Due in large part to the rise of passive index funds and ETFs, actively managed funds have been taking some lumps in recent years. While fees have been declining on actively managed funds, those products have not been able to compete with ETFs when it comes to lowering fees.
Compounding the difficulties for actively managed funds is performance. As in many active funds, regardless of asset class, have had trouble keeping up with the benchmarks over various time frames. Studies indicate it does not matter if it is large-cap domestic stocks, foreign small-cap stocks or bonds, actively managed funds, broadly speaking, lag their benchmarks.
The aforementioned factors do not mean all actively managed funds are bad. Actually, there plenty of gems, some hidden, in the actively managed fund world. With some due diligence and guidance, investors can find wins among actively managed funds. Here are some to consider.
Artisan International Small-Mid Investor (ARTJX)
Expense ratio: 1.36% per year, or $136 on a $10,000 investment.
The Artisan International Small-Mid Investor (MUTF:ARTJX) reopened to investors last October and this actively managed fund has a new management team that could boost what has been, in recent years, tepid performance.
“Despite a solid showing in 2018’s challenging conditions and a nice start to this year, its three-year and five-year returns through March 31, 2019, are inferior to those of 75% and 93% of foreign small/mid-growth offerings, respectively,” according to Morningstar. “This fund’s marked underperformance in recent years has undermined the ample success it had earlier in the 2000s, and its 10-year record is now mediocre. (Its 15-year record is still good.)”
Rezo Kanovich is ARTJX’s new manager. Kanovich has over two decades managing active funds and his previous fund, an Oppenheimer product comparable to ARTJX, was one of the top-performing funds in this category. Morningstar has a Bronze rating on ARTJX. This fund has a minimum investment of $1,000.
ClearBridge Large Cap Growth A (SBLGX)
Expense ratio: 1.05%
As has been widely noted, growth funds have been topping their value counterparts for much of the current bull market and that is also true in the world of actively managed funds. The ClearBridge Large Cap Growth A (MUTF:SBLGX) has been an impressive performer among actively managed growth funds and carries a Morningstar rating of Bronze.
This fund focuses on quality, large-cap companies with advantageous competitive positions and “emphasizes security selection and fundamental, bottom-up analysis to identify companies with the potential to grow market share and earnings in the U.S. and overseas,” according to the issuer. Nearly three quarters of SBLGX’s holdings have market values in excess of $50 billion.
As is the case with many growth funds, active and passive, SBGLX is concentrated at the sector level with the technology, communication services and consumer discretionary sector combining for nearly 61% of the fund’s weight.
T. Rowe Price Dividend Growth Fund (PRDGX)
Expense ratio: 0.64%
The manager of the T. Rowe Price Dividend Growth Fund (MUTF:PRDGX), Tom Huber, has been with the fund for nearly two decades, so this actively managed fund gives investors management stability and expertise with an income focus. PRDGX, which has a minimum investment requirement of $2,500, has a Silver rating from Morningstar.
“Stocks of companies that pay robust and growing dividends are generally less volatile in times of market turmoil — as was the case in last year’s fourth quarter, when the S&P 500 index lost 13.5%, dividends included,” according to Barron’s. “And dividends, especially those that are growing and are well covered by cash flows, can provide steady income in times of uncertainty.”
As a dividend growth strategy, PRDGX has light weights to high-yield sectors, such as real estate and utilities, as well as small exposure to groups that have recently seen a fair amount of negative dividend action, including energy. This actively managed devotes nearly a third of its combined weight to the healthcare and technology sectors.
Matthews Asia Growth Investor (MPACX)
Expense ratio: 1.10%
International markets can be fertile territories for active managers and the Matthews Asia Growth Investor (MUTF:MPACX) is solid option for investors looking to access Asia’s myriad growth opportunities with the assistance of a hands-on management team. This $1.16 billion actively managed fund is nearly 16 years old and has Silver rating from Morningstar.
MPACX is a large-cap growth fund. The managers look to invest in “companies capable of sustainable growth based on the fundamental characteristics of those companies, including balance sheet information; number of employees; size and stability of cash flow; management’s depth, adaptability and integrity; product lines; marketing strategies; corporate governance; and financial health,” according to Matthews.
Portfolio turnover of 12.12% is low relative to the category average. Japan and the China/Hong Kong region combine for about two-thirds of MPACX’s geographic exposure and the fund devotes over 53% of its combined weight to the healthcare and consumer discretionary sectors.
Fidelity Select Biotechnology Portfolio (FBIOX)
Expense ratio: 0.72%
As is the case with other Fidelity funds, active and passive, there is no minimum investment required with the Fidelity Select Biotechnology Portfolio (MUTF:FBIOX). This $7.1 billion actively managed fund also has lower expenses than many of the competing funds in this category.
Over the past decade, FBIOX has outperformed the S&P 500 and the broader healthcare sector. Much of that out-performance is attributable to this actively managed fund being a mid-cap growth fund, meaning an element of the size factor is on its side. Conversely, that also means investors take on more risk with FBIOX than they would with a large-cap healthcare fund.
FBIOX “invest(s) in companies with market values between $2 billion and $10 billion that fund managers believe are poised for growth. Growth can be based on a variety of factors, such as revenue or earnings growth. Growth funds are typically focused on generating capital gains rather than income,” according to Fidelity.
Todd Shriber does not own any of the aforementioned securities.
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