So-called alternative funds offer just what they advertise: non-correlated assets in a convenient ’40 Act wrapper. For those that still lack understanding, or are wary of the “all-in” alternative product, the fund route can help ease the transition to something (anything) that might reduce volatility without completely negating return.
With the help of Morningstar, SmartMoney compiled a list of the top 25 performing products in the space, based on 5-year performance. Many that made the list will be immediately recognizable to AdvisorOne readers for their regular contributions and the boost they’ve given this rapidly evolving sector.
5) Vanguard Wellesley Income Investor (VWINX)
Gee, Vanguard made the list; we’re so surprised. Vanguard doesn’t make the “best funds you’ve never heard of” lists. No, it just makes the “best funds” lists. The Pennsylvania powerhouse and brainchild of the legendary John Bogle recently defended exchange-traded funds, but all is well in mutual fund land. Vanguard comes in at No. 22 on the list.
4) MFS Lifetime Retirement Income (MLLAX)
We’re immediately drawn to any fund product with lifetime retirement income in the title, and one from the company to claim development of the very first mutual fund makes in doubly so. Bob Pozen, the company’s chairman emiterus, is taking up the flag for the retirement income cause.
As a kenote speaker at AdvisorOne’s Retirement Income Symposium last October, Pozen listed four ways that retirees can convert savings into an income stream: systematic withdrawals, a managed distribution fund, partial annuitization at age 65 or annuitization at age 80. With longevity risk on the rise, why do fewer than 10% of pension recipients choose lifetime annuity income? He speculated that people want more flexibility to leave their money to their kids or keep it for a healthcare emergency.
MFS is listed as No. 16 by SmartMoney.
3) James Balanced: Golden Rainbow (GLRBX)
The firm knows alpha—literally; it resides in Alpha, Ohio. Something named the Golden Rainbow has to be good, and James doesn’t disappoint. With assets of $1.3 billion, its top holding is U.S. Treasury notes. And like FPA Crescent’s Romick, the fund routinely makes the overlooked/undiscovered manager lists.
According to the firm, which is led by Barry James, the James Balanced: Golden Rainbow Fund seeks to provide total return through a combination of growth and income and preservation of capital in declining markets. It comes in at No. 9 on SmartMoney’s list.
2) Merk Hard Currency (MERKX)
Axel Merk’s currency firm may be 15th with SmartMoney readers (API Efficient Frontier Income fund took the top spot), but his Hard Currency Fund is well … No. 2 with us. The fund has $563 million in assets and holds mainly Swedish government debt and the SPDR Gold Trust ETF (SPY).
Always the independent thinker, Merk recently told AdvisorOne that investors need to throw out the risk-free component of their portfolio, as there is no such thing as a “safe” asset anymore.
“Government and central banks have gotten involved to the point where correlation with traditional asset classes is breaking down,” Merk said. “Investors have huge exposure to the U.S. dollar and are therefore susceptible to U.S. dollar risk. We are applying our currency expertise in an innovative way, providing investors with the opportunity to manage the currency risk of their U.S. equity investments, regardless of the direction of the U.S. dollar.”
1) FPA Crescent (FPACX)
Manager Steve Romick routinely makes those “funds you’ve overlooked” lists, and here he is again at No. 4 on SmartMoney’s compilation. He’s got $7.5 billion in assets and a go-anywhere attitude that ruffles investors’ feather.
“Romick holds quarterly conference calls for investors, much like a public-company CEO discussing quarterly profits,” SmartMoney notes in its piece. “Romick often has a lot of explaining to do, since he has the leeway to stuff his fund with whatever he thinks will work. He then sticks with the picks: The fund’s turnover is 20%, nowhere near the 55% average for alternative funds.”
We noticed something similar way back in a November 2007 spotlight of Romick and the fund.
Top 10 lists from AdvisorOne: