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Vanguard is the best TIPS investor because its expenses are the lowest -- just 0.2% on this fund. Securities that deliver returns in the midsingle digits are crippled by high expenses, and nearly everybody but Vanguard charges them.
Fidelity Emerging Markets (FEMKX): This outstanding fund is down 18.4% in the past 12 months, which means a lot of the notorious risk of these markets has been wrung out. And no markets in the world offer as much potential as Brazil, China and the other developing countries in which this portfolio invests.
Morningstar analyst Hilary Fazzone points out that unlike most Fidelity funds, which rely on that company's enormous analyst pool for investment ideas, Fidelity Emerging Markets manager Bob von Rekowsky and his team of five analysts do their own tire kicking. Von Rekowsky is willing to stake outsize positions on his best ideas, although he also spreads the risk over 300 names.
Fidelity also holds this fund's expenses to 0.99%, little more than half the group average. Over the past five years, the fund's average returns of 28.9% have beaten the MSCI Emerging Markets Index by 4.6 percentage points annually.
Hodges Fund (HDPMX): This remarkable midcap growth fund is also down steeply in the past year -- 15.8% -- and its managers are reveling in the market's distress, just as they did so successfully at the end of the last bear market, in 2002. And look at what happened to the fund after that:
| 2002 | 2003 | 2004 | 2005 | 2006 | 2007 | 2008* | |
|---|---|---|---|---|---|---|---|
Total return | -26.3% | 80.2% | 24.5% | 17.3% | 17.8% | 8.5% | -3.8% |
Percentile rank in midcap growth category | 44 | 1 | 1 | 6 | 19 | 26 | 12 |
*Through June 30.
In 2003, the fund's return ballooned more than 80%, as investors bought back the very stuff they had been dumping one year earlier. If they do so again, Hodges will be in the driver's seat.
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"We've bought 1 million shares of General Motors (GM, news, msgs) lately and nearly 2 million AMR (AMR, news, msgs)," co-manager Don Hodges says. The parent of American Airlines and the industrial giant that used to be synonymous with the nation itself will survive, he predicts.
"We also bought Cal-Maine Foods (CALM, news, msgs), which does about 15% of the egg business in this country. It looks like they could earn $6 (a share) this year, and the stock trades at $37." That's a price-earnings ratio of 6, a fraction of the market average.
Another of the Hodges Fund's top holdings is the Texas Pacific Land Trust (TPL, news, msgs). When I wrote about the fund nearly four years ago, I quoted Hodges saying this: "If I've ever seen a stock in my lifetime that I think would be the perfect stock to pass wealth on to children and grandchildren, it's Texas Pacific Land Trust." After adjusting for subsequent splits, the stock has since risen an annual average of 31.2%.
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A different bear marketStocks are in better shape now than they were in the 2000-02 bear market, but the economy is far sicker, Jim Jubak says. Look for a stock recovery to lead the economy by more than the usual 6 months.
A Hodges employee warned me: Don't buy this thinly traded stock with an "at the market" order, which would purchase the stock at whatever price is set on the trading floor. You could be the only buyer and pay a huge premium. Instead, write a limit order pegged to the recent price.
History doesn't repeat itself, Mark Twain said, but it does rhyme. When ailments similar to those we're experiencing now have afflicted past markets, these funds have blossomed.
At the time of publication, Tim Middleton owned shares of the following exchange-traded fund mentioned in this article: iShares S&P North American Natural Resources.
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