World News Gathered & Syndicated

Underlying the annual ranking of the Best Mutual Fund Families from Barron’s and Lipper is the one-year performance of their funds across five categories, including world equities (both global and international), tax-exempt bonds, U.S. equities, taxable bonds and mixed-equities (stocks, bonds, and other securities). When we spoke with the victors from each group a year ago, a number identified municipal bonds as a particular favorite heading into 2011 (“Where the Thrills and Chills Will Be in 2011,” Feb. 7, 2011). General muni funds subsequently returned 10.56% that year. So we thought it was worth our while to talk to 2011′s top performers to get their thoughts. Gold was just one asset they liked.

“NO ONE IS GOING to stop drinking beer in Sao Paulo because Italian banks have a problem,” says Rajiv Jain, a senior portfolio manager at Vontobel Asset Management, sub-advisor to Virtus Investment Partners, which had the best fund performance in our world equities category.

It was a bad year for emerging markets, but Jain’s focus on local consumers helped avert a sharp loss for his investors. The largest of the three funds he oversees, the $2.6 billion Virtus Emerging Markets Opportunities A Fund (ticker: HEMZX), was down just 3.1%, versus the MSCI Emerging Markets Index’s 18.42% loss. The $1 billion Foreign Opportunities Fund (JVIAX) was actually up 0.26%, while its benchmark, the MSCI EAFE Index, fell 12.14% and Jain’s $68.8 million Virtus Global Opportunities A (NWWOX) climbed 5.37%, against a 7.35% decline for the MSCI AC World Index.

Jain believes that investors are underestimating the severity of Europe’s banking problems, so he’s steered clear of emerging-markets companies that serve European or U.S. consumers. “We don’t own exporters in emerging markets,” he says.

Another way to staunch the bleeding: He avoided deeply cyclical or commodity-driven companies. Instead, he invests in high-quality names that benefit from the world’s growing middle class, including Brazilian beer drinkers. “They want to dress better, drink better, and want all of the basic necessities we take for granted,” he says. In total, this emerging middle class includes about 2.5 billion customers.

Right now, he prefers the best-known brand names, such as Coca-Cola (KO), that are expanding globally. “The Cokes of this world have phenomenal potential to grow long-term and they are not that expensive,” he says. Jain demands predictable earnings and sustainable performance, which leads to a concentrated portfolio of mature companies that can capture a large part of the up-cycle without being very exposed to potential risks.

Among his picks: British American Tobacco (BATS.U.K.), Philip Morris International (PM), Imperial Tobacco Group (ITYBY) and Nestlé (NSRGY). He also likes Nestlé India (500790.India) and Companhia de Bebidas das Américas, also known as Ambev (ABV).

“Our strategy has been the same since 2009 and we are not changing it now,” he says. Good thinking.

TIAA-CREF, BEST KNOWN for running teachers’ retirement accounts, took some of its rivals to school on tax-exempt bond funds last year. The $351 million TIAA-CREF Tax-Exempt Bond Retail Fund (TIXRX), which is open to any investor, has a yield of 2.97% and was up nearly 12% in 2011.That’s a superb one-year gain for a tax-free fund.

Portfolio manager Barnet Sherman uses fundamental credit research to identify values among bonds that back essential public services. “People talk about the trouble with credits but at the end of the day you can’t roll up the sidewalks,” he says. Munis have had a positive return that’s been compounding for most of the past 30 years.

His portfolio, which has low turnover, is broadly diversified with 270 positions representing more than 30 states and general-obligation bonds from 14 issuers ranging from Rhode Island to California.

Sherman likes to go right to the source to get his information. “We call borrowers directly,” he says, “and ask them about specific points, about how exactly they collect taxes and how their assessments are done. How does the money transfer to the trustee?”

He invests in bonds from well-established names, including those in health care, like the Cleveland Clinic, Cedars-Sinai and Johns Hopkins Health. He also like bonds issued by colleges like Syracuse University, the University of Mississippi and Yeshiva University.

