With a number of mutual fund companies reputations sullied by a widespread trading scandal, investors have been loading up on funds that have thus far managed to escape unscathed.
The tainted fund shops suffered $21 billion redemptions in May, according to Financial Research Corp. of Boston. Meanwhile, the untarnished companies raked in $125 billion in net inflows during the month.
Looking at the scandal-free firms, a mere handful is gobbling up all the cash. Vanguard took in $32 billion, Barclays grabbed $19 billion, Fidelity grabbed $11 billion, Dodge & Cox took in $9 billion, while T. Rowe Price amassed $8 billion. That accounts for more than 63% of the entire $125 billion in inflows.
The dilemma for investors who have figured out which are the quality, most ethical firms, according to Morningstar analyst Russell Kinnel, is that so has everyone else. For example, Fidelity Low-Priced Stock has $30 billion under management and American Funds Growth Fund of America has $79 billion. Both are critically acclaimed, but they face the Herculean task of generating strong returns with such massive asset bases.
"If youre looking for funds that can outperform, then its a good idea to do a little extra work to uncover one of the many good firms that arent yet awash in cash," Kinnel said. In his portfolio, Kinnel mixes a number of boutique funds and those from Vanguard, Fidelity and American Funds.
He also recommended taking a look at American Century because it has barely taken in any inflows in recent years, yet it has a strong, stable lineup of stock and bond funds. Among the smaller firms, he touts Institutional Capitals ICAPS funds, South Shore Bridgeway, FPA and bond specialist Western Asset.