There’s little doubt that exchange-traded funds (ETFs) have many advantages, such as low costs, trading flexibility and liquidity. Yet this does not necessarily mean you should completely avoid actively managed funds. The fact is that they can provide tremendous value — and help to meet some of your unique investment needs.
Still, that being said, a red-hot manager can go cold very fast. However, there are still many examples of fund managers that have been able to put together solid long-term track records that beat the averages.
With that in mind, here are five of the best funds to consider right now:
Expenses: 0.68%, or $68 annually per $10,000 invested
Will Danoff, who manages the Fidelity® Contrafund® Fund (MUTF:FCNTX), is a legend in the investment world. He has been at the helm since 1990, and during his tenure, he has racked up consistently strong returns. For the past 15 years, the average gain came to 11.33%, which was 1.7% better than its category. He has been able to do this despite the massive size of the fund, which is at $117 billion in assets.
The main focus for Danoff is to find companies that have the potential for long-term growth. And to help with this, he leverages Fidelity’s team of 135 analysts.
The scale of FCNTX allows it to get opportunities to invest in fast-growing startups as well. Some include Pinterest, Dropbox and Uber.
As for the public holdings, the portfolio has over 300 names, such as Alibaba Group Holding Ltd (NYSE:BABA), Intuitive Surgical, Inc. (NASDAQ:ISRG), Tencent Holdings Ltd (OTCMKTS:TCEHY) and Regeneron Pharmaceuticals Inc (NASDAQ:REGN).
Perhaps the biggest knock against the FCNTX fund is the expense ratio, which is at 0.68%. But so long as the fund keeps performing, this should not be much of an issue.
The current bull market, which got its start in April 2009, is actually the third longest in history. In light of this, it probably makes sense to think about getting more conservative with equities.
One approach is to buy mutual funds that focus on value strategies with large companies. And one that fits the bill is Vanguard Equity-Income Fund Investor Shares (MUTF:VEIPX). The managers include Michael Reckmeyer, who is a part of Wellington Management, as well as a team of quantitative analysts from Fidelity.
For the most part, the strategy focuses on contrarian plays that sport attractive dividends. Some of the current portfolio holdings include Philip Morris International Inc. (NYSE:PM), General Electric Company (NYSE:GE), Wells Fargo & Co (NYSE:WFC) and Pfizer Inc. (NYSE:PFE).
As for the performance, VEIPX has been fairly steady. For the past five years, the average total return was 12.98%. The expense ratio is also reasonable, at 0.26%, and the average yield is 2.6%.
When it comes to actively managed funds, there is often an advantage for those that focus on small caps. This is where stock-picking can result in market-beating returns. Let’s face it, smaller companies can often get overlooked.
OK then, so what fund is one to consider? Well, there is the Conestoga Small Cap Fund Investors Class (MUTF:CCASX) fund, which has generated an average return of 15.53% for the past five years. The co-managers of the fund include Joseph Monahan and Robert Mitchell, who generally take a value approach to stock selection and also keep their portfolio concentrated (usually under 50 securities).
This is not to imply that the ride has been without turbulence. When it comes to small caps, there are occasional swoons. But for the most part, Monahan and Mitchell have been effective in managing through the volatility.
Having exposure to foreign markets can help improve the return on your overall portfolio, and it is also important to keep in mind that active management can be a big help. No doubt, there is quite a bit of research required when analyzing foreign stocks.
So which is a top contender? One to consider is the Baron Emerging Markets Fund Retail Shares (MUTF:BEXFX) fund, which has $4.2 billion in assets. In fact, the fund has posted stellar returns this year, with the gain at about 31%. A key is that the portfolio Michael Kass has focused on top-quality companies in China, such as BABA and Tencent Holdings Ltd (OTCMKTS:TCEHY).
As for the expense ratio, it does seem high, at about 1.38%. But this is to be expected because of the costs of managing a foreign fund, which requires substantial travel and perhaps offices in various countries.
The Federal Reserve is starting to take steps to unwind some of the policies put in place to deal with the consequences of the financial crisis. As a result, there have been increases in interest rates and a lessening of the balance sheet.
In such an environment, it is definitely critical to buy mutual funds that have seasoned portfolio managers. And one of the best firms to deal with this is Pimco. The firm, which was started in 1971, has over 2,000 employees across 12 countries and $1.51 trillion in assets under managers.
One of its top bond funds is the PIMCO Income Fund Class D (MUTF:PONDX). The co-managers include Dan Ivascyn and Alfred Murata, who have been with the fund for over a decade.
They have an expansive charter. For example, the PONDX fund has invested in mortgages, nonagency securities and even bonds in emerging markets. This flexibility has definitely made it easier to seek out strong returns. Consider that — for the past ten years — the average gain came to 9%, compared to the industry average of 4.74%.
Tom Taulli runs the InvestorPlace blog IPO Playbook and is also the author of High-Profit IPO Strategies, All About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.