Puerto Rico is a particular favorite and TIAA-CREF owns a number of issues with different maturities. “Puerto Rico continues to be a solid and performing credit,” he says. But, he cautions, “We don’t rely on one bond to do all of the work,” he says.

Sherman maintains that municipal bonds of public-purpose entities will continue to be attractive because they provide stability. As for concerns that public finance could lose some of its tax-exemption as budgets tighten, the one-time Capitol Hill aide refuses to speculate. “The topic seems to come up every election year,” he says.

He does think that bonds that support and strengthen the fabric of a community will do well. That will continue as long as “you get up in the morning and brush your teeth or get in the car to drop your kids off the school.”

MOST MUTUAL-FUND FAMILIES are either active or passive U.S. equity investors. But State Street Global Advisors, which oversees $1.9 trillion, is both. Aside from its massive exchange-traded-fund business, the firm has $114 billion in actively managed assets.

Last year, it added a quantitative approach via its tiny SSgA US Small Cap Mutual Fund (SVSCX), which rose 4.5%. Although it wasn’t much of a contributor to its ranking, the fund easily topped small-caps’ 4.2% decline in 2011.

“We take the temperature of the environment monthly and adjust the portfolio, according to the indicators in the model,” explains Marc Reinganum, who oversees the active -management group at the firm. The model tracks everything from volatility and momentum to market leadership and valuation. It paid off nicely in last year’s volatile market. “We have since seeded other funds using the same quant method,” he says.

But State Street’s formidable stable of exchange-traded funds most helped its overall showing because our ranking weights a firm’s performance based on the size of individual funds. Low fees also present strong competition in a tough year for active managers. So, for instance, State Street’s $12 billion SPDR Dow Jones Industrial Average Fund (DIA), whose strong dividend payments helped it earn an 8% return, gave a boost to the firm.

Kevin Quigg, the head of global ETF strategy at the firm, thinks that investors will take a belt-and-suspenders approach in the new year. As noted in the preceding story, investors want exposure to equities, but they also want to be paid to wait for an upturn.

One possibility for the wary is the SPDR S&P Dividend Fund (SDY), which includes companies that have raised dividends every year for the past 25 years, says Quigg.

For the less cautious, there is the S&P Emerging Markets Small Cap Fund (EWX), which dropped more than 30% last year. Quigg notes that institutions have been rolling money into the hard-hit fund, which includes some frontier markets and “smaller companies which derive their success from the local consumer.”

GE ASSET MANAGEMENT, which has $115 billion assets under management ($42 billion from the conglomerate’s pension plan), led the pack in taxable bonds. Paul Colonna is the president and chief investment officer of a fixed-income team that includes 49 researchers, portfolio managers, and traders who handle roughly $55 billion.

A good proxy for the group is the $394 million GE Institutional Income Investment Fund (GFIIX), which is available to institutional investors. Its 7.97% gain last year topped the 7.84% return on the Barclays Capital Aggregate Bond Index. The core-plus fund contains investment-grade corporate securities, U.S. Treasuries, mortgage-backed securities, emerging-market debt and high-yield bonds.

Colonna says that GE accurately predicted a number of the macro factors like Federal Reserve easing, a continued European debt crisis and the legislative stalemate caused by the approaching U.S. presidential election. “We had a major move down in interest rates during the year, and we were set up for that,” he says. GE started buying longer-dated Treasuries last February, a shrewd move in light of their roughly 10% rise.

The firm also sold high-yield debt in March and April. “When the crises hit in August, high-yield spreads widened back out; we bought them in August and September” just prior to their substantial year-end gains, he says.

This economic cycle is different from others, says Colonna. Many investors and analysts have underestimated the intensity and magnitude of coordinated intervention by the European Central Bank, the U.S. Federal Reserve, the Bank of Japan and Bank of England. “Most people had thought that the Fed would have backed off by now,” he says.

