QikReview: Top Domestic Mutual Funds

Below is a brief review of several top domestic mutual funds. They are all large-cap funds since I viewed small-caps as a risky proposition to invest in this year when I started looking into mutual funds. At this point though, it may be a good idea to revisit top small-cap funds as they're bound to come back strongly when the economy starts climbing back from the current stock market bear levels.

CGM Focus (CGMFX)

Category: Large Blend
Rating: 5
Capital Gains Exposure: 26%
Assets: $5.5 bil
Expense Ratio: 1.02%
Turnover Ratio: 333%
Yield: 0.09%
Redemption Period: 0 days
Redemption Fee: 0.0%
3-Year Total Cost: $381
Minimum Investment: $2,500
Comments: Returns are absolutely and relatively outstanding: this fund is #1 among peers in 1-year, 3-year, 5-year, and 10-year returns! They are 53%, 30%, 36%, and 25%, respectively.
It has been volatile, but it seems to reward well those who can handle moderate volatility, which is how I view the extent of this fund's volatility. It invests into Giant (54) and Large (39) companies. It invests into relatively few sectors: Hardware (4), Telecom (9), Business Services (7), Industrial Materials (43), and Energy (36). It has 63% of assets in foreign stocks. It has only 25 total holdings, two of them are shorts. This may actually be a good time to buy into this fund since there is a strong possibility of a strong rebound. Fund has minimal Cash and shorts 10% of the assets. This fund and its manager, Kenneth Heebner, are nothing short of phenomenal.

Fairholme (FAIRX)

Category: Large Blend/Growth
Rating: 5
Capital Gains Exposure: 12%
Assets: $6.8 bil
Expense Ratio: 1.00%
Turnover Ratio: 20%
Yield: 0.68%
Redemption Period: 60 days
Redemption Fee: 2.0%
3-Year Total Cost: $318
Minimum Investment: $2,500
Comments: It's #3 in 5-year returns, #1 in 3-year returns, and top 10 in all other rankings. It invests into Giant, Large, and Medium companies. It has 21% in Cash, which is excellent since it can pounce on opportunities in this down market and not have to sell its long-term holdings. For a domestic fund, it has a large position of 25% in foreign stocks. It has only 22 stocks in its portfolio. It is heavily invested into Berkshire Hathaway and Canadian Natural Resources, at 17% each. I'm not too sure about their portfolio of stocks although their track record is pretty impressive.

Selected American (SLASX)

Category: Large Blend
Rating: 4
Capital Gains Exposure: 35%
Assets: $12 bil
Expense Ratio: 0.90%
Turnover Ratio: 9%
Yield: 1.07%
Redemption Period: 0 days
Redemption Fee: 0.0%
3-Year Total Cost: $287
Minimum Investment: $1,000
Comments: Although it received Domestic Fund Manager of Year in 2005, all I see is middle-of-the-pack performance across the board. Capital gains exposure is very high as well at 35%. With most sector weights similar to S&P 500, this fund has a higher exposure to Financials and Consumer Goods - yep, the two of the worst categories to be in according to the market sentiment. It has only 1% in Cash. It tends to invest into Large/Giant companies. Although it is a solid fund with a long-term value investing approach that I can appreciate, I'm just not impressed with its returns.

T. Rowe Price Equity (PRFDX)

Category: Large Value
Rating: 4
Capital Gains Exposure: 17%
Assets: $23 bil
Expense Ratio: 0.69%
Turnover Ratio: 17%
Yield: 2.02%
Redemption Period: 0 days
Redemption Fee: 0.0%
3-Year Total Cost: $221
Minimum Investment: $2,500
Comments: Another fund with a mediocre performance relative to peers. Potential capital gains exposure is sizable at 17%. Sector weightings are very similar to the S&P 500. Cash is at 5%. It has some solid stocks among its Top 25 holdings, but it just has too many total holdings - 124.
What is, without a doubt, impressive, is the fact that this fund has had only 2 years of negative returns out of the past 21. That is outstanding, but I'd still prefer a more concentrated portfolio of great companies than 100 best from the S&P 500 list that this fund seems to be holding, in my opinion.

American Century (TWSAX)

Category: Large Blend
Rating: 5
Capital Gains Exposure: 11%
Assets: $1.5 bil
Expense Ratio: 1.18%
Turnover Ratio: 172%
Yield: 1.45%
Redemption Period: 0 days
Redemption Fee: 0.0%
3-Year Total Cost: $373
Minimum Investment: $2,500
Comments: This fund's returns are simply not acceptable, even though Morningstar gives it five stars. Its 10-yr return is 7% and 5-yr return is 10%, that absolutely pales in comparison to the likes of CGM Focus and Fairholme. So, I'm not even going to spend any more time researching it.


Permanent Portfolio (PRPFX)

Category: Conservative Allocation
Rating: 5
Capital Gains Exposure: 16%
Assets: $1.7 bil
Expense Ratio: 1.11%
Turnover Ratio: 7%
Yield: 0.43%
Redemption Period: 0 days
Redemption Fee: 0.0%
3-Year Total Cost: $387
Minimum Investment: $1,000
Comments: Relative returns are certainly impressive: this fund is #1 among peers in 1-year, 3-year, 5-year, and 10-year returns! It's also consistent from year to year as it's in the top 5 all the time. Absolute results though aren't quite as impressive as some top funds other categories: it returned 14% annually over the last 5 years and 10% over the last 10 years. This is a Large-cap Blend fund that invests into Giant (21), Large (33), Medium (32), and Small (13) companies. It holds 19% in Cash, 33% in Stocks, 26% in Bonds, and 23% in Other. Foreign stocks are only 2% of the total assets. It invests bond assets almost purely in AAA bonds (98.7% of total bonds holdings). As far as stocks ago, it's allocation is similar to the S&P 500 except for overweight Industrial Materials (21) and Energy (20). Upon further research, it looks like their Other category consists of investments into Gold and Silver. It has a total of 70 stock holdings and 19 bond holdings with a very low turnover ratio of 7%. It is a very steady fund with limited volatility and returns are actually quite respectable considering how stable it has been. I usually don't like funds with this many holdings, but this tenured manager clearly knows what he is doing. I think this fund will perform relatively (to other investments) well in this 2008 bear market. At the very least I'm very doubtful it would lose investors' money. It certainly has done well so far this year.

Other QikReviews:
Top Foreign Mutual Funds
Top Europe Stock Mutual Funds
Top Pacific/Asia ex-Japan Mutual Funds
Top Other Foreign Mutual Funds
Top Specialty-Precious Metals Mutual Funds
Top Specialty-Natural Resources Mutual Fund