the short-term financing cost, the fund’s investors will come out ahead. “Recently,” says Kane, “we’ve been paying about 5.4% and earning about 7.5% on the bonds. Thus, we expect our investors to top the S&P 500 by one to three percentage points.”
As a performance pledge, the fund’s managers have set a modest 0.20% expense ratio-unless the fund tops the S&P 500. If it does, the expense ratio will gradually rise to a maximum of 0.9%.
Dziubinski advises that investors hold this fund in a tax-deferred account because its strategy produces short-term capital gains and significant tax consequences on ordinary income.
TIAA-CREF Growth and Income Fund (TIGIX). The company is best known for managing teachers’ retirement funds. The fund, however, is available to the public and offers a mix of active and passive management. “If our research staff has a hard time finding good stock market buys, perhaps because the market seems pricey, we’ll put as much as 70% to 80% of our assets in the S&P 500 and use the other 20% to 30% for our best ideas,” says manager Carlton Martin, the fund manager featured as a be private screener in October 1998. (To find out how his picks fared over a year, see “Putting the Growth in Growth and Income,” Moneywise, October 1999.) “At other times, we’ll go as high as 60% in selected stocks and only 40% in the S&P 500.” Considering the active management involved in this fund, the expense ratio is extremely low, a factor Martin attributes to a lean staff and TIAA-CREF’s status as a not-for-profit organization.
Marsico Focus Fund (MFOCX). The big draw here is Tom Marsico, who ran the extremely successful Janus Twenty Fund for a decade. Marsico now runs his own company, so he’s well motivated to produce outstanding returns. A “focused” fund is one that makes large commitments to relatively few stocks (about 25 in this one), heightening the risks as well as the potential returns.
Masters’ Select Equity Fund (MSEFX). This fund has a multiple-manager lineup that Dziubinski terms “a who’s who of mutual funds”: New York Venture’s Chris Davis; Brandywine’s Foster Friess; Longleaf’s Mason Hawkins; Harbor Capital Appreciation’s Sig Segalas; Oakmark’s Robert Sanborn and Strong Opportunity’s Dick Weiss. Each manager picks 15 stocks, for a “best of the best” approach.
In addition to the four large-cap funds, there are three mid-cap funds on Morningstar’s list:
Vanguard Mid-Cap Index Fund (VIMSX). This low-cost fund will track the S&P Mid-Cap 400 Index. It’s run by Gus Sauter, who’s responsible for nearly $200 billion in Vanguard’s index funds, including the flagship S&P 500 Index Fund.
Vanguard Capital Opportunity Fund (VHCOX). This fund was launched in 1995, suffered through some tough times and brought in a new management team in 1998. Now, it’s run by the same people who operate Vanguard Primecap, a top-rated fund that’s closed to new investors. The focus is on growth and recent results have been spectacular (see table).
Oakmark Select Fund (OAKLX). Bill Nygren, manager of Oakmark Select, is the only manager among the