WANT TO PUT together a portfolio of actively managed mutual funds? Your first hurdle: the overwhelming number of funds to choose from. You could narrow your focus by sticking with one of the big three no-load mutual fund companies—Fidelity Investments, T. Rowe Price Group and Vanguard Group—and then picking from among their funds. But you may be shortchanging yourself.
Other fund families worth checking out include American Century Investments, Artisan Partners Funds, Baron Funds, Charles Schwab, Dodge & Cox, Janus Henderson, Loomis Sayles, Nicholas Funds, Pimco Funds, Oakmark Funds, TIAA and William Blair Funds. Also spend some time investigating fund companies that have a distinctive investment approach, like Conestoga Capital, Fairholme Fund, FPA Funds, Longleaf Partners Funds, Mairs & Power, Royce Funds, Selected Funds, Sound Shore Fund and Tweedy, Browne. These firms all specialize in a single part of the market or are renowned for a particular stock-picking style. Perhaps that focused effort will pay off.
It can be a paperwork nightmare if you buy funds directly from a host of fund companies. An alternative: Use one of the mutual fund marketplaces that are operated by many brokerage firms, including the brokerage arms of major fund companies like Fidelity and Vanguard. If you use one of the marketplaces, you may have to pay a transaction fee when you trade funds or the funds might charge slightly higher annual expenses. Still, that might seem like a small price to pay, given the convenience of holding all your funds in one place.
To find actively managed funds that hold promise, you’ll need to play detective. Head to the library and leaf through back copies of Forbes and Kiplinger’s Personal Finance. Check out The Wall Street Journal’s regular section devoted to mutual funds. Spend some time on Morningstar.com. Soon enough, you will have a list of funds that have decent returns for the past three or five years. But will that market-beating performance continue? That’s the big question with actively managed funds—and, much of the time, the gamble doesn’t pay off.
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