Although the Fed can’t lower rates much further, it can continue to buy Treasuries as the European Central Bank lowers rates. “We are buying 30-year [Treasury] bonds because we believe the yield curve will flatten,” he adds. Colonna’s fixed-income team doesn’t see any slowdown in bond demand, as baby boomers’ appetite for riskier assets fades.

“There is incredible demand for Treasuries globally,” he says. “The bid-to-cover ratios at auctions have been very strong. And the global pool of safe assets has been shrinking as downgrades spread. Plus, the Fed is still buying Treasuries during its various programs.” Thirty-year Treasuries currently yield 3%.

Colonna likes high-yield bonds, too, but he’s watching valuations closely and is prepared to trade them. In short, Colonna thinks 2012 will look a lot like 2011. The market will continue to trade in a broad range but with lots of volatility because of Europe. He’s ready to make quick changes in his portfolio.

NORTHERN TRUST, WHICH HAS $663 billion in assets under management, got several things right in 2011. For one, it provided downside protection in a tough market. For another, it correctly anticipated that U.S. equities would top their international counterparts, particularly in Europe and Japan, and it cut its overweighted position in emerging-markets equities back in March. Europe’s debt problems and inflation in emerging markets prompted the moves.

Still, it was a difficult year for this category, and the winner in Barron’s/Lipper’s mixed-equity category, which includes stocks, bonds and other assets, mostly benefited from its gold holdings. It was a buyer below $1,000 an ounce, says Bob Browne, chief investment officer. Gold ended the year at $1,564. That helped the Northern Global Tactical Asset Allocation Fund (BBALX) achieve a flat return, versus global stock-market declines of nearly 7%.

Another mixed entry, the Northern Income Equity Fund (NOIEX), overcame a poor convertible- bond market to beat the S&P 500 for the fourth year in a row. It was up 2.18% in 2011.

“This fund has always been some sort of mix between common stocks and convertible securities,” explains portfolio manager Jackie Benson, adding she has a pretty steady allocation of 57% in stocks, 6% in convertible preferreds, 31% in convertible bonds and about 6% in cash. Northern Income aims for equity-like returns with higher yields and less volatility. The convertible market was off 5% last year.

Among the convertible standouts for Benson last year were United Rentals (URI), which rents construction equipment, as well as a couple of converts in the managed-care space, Molina Healthcare (MOH) and Amerigroup (AGP). She’s cautious about the group because of a lack of activity: It’s very cheap for a company to issue debt these days. Right now, Benson like the convertibles of United and hair-salon chain Regis (RGS).

Although they don’t issue price forecasts, CIO Brown and his team like gold as a hedge against global calamities and high-yield bonds because investors will continue to seek income—so long as it comes at a reasonable risk.

E-mail:
editors@barrons.com

By LESLIE SCISM

For years, teachers in Albany, Ga., invested in tax-advantaged savings programs known as 403(b)s just as many educators elsewhere do: Instead of getting a menu of stock funds or other investment choices from their employer, like those offered in corporate 401(k) plans, the teachers listened to pitches from insurance agents pushing their various companies’ programs.

Now, the district, Dougherty County School System, has done something that counts as revolutionary in this corner of the investing world: Over resistance from many commission-paid agents, administrators have created a single district 403(b) that is similar to a 401(k).

In 2010, they used competitive bidding to select an exclusive provider, a unit of American International Group Inc. Then, advisory firm Invest-N-U put together a menu of low-cost stock and bond funds, along with a retirement-income annuity.

“What we had was a multitude of vendors, maybe 13, and everyone was coming in saying, ‘Mine is the best,’ ” says Robert Lloyd, the district’s executive director of finance and operations. “My concern is to give our staff the best possible tools” to maximize retirement income, and narrowing investment options and cutting out agents was deemed the way to go, he says.

The move puts Dougherty County in the vanguard of what consultants say is a massive wave of change for 403(b)s.

Stirring the Pot

When 403(b) plans were introduced in the 1950s, federal law restricted participants to insurance products. Congress later authorized mutual funds, but annuities remained popular because insurance agents make sales calls at schools much more frequently than mutual-fund providers, a 2009 Government Accountability Office report found. Annuities typically include minimum-income guarantees or other downside protections, plus a death benefit. While these features are valued by many teachers, they make the products pricier than low-cost mutual funds and reduce upside potential.

Ray Bartkus

Most districts, meanwhile, have taken a hands-off approach; in essence, the 403(b)s in many places are akin to individual retirement accounts.

Much of the current change is being driven by Internal Revenue Service rules that began taking effect in 2009 and that give plan sponsors administrative and compliance responsibilities for employees’ 403(b) investments.

Change also is coming as growing numbers of teachers face cuts to their traditional pensions, giving them more incentive to sock away money in 403(b)s, consultants and school officials say.

With pension cutbacks, 403(b) plans are becoming a greater part of assets necessary to fund retirement and thus “need to be far more robust than, ‘Let’s have a bunch of insurance agents show up in the cafeteria’ ” to sell annuity contracts after school, says Kent Novell, principal at consulting firm Retirement Research Inc.

Some three million elementary- and secondary-school employees across the U.S. had about $109 billion in 403(b)s as of 2010, according to estimates from consulting firms. The 403(b) category also includes some nonprofit, governmental and religious organizations, as well as colleges, though many of these other employers already are running their plans like 401(k)s, consultants say.

Low-cost insurer and fund firm TIAA-CREF, which has long dominated the higher-education sector, sought to stir the pot of change in elementary and secondary schools with a report in late 2010 that concluded an educator in a 403(b) that screens providers to hold down fees can potentially accumulate tens of thousands of dollars more in retirement wealth over a career than a colleague in a plan that doesn’t screen and has high fees.

Insurance agents noted that TIAA-CREF has a vested interest in the matter: It would like to expand in the K-12 market.

To which Bruce Corcoran, a TIAA-CREF executive, responds: “TIAA-CREF’s interest in increasing access to lower-cost retirement-plan options is well-aligned with teachers and can help provide them with thousands and thousands of dollars of additional retirement savings.”

Agents Push Back

With thousands of school districts across the U.S. taking different approaches, it remains far from certain what kind of 403(b) will evolve as the standard, consultants say.

An average school district now has five to 10 providers seeking the business of its employees, down from 40 before the IRS rules took effect, according to Boston-based consulting firm Cerulli Associates.

Some of that reduction has taken place as districts band together and use their combined buying power to get lower prices in request-for-proposal processes that shrink the number of providers eligible to offer products to educators. In Michigan, for example, more than 200 districts formed a consortium that operates with a half-dozen “core” providers, each with its own menu of investment options.

Some statewide 403(b)s also are similarly stressing low costs, including one being set up in North Carolina.

But change isn’t always easy. Dougherty County’s conversion effort dragged out over three years, Mr. Lloyd says. Agents sent letters criticizing the concept to teachers and school-board members, and one agency hired a lawyer who questioned the process on multiple grounds, prompting the district to retrace some steps, according to Mr. Lloyd and public documents.

“You’ve got teachers trying to retire with a reasonable standard of living, and people, probably making a lot more money than they are, trying to push them into inferior products” to earn high commissions, Mr. Lloyd says.

Ken Love, an agent in Georgia for Life Insurance Co. of the Southwest, defends his role, saying “participation will drop without representatives educating employees on the need and importance of a 403(b) plan. Our mission is educating the educators on 403(b)s.”

In some states, longstanding laws are holding up change. In May, a senior official with the Los Angeles Unified School District asked California’s insurance commissioner to support revision of a law that essentially allows “any willing provider” to sell 403(b) investments there, according to The Wall Street Journal’s review of the official’s letter. The letter said that the plan’s oversight committee wanted to reduce the list of 27 vendors to “a more manageable number,” but that insurers had warned litigation “would likely ensue.”

A spokesman for the commissioner says the matter is among issues under consideration for the 2012 legislative calendar.

