10 Best Funds for Young Investors

NEW YORK ( TheStreet Ratings) -- TheStreet.com Ratings reviews the risk-adjusted return performance of around 25,000 funds every month. Young investors, with a very long investing time-horizon, can absorb more short-term risk in exchange for higher potential long-term returns.

Beyond building a base of lower-risk, core holdings, young investors can consider selecting a few riskier funds for their 2012 portfolio to juice their long-term results. The 10 funds listed below are among the highest ranked by performance regardless of risk. All these funds earned a, performance-based, reward grade of "A+".

Exchange-traded funds, open-end funds and traditional closed-end funds were considered for inclusion in this article. However, not all funds are suitable to be held for long-term returns. Therefore, short-term trading vehicles that employ as much as 300% leverage were excluded.

Funds charging high front end loads were also omitted as an important lesson to young investors, of all ages, that loads can be avoided by selecting a similar no-load fund.

Here are the 10 best for young investors:

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10. Central Fund of Canada

Central Fund of Canada ( CEF) provides an investment vehicle for investors interested in the benefits of gold and silver bullion. The fund invests primarily in long-term holdings of unencumbered, allocated, segregated and insured gold and silver bullion. The fund does not speculate with regard to short term changes in gold and silver prices.

Owning shares of the Central Fund avoids the inconvenience, as well as the high transactional and handling costs of directly owning gold and silver bullion. Currently at 53.5% gold bullion, 45.2% silver bullion, and 1.3% cash, the fund maintains a minimum of 90% of its net assets in gold and silver bullion.

If you decide that this traditional closed-end fund is a good fit for your 2012 portfolio, be mindful of the premium or discount embedded in the market price when timing your purchase.

Expense Ratio: 0.31%

Rated "A" by TheStreet Ratings:

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9. SPDR S&P Retail ETF

SPDR S&P Retail ETF ( XRT) has an investment objective to replicate the performance of an index derived from the retail segment of a U.S. total market composite index. The fund uses a passive management strategy designed to track the total return performance of the S&P Retail Select Industry Index.

Faith in the gift-giving generosity of American consumers is renewed during each holiday buying season. This is a long-term characteristic unlikely to significantly diminish regardless of the business cycles experienced over the next three decades.

Expense Ratio: 0.36%

Rated "A" by TheStreet Ratings:

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8. Matthew 25 Fund

Matthew 25 Fund ( MXXVX) seeks long term capital appreciation through investments in common stocks, and securities convertible into common stocks. Income through dividends or interest will be a secondary objective. The fund seeks to blend growth and value investing in its securities selection process. The fund adviser places great emphasis on business valuation which then leads to calculating a value for the company securities. This information is then utilized when buying or selling stocks in order to increase the potential returns.

Expense Ratio: 1.21%

Rated "A-" by TheStreet Ratings:

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7. Berkshire Focus Fund

Berkshire Focus Fund ( BFOCX) has an investment objective of long term capital appreciation. The fund invests 25% to 100% of total assets in the technology industry. The fund invests primarily in growth companies whose revenues and earnings are likely to grow faster than the economy as a whole offering above average prospects for capital appreciation and little or no emphasis on dividend income. The fund concentrates its investments in a core group of 20 to 30 common stocks selected for their long term growth potential.

Expense Ratio: 2.02%

Rated "A+" by TheStreet Ratings:

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6. Wasatch Emerging Markets Small Cap Fund

Wasatch Emerging Markets Small Cap Fund ( WAEMX) seeks long-term growth of capital. The fund will invest at least 80 percent of the fund's net assets in equity securities with market capitalizations of less than $3 billion at the time of purchase issued by companies, with dynamic growth potential, domiciled in emerging market countries.

The largest concentrations of net assets include 21% in India, 12.4% in Indonesia, 11.1% in Brazil, 7.5% in South Africa, 6.6% in Thailand, 6.4% in Turkey, and 5.1% in Korea. By region, the fund has 61.9% invested in Asia, 14.8% in Latin America, 12.6% in Eastern Europe, and 8.8% in the Middle East & Africa.

Expense Ratio: 2.39%

Rated "C+" by TheStreet Ratings:

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5. Encompass Fund

Encompass Fund ( ENCPX) seeks long-term capital appreciation. Under normal market conditions, the fund invests primarily in common stocks of domestic and foreign companies, including real estate investment trusts selected for high profit potential. The Encompass Fund invests in a wide variety of sectors some of which are not well-known or well-understood but are believed to offer more appreciation potential than better known companies. These lesser known companies may also offer less liquidity and may be more volatile.

