Four Top Midyear Fund Selections

6/18/2012


Our two recommended fund portfolios have topped their benchmarks so far in 2012 — and are positioned to outperform in the second half. Through June 12 the Growth Portfolio is up 4.4% versus 3.9% for its passive benchmark portfolio. The Conservative Portfolio has gained 4.2% compared to an increase of 3.1% for its benchmark.

HISTORICAL RETURNS
----------------------------------- Total Return -----------------------------------
2007
(%)
2008
(%)
2009
(%)
2010
(%)
2011
(%)
2012 *
(%)
Since
2002
(%)
Growth Portfolio
11.3
(39.9)
32.8
16.7
(3.0)
4.4
77.2
Benchmark
7.6
(35.8)
27.5
12.3
(2.1)
3.9
57.2
Conservative Portfolio
9.9
(30.9)
25.3
14.7
(0.8)
4.2
79.5
Benchmark
7.8
(25.6)
22.0
10.2
(0.2)
3.1
69.0
S&P 500 Index
5.5
(37.0)
26.5
13.5
2.1
6.3
41.7
MSCI EAFE Ind.
(Int’l Stocks)
11.2
(43.4)
31.8
7.3
(12.1)
(2.1)
54.5
Barclays Aggregate
Bond Index
7.0
5.2
5.9
5.6
7.8
2.1
78.9
* Through June 12.

Despite recent volatility we are sticking with our fund allocations. The Conservative Portfolio holds about 75% stocks while the Growth Portfolio is roughly 83%. Both portfolios are tilted toward large-cap growth stocks while high-quality securities get precedence on the bond side.  

Investors can find our 20 favorite funds listed below. If you want to track our recommended portfolios purchase each fund in the proportion suggested by the target weight. Or consider the four particularly timely picks profiled in the following paragraphs all of which rank among the top 10% of their category in our fund-rating system and have reasonable expense ratios.  

T. Rowe Price New Horizons ($34; PRNHX) which invests in small-cap growth stocks has gained 8.9% through June 12 versus 3.4% for its category. The fund ranks among the top 1% of its group for three- five- and 10-year performance. The fund held more than 200 names on April 30 with technology representing 26% of the portfolio followed by consumer discretionary at 22%.


Don’t abandon international funds entirely because of uncertainty in Europe and China’s slowing growth as the funds offer diversification benefits and the potential for strong gains. Wasatch International Growth ($20; WAIGX) which focuses on small and midcap stocks is up 9.9% this year outstripping its peer-group return of 4.2%. The fund which has a nearly 43% weighting in Asia looks for high-quality companies with strong financials and superior earnings-growth potential.


Vanguard Growth Index ($34; VIGRX) a standout large-cap growth fund is replacing Buffalo Growth ($25; BUFGX) in our portfolios. Vanguard Growth which aims to replicate the return of the MSCI U.S. Prime Market Growth Index is nearly 32% invested in technology names. The fund up 8.1% so far this year has a low 0.24% expense ratio.


Vanguard Wellington ($32; VWELX) is a core long-term holding. The fund which opened its doors in 1929 and is the nation’s oldest balanced fund holds roughly 60% stocks and 40% bonds. The fund up 4.0% this year yields 2.6%. The fund has 17% of its stock holdings in financials and 16% in technology. The expense ratio is only 0.27%.

OUR RECOMMENDED MUTUAL FUNDS
Through June 12 our recommended Growth Portfolio has gained 4.4% so far this year versus a 3.9% gain for its benchmark portfolio. The Conservative Portfolio is up 4.2% versus 3.1% for its benchmark.
-- Year-To-Date --
--- % Of Portfolio ---
Fund (Price; Ticker)
Return
(%)
Rank
Conser-
vative
(%)
Growth
(%)
Fund
Rating
Dreyfus Midcap Index ($27; PESPX)
4.6
B
0
0
76
Dreyfus Small Cap Stock Index
($20; DISSX)
3.0
B
0
0
87
Fidelity High Income ($9; SPHIX)
5.0
B
5
5
90
Homestead Small Company
($24; HSCSX)
5.4
A
7
8
98
Manning & Napier International
($7; EXITX)
(2.4)
E
7
7
64
T. Rowe Price New Horizons
($34; PRNHX)
8.9
A
10
10
99
Vanguard 500 Index ($123; VFINX)
6.3
A
6
7
82
Vanguard Dividend Growth
($16; VDIGX)
3.3
D
12
12
98
Vanguard Emerg. Mkts. Stock Indx.
($24; VEIEX)
1.1
C
0
4
70
Vanguard GNMA ($11; VFIIX)
1.7
B
5
4
89
Vanguard Growth Index
($34; VIGRX)
8.1
B
12
12
95
Vanguard Inter.-Term Tax-Exempt
($14; VWITX)
2.7
B
0
0
65
Vanguard Selected Value ($19; VASVX)
2.9
D
5
6
86
Vanguard Short-Term Invest.-Grade
($11; VFSTX)
1.9
B
0
0
95
Vanguard Total Bond Mkt. Index
($11; VBMFX)
2.1
D
9
0
51
Vanguard Total Int’l Stock Index
($13; VGTSX)
(0.6)
D
5
4
76
Vanguard Wellesley Income
($24; VWINX)
3.6
B
0
0
100
Vanguard Wellington ($32; VWELX)
4.0
B
6
9
92
Wasatch International Growth
($20; WAIGX)
9.9
A
5
5
94
Wells Fargo Advantage Discovery
($25; STDIX)
7.4
A
6
7
94
* Year-to-date ranks through June 12 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.

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