Eight funds to watch for 2010

U.S. News and World Report recently looked to data from several major investment research firms, including Morningstar, TheStreet.com, and Standard & Poor’s to find the best mutual funds for 2010. The magazine chose funds that share high-conviction portfolios, low costs, talented and consistent management, and offer downside protection. Here’s what they came up with:

1. Sextant International. This foreign large blend fund has roughly 40 percent of its portfolio in cash, and has a 10 percent turnover ratio. It’s looking to technology and health care for opportunities in the future.
2. The Yacktman Fund. After a rough patch in the late ’90s, fund manager Don Yacktman bounced back in the last decade with this large value fund.
3. FMI Large Cap. This large blend fund is characterized by a buy-and-hold mentality and compact portfolio, U.S. News writes. Companies are chosen for strong revenue streams, and new investments are scrutinized for long-term potential.
4. Templeton Global Bond. Despite an unfriendly international debt market, this world bond has posted strong relative returns, the magazine writes, during the recession and the recovery. Additionally, it has developed a reputation for spotting undervalued currencies.
5. Eaton Vance Tax-Managed Emerging Markets. The goal of this diversified emerging markets fund (which holds over 1,500 investments in about 45 countries) is to “provide investors with highly diversified exposure to global markets,” the magazine writes. The fund isn’t overweighted to BRIC countries, instead spreading its portfolio across several emerging markets. To protect investors from capital gains taxes, it limits portfolio turnover and frequently harvests tax losses, according to U.S. News.
6. Thompson Plumb Bond. This short-term bond is a little more aggressive than its counterparts; roughly 90 percent of its bond holdings were in corporate, the magazine writes. To shelter the portfolio from interest-rate risk, the fund has decreased the average duration of its bonds.
7. Fidelity Select Medical Equipment and Systems. All eyes are on the health sector these days, and this fund invests in medical device producers. A fragmented customer base and physicians’ brand loyalty make the fund’s investments resilient even in this climate, according to the magazine.
8. Parnassus Workplace. This large-growth fund is a socially responsible fund that looks for companies that foster a positive work place and treat their employees well, according to the magazine. Manager Jerome Dodson says companies with a great work place have a competitive advantage. He may be right; the fund finished in the top 5 percent of its large-growth category in 2008 and 2009, U.S. News writes.