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Thursday, March 22, 2007

Finding Good Funds

Market corrections give us opportunity to find new funds with good performance which withstand the market downturns better. In this recent correction, we have identified the following funds that held up well during the downturn and demonstrate good upside potential. Most of these funds were recently launched. We are starting to track these funds and will provide formal recommendations if their performance pans out.

ADINX
ANGCX
ATDCX
ATICX
WHGMX

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posted by Ramesh Agarwal & Team @ 12:56 PM 2 Comments

2 Comments:

At April 4, 2007 1:55 PM , CH said...: Those funds all seem to have high expenses. Only ADINX can be bought as NTF at Fidelity.
At April 4, 2007 4:45 PM , Ramesh Agarwal & Team said...: Thanks CH...

We give higher weight to total return compared to cost. If a fund demonstrates that it can consistently outperform, we're willing to pay a little more if the total return justifies the extra expense.

Focusing on low cost funds is a good strategy if you intent to buy, hold, and forget. Typically, over 10 or 20 years, a fund can only out perform during certain periods of the market cycle. Therefore, the average performance over an extended period of time will tend to be lower and closer to its index. That's why advisors recommend keeping costs low and investing in indexes-- a buy, hold and forget strategy will unlikely beat the index over a very long time.

However, we're willing to sell an investment when its performance becomes poor compared to its peers and indexes. As soon as the total return of the fund underperforms and no longer competes with its index and peer group, we'll sell it and invest in something else. Having an ???????exit strategy??????? allows us to focus on total return rather than just cost.

We recently bought WHGMX in our model portfolios. The $75 transaction fee at Fidelity is minuscule compared to its recent performance, especially during the last market downturn in 2007.