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SmartMoney’s ‘100 Best Mutual Funds in the World’ list is just strange

moneylogo040411_optBY WARREN BOROSON
NEWJERSEYNEWSROOM.COM
BOROSON ON MONEY

SmartMoney’s list of “100 Best Mutual Funds in the World" (February) is just plain weird.

Among the 100, there are 25 U.S. stock funds, 25 foreign stock funds, 25 taxable bond funds, and 25 “alternative” funds. The 26th U.S. stock fund was really worse than the 25th foreign stock fund, the 25th taxable bond fund, and the 25th alternative fund? How likely was it that the “100 Best” funds were so nicely divided into four categories?

Besides which, a great many of the funds are obscure as all get-out.

Consider the following: Berkshire Focus, Hancock Horizon Burkenroad, Icon Energy, Munder Growth Opportunities, Pin Oak Equity, Integrity Viking Williston Basin/Mid-North American Stock, Saratoga Technology & Communications Portfolio, Southernsun Small Cap Investor, Tilson Dividend, Transamerica Systematic Small/Midcap Value.

None of these funds are listed among the larger funds covered in Morningstar Mutual Funds, the bible in the mutual fund field. And I’ve looked only in SmartMoney’s U.S. stock funds category!

Yet there are decided advantages to putting money into a fund within a large family. For example, if a talented fund manager leaves a big fund family, the family can more easily find a talented replacement. And with a big family, an investor can more readily put together a portfolio of solid mutual funds.

SmartMoney doesn’t even explain how its 100 funds were selected!

And it doesn’t even reveal what kinds of investments the funds make -- growth or value, large cap or small cap, Treasuries or junk bonds, whatever. That would help readers put together a balanced portfolio of the 100 mutual funds. I mean, how would such out-of-the-ordinary funds as Merk Hard Currency, Alger China, and Van Eck International Investors Gold fit into a balanced portfolio?

In general, SmartMoney seemed determined to mention as many different fund families as possible. Putnam, for example, is not an especially distinguished mutual fund family. Its funds also carry sales charges. The 18 Putnam funds rated by Morningstar Mutual Funds have an average rating of 2.44 – where 3 is average, 5 is tops.

Yet on the list we find Putnam American Government Income – along with its almost identical twin, Putnam U.S. Government Income. Over five years, their total returns have been identical.

A fund called Encompass is also on the list; it’s down 33 percent for the year, and gets a Morningstar rating of only three stars. (It’s not listed in Morningstar’s ordinary publication.)



 

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