Best Funds For 2013

12/17/2012


Our top fund picks for 2013 are based on the same approach we use for all of our fund picks:

Screen for high-potential funds using our rating system. In use since 2000, fund scores reflect total returns for up to five years, expense ratios, tax-efficiency, and risk-adjusted performance. Fund scores rank a fund relative to similar funds. Our 20 recommended funds, listed below, sport an average score of 81 on a scale of 0 to 100.

Search for consistent winners with solid long-term track records. While past returns do not guarantee future success, our funds have excelled over the long haul. In fact, 19 of the 20 funds have outperformed their peer averages over the last five and 10 years.

Focus on low-cost funds. High expense ratios tend to lead to lower returns. All but one of our recommended funds have expense ratios below their category average, and 11 charge less than 0.35%.

TOP PICKS FOR THE NEW YEAR
------- Fund Rating -------
3-Yr. Annual
---- Return ----
Fund (Price; Ticker)
Score
Rank
(No. Of
Funds)

Expense Ratio
(Category
Average)

Fund
(%)
Cat.
Avg.
(%)
Category
Homestead Small Co.
($27; HSCSX)
99
2
(109)
1.08 (1.40)
17.8
12.6
Small blend
Vanguard Gro. Index
($37; VIGRX)
95
15
(295)
0.24 (1.31)
12.5
10.1
Large grow.
Vanguard Select Val.
($21; VASVX)
81
12
(58)
0.45 (1.30)
11.7
11.3
Midcap val.
Vanguard Wellington
($35; VWELX)
91
14
(152)
0.27 (1.06)
9.2
8.0
Balanced
Wasatch Int'l Growth
($23; WAIGX)
100
1
(18)
1.57 (1.51)
16.3
9.2
Foreign

To be sure, predicting which funds will truly outperform is difficult. So if you're using funds for the bulk of your money, we sug-gest you build a diversified portfolio using the allocations in the bottom table. If you seek a fund to round out an existing portfolio, consider the five favorites reviewed below.

Homestead Small Company Stock ($27; HSCSX) is a top small-cap stock fund. Up 11.4% annually over the last 10 years, the fund ranks among the top 8% of its peer group for three- , five- , and 10-year performance.


Up 17.0% so far in 2012, Vanguard Growth Index ($37; VIGRX) is a standout large-cap growth fund. Vanguard Growth, with a fund rating of 98, ranks among the top 14% of its peers for three- and five-year returns. On Oct. 31 the fund held 406 stocks, with a median market value of $46 billion.


Vanguard Selected Value ($21; VASVX) focuses on midsize companies that its portfolio managers consider undervalued and out of favor. At the end of October, the fund was heavily weighted in financials (29% of stocks) and industrials (16%). So far in 2012, the fund has gained 15.1%.


Vanguard Wellington ($35; VWELX), a longtime Forecasts favorite, consistently ranks among the best balanced funds. Holding roughly 60% stocks and 40% bonds, the fund focuses on high-quality securities and yields 2.3%. Wellington's 10-year annualized return of 8.2% outstrips the category average of 6.3%.


Wasatch International Growth ($23; WAIGX), which invests in mostly small and midsize growth stocks, has surged 30.6% so far this year, ranking it among the top 4% of its peer group. The fund held 75 names on Sept. 30, with emerging markets representing roughly 37% of the portfolio.

OUR RECOMMENDED MUTUAL FUNDS
Through Dec. 11, our Growth Portfolio has gained 14.5% for the year, versus a 15.3% gain for its benchmark portfolio. The Conservative Portfolio is up 13.5%, versus 12.5% for its benchmark. The Growth Portfolio is designed for investors seeking long-term total return, while the Conservative Portfolio is for investors at or near retirement.
-- Year-To-Date --
--- % Of Portfolio ---
 
Fund (Price; Ticker)
Return
(%)
Rank
Conser-
vative
(%)
Growth
(%)
Fund
Rating
Dreyfus Midcap Index ($30; PESPX)
16.2
B
0
0
83
Dreyfus Small Cap Stock Index
($22; DISSX)
13.8
C
0
0
88
Fidelity High Income ($9; SPHIX)
14.4
C
5
5
83
Homestead Small Company
($27; HSCSX)
17.5
A
7
8
99
Manning & Napier International
($9; EXITX)
14.1
C
7
7
57
T. Rowe Price New Horizons
($36; PRNHX)
15.2
A
10
10
99
Vanguard 500 Index ($132; VFINX)
15.8
B
6
7
78
Vanguard Dividend Growth
($17; VDIGX)
11.1
D
12
12
90
Vanguard Emerg. Mkts. Stock Indx.
($28; VEIEX)
15.5
C
0
4
63
Vanguard GNMA ($11; VFIIX)
2.4
C
5
4
83
Vanguard Growth Index
($37; VIGRX)
17.0
B
12
12
95
Vanguard Inter.-Term Tax-Exempt
($15; VWITX)
6.7
B
0
0
66
Vanguard Selected Value ($21; VASVX)
15.1
C
5
6
81
Vanguard Short-Term Invest.-Grade
($11; VFSTX)
4.4
B
0
0
91
Vanguard Total Bond Mkt. Index
($11; VBMFX)
4.2
D
9
0
35
Vanguard Total Int'l Stock Index
($15; VGTSX)
15.4
C
5
4
60
Vanguard Wellesley Income
($25; VWINX)
10.4
B
0
0
100
Vanguard Wellington ($35; VWELX)
12.7
B
6
9
91
Wasatch International Growth
($23; WAIGX)
30.6
A
5
5
100
Wells Fargo Advantage Discovery
($25; STDIX)
14.5
B
6
7
85
* Year-to-date ranks through Dec. 11 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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