So you thought you could just flick on the autopilot switch and take it easy, eh? You figured that buying into a mutual fund was a one-time decision and that the fund manager you were entrusting with your money was the only one who needed to toss and turn at night?
Unfortunately, it's just not that simple. Mutual fund trends change. Fund managers change. In order to come out ahead, you must adapt to the changes.
Don't worry. I'm not suggesting a brazen multicolored hairstyle or a skimpy bathing suit. You look just fine. Really. However, your mutual fund portfolio may need some tweaking from time to time to account for those changing trends. So let's take a look some of the things I think will happen in the 2007 that you just may have to adapt to.
1. Leaders will be laggards.
Among the top mutual fund sectors in 2006 were real estate (up 34%), precious metals (up 32%), and utilities (up 25%). Look for them to bring up the rear by the end of 2007.
This isn't just me being jealous because I didn't participate in those rallies. They are, quite frankly, vulnerable industries after their recent run-ups.
Homebuilders like Lennar
2. International funds will continue to lap domestic players.
For buyers of international stock funds, 2006 was a good year. Those funds rose 26% higher, doubling the 15% gains achieved by stateside stock funds.
The good times should continue. Whether you like the global funds that Shannon Zimmerman has singled out to Motley Fool Champion Funds subscribers or prefer picking individual stocks, a diversified portfolio these days is one that has a little overseas flavor.
No, this does not mean that you should cash out of your domestic investments. It is important to hold a few investments in companies that you know well. Besides, if you or your fund owns stakes in companies such as General Electric
3. Bill Miller's new streak starts today.
After 15 consecutive years of beating the market, Bill Miller's winning streak at his Legg Mason Value Trust mutual fund came to an end last year. He took big bets on market laggards like Sprint Nextel
His mortality shouldn't concern long-term investors, and short-term speculators had no reason to buy into a fund simply for the sake of its long-term winning streak.
Keep the faith in Miller. His portfolio has some pretty compelling turnaround plays, saddled with high profile stocks that are cheaper on a valuation basis today than they were a year ago.
4. Look for a lot of money manager shuffling.
Vanguard already got the year started by announcing management changes at its popular Windsor II and Morgan Growth stock funds. Expect that to continue.
Miller wasn't the only one caught off guard in 2006. Fund families may also want to seek out some international expertise to cash in on hotter markets overseas. This does not mean that you should bolt if there is a change at the helm of your favorite fund, but don't make the mistake of falling for trailing performance numbers of funds that have achieved those gains with different managers running the show.
Hold on tight and enjoy the ride
So where does that leave you? If you're smart, you won't jump to any immediate conclusions. Mutual funds aren't an overnight get-rich -- or get-poor -- scheme.
However, now would be a great time to assess where you stand. Just because you are buying into a diversified stock fund doesn't mean that you are all that diversified. Know the trends. Make sure that your objectives match those of the money managers that you are entrusting your greenery to. And if you need a little guidance along the way, know that Shannon Zimmerman's Champion Funds newsletter service is always there to make you a better informed mutual fund investor. Shannon's advice won't make investing on auto-pilot easy, but at least you won't have to face the inevitable turbulence alone.
Longtime Fool contributor Rick Munarriz thinks that funds are part of a balanced portfolio breakfast. Rick owns a pair of mutual funds but none that were discussed in this article. Wal-Mart, Coca-Cola, and UnitedHealth are Inside Value recommendations. The Fool has a disclosure policy.