The fund managers currently believe that there are opportunities in commodity companies producing gold, silver, copper, nickel, uranium and oil and gas. The managers see companies in the health care sector, both generic drug companies and branded drug producers, as well as industrial companies, consumer discretionary companies and real estate investment trusts (REIT's) providing attractive investment opportunities.

Expense Ratio: 1.49%

Rated "C" by TheStreet Ratings:

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4. USAA Precious Metals and Minerals Fund

USAA Precious Metals and Minerals Fund ( USAGX) seeks long term capital appreciation and protect the purchasing power of your capital against inflation. At least 80% of fund assets are invested in equity securities of domestic and foreign companies principally engaged in the exploration, mining or processing of gold and other precious metals and minerals, such as platinum, silver and diamonds. The equity securities in which the fund principally invests are common stocks, preferred stocks, securities convertible into common stocks and securities that carry the right to buy common stocks.

Expense Ratio: 1.15%

Rated "B+" by TheStreet Ratings:

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3. PIMCO Extended Duration Fund

PIMCO Extended Duration Fund ( PEDPX) seeks maximum total return, consistent with prudent investment management. The fund seeks to achieve its investment objective by investing at least 65% of its total assets in a diversified portfolio of fixed income instruments of varying maturities. The average portfolio duration of this fund normally varies within three years. The fund invests primarily in long-term investment grade debt securities, but may invest up to 10% of its total assets in high yield securities. The fund may invest up to 30% of its total assets in securities denominated in foreign currencies, and may invest beyond this limit in U.S. dollar denominated securities of foreign issuers.

Expense Ratio: 0.60%

Rated "C+" by TheStreet Ratings:

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2. Tocqueville Gold Fund

Tocqueville Gold Fund ( TGLDX) has an investment objective of long term capital appreciation. The fund seeks to achieve its investment objective by investing under normal circumstances at least 80 percent of its net assets plus borrowings for investment purposes in gold and securities of companies located throughout the world that are engaged in mining or processing gold.

The fund may also invest in other precious metals. However no more than 20 percent of the fund total assets may be invested directly in gold bullion and other precious metals. The investment strategy of the fund is value oriented and contrarian. The fund seeks to invest in companies that have good long term business fundamentals.

Expense Ratio: 1.35%

Rated "A" by TheStreet Ratings:

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1. Oceanstone Fund

Oceanstone Fund ( OSFDX) seeks to obtain capital appreciation. The fund invests only in common stocks. The stock selection approach blends both growth and value into a strategy of growth at reasonable price, on the NYSE, AMEX, and NASDAQ.

Top holdings include Archer-Daniels Midland Company ( ADM), Dell ( DELL), Wal-Mart Stores Inc ( WMT), Intel Corp ( INTC), Microsoft Corporation ( MSFT), and Best Buy Co ( BBY).

Expense Ratio: 1.83%

Rated "B-" by TheStreet Ratings:

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How We Rate Funds

TheStreet Ratings condenses the available fund performance and risk data, including penalties for load charges, into a single composite opinion of each fund's risk-adjusted performance. This allows the unbiased identification of those funds that have historically done well and those that have underperformed the market. While there is no guarantee of future performance, these investment ratings provide a solid framework for making informed, timely investment decisions. In order to qualify for a rating, an open-end fund must either have three years of risk and return data or be an additional share class of an existing fund with at least three years of performance statistics.

Funds rated "A" or "B" are considered "Buy" based on a track record of higher than average risk-adjusted performance. Funds at the "C" level are rated as "Hold," while underperformers at the "D" and "E" levels our model ranks as "Sell."

-- -- Written by Kevin Baker in Jupiter, Fla.

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Kevin Baker became the senior financial analyst for TheStreet Ratings upon the August 2006 acquisition of Weiss Ratings by TheStreet.com, covering equity and mutual fund ratings. He joined the Weiss Group in 1997 as a banking and brokerage analyst. In 1999, he created the Weiss Group's first ratings to gauge the level of risk in U.S. equities. Baker received a B.S. degree in management from Rensselaer Polytechnic Institute and an M.B.A. with a finance specialization from Nova Southeastern University.

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