INDEPENDENT INVESTMENT FIRM

Dodge & Cox has been defying the odds for almost 80 years. Not many mutual-fund companies can trace their roots back to the Great Depression: They either disappeared during that calamitous time, went out of business in the ensuing decades or were eventually swallowed up by competitors. Dodge & Cox is the exception. In fact, not only has it survived but it's thrived managing just four mutual funds, even as its competitors have added dozens of offerings to their lineups. That quartet is envied across the industry and each fund is in the top third of its category over the long haul. It's hard to find an advisor who isn't enamored with this firm.

Recently, Dodge & Cox has made two moves that have raised some eyebrows. In early February, it announced it would reopen two funds to new money, including Dodge & Cox Stock, arguably the industry's best large-cap offering. What really caused a stir, though, was two weeks later the company quietly filed to launch a fund called Dodge & Cox Global Stock. Advisors are hoping that when this fund debuts in the spring some of the skill that made Dodge & Cox Stock such a great fund will find its way into this new offering.

This week the SmartMoney.com fund screen focuses on new funds like Dodge & Cox Global. This is the only screen we produce all year in which we dispense with much of our usual criteria. Indeed, since these funds are just getting started or are in registration they don't have the three- and five-year performance track records we prefer. We can still judge them on the fees they charge, but in this case we put more emphasis on the parent companies and the managers' reputations. We also take a long hard look at a given fund's strategy. Obviously, this means the screen is much more subjective. Morningstar says there are 1,995 funds that have been launched since Jan. 1, 2007. We found five we think are worthy of attention.

There are both pitfalls and positives to investing in a new fund. Obviously, the biggest concern is the lack of a performance track record. Most advisors won't begin to look at a fund until at least its third or fifth birthday. With good reason: You want to be able to see how a fund performs in all kinds of market conditions. By favoring a single year or a shorter time period you risk rewarding a spat of dumb luck. There are almost 17,500 funds and share classes that have track records that extend past 36 months. Surely, one of those offerings invests in the same space as any new fund about to come on the market.

You also need to be aware of why the fund is being launched. Fund companies have a knack for flooding the market with whatever type of fund happens to be hot. For example, there have been plenty of new energy and emerging-market funds launched the last few years as those two sectors posted big gains. Stay away from a fund company that's just looking to attract assets or a fund that may be investing in an industry that's near its peak. A final point: New funds can have higher fees. It's expensive to open a fund. Fees usually fall once assets come in the door. But that discount could take years to materialize. Meanwhile, you may be paying too much.

That said, there are equally compelling arguments for jumping in a new fund. The offering can be sponsored by a decent fund shop, like Dodge & Cox, that's known for being shareholder friendly and for a disciplined strategy. By getting in early you can actually benefit from the money that follows behind you. A manager can pop the stock prices of companies he's buying because he has to invest money coming in the door. Some fund shareholders will benefit from the increasing prices.

The fund may be brand new. However, the manager may have a long history. That was certainly the case with the Wintergreen fund and its well-respected manager David Winters. He helped run over $35 billion as the chief investment officer at Franklin Mutual Advisers. And even though the odds are pretty much stacked against new funds, some do manage to overcome all the obstacles. The five that made our list last time returned an average 8.5% in 2007 vs. around 5% for the S&P 500. Although we must admit that performance was heavily impacted by the 26.4% return booked by American Century Legacy Multicap, a fund top-heavy in telecom stocks.

"I have bought brand-new funds with every confidence," says Ron Weiner, president of RDM Financial Group in Westport, Conn. He says he didn't hesitate to buy into new funds run by respected managers like ex-Janus exec Tom Marsico or Fidelity's Will Danoff. "But we knew who we were buying. We weren't taking a big risk."

One new fund we like is Thornburg International Growth. The fund's portfolio of 38 companies is a mixed bag of firms from across the globe including Nestle, Tesco and Las Vegas Sands. It's returned 16.1% the last year, putting it in the top 10% of its peer group. We also like Tweedy Browne Worldwide High Dividend Yield Value. This firm's employees have over $700 million of their own money invested in the company's funds, including 10% of the assets in Worldwide High Dividend. The fund has lost 5.6% this year vs. a deficit around 10% for the S&P 500 and 8.7% for the MSCI EAFE international index.

As for Dodge & Cox Global Stock, we usually aren't in the business of suggesting a fund that hasn't even begun to trade. But if you have some spending cash, being first in line for this fund may not be such a bad idea. However, there's no guarantee the magic that made other Dodge & Cox funds great will rub off on this new offering. "I love [Dodge & Cox] but they are very tight-lipped," says Weiner. "You have to ask if a manager who had a hot hand on one fund can have a hot hand on two or three or even four funds. There are a lot of questions." Alas, only time will provide the answers.

The Criteria

The five funds below have started trading during the last year or are about to start trading. They must be accepting new money and require a minimum investment under $5,000. Their annual expenses had to be less than 2% a year. That's higher than the usual 1.5% we use as a cutoff. But we gave these funds some wiggle room since opening a fund can be expensive at first. Finally, we emphasized company and manager reputation while downplaying funds we thought were part of hot sectors.