To be sure, not all school officials are in favor of limiting choice, saying teachers like the financial advice that commissions make possible. Some support an effort under way by the American Society for Pension Professionals and Actuaries and the National Education Association, among others, to create a model disclosure form to allow apples-to-apples comparisons of products’ costs and benefits.

In some cases, teachers say the changes are raising their costs instead of lowering them because the firms their districts hired to oversee the 403(b)s charge fees.

“I’m a big advocate of low fees, and the new regulations have caused an extra layer of fees,” says Richard Nichols, a high-school teacher in suburban Chicago. But he says he understands the need for strengthened monitoring of 403(b)s because “I do not think a lot of the other teachers search out the low-cost providers.”

Ms. Scism is a news editor for The Wall Street Journal in New York. She can be reached at leslie.scism@wsj.com.

James Mannett rarely thought about medical bills or insurance during 41 years of near-perfect health. Then he got cancer and became an expert.

 

Cancer Patient Struggles With Health Coverage

3:08

Cancer Survivor James Mannett talks about his struggle with his insurance company when seeking coverage for his cancer treatments and medications. Now an industry expert, he shares the lessons he’s learned when dealing with insurance companies.

Mr. Mannett was a fitness buff during his decades as a sales executive for General Electric Co. and other companies. He owned a four-bedroom home in Southern California’s tony Laguna Niguel, three cars and a Cessna plane that he flew for fun. After moving to Phoenix, he quit GE in early 2004 and used his savings to get into real-estate investment.

The next year, he was diagnosed with a rare, aggressive form of carcinoid cancer that affected his small intestine and liver. Mr. Mannett, now 45, has so far had six surgeries and dozens of pricey lab tests and imaging scans. He’s been to three hospitals and seen experts at several more. He estimates that his treatment so far has cost around $600,000, including travel and other expenses, with about $100,000 of that coming from his own pocket. Mr. Mannett, who now lives in a recreational vehicle and is supported mainly by federal disability benefits, continues to receive periodic chemotherapy to contain the cancer in his liver.

The ordeal has given Mr. Mannett an education on navigating the financial straits of being treated for a major disease. It’s an experience that can provide lessons for all of us about how to defend our own interests, even when we’re at our most vulnerable. The bottom line: Smart medical consumers can save money if they track their bills as closely as they monitor their health.

When his insurer disputed some doctors’ bills, for instance, Mr. Mannett got both parties together on a conference call to work out a compromise. By getting acquainted with a case worker at his insurance company, he learned how to negotiate lower fees from surgeons before an operation took place. And by becoming friendly with financial clerks at doctors’ offices, he has been able to secure discounts on some services.

Michael Schennum for The Wall Street Journal

James Mannett has cajoled and pleaded his way to more affordable treatment.

“Unless you go through something like this, you don’t understand this stuff,” says Mr. Mannett, whose computer contains dozens of his appeal and complaint letters about health-care charges and coverage decisions. Before, “I just assumed that when you have insurance and you have a bill, they pay it,” he says.

After becoming self-employed in 2004, Mr. Mannett decided he needed health insurance. He chose a policy from Assurant Inc. that an agent said would cover all his expenses after he met an annual deductible of $4,950. Mr. Mannett, who had never bought his own insurance before, says he didn’t notice that the plan included an additional $500 annual deductible for seeing doctors out of the insurer’s network, or that its payments for such doctors would only add up to 80% of what Assurant deemed customary charges, not the actual billed amount.

In September 2005, Mr. Mannett felt a sharp pain in his abdomen. At the emergency room of Phoenix’s St. Joseph’s Hospital and Medical Center, a scan revealed a five-centimeter tumor on his small intestine, and three tennis-ball-size tumors in his liver. The doctor told him he likely had only two years to live. “It was very surreal, I couldn’t believe I was hearing what I was hearing,” says Mr. Mannett.

Doctors removed the tumor on his small intestine and a third of his colon. He went home a week later, accompanied by his mother and a cousin, a nurse, who had come to care for him.

