If you've ever wondered how you should go about evaluating a mutual fund as a possible investment, stick around. I'd like to demonstrate some of what you can do -- using, as an example, a fund that caught my eye recently because of its ... well, odd name.
I discovered it at Roy Weitz's website, fundalarm.com, where he noted that "Abacus Bull Moose Growth (FUND:BULLX), a decent little fund that never attracted much interest, has changed its name to Roosevelt Anti-Terror Multi Cap." He then offered a new logo for the fund, featuring Osama bin Laden's face plastered over that of a moose in a pasture. If you stop to think about it, even the fund's first name is a bit odd -- an abacus, for example, doesn't conjure up images of a fund tapping state-of-the-art technology to unearth investment bargains. Likewise, moose aren't known for their financial smarts. (But the words "bull" and "growth," I'll concede, represent decent marketing.)
The approach
So how might you go about researching such a fund? Well, one thing you need to get a handle on with any fund is how its managers go about their business. At the fund's own website, which is now www.anti-terrorfund.com, it explains its approach thusly. (I'm editing a bit, for length.)
"The investment objective of the Roosevelt Anti-Terror Multi-Cap Fund is long term capital appreciation. ... The Fund's advisor studies "themes" underlying what it believes will represent fundamental long-term changes in the U.S. equity markets. A theme can be political, economic, demographic, regulatory, or industry specific. ... After identifying a theme, the advisor searches for both value and growth companies that it believes will benefit from the anticipated fundamental change. The advisor believes it is essential to identify a catalyst that will either unlock the values in a value stock or trigger acceleration of growth in a growth stock. For example, a catalyst can be an important new product, an expanded distribution capability, or a key acquisition."
The website is also where I found an explanation of the anti-terror angle: "'Terror-Free Investing' is a new values-based investment strategy whereby an investor chooses to divest from -- or screen out of portfolio -- the stock of companies that do business in Iran, Libya, Syria, Sudan, and/or North Korea." Ah -- I had expected instead that the fund might focus on anti-terror technologies, such as bomb detection. It's good to do some digging.
Stats, stat!
Next, it's good to look at a bunch of numbers. Sites such as Morningstar.com can be good places to research funds. Here are some data points I found there, along with my thoughts on them.
- Returns: The fund came to life in 2003 and has beaten the S&P 500 over the past three and five years, with annualized gains of 12.2% and 13.8%, respectively, in those periods. That's not bad -- though some of Shannon Zimmerman's recommendations in our Champion Funds newsletter top that mark easily.
- Total number of stock holdings: 54. This is promising, as spreading investment money over hundreds of stocks tends to be overdoing it and reduces the chance for a few big winners to make a meaningful difference to the bottom line.
- Annual turnover: 86%. This is not ideal, as it shows that the fund is holding securities, on average, for just a little more than a year. The lower the turnover, the greater the managers' patience and commitment to their holdings.
- Top holdings: As of late 2006, these were some of the fund's main investments: Procter & Gamble (NYSE:PG), McDonald's (NYSE:MCD), Newell Rubbermaid (NYSE:NWL), and Cisco Systems (NASDAQ:CSCO).
- Expense ratio: 1.1% That's roughly an average rate for expense ratios (annual fees). You can find many great funds with lower fees, though.
- Loads: None. That's nothing but good.
- Yield: 0.3% over the past 12 months. That's not much, but then this fund isn't necessarily out to grab dividends. If that's what you're after, look for income-producing funds (or significant dividend-paying stocks).
- Minimum investment amount: $1,000. That's good. Some funds require $3,000 or $10,000, or even much more, sometimes.
- Manager: Arthur Sheer, who started with the fund at its beginning, in December of 2001. Beware of new managers, since turnover in this area can bring with it a big change in a fund's performance.
There you have it -- a handful of useful measures to take when you're examining any fund.
Finding ideas
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Give it a go, if you're interested -- and here's to big profits in your future!
Longtime Fool contributor Selena Maranjian owns shares of McDonald's. Newell Rubbermaid is a Motley Fool Income Investor recommendation. The Motley Fool is Fools writing for Fools.
