What to Buy - Shopping Tips From Mutual-Fund Analysts
| NEW YORK
Mutual-fund managers beat major league baseball to the punch this year, socking home runs while ballplayers were still in spring training.
And many on Wall Street believe the financial hitting streak may last right into the summer months.
The question for many investors is what to buy. Large-company or small, foreign or domestic, stock or bond - all these categories have their fans these days.
So investors may want to cover more than one base.
"We're great believers in having a well diversified portfolio in both stock and bond funds," particularly with the market looking so strong, says Alice Lowenstein, an editor at Morningstar Inc., a Chicago firm that rates mutual funds.
Diversification also provides some downside protection, she notes, in case the US stock market shifts into a correction, as a number of analysts believe may occur later this year.
"Make sure you are covering your core holdings," says Russel Kinnel, another Morningstar analyst. Core holdings, making up the bulk of your portfolio, might include a fund that tracks the Standard & Poor's 500 stock index, a growth fund, or a bond fund, depending on your goals.
Index funds with low expense ratios include the Vanguard 500 Index fund (800-662-7447) and the Fidelity Spartan Market Index Fund (800-544-8888.) Both gained 13 percent in the first quarter.
Prospects for aggressive-growth funds "look good," assuming the economy continues to grow moderately with low inflation, says David Sterman, research editor at Individual Investor magazine.
In this category, he likes Managers Special Equity Fund (800-835-3879), Baron Growth and Income Fund (800-442-3814), and the Franklin Small Cap Growth Fund (800-632-2301), which has a 4.5 percent up-front commission, or load.
Some Asian markets may be starting to come back, and Europe outdid US markets with gains of almost 20 percent in the first quarter, notes Sheldon Jacobs, editor of the No-Load Fund Investor in Irvington-on-Hudson, N.Y. Some hot Europe funds include Invesco International European (800-525-8085) and Scudder Greater Europe (800-225-2470).
In bonds, investors have flocked to the sizzling high-yield category, often labeled "junk bonds." But Ms. Lowenstein, who heads bond analysis at Morningstar, warns that these could be pummeled if the economy falters and bond defaults rise. She likes general bond funds or, for those seeking a tax break, municipals.
"With bond funds, you want a company that can eke out that extra gain," Lowenstein says. Vanguard and Fidelity funds are noteworthy for their low management costs and solid bond research, she says.
She also likes Harbor Bond Fund (800-422-1065) and, for overseas exposure, T. Rowe Price International Bond Fund (800-225-5132). In municipal bonds, she likes USAA Tax Exempt Long Term (800-531-8448), and Fidelity Spartan Muni Income ($10,000 minimum, 800-544-8888).