Forrest Gump knew a thing or two about boxes of chocolates.
There are so many to choose from. They all look so tasty on the outside. However, it doesn't take long before you crack a tooth on a hazelnut, or wind up spitting out a butterscotch-coconut-cream-filled one.
You just never know what you're going to get.
The same thing applies to mutual funds, of course. There are thousands of them out there. They promote aggressively when they're coming off strong years. They claim to have more stars than a rural sky when the going is good.
This doesn't mean you should latch on to the most actively marketed funds. Truth be told, that may be the worst time to buy. I actually prefer to buy funds that have hit a little turbulence.
As long as the long-term track record is sound and the manager proven, it's a great buying opportunity. You're not fighting a crowd to get in, so it's not as if the manager will be overcome with inflows of cash to put to work.
Let me go over three funds that I believe fit the bill.
Pennsylvania
Mutual (PENNX)
Chuck Royce's fund has been feeling mortal these days. The fund has returned a mere 5% since it was first recommended to Champion Funds subscribers two years ago. Small-cap investing hasn't been in fashion lately, and Royce comes from a strict small-cap mindset.
However, if you look at the fund's returns over longer stretches of time -- five, 10, 20, and 25 years -- you will find that it has handily beaten its Russell 2000 benchmark during each of those time periods.
Is a 25-year track record even relevant? It is here, where Royce himself has been in charge since 1972.
Given its small-cap tack, you won't recognize many of its largest holdings:
|
Top Five Holdings as of Feb. 29, 2008 |
% of Assets |
|---|---|
|
AllianceBernstein |
1.6% |
|
Agnico-Eagle Mines |
1.2% |
|
Ensign Energy Services |
1.1% |
|
Oil States International |
1.0% |
|
Lincoln
Electric |
0.9% |
You may not be up to speed on your Canadian goldmines or oilwell service providers, but Royce sure is. Pennsylvania Mutual's turnover is satisfyingly low, because when Royce buys something, he really likes it.
Oakmark International Small Cap (OAKEX)
I've owned this one for years. When it comes to investing in small overseas companies, I prefer to have someone who is eating, sleeping, and sipping it. That would be David Herro, who in my opinion is one of the top international value investors of the past two decades.
I don't normally bring up this fund because it has been closed to new investors until just recently. Why did it reopen? Like most funds that roll out the carpet again, investors have left after a few bumpy quarters.
Consider this your golden opportunity. The globally diversified fund has trounced the averages over the long haul. Herro is a globetrotter in picking out small companies. The one thing that they have in common is that they are cheap. According to Morningstar data, the average P/E ratio of the fund's stocks is just shy of 15.
As for the top holdings, most of them, like France's Neopost and Germany's MLP, don't even trade domestically. I was fortunate enough to have bought in before the first time the fund closed its doors to new investors. Now is your chance.
Legg Mason Value Trust (LMVTX)
Bill Miller's fund proved mortal in 2006 after the skilled investor had topped the S&P 500 for a whopping 15 consecutive years. He fell behind last year, too.
This is the textbook example of coming in at the perfect time. Miller wasn't lucky during his 15-year streak. He has simply been unlucky -- or out of step -- over the past two. If a money manager rattles off 15 years of losses and bounces back over the next two years, you probably wouldn't trust him with your money. The inverse is also true.
Miller is an eclectic value ferret. Some of his biggest holdings are fallen dot-com rock stars such as eBay
Looking for more
If you're hungry for more than just these three funds -- or want to learn more about Pennsylvania Mutual's potential -- another great way to make the most of the market turbulence is to subscribe to Champion Funds.
You don't need to make it a permanent commitment. You're even welcome to check out the service over the next 30 days as a free trial, to see whether it delivers the type of investing ideas that pique your portfolio's palate.
Those are the good chocolates. The tasty ones. Can I borrow a napkin? I just bit into a cherry jalapeno nougat one.
The free 30-day trial subscription is the real deal. Check out Champion Funds to see if it makes you a more productive fund investor..
Longtime Fool contributor Rick Munarriz always owns a mutual fund or two, even in a portfolio of stocks. He does not own shares in any of the companies in this story, save for the Oakmark International Small Cap fund. AllianceBernstein is an Income Investor selection. eBay is a Stock Advisor pick. The Fool has a disclosure policy.
