Yesterday, we looked at three of the top 10 fastest-growing mutual firms, measured by net new inflows as a percentage of assets over the past five years, and whether investors should buy these firms' funds. Today we continue our look at these rapidly expanding fund shops in part two of this three-part series. Read on for more on whether these fast growers represent good opportunities or flash-in-the-pan situations.
Metropolitan West Asset Management
To anyone who has been paying attention in recent years, it's no surprise that bonds and bond funds have been the place to be. Frightened investors stuffed hundreds of billions of dollars into bonds during the last bear market, benefiting fixed income shops tremendously, including Metropolitan West, which was purchased by TCW Group last year. According to consulting firm Strategic Insight, Met West has seen net new asset inflows of 379% of firm assets in the past five years.
While many investors may have heard of Met West for the first time when they were bought by TCW in 2010, the firm's fixed income team has amassed one of the better track records in the business. The shop's largest fund, the Metropolitan West Total Return Bond Fund (MWTRX) currently sports $13 billion in net assets and ranks in the top 8% of all intermediate-term bond funds over the past decade. The fund employs a flexible, value-oriented approach to buying bonds and currently dedicates nearly half of the portfolio to mortgage securities. A long-tenured management team and solid analyst force add to this fund's many charms. The fund isn't afraid to go against the grain, which can mean out of step performance as in 2008, but the long-run picture here is very pleasing. This is a solid core bond holding for any fixed income investor.
The tremendous asset inflows at Yacktman (YACKX) are another example of investors following the returns. This high-conviction fund currently ranks in the top 1% of all large-value funds over the most recent three-, five-, 10-, and 15-year periods, so it's little wonder folks have been funneling money its way.
Father-and-son management team Don and Stephen Yacktman employ a bottom-up stock selection process that leans toward high-quality, blue-chip companies with stable earnings such as Johnson & Johnson
Lazard Asset Management LLC
Clocking in with 236% growth in net new inflows as a percentage of assets is Lazard Asset Management. By a wide margin, this shop's biggest fund is Lazard Emerging Markets Equity (LZEMX), which is now closed to most new investors. This fund accounts for roughly $18 billion of Lazard's total $20 billion in mutual fund assets. Given the general run-up in emerging markets in recent years, it's not surprising to see so much focus on a solid-performing fund in this arena.
Lazard Emerging Markets Equity has posted a 15-year annualized return of 10.5%, ranking in the top 10% of all emerging markets funds. Right now, management is shunning more expensive stocks in China and instead finding opportunities in more reasonably priced markets like Brazil and Korea, including metals and mining firm Vale
Alpine Woods Capital Investors LLC
Also landing on the top 10 list is Alpine Woods Capital Investors, which has seen a 419% growth in new money in the past five years. The shop offers about a dozen mutual funds, mostly equity options. Although a few of their funds have been around since the late 1980s and early 1990s, most of the funds are more recent additions to the shop's lineup. And while a few funds sport reasonable expense ratios, according to Morningstar data, most of their equity funds charge upward of 1.3%.
Furthermore, for the most part, performance for many of these funds has been nothing to write home about. In addition, Alpine Woods recently reached a settlement with the Securities and Exchange Commission regarding trading of IPOs in two of the firm's mutual funds. The firm agreed to pay a $650,000 penalty as part of the settlement. Given all of these factors, I think there are more reliable and inexpensive fund options for investors, so you might want to consider looking elsewhere.
Tomorrow we'll wrap up our discussion of the fastest growing fund shops with the remaining three firms and an analysis of their flagship funds.