments, and investors would be wise to look at those with low expense ratios and solid long-term performance records now.
Stock prices are running out of room to run higher, and the bond market is getting nervous ahead of a rate increase from the Fed that may be coming later this year.
Yes, passively managed index funds will have the lowest expense ratios, but paying a reasonable price for seasoned management is often the best bet when volatility and downside pressure lurk around the corner.
We highlight three of the best actively managed funds — one stock fund, one bond fund and one balanced fund — that have the winning combination of above-average performance and below-average expense ratios.
Best Actively Managed Funds: Dodge & Cox Stock (DODGX)
Expenses: 0.52%
Load Fee: None
When looking for outstanding actively managed funds with the added benefit of low expenses, you won’t find better than Dodge & Cox Stock (MUTF:DODGX).
Lead manager, John A. Gunn, has been on board the Dodge & Cox management team since 1977 — 38 years. Most of the rest of the management team have tenures going back 10 or 20 years.
The 15-year annualized return of 8.8% doubles that of the S&P 500 Index, which is at 4.6%. And that outstanding long-term record only includes one blemish in 2008 when the fund was over-weight in financial stocks as the credit crisis was hitting its worst point.
The portfolio’s top sectors include financials, technology and healthcare and top holdings include Wells Fargo & Co (NYSE:WFC), Hewlett-Packard Co (NYSE:HPQ), and Novartis AG ADR (NYSE:NVS).
The minimum initial investment for DODGX is $2,500.
Best Actively Managed Funds: Metropolitan West Total Return (MWTRX)
Expenses: 0.68%
Load Fee: None
Vanguard and PIMCO may dominate the fixed income spotlight, but the bond fund crown may best fit a standout lesser known to the general investing public: Metropolitan West Total Return (MUTF:MWTRX).
As you may have read here last week, Vanguard Total bond surpassed Pimco Total Return as the biggest bond fund in the world. But MWTRX has pulled in sizable assets in the wake of Bill Gross’ exit from Pimco and its performance, management, and portfolio make it perhaps the only fund that can rival the best days of Gross and his Total Return fund.
The MetWest Total Return fund’s three lead managers have been leading the fund for 18 years and their performance record is nothing less than stellar. The 3-year, 5-year, 10-year and 15-year returns all beat more than 90% of intermediate-term bond fund category peers, as well as the Barclay’s Aggregate Bond Index.
The minimum initial investment for MWTRX is $5,000.
Best Actively Manged Funds: Bruce Fund (BRUFX)
Expenses: 0.73%
Load Fee: None
If you are looking for an outstanding balanced fund that provides above-average returns with below-average market risk, look no further than the simply named Bruce Fund (MUTF:BRUFX).
Co-managers R. Jeffrey Bruce and Robert B. Bruce have been at the helm of BRUFX for more than 30 years and they’ve built a long-term performance record that is nearly unmatched for a fund that invests in a balance of stocks and bonds.
The 5-year, 10-year, and 15-year annualized returns for the Bruce Fund all rank at the top, outperforming 99% of all category peers in the moderate allocation group. The 14% 15-year return sounds almost too good to be true.
The portfolio market cap averages with mid-cap stocks, and the bond holdings are a blend of credit quality and duration. All positions are long; therefore the Bruce Fund is simply a well-managed fund with a management team that has a knack for security selection and patience, as evidenced by the 11% turnover rate.
The minimum initial investment for BRUFX is a cheap $1,000.
As of this writing, Kent Thune did not personally hold a position in any of the aforementioned securities. Under no circumstances does this information represent a recommendation to buy or sell securities.
