When helping clients configure their retirement portfolios, Eric Grant often likes to suggest mutual funds and exchange-traded funds (ETFs) in groups of threes. Grant, managing partner and financial adviser with Polaris in Chicago, calls these groupings “triads,” which consist of funds that work well together because they have little or no overlap in their underlying investments.
“Our triads are fund combinations that we feel are long-term purchase-and-hold-opportunities, where we feel that the funds work well together, and will complement each other in market swings,” says Grant, who believes now is a great time for investors to start ramping up their contributions. “2011 will potentially be the start of a market incline. Adjust your budget to pour some money into the market. Ride it up,” Grant says.
Recently, Grant talked to BLACK ENTERPRISE about three funds he’s recommending to clients in 2011.
1. ARIEL APPRECIATION FUND (CAAPX)
“By some people’s measures, midcap funds have outperformed all other categories of mutual funds over the last 15 years. I like this fund, first, because it’s midcap. Second, it’s had the same portfolio manager—John Rogers—for more than 20 years. So, there’s a consistency and predictability to the fund. It’s a Warren Buffet-inspired fund. That means it’s made up of companies whose businesses the everyday man can understand. Its top 10 holdings include Viacom, Northern Trust, Accenture, and drug company Baxter International.”
1-year return: 21.44%
5-year return: 4.33%
10-year return: 7.37%
Minimum initial investment: $1,000
Expense ratio: 1.18%
2. AMERICAN FUNDS GROWTH FUND OF AMERICA (AGTHX)
“This fund is an old one, founded in 1973. It’s managed not by one person but by a committee between eight and 10 managers—all of whom have more than 25 years in the business. These committee members don’t adhere to common wisdom, and they don’t engage in “style drift,” which means they stay true to the fund’s large-cap growth intentions. They never have more than 25% of their investments outside of U.S. companies. Expenses are very low because this fund doesn’t have a lot of turnover. Among the fund’s top holdings are Apple, Google, Microsoft, Oracle, and Union Pacific Corp. They hold a nice amount of gold too. If you look at historic rankings, you’re always going to see this fund near the top in terms of long-term performance.”
1-year return: 12.78%
5-year return: 2.24%
10-year return: 2.24%
Minimum initial investment: $250
Expense ratio: 0.69%
3. RYDEX S&P MIDCAP 400 PURE GROWTH (RFG)
“This ETF is a relative senior in the ETF world. It’s an index fund with low expense and a 9% return since 2006. There’s nothing sexy about it. It just follows the top 400 Midcap stocks in the S&P 500 index. There’s not a lot of movement or volatility. Top holdings are Netflix, Green Mountain Coffee Roasters, and F5 Networks. It’s always good to have an index fund like this in your portfolio.”