Gold, options, currencies, farm land, you can find investments in all of those and more in so-called alternative funds. While dozens of these mutual funds have started in the last year, a select few have been around for some time and done quite well for their investors. For the first time as part of our annual best-funds list, we've singled out 25 of the top alternative mutual funds.
Permanent Portfolio (PRPFX)
- Manager: Michael Cuggino
- Assets: $15.4 billion
- Top holdings: U.S. Treasurys, gold
The fund, which keeps two-thirds of its portfolio in gold, Treasurys and Swiss francs, is designed to preserve investors' nest eggs rather than post big returns. But recently, it has been able to do both. While the heavy reliance on such assets concerns some financial planners (Douglas Kreps, principal at Fort Pitt Capital Group, says that strategy essentially bets on a "doomsday scenario"), manager Michael Cuggino says the remaining third of the fund, which includes real estate and energy stocks, should thrive in bull markets: "Each of the assets will be volatile, but by combining them, you smooth your returns."
Merk Hard Currency (MERKX)
- Manager: Axel Merk
- Assets: $563 million
- Top Holdings: Sweden's government debt, SPDR Gold Trust ETF
"The Fed will never say this, but they want inflation," says the Munich-born, California-based Axel Merk, who has bet on the dollar's decline over several years. The 42-year-old manager favors hard assets such as gold and currencies such as the New Zealand and Australian dollars, which he believes will benefit from higher commodity prices. Analysts say a number of low-cost exchange-traded funds can just as easily help investors bet against the dollar, which raises questions about whether the fund can continue to justify its 1.3 percent annual fee. "It's a really straightforward strategy that's well-suited to indexing," says Dave Nadig, director of research for IndexUniverse.com. Merk says the investors he serves want professional advice and will pay for it.
FPA Crescent (FPACX)
- Manager: Steve Romick
- Assets: $7.5 billion
- Top Holdings: Aon, CVS Caremark
SmartMoney asked Morningstar for a list of the top-performing funds over the past five years from four separate categories: U.S. Stocks, Foreign Stocks, Bonds and Alternatives. From there, we whittled down the list, eliminating funds that charge high annual expenses and have high minimum investments. We also wanted to highlight funds that any investor can get into, so we took out funds that are only available in retirement plans or are closed to new investors.
This fund's manager, Steve Romick, holds quarterly conference calls for investors, much like a public-company CEO discussing quarterly profits. Romick often has a lot of explaining to do, since he has the leeway to stuff his fund with whatever he thinks will work. He then sticks with the picks: The fund's turnover is 20 percent, nowhere near the 55 percent average for alternative funds. These days, about two-thirds of the fund is invested in stocks, especially in those of large multinational corporations that Romick says will benefit from emerging markets' growth. "He doesn't hit a lot of home runs with stocks. He hits a lot of singles and doubles," says Ron Roge, a financial planner who invests in FPA Crescent for his clients. Among Romick's recent nonstock bets: loaning money to an office building, buying farmland and picking up pools of subprime residential mortgages.
Hundredfold Select Alternative Fund (SFHYX)
- Assets: $65 million
- Top holdings: Pimco High Yield Institutional, SEI Institutional High Yield Bond, Nuveen High Yield Muni Bond
Early in his career Ralph Doudera struggled to reconcile investing's underlying goal - making big bucks - with his Evangelical Christian faith. At one point he bought a Porsche, then sold it after a change of heart and gave the proceeds away. Today, he makes his living managing money for individual clients but donates Hundredfold Select's management fee to a non-profit he set up. While the fund is designed to be, in Doudera's words, "a slow and steady plodder" it does so using a complex investment strategy involves using a mix of mutual funds, ETFs and derivatives. Doudera's take on bond yields, along with avoiding some stocks, helped the fund adroitly maneuver the 2008 credit crisis.
James Balanced: Golden Rainbow (GLRBX)
- Assets: $1.3 billion
- Top Holdings, US Treasury notes
While this fund is designed to own a broad mix of stocks and bonds, it owes its recent success to it conservative bent. S&P Capital IQ mutual fund analyst Todd Rosenbluth calls Golden Rainbow's 2008 decline of just 5 percent "outstanding" for a fund of its type, although he notes it did lag the following year when markets took off. Today, the fund is staying conservative thanks to the nation's 8.5 percent unemployment rate and trouble in Europe. Co-manager Brian Shepardson thinks Treasurys still have room to appreciate, though not to the same extent that they did in 2011. At the same time, Shepherdsonsays the fund has been cutting its stock exposure and focusing on domestic-oriented companies like retailer DollarTree and utility Portland General Electric firms he says are unlikely to be hurt by trouble in Europe.
|API Efficient Frontier Income||APIUX||-4.0||7.0||171|
|FBR Balanced Investor||AFSAX||10.6||4.4||124|
|Hundredfold Select Alternative Service||SFHYX||5.1||6.1||255|
|Hussman Strategic Total Return||HSTRX||4.8||7.1||64|
|Intrepid Capital Investor||ICMBX||5.0||6.7||145|
|James Balanced: Golden Rainbow||GLRBX||4.8||5.3||112|
|Janus Moderate Allocation||JNSMX||-0.3||3.9||25|
|John Hancock Balanced||SVBAX||-0.1||4.2||117|
|Legg Mason Western Asset Managed Municipals||SHMMX||7.7||5.2||64|
|Marshall Intermediate Tax-Free Investor||MITFX||5.7||5.4||55|
|Merk Hard Curency Investor||MERKX||5.0||5.5||130|
|MFS Lifetime Retirement Income||MLLAX||4.2||5.4||28|
|State Farm Municipal Bond||SFBDX||9.6||5.9||15|
|State Farm Tax-Advantaged Bond A Legacy||SFTAX||9.2||5.6||68|
|USAA Precious Metals and Minerals||USAGX||-3.6||15.0||115|
|Van Eck International Investors Gold||INIVX||-7.4||14.7||125|
|Vanguard Wellesley Income Investor||VWINX||8.3||5.6||25|
|Waddell & Reed Asset Strategy||UNASX||-2.7||7.0||114|
|Waddell & Reed Continental Income||UNCIX||5.4||4.5||121|
|Waddell & Reed Municipal Bond||UNMBX||6.3||5.0||87|