Fund Finds for $50

Here's how it works: You invest a small initial sum, then give your checking- or savings-account information to the fund company. Each month they'll deduct a small amount from your account. If a fund's automatic investment figure is $50, you'll have put in $600 within a year — and $6,000 at the end of a decade. While that might not seem like a lot to some folks, for a beginner or small-scale investor, it's a great start.

The question is, what does $50 buy you these days? Plenty. Fund families such as Invesco, Strong and T. Rowe Price offer some of the lowest cost automatic-investment plans. But they don't always shout the news. So when you call to inquire, be sure to ask the company representative for the "automatic-investment plan."

We searched the Morningstar database for no-load funds with AIP plans that fit the tightest budgets. We required three-year and year-to-date performance that beat the category average, and we looked for funds that finished in the top quartile of their respective group. Meanwhile, the expense ratio had to fall below the category norm. Finally, the initial amount for the AIP had to be $50 or less, with the same criteria for subsequent payments.

Now, do you want that overcooked steak, or one of these portfolios?

Invesco Dynamics
This $9.8 billion midcap growth portfolio has been dynamic indeed, finishing in the top 24% of its category over the past three years. Invesco Dynamics fund's (FIDYX) managers, Tom Wald and Chief Investment Officer Tim Miller, seek out growing market sectors, then look for the midsize leaders in them. And to be leader, a company must have a healthy balance sheet, strong unit-sales growth and rising operating margins. The managers stay away from companies that grow by acquisition. "We're always very wary of that," says Wald. "We don't think it's sustainable."

Miller and Wald divide the 156-holding portfolio between core companies that have proven themselves and those that are still growing into their skin. Core names such as Comverse Technology (CMVT), AMBAC Financial Group (ABK) and staffing-services firm Robert Half International (RHI) are found near the top of the portfolio. Meanwhile, "potential" core names, as Wald calls them, are given smaller weightings until the managers see continued development of their business models and profitability measures. In this latter group are biotech company Genzyme General (GENZ) and financial account-management firm SEI Investments (SEIC).

As for the largest stocks in the fund right now, pharmaceutical firm Forest Laboratories (FRX), storage play Brocade Communications Systems (BRCD) and Palm (PALM) lead the pack.

Invesco Dynamics has returned 35.11% annualized over the past three years — that's almost double the S&P 500's performance for the same period. And year-to-date it's up 16.24%. Its expense ratio is an impressive 1.03%, compared to the category average of 1.56%.

T. Rowe Price Growth Stock
A less-than-hefty weighting in technology — about 35% — has helped the $6.1 billion T. Rowe Price Growth Stock fund (PRGFX) stay on its feet this year. And within that sector, manager Bob Smith has seen home runs and strikeouts. PC maker Dell Computer (DELL) is down more than 36% year-to-date, while newer purchases Ariba (ARBA), Siebel Systems (SEBL) and Juniper Networks (JNPR) are fueling returns.

On the Internet side, America Online (AOL) is still a holding, while Smith has shown Yahoo! (YHOO) the door. "I think AOL-Time Warner is a good combination," he says. "Yahoo doesn't have the breadth of product."

No matter what the sector, Smith looks for companies with solid management teams, high margins and strong cash generation. In technology, that combination leads him to software companies such as Microsoft (MSFT), while in consumer stocks it means beverage firms, such as Coca-Cola (KO) and PepsiCo (PEP) — both in the portfolio.

And while technology is still the fund's largest single sector, financials and health care account for 17.5% and 13% of the assets, respectively. At the moment, Pfizer (PFE) is the largest holding, followed by Cisco Systems (CSCO) and Freddie Mac (FRE).

This fund's three-year annualized return is 20.07%, placing it in the top 10% of the large-cap blend category. Year-to-date it's up 7.12%. Its expense ratio is 0.74%, well below the category average of 1.24%.

Strong Growth
Aggressive is the name of the game at the $4.3 billion Strong Growth fund (SGROX), where experienced money manager Ron Ognar is in control.

Ognar seeks out companies with above-average growth potential, but reasonable prices. Where has that led him? About half the portfolio is in technology and telecom stocks, with Juniper Networks, Cisco Systems and JDS Uniphase (JDSU) the largest holdings, according to the latest quarterly report.

Nevertheless, Ognar isn't stuck on tech. Department-store chain Kohl's (KSS) was a recent top 10 holding, as was PE Biosystems Group (PEB), a manufacturer of scientific-measurement devices. Financial and health-care stocks account for more than 25% of the portfolio's assets.

This fund's three-year annualized return of 31.28% places it in the top 10% of the large-cap growth category. Year-to-date, it's up 4.3%. And its expense ratio is 1.20% — below the 1.45% norm for the group.