Best Mutual Fund for Fourth Quarter

After picking a diversified growth mutual fund, ETF Market Opportunity(ETFOX Quote) for the second quarter, and an international fund, Fidelity China Region (FHKCX Quote), for the third quarter, I'm turning to the credit market for the fourth quarter and picking Third Avenue Focused Credit(TFCVX Quote).

It's been a good year for equities, and my two picks performed well. ETFOX gained 32.2% from March 31 through Sept. 28, and FHKCX gained 12.4% from June 30 through Sept. 28.

While I still like these two funds for the long term, short-term oriented investors may want to take some profits off the table, as the market has had a nice run from March with barely any correction. TFCVX may offer a better chance for price appreciation over the next quarter, with less downside risk, given current conditions.

Troubled economic times can be great news for distressed debt because it offers the opportunity for a reallocation of assets, most notably when equity holders are wiped out in bankruptcy, but the fund will run the gamut of distressed situations, from purchasing undervalued debt all the way to participating in bankruptcy restructurings.

High-yield debt has recovered since March, but even as the market recovers, there are companies struggling to clean up their balance sheets, and bankruptcies are likely to be high for several more quarters. Credit spreads between high-yield debt, and Treasuries are still at the historic high end of the range because the rally was from such historically low levels.

Traditionally, investors need to be well-heeled to invest in this area, and most funds have steep investment minimums. Third Avenue already offers a distressed debt fund, for instance, with a $50 million minimum investment; retail shares, however, will require only a no-load $2,500 investment. Please note there is a 2.0 percent of net asset value redemption fee on shares held less than one year.