This article originally appeared in Dagen's personal finance newsletter, The Save Safe Plan. For information on this newsletter, click here.Picking mutual funds would be a lot easier if they just came with short warning labels: Fund is concentrated in a few ridiculously expensive sectors. Portfolio could lose all your money in a matter of months. Manager spends the bulk of his workday reading up on a rotisserie baseball team on
Frankly, if a stock fund has a standard deviation below 10, it probably has a lot of its money outside of the stock market. It probably owns some bonds or is sitting on a big chuck of cash. There's nothing wrong with that. But if you want to buy a stock fund, you want one that's largely invested in stocks. Now most stock funds will have standard deviations that range from, say, 13 to 20. Insanely risky -- if not awful -- funds can sport standard deviations north of 40. The ( ATCHX) Amerindo Technology fund is a good example. Its three-year standard deviation is 45. And the wild fluctuations in performance are quite obvious when looking at its chart and returns. What about low-volatility funds? The ( FCNTX) Fidelity Contrafund ranks as one of the least-volatile U.S. stock funds out there. Its standard deviation comes in under 11. This large-cap fund, managed by Will Danoff for almost 13 years, is enormous, at $28 billion in assets. It used to buy more small stocks, which tend to be riskier, but now it has most of its money invested in large to giant stocks. And you'll get more than 400 stocks with this portfolio -- not too far away from the S&P 500 index. This fund's industry weightings are another factor that has kept volatility to a minimum. In particular, manager Danoff has shied away from lots of technology stocks for more than two years. Yes, that's hurt performance over the past few months. But it also makes this fund more tolerable to own. Another bonus: Fidelity is waiving the fund's 3% front-end sales charge until June 30. If you're a fan of Fidelity, its $27 billion ( FGRIX) Growth and Income fund is another low-volatility option. Manager Steven Kaye has been at the helm for more than a decade. And he doesn't buy overpriced stocks, which can crater at the first sign of trouble, and he doesn't make outsize bets on individual sectors or stocks. The result has been a steady, reliable -- albeit large -- fund. The FMC Select fund is much smaller than those Fidelity giants. But it's attractive for the same reason: very little volatility. (The standard deviation is just 12.3.) It has less than $200 million in assets and a low expense ratio. The managers like stocks that are on the cheap side and concentrated on how much dividend yield a company delivers. Alas, some of this fund's stability comes from a small allocation to bonds -- about 17% at last look. And you'll have to cough up $10,000 to get in.