Get on board these 5-star funds

Here are some of the best-performing, actively managed choices with low expense ratios.

By MoneyShow.com Apr 16, 2013 12:17PM

 Stock market report copyright CorbisBy Esther Kwon, S&P Capital IQ 


With a return to positive investor fund flows into equities and strong U.S. equity market price performance, we thought it would be timely to take a closer look at domestic equity funds.


Moreover, with correlations between stocks down as investors move away from a risk-on/risk-off mentality driven by macroeconomic fears to consider company-specific investment cases, we think conditions have improved dramatically for astute investment managers to add value, despite the higher costs associated with actively managed funds compared to passive, or index, strategies, including ETFs.


With that in mind, we used the Funds Screener on MarketScope Advisor and searched for actively managed domestic equity funds that are ranked five-star by S&P Capital IQ, and also in the top-performance quartile on a three-year and five-year basis. We used the three- and five-year measurements, as we believe those periods capture both the rebound in the equity market and the downturn.


Also, since part of the investment case for favoring passive strategies over active ones lies in low costs, we limited our "screen" to funds with an expense ratio of 0.75% or lower. We think the following funds may be worth further investigation by investors who would like exposure to actively managed domestic equity funds.


The $3 billion-in-assets Mairs & Power Growth Fund (MPGFX) is classified as a multi-cap core fund, and ranks positively in all three of S&P Capital IQ's category measures (performance analytics, risk considerations, and cost factors).


It has outperformed its peers on a year-to-date basis through March 31 (up nearly 12.0% vs. 10.4%), and in all our other measurement periods -- one-, three- and five-years. Since inception, on an annualized basis, MPGFX has returned 9.1%, compared to the peer average return of 8.1%.


The fund's expense ratio of 0.7% is significantly below peers' 1.2%, and is likely helped by the fund's low turnover of only 3%, versus a peer average of 65.7%.


Among the fund's recent top ten holdings viewed favorably by S&P Capital IQ equity analysts are 3M (MMM), Target (TGT), Pentair (PNR), and Honeywell International (HON).


Another multi-cap core fund, Nicholas Fund (NICSX) has similarly performed well, rising 13.5% year-to-date through March 31, and also ranks positively in all three of S&P Capital IQ's category measures.


Since inception, the fund logged an annualized return of 10.9%, compared to peers at 8.1%, and has outperformed on a one-, three-, five-, and ten-year basis as well. The fund's expense ratio just meets our cut-off of 0.75% and is supported by relatively low portfolio turnover of 21%.


Albert Nicholas has been running the fund since 1969. S&P Capital IQ equity analysts view favorably fund top ten holdings Valeant Pharmaceuticals International (VRX), O'Reilly Automotive (ORLY), Gilead Sciences (GILD), and W.W. Grainger (GWW).


PRIMECAP Odyssey Aggressive Growth Fund (POAGX), with $2.5 billion in assets, is classified as a mid-cap growth fund, and has the best year-to-date performance (at approximately 16% through March 31) of the funds from our screen, which we attribute to its focus on mid-cap companies.


The S&P MidCap 400 Index jumped 13.1% in the first quarter on a price basis, exceeding the S&P 500's gain of 10% and the S&P SmallCap 600's 11.5% rise. The peer average return was 10.8%.


Although a newer fund, POAGX has also posted performance significantly above its peers, beating peers on a one-, three- and five-year basis through March 31. Since inception, the fund has risen 11.1%, ahead of the peer average of 8.8%. The expense ratio was low, at about only half of the peer average of almost 1.4%, with significantly lower portfolio turnover of 14% (95.4%).


MSN Money on Twitter and Facebook

Like us on Facebook: MSN Money and Top Stocks

Follow us on Twitter: @msn_money and @topstocksmsn


More from The Money Show

0Comments

DATA PROVIDERS

Copyright © 2014 Microsoft. All rights reserved.

Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.

STOCK SCOUTER

StockScouter rates stocks from 1 to 10, with 10 being the best, using a system of advanced mathematics to determine a stock's expected risk and return. Ratings are displayed on a bell curve, meaning there will be fewer ratings of 1 and 10 and far more of 4 through 7.

105
105 rated 1
271
271 rated 2
420
420 rated 3
633
633 rated 4
492
492 rated 5
532
532 rated 6
725
725 rated 7
515
515 rated 8
343
343 rated 9
140
140 rated 10
12345678910

Top Picks

SYMBOLNAMERATING
UPLULTRA PETROLEUM Corp10
EOGEOG RESOURCES Inc10
SWNSOUTHWESTERN ENERGY COMPANY10
TAT&T Inc9
COPCONOCOPHILLIPS9
More

VIDEO ON MSN MONEY

ABOUT

Top Stocks provides analysis about the most noteworthy stocks in the market each day, combining some of the best content from around the MSN Money site and the rest of the Web.

Contributors include professional investors and journalists affiliated with MSN Money.

Follow us on Twitter @topstocksmsn.