Best Mutual & Closed-End Funds
Despite all of the bumps along the way, the
market produced solid returns in 2012. The S&P 500, for instance was up
13% for the year. But investors who picked the right mutual funds did much
Here are four conventional (open end) U.S.
equity funds that recorded 36% to 40% returns for the year, and four
closed-end funds that did even better, gaining 37% to 50%. In all cases,
returns include share price appreciation plus dividends, if any, received.
I’ll start with the conventional mutual funds, and give you a brief
rundown on closed-end funds before I give you that list.
Open End Mutual Funds
Legg Mason Capital Management Opportunity (LMOPX), up 40% in 2012.
Managed by Bill Miller, whose Legg Mason Value Trust fund beat the market
(S&P 500) for 15 years straight (1991 - 2005), LM Capital Management
Opportunity’s portfolio holds stocks that Miller deems undervalued. Within
that definition, Miller finds stocks all over the map in terms of
industries. For instance, current top holdings include three homebuilders,
Apple, Amazon.com and two large banks. The fund tends to run hot and cold.
Last year it dropped 35%. Ten year average annual return is 4%. No
dividends. The fund charges a 1% load (sales commission).
Fidelity Select Construction & Housing
(FSHOX), up 38%. Holds just about any kind of business related to housing
and construction including home builders, rental apartment owners, cement
makers, engineering firms, refinery builders, you name it. But, at last
report, home improvement retailers Home Depot and Lowe’s Companies
accounted for 35% of the portfolio’s value. Despite the 2007 to 2010
housing market collapse, the fund has averaged an impressive 11% average
annual return over the past 10 years. Dividend yield 0.5%. No load.
Fidelity Advisor Biotechnology (FBIOX),
up 37%. Holds more than 140 biotech stocks including just about all of the
major players. However, the top two holdings account for 26% of the
portfolio’s value and top 10 holdings account for almost 60%.
Nevertheless, averaging 11% annual returns over the past 10 years compared
to seven percent for the S&P 500, the fund has been a consistent
outperformer. No dividends. No load.
John Hancock III Leveraged Companies (JVCAX);
up 37%. Holds mainly highly leveraged (high debt) companies, many with
below investment-grade debt, in a wide variety of industries Sirius XM
Radio and Air Canada are two of its biggest holdings. Only operating since
2009, the fund has averaged a 10% annual return, even with the S&P 500,
over the past three years. Yield 1.1%. 5% load.
Unlike open-end funds, which must invest the new cash when investors buy
fund shares, and sell holdings when investors sell their fund shares,
closed-end funds only sell fund shares at their IPO. After that the fund’s
shares trade like a stock. Thus, closed-end fund managers can better
implement their strategies because they don’t have a fixed amount of money
to invest, See my December 2, 2012 column
for a detailed explanation of why closed-end funds outperform conventional
mutual funds. Because they trade like stocks, you pay your broker’s normal
Alpine Global Premier Property (AWP),
up 50% in 2012. Holds mostly U.S.-based real estate investment trusts
(REITs). Only operating since 2008, the fund has averaged a one percent
annual return over the past five years. Dividend yield 8.4%.
Nuveen Mortgage Opportunity Term Trust
(JLS), up 45% in 2012. Buys debt secured by real estate mortgages,
although not necessarily insured by U.S. government agencies. Only
operating since 2010, the fund has averaged a 12 percent annual return
over the past three years. Yield 7.5%.
DH Financial Trends (DHFT), up 48%.
Portfolio holds 36 financial industry stocks, mostly banks and insurance
companies. Reflecting the recent rough times in that industry, the average
annual returns over the past 10 years is only 4%. Yield 0.4 percent.
Gabelli Multimedia (GGT), up 41%. A
well-diversified portfolio consisting of more than 200 holdings, all, in
some way, connected to the media industry. Averaged an eight percent
annual return over the past 10 years. Yield 10.3%.
For my list, I only included U.S. equity funds that invest conventionally,
that is, they don’t attempt to hype returns by doubling or tripling the
performance of a particular index. As always, keep in mind that historical
performance does not necessarily predict the future.