As Mr. Mannett recovered, the bills stacked up. Assurant wasn’t making any payments, he says. Instead, the insurer demanded from Mr. Mannett the names and addresses of every doctor he’d seen for the previous five years, so it could verify that he hadn’t concealed his cancer when he bought the policy. The investigation dragged on for months, until, according to Mr. Mannett, he called the insurer and warned that the next contact would be from his lawyer. Soon after, he says, Assurant paid the hospital more than $29,000, as well as several other bills.

Assurant said it couldn’t comment on Mr. Mannett’s case due to privacy concerns.

Still, Mr. Mannett spent more out of pocket than he expected. Beyond his deductible, he owed several hundred dollars to some doctors who charged more than his insurer paid. He hadn’t realized that even though the hospital was in his insurer’s medical-provider network, some physicians working there were not.

In a statement, St. Joseph’s said, “We have been working hard to provide additional information to patients to try and make our charges (and how people pay for them) more understandable.”

Mr. Mannett spent the next few months seeking doctors’ opinions about how to treat the cancer in his liver. During this time, he also became familiar with the intricacies of the medical-billing system. Before writing any checks, he double-checked calculations on his insurer’s explanations of benefits. He also learned that, before Assurant would pay for expensive medication to control his digestive problems and other symptoms, he needed to obtain letters from his doctors explaining the need for the drug and pre-authorization from the insurer. He says he found a helpful case worker at Assurant, whom he began consulting about coverage.

In early 2006, Mr. Mannett settled on a dramatic surgical procedure at Los Angeles’s Cedars-Sinai Medical Center. The surgeon would remove half of his diseased liver, hoping the organ would regenerate itself. On the advice of the insurance case worker, Mr. Mannett got the offices of the Cedars oncologist and surgeon, who weren’t in the insurer’s network, to agree in advance to accept Assurant’s usual rate as their full payment. He believes the move saved him thousands of dollars.

But when Mr. Mannett awoke in the recovery room, he learned his liver had proved too damaged for the surgery. The incision then became infected and had to be re-opened and cleaned. He went home a week later, and a nurse came regularly to dress the open wound.

Then the bills started arriving. Mr. Mannett says he was surprised to learn that his agreements with the oncologist’s and surgeon’s offices didn’t include the cost of imaging scans and lab exams. When his head cleared between doses of painkillers, he convened three-way conference calls between those doctors’ billers and his insurer to hash out some disputed fees. He also got a few charges reduced by appealing to a friendly staffer in one of the billing offices. And he wrote letters asking for other charges to be waived because of “severe financial hardship.” Mr. Mannett estimates his efforts saved him more than $10,000 on the cost of the scans and lab exams.

Cedars-Sinai said it couldn’t comment about Mr. Mannett because of privacy laws. Generally, the hospital has a variety of programs to help patients in financial need, it said.

Once his surgical wound healed, Mr. Mannett decided on a risky procedure that would pump chemotherapy drugs directly into his liver. The goal was to blast the cancer, but it risked destroying Mr. Mannett’s liver or causing a heart attack from the shock. Aubrey Palestrant, an interventional radiologist in Phoenix, agreed to do the surgery, which would have to be performed more than once.

Desperate to get a treatment that he figured was his last chance to survive, Mr. Mannett chose to not raise the billing issues in advance with Dr. Palestrant, who wasn’t in Assurant’s network. After two rounds of treatment in 2006, Mr. Mannett was told that all of his visible tumors appeared dead or dying, though the cancer was likely to reappear. Since then, Mr. Mannett has had two more chemo treatments, for a total of four.

Later in 2006, Mr. Mannett got a bill from the radiologist’s office that said he owed nearly $8,200 after insurance payments of about $1,100. Additional bills followed. A financial-hardship letter to the doctor’s office didn’t win a discount. Mr. Mannett says he then called Dr. Palestrant personally to plead his case and the doctor agreed to accept the insurer’s rate as his full payment, forgiving Mr. Mannett’s portion. Relieved and grateful, Mr. Mannett says he choked back tears.

Dr. Palestrant didn’t return calls seeking comment.

