I've been buying stocks for 15 years, and I have a confession to make: I have never outgrown mutual funds. Yes, I am a more selective investor these days. I've changed from the person who scooped up every no-load fund that had a cool name like Ultra, Vista, or Monetta. Now, my portfolio consists mostly of stocks instead of funds, not the other way around, as it was in the early 1990s. But still, I find myself drawn to buying into managed funds and keeping close tabs on the amazing work that Shannon Zimmerman is doing with the Motley Fool Champion Funds newsletter service.
The only fund I own at the moment is the Oakmark International Small Cap Fund
This week, I am going to dig into three mutual funds that I think would feel right at home in most stock owners' portfolios. I'll explain why, of course. I'll even offer some alternative investing strategies. The point is that mutual funds can be a part of a well-rounded investing strategy. They're not just training wheels for investors. They are the fancy streamers pouring out of your handlebars. They are the shiny bells that you can ring as you round the corner. They are the mud flaps that ensure you don't get too dirty when the road gets muddy. Try these on for size.
Oakmark International Fund
Over the past year, Zimmerman has recommended a couple of other international funds. I have usually been drawn to small-cap funds that invest overseas, but I just love the Oakmark value approach to investing, and I think I'll owe Herro a postcard or two when I finally get around to visiting some of the exotic countries where he's been investing my money since the late 1990s.
Because deals will fall apart, buying into an arbitrage fund is a great way to make a conservative investment even more conservative, since these funds diversify by buying into many pending deals at a time. Merger Fund is closed for now, but it has reopened in the past. Arbitrage Fund's expenses are a bit higher, but it has beaten Merger Fund in three of the past four years, since its launch in 2000. It has also never had a down year -- something that Merger Fund succumbed to during 2002's wicked downturn. With merger activity on the rise again, it looks as if the merger specialists will have a great selection of deals to scour through to come up with the best risk-reward investments.
The end result? A fund that pretty much marched to its own steady beat. Producing annualized returns of 7% over the past 10 years may not sound like much, but it was achieved with a low-risk strategy. The company's tweak seven months ago has it moving into stocks beyond the S&P 500 core holdings. Although the company is sticking to its hedging ways, its moving to a quantitative model to help it dictate its holdings bears watching. If Gateway is able to achieve better returns without taking on too much risk, the company will continue to be a conservative investing winner.
The feeling is mutual
So why should these three funds belong in even the most aggressive of stock portfolios? The Oakmark fund will offer you access to overseas markets through the proven eyes of someone who has produced double-digit returns over the long-term in his international investing experience. The other two funds will provide either a more active parking place for your idle cash than your broker's money market fund, or steadier -- and appreciating -- reserves in case the market crumbles and you want to take advantage of the buying opportunities.
Ultimately, you owe it to yourself to check out Zimmerman's Champion Funds newsletter -- or, at the very least, take a 30-day free trial, if for no other reason than to see how good your bike would look with that new horn perched above the handlebars.
Some more fun with funds:
- Check out Zimmerman's latest mutual fund recommendations.
- There is a case to be made for mutual funds.
- Champion Funds has been beating the market so far.
Rick Munarriz remembers the day, roughly a dozen years ago, when he sold off the last of his Janus Venture and 20th Century Ultra funds to buy into the market directly. He hasn't sworn off mutual funds entirely, though he does not own any of the stocks he mentioned in this story. The Fool has a disclosure policy. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early.
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