It's IRA season. What are you going to buy?
If you're more than seven or so years from retirement, stocks are probably the best answer -- at least on paper. But out here in real life … ugh.
It's hard to muster up much enthusiasm for stock investing right now. But as I've been saying for a while, there are some things out there worth buying -- if you're holding for the long term, and if you're willing to do some research.
Two great tastes …
I'm a big fan of both value investing and dividend stocks, particularly right now, while Mr. Market continues to work through his deep-seated emotional trauma. Well-chosen value stocks -- ones with a solid margin of safety -- limit your downside exposure while giving you a better-than-average chance of good returns once the market starts to turn. And a company paying sustainable dividends gives you some income right now, no matter what the stock price does. If you reinvest those dividends, a lower stock price in the near term can actually be a boon.
But determining whether a company is an overlooked value or just in decline isn't always simple, particularly in this economy. Ponder eBay
… that would taste great together
Considering all that, here's the question I asked myself: Are there any good actively-managed mutual funds out there that combine those two approaches? Funds that have the favored Foolish attributes -- low fees, low turnover, veteran management -- with the performance record to back it up? Done right, that combination could make for a heck of a fund -- both right now, and when the market starts to recover.
Is this that fund?
It might be. The Aston/River Road Dividend All Cap Value Fund (ARDEX) may not have the fund industry's most elegant name, but at first glance, this Morningstar five-star fund has a lot of those positives.
First and foremost, there's a veteran at the tiller. While the fund's only three years old, lead manager James Shircliff has a couple decades' worth of value-investing experience. And while three years' history isn't a whole lot to go on, the fund's performance to date has been strong. It lost "only" 28.7% in 2008, a good performance by stock-fund standards.
The managers, being value-oriented, have plenty of opportunities in the current market. In their year-end update, they noted that the discounted value of the fund's top 20 holdings -- a list loaded with Foolish favorites like Chevron
Pay me now, pay me later
But dividends are part of the package here too, and in that area, the fund doesn't disappoint. In that same year-end update, management noted that all of their top 20 holdings had increased dividends at least once during 2008. The fund's dividend yield is over 4% at the moment, so that's a significant part of the overall performance picture -- and one that seems to stand a good chance of continuing to deliver.
Expense numbers are pretty reasonable -- there's no load, and the expense ratio and turnover rate are 1.30% and 42%, respectively, fairly good for a stock fund -- and the $2,500 minimum investment is IRA-friendly. The fund is fairly small at about $62 million in total assets, which allows the managers to take advantage of opportunities that bigger funds can't exploit -- but it's big enough that it won't dry up and blow away if the market stays lousy.
On the flip side
What are the downsides? Well, the fund's newness makes it hard to guess at its long-term prospects. And while the lead manager is an industry veteran, this advisory firm is only a few years old -- so it's hard to know how solid the fund's support team will be over time. And despite great historical performance, the fund hasn't had a good 2009 so far -- it's down almost 15% year-to-date, according to Morningstar, which is eyebrow-raising if not actually troublesome.
On the other hand, one could argue -- and I think I would -- that the fund's approach, top holdings, and management's experience make a good argument for the likelihood of sustained success. Its recent slide could represent a buying opportunity for folks who are able to act soon.
It's certainly worth a closer look as an IRA holding or as an addition to your portfolio if your time horizon is more than five years or so. And if there's a mid- or large-cap value slot open in your asset allocation plan, I think this fund is worth consideration.
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Fool contributor John Rosevear has no position in the stocks or funds mentioned. Waste Management and Magellan Midstream Partners are current Motley Fool Income Investor picks, whereas Pfizer is a former recommendation. Waste Management, Pfizer, and eBay are Motley Fool Inside Value picks. eBay is a Motley Fool Stock Advisor recommendation. The Fool owns shares of Pfizer. Try any of our Foolish newsletters free for 30 days. The Motley Fool has a disclosure policy.