Top Picks For 2012

12/19/2011


Our recommended funds bring a lot to the table, including solid relative returns. Of the 20 funds listed below, 17 have outperformed their category averages so far in 2011. But it's what they lack that helps set them apart. Our funds are cheap, as all but one has an expense ratio below its category average. On average, our funds cost about 50% less to own than their peers. Still, focusing solely on expenses is a mistake, so we insist on solid fund ratings and strong track records. Below we review top picks in five core areas.

STANDOUT FUNDS WITH LOW EXPENSES
Exp. Ratio
Fund (Price; Ticker)
12-Mo.
Return
(%)
Fund
(%)
Disc. To
Category
Average
(%)
Category
Manning & Napier Int'l ($8; EXITX)
(13.1)
1.15
(19)
Int'l large-cap
T. Rowe Price New Horizons
($35; PRNHX)
6.5
0.81
(47)
Small-cap growth
Vanguard Dividend Growth
($15; VDIGX)
7.9
0.34
(72)
Large-cap blend
Vanguard GNMA ($11; VFIIX)
7.9
0.23
(77)
Gov't bond
Vanguard Wellington ($31; VWELX)
2.7
0.30
(78)
Balanced

Manning & Napier International ($8; EXITX) ranks among the top 13% of foreign large-cap value funds for three- , five- , 10- , and 15-year performance. The fund adheres to a "top-down" approach to identify stocks benefiting from economic and industry trends. Foreign funds have run into trouble this year, and Manning & Napier has retreated 13.9% versus a 14.4% decline for its category. Still, the fund's strong track record makes it a top choice in its category.


T. Rowe Price New Horizons ($35; PRNHX) has rallied 4.6% in 2011, versus a loss of 5.5% for the average small-cap growth fund. A modest expense ratio of 0.81%, below the category average of 1.53%, aids performance. The fund focuses on companies that can sustain solid long-term earnings and cash-flow growth. On Oct. 31, consumer discretionary and technology stocks represented 48% of the portfolio.


Vanguard Dividend Growth ($15; VDIGX), our favorite large-cap fund, has gained 6.5% this year, versus a loss of 3.7% for its category. The fund focuses on high-quality stocks with the potential for higher dividends. The expense ratio of 0.34% is less than one-third of the category average of 1.22%. The fund, which scores 96 in our fund-rating system, ranks among the top 6% of its peers based on five- and 10-year performance.


Up 7.4% through Dec. 13, Vanguard GNMA ($11; VFIIX) is headed for its 17th straight yearly increase. The fund, yielding 3.1%, holds mortgage-backed securities that pay higher yields than Treasurys in part because of the risk that investors will prepay their mortgages. Since 1981, the fund's only down year was a 1% dip in 1994. The expense ratio of 0.23% is below the peer average of 0.99%.


Vanguard Wellington ($31; VWELX) is a top all-weather fund. Roughly 66% of the fund is invested in stocks of established, dividend-paying companies. The rest of the portfolio is spread across nearly 500 bonds. The fund ranks among the top 6% of its peers for 10- and 15-year performance. Wellington, which yields 2.7%, charges a modest 0.30%.

RECOMMENDED MUTUAL FUNDS

Through Dec. 13, our recommended Growth Portfolio has lost 4.6% so far this year, versus a 4.4% loss for its benchmark portfolio. The Conservative Portfolio is down 2.3%, versus a 2.0% loss for its benchmark.

— Year-to-Date —
—– % of Portfolio –—
Fund (Price; Ticker)
Return
(%)
Rank
Conser-
vative
(%)
Growth
(%)
Fund
Rating
American Century Heritage
($19; TWHIX)
(7.2)
D
6
7
50
Buffalo Growth
($25; BUFGX)
(2.2)
B
10
11
86
Dreyfus MidCap Index
($26; PESPX)
(5.1)
B
0
0
77
Dreyfus Small Cap Stock Index
($20; DISSX)
(2.6)
A
0
0
58
Heartland Select Value
($26; HRSVX)
(9.5)
D
4
6
58
Homestead Small Company
($22; HSCSX) NEW
(2.5)
A
5
6
100
Manning & Napier International
($8; EXITX)
(13.9)
C
7
7
77
T. Rowe Price New Horizons
($35; PRNHX)
4.6
A
7
7
98
Vanguard 500 Index
($113; VFINX)
(0.7)
A
5
5
73
Vanguard Dividend Growth
($15; VDIGX)
6.5
A
10
11
96
Vanguard Emerging Mkts.
Stock Indx. ($24; VEIEX)
(19.5)
C
0
4
90
Vanguard GNMA ($11; VFIIX)
7.4
A
10
5
94
Vanguard Inter.-Term Tax
Exempt ($14; VWITX)
8.7
B
0
0
62
Vanguard Short-Term Invest.
Grade ($11; VFSTX)
1.7
B
7
6
88
Vanguard Total Bond Mkt. Index ($11; VBMFX)
7.1
A
10
0
56
Vanguard Total Int'l Stock
Index ($13; VGTSX)
(16.1)
D
4
4
92
Vanguard Wellesley Income
($23; VWINX)
7.5
A
0
0
98
Vanguard Wellington
($31; VWELX)
1.5
A
6
9
87
Wasatch International Growth
($18; WAIGX)
(12.1)
A
4
6
96
Wells Fargo Advantage High
Income ($7; STHYX)
3.8
A
5
6
57
* Year-to-date ranks through Dec. 13 from Morningstar, comparing performance among funds with same objectives. A = top 20%; B = next 20%; C= middle 20%; D = next 20%; E = bottom 20%. Fund ratings are percentile ranks based on our fund-rating system. NEW Addition to list.

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