It's been a very long time since I looked at my 401(K) options. I have a hard time talking about these funds because there isn't a lot going on with them. Unlike a stock like Canon which has more news each week than I could possibly comment on, mutual funds barely look different from one year to the next. So I thought it might be fun to look at the 10 funds I currently hold as if they were a baseball lineup. The statistics are 5-year return/expense ratio/turnover ratio. Higher is better for return (obviously) and lower is better for the other two. The lineup (with the exception of the pitcher spot) is roughly the order I feel comfortable with these funds in the future. Overseas funds belong in the outfield, small-cap funds are middle infielders, large-cap funds play corner infield, index and bond funds play catcher, and the special-situation fund is pitcher.
- First Eagle Overseas - 23.04/0.89/28 (CF) Jean-Marie Eveillard is once again the manager of this wide-ranging fund. He recently replaced Charles de Vaulx, who left for some reason I've never found out, but he'd had 26 years managing the fund before his premature retirement. Currently the fund is most heavily invested in cash and gold, so it ought to be able to invest in bargains as the markets head south. Some of the bigger holdings are international brands such as Nestle, Toyota, Shimano, and L'Oreal, but many more or obscure to me at least. In many ways having a fund managed by a Frenchman is more diversifying than yet another New York or U.S. based fund.
- T. Rowe Price Small-Cap Stock - 15.71/0.91/20 (SS) Gregory A. McCrickard has led this fund for 15 years. The five year return looks good until you compare it to the small-cap stock universe or the funds in this category. Both sport returns several percentage points higher. Unfortunately, there aren't a lot of choices for investing in small companies offered by my 401(k) plan. Small-cap investing ought to be where active management shines, so I'd like to get at least one fund in the mix even if it isn't the best in category. Both the management fee and turnover signal that the T. Rowe Price fund is a better bet than the Turner fund listed below.
- Vanguard PRIMECAP - 17.53/0.31/10 (1B) PRIMECAP is managed by a company of the same name based in Pasadena. Howard B. Schow, one of six credited managers, gets a cameo in the most recent revision of The Intelligent Investor discussing the idea that management ought to be held accountable for the goals they establish for themselves. It's not a good sign when a manager talks up margins until they start to contract and talks about sales growth instead. I like this fund both for its exceptional performance, but also for its very low expenses and turnover. Among its top holdings are Oracle, Adobe, FedEx, Microsoft, Sony, and Potash Corporation of Saskatchewan, Inc. There are a lot of good ideas in there, but I wish I knew more about how the companies are picked.
- Dodge & Cox International Stock - 24.72/0.66/9 (RF) This fund is managed by a team, which ought to help when allocating the fund's large and growing asset-base. One fairly recent addition to the portfolio is a Norwegian energy and aluminum company called Norsk Hydro ASA. There are also names like Nokia, Honda, News Corp., Shell, Bayer, and Volvo that most Americans will know. The fund seems to be widely recommended and has done exceptionally well, so it runs the risk of growing larger than its ideas. Thankfully the expense and turnover ratios bode well for the future.
- Oakmark Global - 22.44/1.18/41 (LF) Clyde S. McGregor has managed Oakmark Global for most of the last five years and added Robert A. Taylor as a co-manager two years ago. International funds have been a particularly easy category to make money in recently, so I have some concern this team is not as good as its record. But it is a very good record and I suspect that global funds will continue to outperform their more limited brethren. The expense ratio is pretty high, but since this is a newer fund it might creep down in time. Also, I'm happy to continue paying for exceptional performance. Oracle is one of the fund's larger holdings which makes my overweighted position in the software company overweighteder as I add to the fund.
- Raytheon - 15.5/0.00/0 (DH) I no longer closely follow Raytheon, but from the inside we seem to be doing fairly well. A few years ago, we were allowed to diversify away from company stock in the company 401(k), which I take full advantage of. Despite raising the dividend recently, Raytheon's yield has dropped from 2.66% in 2004 to 1.82% today.
- S&P 500 Index - 10.73/0.01/4 & PIMCO Total Return - 4.84/0.43/257 (C) This platoon is my basic market timing experiment. The S&P 500 index fund is the cheapest way to participate in bull markets and PIMCO is a fairly safe place to earn bond yields when there is a bear market. I've been invested in the bond portion of this position for a year and a half based on an inverted yield curve. I've missed out on some nifty gains (though only in this position), but PIMCO Total Return and Raytheon are the only two investment that have not lost money over the last month. I don't plan to switch back to stocks until the yield curve returns to a more normal configuration.
- Turner Emerging Growth - 19.81/1.54/78 (2B) Frank L. Sustersic and William C. McVail are closing in on 10 years running this fund and Heather McMeekin was hired five years ago. Like the T. Rowe Price fund, I've focused on Emerging Growth in order to have small companies represented in my fund portfolio. Five-year return looks great, but the expenses and turnover are a concern. Cash represents 12% of fund assets at the moment and I don't recognize many of the stock holdings. Deckers Outdoor Corporation, which makes Teva sandals and Uggs boots, stands out as a large holding I recognize. Almost a quarter of the stocks my market value are industrial materials manufacturers according to Morningstar.
- Fidelity Equity-Income - 13.80/0.67/24 (3B) Equity-Income has been on my radar for a very long time, but it isn't terribly exciting so I haven't started building a position until recently. Stephen R. Petersen has served as manager of this fund for 14 years, so he can certainly take credit for its current record. The current yield is 1.56%, which doesn't seem particularly high for an "Income" fund. On the other hand, expenses are reasonable and the fund has outperformed the market since the peak of the internet bubble of 2000. I won't bore you with the names of the top investments because they are exactly what you would expect this sort of fund to own. I don't plan on letting this be a large part of my 401(k), but it seems a reasonably defensive choice.
- Excelsior Value & Restructuring - 19.18/0.84/13 (P) This fund is actually my favorite fund in the bunch which I saved until last because I don't know what to do with it. David J. Williams, the fund's manager for 15 years, has focused on companies that are experiencing some sort of shift either internally or within their industry. For instance, he bought Tyco after the story of its extravagant CEO brought down the price and continues to hold some of the companies that spun off Tyco earlier this year. He also invested in Deluxe Corp., which dominated the paper check business and is now struggling to find new sources of revenue. These deals don't always work out, but the fund's performance is pretty exceptional. I think if I were forced to pick just one fund to hold, it would be this one. Special situation investing can be more laborious and error-prone than simply buying big companies with good earnings, so I don't mind paying the very reasonable fees.
My favorite funds are those that open up the black box just enough for investors to take a peek inside. My 401(k) doesn't have many funds that are as open as Pimco has been over the years, so I need to search a bit more than I'd like to get to know the managers and their styles. Ten funds seems like a lot when compared to the more compact portfolio of my IRA and much of that is due to the sparse information available. I don't want to assign strict 10% allocations to these funds, since they vary in quality and likelihood to outperform. I think this post will help me sort out what the final allocation ought to be.