A Look At 5 Fund Stars

3/16/2015


Based on our proprietary fund-rating system, the five Forecasts recommended mutual funds listed below rank among the best of the best. Morningstar also ranks all five among the elite.

FIVE OF THE VERY BEST FUNDS
--- Fund Score ---
No. Of
Months
Above 85
(3 Years)
-------- Morningstar Ratings --------
Fund (Price; Ticker)
Recent
Average
Curr.
3
Years
5
Years
10
Years
Artisan International
($31; ARTIX)
98
95
34
4
5
5
4
T. Rowe Price Small Cap.
($27; PRDSX)
100
96
36
5
5
5
5
Vanguard Growth Index
($55; VIGRX)
91
91
29
4
4
4
4
Vanguard S-T Invest.
($11; VFSTX)
99
92
32
4
4
4
4
Vanguard Wellesley
($25; VWINX)
99
98
36
5
5
5
5

What makes these funds so special?

For one thing, all five earn fund scores above 90 in our rating system, which ranks more than 5,500 funds on tax efficiency, total returns up to five years, risk-adjusted performance metrics, and expense ratios. A score of 90 means a fund ranks better than about 90% of its peer group.

Second, all five boast a history of high and steady fund scores over the last three years. The five funds average current scores of 97 and three-year norms of 94. On average, the funds scored above 85 in 34 of the last 36 months, or about 93% of the time.

Next, the funds earn four- or five-star ratings from Morningstar. The ratings, which reward steady performance, are calculated using monthly returns adjusted for sales charges, loads, and redemption fees. The top 10% of funds in a category receive five stars, while the next 22.5% receive four stars.

The funds also earn consistently high star ratings. Morningstar evaluates up to three periods of adjusted returns (trailing three, five, and 10 years). Final star ratings use a weighted average of the returns based on the age of a fund, with longer periods weighted more heavily. All five funds earn at least four stars for the last three-, five-, and 10-year periods.

Finally, across the five funds, the average manager tenure is nearly 13 years, with a minimum of almost seven years. The longer the average tenure, the more meaningful a fund's track record. Longtime managers often stick with a consistent investment approach, potentially making performance more predictable.

In the following paragraphs we profile two standouts. For a full list of 23 funds that rank among the best of the best, including the five recommended funds listed above, go to www.DowTheory.com/Go/topfunds.

Artisan International ($31; ARTIX), with an impressive fund score of 98, held 69 names on Dec. 31, with health care representing 17% of the portfolio and consumer discretionary 16%. The fund, which focuses on large-cap growth stocks, ranks among the top 7% of its category for three-, five-, and 10-year performance. The fund has gained 2.0% so far in 2015 and managed an impressive five-year annualized return of 10.0%, compared to 6.6% for its peer group. The four-star fund has a reasonable annual expense ratio of 1.17%.


T. Rowe Price Diversified Small Cap Growth ($27; PRDSX) ranks among the top 10% of its peer group for three- , five- , and 10-year total returns. Boasting the maximum fund score of 100, the fund invests in more than 280 stocks. Major sector weightings are industrials (24% of assets), health care (19%), and technology (18%). Rated five stars by Morningstar, the fund has a five-year annualized return of 18.6%, versus 14.6% for its category. So far this year the fund has risen 4.8%. At 0.85%, the expense ratio is below the category average of 1.38%.

OUR RECOMMENDED MUTUAL FUNDS
Year-To-Date *
--- % Of Portfolio ---
 
Fund (Price; Ticker)
Return
(%)
Rank
Conser-
vative
(%)
Growth
(%)
Fund
Rating †
Artisan International ($31; ARTIX)
2.0
D
9
9
98
Baird Core Plus Bond ($12; BCOSX)
0.9
B
9
4
97
Dreyfus Midcap Index ($38; PESPX)
1.5
B
0
0
69
Dreyfus Small Cap Stock Index
($29; DISSX)
0.0
C
0
0
86
Homestead Small Company
($39; HSCSX)
(0.1)
C
5
6
84
iShares MSCI EAFE Small-Cap ETF
($48; SCZ)
3.4
B
4
6
83
T. Rowe Price Divers. Small-Cap Growth
($27; PRDSX)
4.8
A
7
7
100
T. Rowe Price Value
($34; TRVLX)
(1.4)
C
10
11
91
Thompson Bond ($11; THOPX)
0.7
A
9
4
60
Vanguard 500 Index ($189; VFINX)
(0.3)
C
7
8
85
Vanguard Dividend Growth
($23; VDIGX)
(0.8)
D
10
10
86
Vanguard GNMA ($11; VFIIX)
0.3
C
0
0
78
Vanguard Growth Index
($55; VIGRX)
2.1
C
10
11
91
Vanguard High-Yield Corp. ($6; VWEHX)
1.7
D
5
6
97
Vanguard Inter.-Term Tax-Exempt
($14; VWITX)
(0.1)
D
0
0
90
Vanguard Selected Value
($28; VASVX)
(0.8)
D
5
8
73
Vanguard Short-Term Invest.-Grade
($11; VFSTX)
0.5
B
0
0
99
Vanguard Total Bond Mkt. Index
($11; VBMFX)
0.6
D
0
0
71
Vanguard Wellesley Income
($25; VWINX)
(0.4)
E
0
0
99
Vanguard Wellington ($39; VWELX)
(0.7)
E
10
10
99

* Year-to-date ranks through March 10 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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