Morningstar - Q1 2022 - 45

Where to Invest in 2022, and Beyond
Despite worrisome times, these funds
have promise.
FUND IDEAS
Russel Kinnel
Well, 2021 was a strange year. From an investment
standpoint, it was a better year than 2020. Most
equity markets were up nicely, and the U.S.
economy came roaring back with tremendous job
growth thanks to the breakthrough with
coronavirus vaccines.
And yet we don't lack for things to worry about.
The omicron variant is causing new shutdowns and
filling up the hospitals once more. Rising
inflation has caused the Federal Reserve to taper
bond buying and announce that it expects to
raise interest rates in 2022.
In addition, that stock rally means U.S. equities
have rather high valuations based on most
measures, even though not much time has passed
since a brutal but short bear market in 2020.
So, where should we invest in 2022? As shown
in EXHIBIT 1 , I have some ideas, though they
come with two caveats. First, these are long-term
ideas, not picks for just 2022. Second, I go
light on the macro calls here, but those I make
certainly come with the idea that investors
shouldn't tilt portfolios too much because of macro
factors. The main things investors should
focus on are their investment plans and good
fundamentals. Those are much more important
than top-down considerations.
Let's Get Cheap
I'm going to start with the very humble idea
of cutting fees regardless of the market's ups and
downs. Investors can get Fidelity Total Market
Index FSKAX for only 0.02% in fees. Foreign index
funds used to be costly, but now investors can get
Fidelity International Index FSPSX for 0.04% and
Vanguard Developed Markets Index VTMGX for just
0.07%. Likewise, Vanguard Total Bond Market
Index VBTLX costs just 0.05%. The bond index fund
is nice ballast for stock market sell-offs.
Vanguard, Fidelity, and iShares all have
supercheap index options that are worth a look.
The cheapest and best are wide-reaching
total-market funds like those mentioned above.
Besides fees, these are also nice and simple
low-maintenance funds that don't require much
monitoring. If investors have relatives asking
for advice, and they don't want to spend much
time on research, these are solid options.
For a cheap actively managed bond fund, consider
Western Asset Core Plus Bond WACPX. The
fund charges only 0.45% and earns a Morningstar
Analyst Rating of Gold. It takes on more credit
risk and is generally willing to accept more
risk than a core bond index fund for more returns.
Let's Get Cheap II
Investors can also go cheap based on valuations.
Emerging markets have lagged by quite a bit
the past decade. Most global valuation measures
say they are quite cheap. But I must admit I'm
a little squeamish about the big China weightings
that most emerging-markets funds have. In
July, China declared that for-profit education
companies could not make profits, and the stocks
were crushed. Extraordinary risks of government
intervention come with China's growth
potential. Readers can see the China weighting
of every fund I'm suggesting in the table.
I chose GQG Partners Emerging Markets Equity
GQGPX, which is run by the skilled Rajiv Jain.
The Silver-rated fund has just 14% in China.
A New Shot at T. Rowe Price Mid-Cap Growth
Brian Berghuis' T. Rowe Price Mid-Cap
Growth RPMGX is one of the best growth funds
investors will find, and it reopened on
Dec. 1 after having been closed since 2010.
I find it compelling. The Gold-rated fund is a great
way to invest in emerging growth names, and
Berghuis is a great stock-picker.
The one downside is that it still has a hefty
$37 billion in assets, making it far from nimble.
Berghuis looks for companies with strong
management and healthy margin growth but
tempers that by paying attention to valuations.
Let's Get Cautious
One of the biggest mistakes investors make
is getting out of the market. Yes, there
are real concerns and risks out there, but the
opportunity costs are big. Investors might
rebalance if their stock weighting has grown too
big or if their high-risk bond funds have
outstripped their conservative funds. Here are
a few cautious funds investors can move
into that will maintain some exposure to stocks
and bonds. These dependable funds should
weather a downdraft well.
Silver-rated T. Rowe Price Balanced RPBAX is a
65/35 fund that investors might find appealing
if they want to sell one of their all-equity
funds. T. Rowe Price has the depth in stocks and
bonds to make funds like this one a winner,
and it only costs 0.58%. The fund owns seven
underlying funds, including T. Rowe Price Blue
Chip Growth TRBCX, T. Rowe Price Overseas
Stock TROSX, T. Rowe Price High Yield PRHYX,
and T. Rowe Price Value TRVLX. The firm
makes some shifts among the funds, but the
adjustments are modest.
Investors can dial that equity risk back even
more with Vanguard Wellesley Income VWIAX,
which is 35% equities and 65% bonds. That
really mutes volatility, and yet subadvisor
Wellington still produces appealing returns with
a dividend-equity strategy and an investmentgrade
corporate credit emphasis on the bond side.
With fees of just 0.16%, it is one of the best
bargains in active management.
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