by Tom Taulli | April 27, 2012 12:26 pm
When it comes to beating the S&P 500, mutual funds have a bad tendency to underperform. According to data from Morningstar, just a mere 17% were able to beat the index last year!
The obvious question: Why? Well, one reason is costs. Even an extra 1% per year can have a big impact on a fund. It gets even worse when you include the load, which is a commission that can add another 1% or more.
That’s why investors would be well-served to seek out mutual funds that not only can post strong performances, but do so with relatively low expenses, producing the most bang for their buck. To help out with the search, here’s a look at four no-load, low-cost funds that don’t skimp on performance:
The T. Rowe Price Growth Stock (MUTF:PRGFX) fund is massive, with assets near $30 billion, which has helped to provide economies of scale. As a result, the fund has a meager expense ratio of 0.7%.
Portfolio manager Robert Bartolo likes to focus on growth companies that have strong barriers to entry. Some of his top holdings include Apple (NASDAQ:AAPL), Google (NASDAQ:GOOG), Amazon.com (NASDAQ:AMZN) and MasterCard (NYSE:MA).
The strategy has worked quite well. Over the past three years, PRGFX has generated average returns of 22.2%, compared to 19.9% for the S&P 500, and it outperformed the index by more than 4 percentage points in the past year. Morningstar currently gives the fund a four-star rating.
The Fidelity Blue Chip Growth (MUTF:FBGRX) fund is another large operator, with assets under management at roughly $15.5 billion. However, its heft has not made it tough to generate standout returns — the average gains for the past three years were 22.8%, though it’s basically mimicking the S&P 500 over the past 52 weeks.
Portfolio manager Manager Sonu Kalra looks for high-quality growth companies, sometimes outside of the tech realm. Some holdings include Starbucks (NASDAQ:SBUX) and Monster Beverage (NASDAQ:MNST).
FBGRX charges 0.92% for expenses. Like T. Rowe’s Growth Stock fund, it also has a four-star Morningstar rating.
The Columbia Acorn International Z (MUTF:ACINX) fund, which has $6.3 billion in assets, has generated average returns of 21.11% for the past three years. Not only has that beaten the S&P 500, but it has crushed the MSCI EAFE index, which tracks stocks outside of the U.S. and gained 12.38% in the same time frame.
This fund’s performance is impressive in light of the instability in foreign markets.
The portfolio managers, Zach Egan and Louis Mendes, focus on growth companies that have strong competitive advantages. They also try to diversify across various countries and have been good at navigating emerging markets.
ACINX’s expenses come to 0.95%, and the fund also has a four-star Morningstar rating.
Chad Meade and Brian Schaub, who manage the Janus Triton T (MUTF:JATTX) fund, like to minimize downside risks, which is critical for growth funds. After all, a few bad stocks can wreck a portfolio.
For the past three years, the fund has generated an average return of 25.82%, almost 6 percentage points better than the S&P 500. And that performance comes at 0.93% in fees.
The fund is not a fast trader, sporting a reasonable 42% turnover ratio. In other words, Meade and Schaub look for companies that have long-term growth potential. They like to focus on “under the radar” stocks, such as SBA Communications (NASDAQ:SBAC), Dresser-Rand Group (NYSE:DRC) and World Fuel Services (NYSE:INT).
Morningstar gives JATTX the highest rating of this bunch at five stars.
Note: All four funds require a $2,500 minimum investment.
Tom Taulli runs the InvestorPlace blog IPO Playbook, a site dedicated to the hottest news and rumors about initial public offerings. He also is the author of “The Complete M&A Handbook”, “All About Short Selling” and “All About Commodities.” Follow him on Twitter at @ttaulli or reach him via email. As of this writing, he did not own a position in any of the aforementioned securities.
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