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
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.
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.
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Give it a go, if you're interested -- and here's to big profits in your future!