With the market> swinging in and out of correction territory, long-term mutual funds are seeing more investor exits than entrances. Few want to risk much in an uncertain environment.
Stocks re-entered technical correction territory on Friday, as investors wrestled with another possible debt crisis in Hungary and news that employers added far fewer jobs in the U.S. than expected in May. But investor discomfort has been growing since the so-called flash crash on May 6. Investors have pulled nearly $30 billion from long-term equity funds over the last four weeks, including $17.37 billion in the week ended May 26.
In addition to growing concern about a double-dip recession, there s been a disconnect between what the data show and what people are seeing in their lives houses selling on their streets and friends and families without jobs, says Charles Rotblut, vice president of the American Association of Individual Investors.
The most recent data on how much money is flowing in and out of funds could suggest that long-term equity funds are asking too much of increasingly cautious investors. So this week, we turned our attention to funds that would allow investors merely dip their toes.
About half of the mutual funds tracked by Morningstar require an investment of $25,000 or less to establish a new account. About a quarter ask for $2,500. We looked at those that would require no more than $1,000.
Morningstar tracks 13,357 funds and share classes that ask for no more than that from investors. We searched for funds that had performance track records over the trailing three- and five-year time periods that put them in the top 25% of their peer group. In addition, the funds had to be outperforming the S&P 500 for 2010. We also required that the funds keep their annual expenses nominal. Below are four funds that fit our criteria. All of them have a five-star rating from Morningstar and are in positive territory for the year, with gains of between 3.8% and 6%. (As of Friday s close, the S&P 500 was down 4.5%, year to date.)
The results were diverse, including a mortgage backed securities fund, a fund of funds and a socially responsible fund. Among the three, the top returner for the first half of 2010, was the PIMCO Mortgage-Backed Securities D, which has a minimum initial investment of $1,000. It s returned 8.1% over the last three years, and 6.2% over the last five. Morningstar analysts call it something of a hidden gem for its track record for generating market- and peer-beating returns.
Also making the list was the Neuberger Berman Socially Responsive Fund, which has a minimum investment requirement of $1,000. The fund, which has outperformed the S&P 500 for the last fifteen years, seeks to avoid any stock that gets more than 5% of its revenue from alcohol, tobacco, weapons, nuclear power or gambling. The managers focus on 30 to 35 stocks with strong fundamentals, good growth potential and reasonable valuations, according to Morningstar analysts. Among its top five holdings is technology company Altera and financial software and business solutions company Intuit, which have returned 8.6% and 20%, year to date.
The PIMCO All Asset Fund, a fund of funds, breaks from the pack, in its heavy use of nontraditional PIMCO funds, such as inflation-linked securities, real estate, commodities and emerging-markets bonds, according to Morningstar. Earlier this year, the fund which will never place more than 50% of assets in equities -- had more than 60% of assets in a combination of long-short emerging market bond, convertibles and inflation-linked strategies. It has a minimum investment of $1,000.
The Criteria: The funds on the table have a minimum investment of $1,000 or less. They are open to new money and charge an annual expense ratio under 1.5%. In addition, their performance track records put them in the top 25% of their category over the trailing three- and five-year time periods. They're also ahead of the S&P 500 so far this year. As usual we did not include load funds.
|Fund Name||Ticker||Assets |
|PIMCO Mortgage-Backed Securities D||PTMDX||$642||5.98||8.14||6.20||0.90||$1,000|
|Neuberger Berman Socially Responsive Fund||NBSRX||1200||4.62||-6.73||2.24||0.90||1,000|
|PIMCO All Asset D||PASDX||15500||3.75||3.58||4.41||0.70||1,000|