Bold? Patient? Worried? Some fund fits you

By Tim Middleton

Maybe you've just gotten a fat tax refund or you're about to contribute to your individual retirement account. And maybe the stock market's recent volatility is upsetting your stomach.

Relax. Whether your goal is to roll the dice with a hot industry, build your long-term portfolio or just sit it out in an easy chair, I can suggest a solution.

The most-asked question by novice investors is this: Is now a good time to invest? The answer is this: It's always a good time to invest in something. You just have to figure out what the something is.

The gamble: SPDR S&P Metals & Mining

SPDR S&P Metals & Mining (XME, news, msgs), an exchange-traded fund, has shot up an eye-popping 21.2% this year, as of April 4. It owns a basket of stocks representing miners and processors of, for the most part, industrial metals and materials. The group is dominated by steel, aluminum and copper. The top holdings include Worthington Industries (WOR, news, msgs), a steel processor; Reliance Steel & Aluminum (RS, news, msgs); Hecla Mining (HL, news, msgs), which extracts precious as well as base metals; U.S. Steel (X, news, msgs); and Commercial Metals (CMC, news, msgs), a fabricator and recycler.

After languishing in the 1990s, during which capital expenditures shriveled, commodities have blossomed in this decade, fueled in particular by demand from a rapidly industrializing China. Standard & Poor's metals analyst Leo Larkin says this is a long-term trend with no sign of waning.

Also, he says, this is a good season for the group. "You are seeing a very strong uptick in prices, in nickel and copper, coming out of the winter months," he says. "You get a bump up in demand from construction, and that's also true for steel and some of these other metals, as well."

One caveat is in order. The price has risen so much, and on such strong demand, that it is at what S&P chief technical strategist Mark Arbeter calls "an extreme overbought level." That is, it is close to the top of an upwardly sloping channel of prices, implying a peak from which it will almost certainly retreat. No one, however, knows when.

The investment: Janus Contrarian Fund

Janus Contrarian Fund (JSVAX) has amassed a best-of-breed performance record under manager David Decker since its inception seven years ago, more than doubling the market's return over most of that period.

The first thing Decker said to me in a recent interview was this: "I'm a very large shareholder of the fund. Most of my liquid net worth is in this fund. I've never sold a share, and I've committed to shareholders that I won't."

Too few mutual fund managers dine at the table they set for their customers. Decker's dedication is made easier by his broad mandate, which allows him to buy out-of-favor companies anywhere in the world and own them until other investors realize what they're missing.

His results have been sterling: ahead 8.8% this year, 21.2% in the past 12 months and an annualized average of 16.7% in each of the past five, as of April 4. In each instance, that ranks him among the top 1% of funds in Morningstar's large-blend category.

Decker is eclectic. Despite assets of nearly $6 billion, more than half of them are invested in small- and mid-capitalization names. Though the Asia allocation is large, at 15% of assets, Europe accounted for less (3.9%) than Latin America (4%), as of Feb. 28.

His largest sector weightings are real estate, broadcasting and commercial banks. The top individual names are Coventry Health Care (CVH, news, msgs), a managed-care company; Ceridian (CEN, news, msgs), a provider of human-resources information services, and Liberty Global Class A (LBTYA, news, msgs), a broadband provider in Europe, Asia and Latin America.

"Our approach is based on the (Warren) Buffett observation that you pay a high price for a rosy consensus," Decker says. "What we look for is companies that are either misunderstood or out of favor."

With share prices already depressed by pessimism, risk is reduced. In one of Janus Contrarian's biggest home runs recently, it bought Apple (AAPL, news, msgs) in 2003, before iTunes had transformed the iPod market, and rode it up tenfold.

• Video: What's an ETF?

"At the time, Apple had close to 85% of its market capitalization in net cash, and the stock was trading around $7," adjusted for subsequent splits, Decker says. As it zoomed upward, the fund began selling the position, finally eliminating it in the $70 range last year. With the stock currently around $95, "we actually sold it too early," Decker says.

The vault: Schwab YieldPlus Investor

With short-term interest rates pushed up to their highest levels in six years, investors who remain on the sidelines aren't suffering much penalty. Money-market funds are yielding north of 4.75%, and Schwab YieldPlus Investor (SWYPX) has returned three-quarters of a point more than that in the past year.

Co-manager Kim Daifotis calls his investment universe the "kitchen sink of fixed income." The fund can own government, corporate, mortgage and asset-backed bonds, and even preferred stock. By mandate, the fund has a duration -- a measure of interest-rate risk analogous to maturity -- of more than 90 days and less than one year. Currently, it's about six months.

This fund, which can be bought and sold -- at least through Schwab -- without redemption fees, has an average credit quality of Single-A, which is slightly above the corporate-bond average. Holdings include both debt originated for a short period and longer-term notes that are approaching maturity. Schwab YieldPlus falls into the ultrashort-bond category and is among the best of its kind, but investors who lack access to it can readily find alternatives, which include both house brand and independent names. The key to success is low fees, which for this fund are 0.58%.

In the next month or two, nearly every graduating class in the nation will be told it faces both challenges and opportunities. For investors, that's true every day. Investors are always in the market, and the market is always rich with both.

At the time of publication, Tim Middleton didn't own or control any securities mentioned in this article.