Write to Anna Wilde Mathews at anna.mathews@wsj.com

By BRETT ARENDS

Chances are you have a 401(k) plan at work. And the chances are you’re not making nearly enough of it. A new year means a new leaf: This is as good a time as any to start turning that around.

If you’re letting your 401(k) languish, a report released over the holiday season shows that you’re not alone. According to the latest study by the Employee Benefits Research Institute, a think tank in Washington, most of us continue to neglect our 401(k) plan. The median account contains a balance of just $18,000, says EBRI.

Good luck with that.

Here’s a five-step plan to fix your 401(k).

1 Take control.

Take a look at the full range of investment choices available to you. That should include, at a minimum, a handful of low-cost domestic and international stock and bond funds. If your plan doesn’t even offer those you should talk to the people in charge at your employer and insist that they move to a better plan.

Many people are too intimidated, or busy, to choose their portfolio. If you’re in that camp, your plan will have dumped your money into a default portfolio—such as a low-yielding but “stable” fund, or a target-date fund ostensibly designed for someone of your age.

There is nothing inherently wrong with these funds. But that doesn’t mean you can rely on them, either.

These default options aren’t designed for your best interests, but for the best interests of your plan provider. Instead of maximizing your likely returns, they are designed to minimize the provider’s risk of a nasty lawsuit.

As a result, your money may well be sitting in a poorly designed portfolio that guarantees mediocre performance. Target-date funds, for example, are a great idea in theory. In practice, most are far too heavily weighted toward U.S. stocks, and they use a cookie-cutter approach to investing.

Consider the alternatives available to you.

You also should understand if your company makes matching contributions, and, if so, how much it will match. There’s no good reason for missing out on a company match. It’s also a good idea to find out if your plan allows such things as personal loans: This may offer you access to cheaper capital than a bank, although there are risks in borrowing from your plan.

2 Cut your costs.

Many 401(k) plan providers stock their plans with high-fee mutual funds. That’s great for them, and bad for you. Most mutual funds are far too mediocre to justify hefty fees, which just soak up a lot of your investment returns. A fund that charges you an extra 1% a year may end up costing you most of the tax benefits of your plan.

There are managed investment funds out there that are worth the money, but few of them—if any—are likely to find their way into a 401(k) plan. If you’re stuck with plain-vanilla funds, you are going to be better off going for the ones with the lowest costs. Nearly all the time your best options will be the low-cost index funds.

3 Lighten up on U.S. stocks.

Most people keep most of their stock-market investments in the U.S. It’s safer, right? I mean, it’s the home market so it’s less risky than foreign stocks, yes?

That’s what conventional wisdom says, but it’s hooey. Investors sell themselves short by investing too much in the U.S.A. You’re already overinvested here anyway—you have your life and career here.

And U.S. equities start 2012 looking relatively expensive. U.S. stocks today are somewhere between modestly and heavily overpriced when compared to such metrics as average earnings or the value of corporate assets, according to data from the Federal Reserve and data tracked by Yale University economics professor Robert Shiller.

The dividend yield on the Standard & Poor’s 500-stock index, at just 2.1%, is very low by historical standards.

Predicting future stock-market returns is notoriously difficult. But based on current valuations, the U.S. stock market seems to offer a mediocre bet.

4 Look internationally.

Many 401(k) plans go light on international investment options. The real reason is simply the incompetence and complacency of plan sponsors.

But if your plan offers international options, take advantage. The turmoil of 2011 has left many overseas stock markets looking like a good value.

Western European markets fell nearly 30% from last year’s peak. Japan’s Nikkei 225 index is now lower than it was during the tsunami panic nearly a year ago. Emerging markets from Brazil to India, the investment hotshots of 2010, have dropped dramatically out of fashion again. Their stock markets crashed last year.

These offer some excellent buying opportunities.

Emerging markets account for about a third of the world economy, and their share is growing. Developed overseas markets, meaning Europe, Japan and Australasia, account for about two-fifths. They are on sale, and most people are underinvested there.

