Extra! Extra! Magazines Pick Some Funds That Get Crushed
In the next few weeks, "Funds to Buy Now!" stories will start making their annual year-end appearances on magazine covers. But buying now based on those recommendations may not make you happy later.
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Methodology Matters
Fund selection methodology varies from publication to publication. Mutual Funds magazine's list for 2000 focuses more on managers who have been able to deliver superior returns in the past, while Money's list picks funds the magazine thinks will capitalize on the themes expected to dominate business during the next several years, such as technology. Take a moment to read the methodology, rather than jumping right to the star roster. You might find it doesn't mesh with your goals -- or maybe you'll find it inadequate.Trend Is Not Always a Friend
As Internet stocks' pathetic performance this year has shown, what has worked for a year or even two or three is not necessarily going to keep working in the near future. So if a magazine selects a fund because of its past gains, that doesn't mean you'll get the same thing next year. The fall of the Internet fund this year is perhaps the best example of that lesson. (Today's Fund Junkie column shows that of the 182 funds in last year's Century Club, only six are in the black this year.) "People need to be wary of what may be trendy," warns Russ Kinnel, Morningstar's director of fund analysis. "It's still up to you to monitor these picks, understand why the magazine picked them and why they should be in your portfolio." Says Percy Bolton, a Los Angeles-based financial planner: "If you pick the top performer now, you have a good chance of having the bottom performer the next year."So How Can Mag Lists Help?
These lists can serve as a starting point for investors to learn more about funds that can be good long-term holdings, says Kinnel. "I think you're kind of promising something you can't deliver if you're implying that these are the best picks for a single year," says Kinnel. "It's pretty impossible to predict short-term performance. But to buy them and hold on to them for 10-year funds, they do a respectable job." Although down this year, the Artisan International fund, for example, boasts a five-star rating from Morningstar, a three-year annualized return of almost 28% and a one-year return of around 6%. So, for an investor undaunted by an off year or two, the fund could be a good long-term bet. The magazines themselves may also provide some context for investing in general. Money's intro to its best investments for 2000 presciently warned that sectors that have experienced sharp run-ups like tech could see near-term pullbacks. Mutual Funds magazine also warned investors about the dark side of the bull market -- excessive speculation, lofty price-to-earnings
ratios and worshipping false heroes -- with its 2000 picks. "Six years ago, it was all 'hot funds to buy now.' That wasn't helpful at all," says Morningstar's Kinnel. "The tone has improved. There are always places where you can get: 'Buy this fund for the next six months.' For the most part, the major magazines are above that." | Kiplinger's "Five Funds for 2000" Kiplinger's five funds held up fairly well this year, returning an average of 1.9%, compared with the S&P 500's year-to-date return of - 9.5% | ||||
| Fund | Year-to-Date Return | One-year Return | Five-Year Return | |
| 1. ( BGRFX )Baron Growth | -13.13% | -0.50% | 18.21% | |
| 2. ( TBGVX )Tweedy Browne Global Value | 11.18 | 11.17 | 18.37 | |
| 3. ( HACAX )Harbor Capital Appreciation | -18.07 | -6.53 | 21.82 | |
| 4. (CREEX)Columbia Real Estate Equity | 21.61 | 21.63 | 14.27 | |
| 5. (DODGX)Dodge & Cox Stock | 8.12 | 9.16 | 16.95 | |
| Source: Morningstar | ||||
| Mutual Funds magazine's "Top 10 Funds for 2000" The magazine's 10 funds for 2000 has returned an average of -5.9% so far this year | ||||
| Fund | Year-to-Date Return | One-year Return | Five-year Return | |
| 1. (RBCGX)Reynolds Blue Chip Growth | -28.17% | -15.27% | 24.42% | |
| 2. (AMSTX)Ameristock | 15.81 | 10.18 | 22.56 | |
| 3. (ARTIX)Artisan International | -13.61 | 6.20 | N/A | |
| 4. (RSEGX)RS Emerging Growth | -25.88 | -6.34 | 33.24 | |
| 5. (VALSX)Value Line Special Situations | -9.52 | 9.92 | 23.02 | |
| 6. (VEIPX)Vanguard Equity Income | 8.05 | 3.30 | 15.26 | |
| 7. (OPGIX)Oppenheimer Global Growth & Income | -6.63 | 11.90 | 25.56 | |
| 8. (SHRAX)Smith Barney Aggressive Growth | 15.00 | 31.17 | 29.01 | |
| 9. (PAXWX)Pax World Balanced | 2.56 | 7.68 | 16.69 | |
| 10. (SPHIX)Fidelity High Income | -17.26 | -13.85 | 5.10 | |
| Source: Morningstar | ||||
| Money magazine's "The Best Investments for 2000" Money's fund picks have lost 10.6% on average so far this year | ||||
| Fund | Year-to-date Return | One-year Return | Five-year | |
| 1. (FHLSX)Invesco Health Sciences Fund | 19.70 | 18.75% | 19.86% | |
| 2. (PRSCX)T. Rowe Price Science & Technology | -32.22 | -14.02 | 20.92 | |
| 3. (QQQ)Nasdaq-Index 100 | -22.91 | -3.92 | N/A | |
| 4. (SPHIX)Fidelity High- Income | -17.26 | -13.85 | 5.10 | |
| 5. (VWITX)Vanguard Intermediate Tax- Exempt | 7.09 | 5.97 | 4.87 | |
| 6. (ARTIX)Artisan International | -13.61 | 6.20 | N/A | |
| 7. (SCGEX)Scudder Greater Europe Growth | -14.64 | -0.05 | 19.14 | |
| Source: Morningstar | ||||
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