Updated: March 22, 2013 6:47AM
Dear Mr. Berko: I know the Securities and Exchange Commission tells us not to use past results to judge future performance, but we must select five mutual funds for our 2-year-old granddaughter, whose parents are the most financially naive couple (my wife says stupid) in the Midwest. I’m an 80-year-old retired lawyer who never made much money. My wife says I’m too honest. But we’d like to invest $50,000, a lot of money to us, for our only grandchild’s college education. I’ve written an education trust that cannot be violated by our granddaughter’s parents. We don’t want stocks, because they’re too volatile; we’d prefer mutual funds. But we don’t know how to pick mutual funds unless we can see how the fund manager has performed in the past. And some brokers we’ve talked to have made our selection process more complicated. I know you can’t see 16 years into the future, but my wife and I would appreciate your help in selecting five funds that you like. We will invest $10,000 in each.
— HE, Cleveland
Dear HE: I strongly disagree with the SEC’s constant exhortation that one “should not base future investment results on past performance.” That’s major dumb. Isn’t that why we study history? This bootless agency, financed by the industry it supposedly governs, is one of the most incompetent, inutile organizations in Washington. And some say that given the proper incentive, the SEC can be generous in producing extremely favorable decisions for its supporters. However, here are five funds, the past performances of which are uncommonly better than those of their brethren. And because their past performances are strongly above average, I think their future long-term performances will be nearly as good, as good as or better than their past results.
Villere Balanced Fund (VILLX-$21.61) is a small, $265 million-portfolio fund run by George Young since 1999, from the cold climate of Milwaukee. This very quiet no-load fund has a five-year average return of 7.99 percent and a 10-year return of 9.85 percent. Young achieves his success with a very low portfolio turnover by investing in lesser-known companies — such as Euronet Worldwide, Ingredion Inc., Pool Corp., Leggett & Platt and 3D Systems.
Vanguard Selected Value Fund (VASVX-$21.62) is a no-load fund with a $4.3 billion portfolio managed by Gene Giambrone since 2002. Gene has earned a five-year average return of 3.73 percent and a 10-year return of 9.81 percent, with a low portfolio turnover and an expense ratio significantly lower than his competitors. Gene, who is a certified public accountant, achieved his record by purchasing less popular equities — such as Fifth Third Bank, CA Technologies, XL Group, New York Community Bank and Seadrill.
Bruce Fund (BRUFX-$398), run by Robert Bruce since 1983, from the windy city of Chicago, is a $351 million no-load value fund. This barely known fund enjoys a five-year average return of 5.96 percent and a 10-year return of 16.2 percent, owning issues such as AirBoss of America, Pfizer, Merck and Allstate. BRUFX has a very low portfolio turnover (11 percent) and a low expense ratio.
Fidelity Contrafund (FCNTX-$79.60) is an $85 billion large-cap growth fund managed by William Danoff since 1990. This no-loader has a five-year average return of 2.6 percent and a 10-year return of 9.6 percent, with a little higher portfolio turnover ratio than its brethren. Danoff’s largest portfolio holdings are McDonald’s, Coca-Cola Co., Google, TJX Companies, Disney and Visa.
Homestead Small-Company Stock Fund (HSCSX-$27.98) is another quiet no-loader. The $350 million fund has been managed from Arlington, Va., by Stuart Teach since 1998. With a $500 minimum initial investment, long-term shareholders of HSCSX have gotten a five-year average return of 8.4 percent and a 10-year return of 10.91 percent. HSCSX has unfamiliar issues, such as Cracker Barrel, Manitowoc, ManTech, Rofin-Sinar Technologies and Steris.
Make certain that all dividends and capital gains are reinvested. But before you fund this education trust, what provisions have you made if your granddaughter has no college plans and decides to become a zinc miner in Utah?
Please address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, FL 33775, or email him at firstname.lastname@example.org.