If you are interested in taking a chance on a new mutual fund, hoping for outstanding results, what should you look for?
A manager with an outstanding record. Some mutual fund companies reward up-and-coming analysts with positions as managers of new funds. These managers may turn out to be world-beaters, but you’re probably better off with a manager who has a record of success in running a fund.
A sensible premise. You should know how the fund will invest its money. Is this an appealing market sector? How will it fit in with the rest of your portfolio?
Flexibility. You may want to choose a fund that’s part of a larger group so you can switch to another fund without a sales charge, if the new fund doesn’t work out.
Mix And Match
Combine index funds and actively managed funds in order to get the best of both worlds. Index funds, pegged to duplicate an index such as the S&P 500, assure you of receiving the performance of the broad stock market at a relatively low management cost. The actively managed funds give you a chance to beat the averages.
To complement the index fund, select two or three actively managed funds with good records. Try to find funds that won’t duplicate the index fund. For example, you might want one fund with a strong commitment to buying out-of-favor “value” stocks and another fund that looks for rapidly growing companies.
