How to evaluate ‘go-anywhere’ mutual funds
Why bother with a “go-anywhere” mutual fund?
For many investors the answer may be that there’s no need. If you have a well-diversified portfolio and a truly long-term focus, your asset mix may suit you just fine.
Older investors who are more fearful of severe losses, however, may have a different view. Ditto for investors who are looking to put money to work now but are wary with many stocks near record highs and with bond yields depressed.
Chris Hauswirth, a principal at investment advisory firm Wetherby Asset Management in San Francisco, said he uses go-anywhere funds for 5% to 10% of some clients’ portfolios, as a way to add diversification.
Here are some key questions to ask if you’re considering a go-anywhere fund:
•How much flexibility does the manager have? You need to know the fund’s basic investing parameters, spelled out in its summary prospectus. How much risk can it take in search of return? What is the fund’s specific goal (say, beating a benchmark index)?
“You have to be very selective about who’s running the fund and what the track record has been,” said Dan Wiener, head of Adviser Investments in Newton, Mass.
Experience counts. “We wouldn’t just give any manager that kind of flexibility,” said Hauswirth, who said he uses the 20-year-old FPA Crescent Fund as a client option.
•What is the annual expense ratio? This is the cost of running the fund. You can find the fees for any fund on Morningstar Inc.’s free Web pages (plug in the fund ticker symbol at https://www.morningstar.com), as well as Morningstar’s view of how the fees compare with those of similar funds.
•Does the fund buy individual securities or is it a “fund of funds” — meaning it buys slices of other funds to build a portfolio? Some funds do both.
•How did the fund perform in the crash year of 2008? If one of the fund’s goals is to limit losses, that was the year to do it.
•How patient can you be? “These sorts of funds tend to be contrarian,” said Michael Yoshikami, head of Destination Wealth Management in Walnut Creek, Calif. That means they often go against popular market wisdom. “So sometimes they’re early.”
“You can’t be short-term-oriented in any of these funds,” Wiener said. “You may be very unhappy for a long time.”
