12 Flexible Funds for Navigating This Market

Jeff Auxier is a unique breed of fund manager. When he isn't poring over balance sheets, he’s busy running a 108-acre hazelnut farm in Oregon. He's also been known to ride around on a 43,000-pound Caterpillar bulldozer -- a far cry from the Lincoln Town Cars his Wall Street brethren prefer.

From his office just south of Portland, he scours the entire stock market using a Warren Buffett-style of value investing for the long term. He likes bargain-basement priced companies that have improving fundamentals, a strong franchise and a consistent record of operating results. His fund, the $79 million Auxier Focus (AUXFX), beat the S&P 500 by 13 percentage points last year and has only lost money two years since it opened in 1999.

Auxier Focus is what's called a multi-cap fund, or in the parlance of financial advisors, a go-anywhere fund. While most funds are confined to say, large-cap stocks, Auxier can buy those and small- and mid-caps, too. He can even invest in bonds. There are 1,690 funds and share classes just like Auxier in our fund screener tool. For this week's screen we weeded out 1,372 multi-caps that charged a load. We then narrowed that universe further by looking for low-cost, top-performing offerings. We were left with 36 finalists. The 12 with the best three-year track records are listed below.

The selling point for multi-caps is that their managers have the freedom to find good stocks wherever they choose and aren't restricted to one corner of the market. In theory, that independence should lead to better performance since the manager has the flexibility to go after the best returns, whether it's in a particular sector or some part of the market cap spectrum. Meanwhile, shareholders get instant diversification because the fund owns a range of stocks.

Multi-caps, though, can be a confounding investment. They aren't easily pigeonholed, so financial advisors have a hard time positioning them in portfolios. And that theory about performance doesn't always play out. Through Thursday, these funds were averaging a 21.2% drop in 2009, according to Lipper, on par with large- and mid-cap funds and ahead of the 23.9% drop for the typical S&P 500 fund. That's not a performance worth cheering. Indeed, multi-cap growth funds were particularly disappointing. The average fund in that category has dropped 25.3% this year.

However, multi-caps may just make sense right now. Market watchers are spending a lot of time looking at historical bear-market returns with the hope of trying to discern which sector or style of stock will lead them out of the market doldrums. Health care, technology, small caps and growth stocks are all mentioned as possible candidates for posting above-average performance over the next 12 to 18 months.

Instead of betting on one of those niches, multi-caps give you exposure to each one -- allowing you to hedge your bets. While the fund may not pop by as much as a more-narrowly focused health care or tech fund would if those sectors rebound, shareholders will have an opportunity to participate in those rallies.

We suggest checking out Auxier, Becker (BVEFX), Amana Growth (AMAGX), Croft Value (CLVFX) and Fidelity OTC (FOCPX). These funds charge reasonable fees, have good long-term performance records and their experienced managers typically invest their own money right alongside shareholders.

The Criteria: The funds on the table are listed in Lipper's multi-cap category. They are open to new money, require a minimum investment under $5,000 and charge less than a 1.5% annual expense ratio. Their three- and five-year performance track records put them in the top 40% on their peer group. We did not include load funds. The 12 with the best three3-year track record made the final cut.