5 Review your bond funds.

As a general rule, your 401(k) and other tax shelters are where to hold the bond portion of your portfolio. That’s because bonds are much more vulnerable to taxes than stocks.

Bonds generate most of their returns through coupons, and those are usually taxed at ordinary-income tax rates. By contrast, stock dividends and capital gains generally get taxed more lightly.

Right now is, admittedly, a risky time to invest in U.S. bonds. Yields on U.S. Treasurys have slumped to historic lows. Any pickup in the economy, and inflation, could send bond funds tumbling.

While Treasury bonds offer meager yields here, look at any corporate bond funds. That includes investment-grade bonds and more volatile high-yield bonds.Both offer somewhat better yields. Emerging-markets bonds offer particularly good opportunities, argues investment guru Rob Arnott, chairman of Research Affiliates. They pay higher interest rates than those in the U.S., while their governments’ finances are actually in better shape.

It’s crazy that most 401(k) plans offer such a limited range of investment options. Paradoxically you don’t get full control of your money unless you leave your employer, when you can roll the plan over into a self-directed individual retirement account. But your 401(k) still represents a great investment asset, and this is a good time to get it into shape.

Write to Brett Arends at brett.arends@wsj.com

Discerning investors who want unvarnished information about a franchise before buying often peruse blogs for franchisees’ gripes or concerns. Now, there’s another item to consult: the franchisee-satisfaction survey.

At least two firms, Franchise Research Institute and Franchise Business Review, query existing franchisees in dozens of systems on their satisfaction levels and publish the results of those polls on their Web sites. Such research – typically funded by the franchise itself – may be a telling indication of how well a franchise system is working, or whether it should be avoided. The reports can be purchased for $24.95 on Franchise Research Institute’s site, www.fransurvey.com, but are available for free on Franchise Business Review’s, www.franchisebusinessreview.com, if franchisers agree to post them.

Matt Sherman/Three Pillars Media

Jeff Johnson, president of Franchise Research Institute in Lincoln, Neb.

Both firms survey franchisees on a confidential basis, to assure them they won’t be identified and possibly punished for expressing their true feelings. Both also seek to survey most of a system’s franchisees to verify that the opinions are representative rather than those of a few grouches.

Although the questions they ask are similar – including the crucial “would you recommend this franchise to others?” — the firms’ approaches differ. Franchise Research Institute charges the franchiser involved before undertaking the survey; Franchise Business Review collects a fee after doing the research, if the franchiser wants to see what it found.

Both firms affix stamps of approval on franchisers whose franchisees generally endorse their systems. The Franchise Research Institute awards a “world-class franchisee” seal whereas the Franchise Business Review hands out “Best of the Best” citations.

Franchise companies fund the surveys partly to use the results – if positive – to recruit new franchisees. But often, the surveys can reveals cracks in the system that’s useful information to proactive franchise managers and potential investors alike.

“Some surveys will give extremely bad news to a CEO and a company’s owners,” says Jeff Johnson, president of Franchise Research Institute in Lincoln, Neb. One common issue is a franchise system that’s rapidly growing. “That causes all kinds of concerns among franchisees,” including haphazard support from field personnel, he says. If a franchise isn’t listed on the Institute’s site, a potential franchisee should ask the franchiser whether it has been graded, and what the results were, Mr. Johnson adds.

Eric Stites of Franchise Business Review in Kittery, Maine.

Eric Stites, who founded Franchise Business Review and runs it out of an office in Kittery, Maine, says that occasionally a franchiser he approaches with a survey pitch will turn him down. “If they have an issue they will try to squash a survey,” he says.

While he gave out 115 awards to franchises last year, and posts some of them on his site, Mr. Stites says that 80% of the franchises operating today “are simply average or below-average business opportunities.” Fast-food restaurant and automotive-related franchises often score near the bottom in his franchise-satisfaction surveys, he adds. Even so, his site recently posted a list of 11 “top food franchises.”

“A lot of dissatisfaction in franchising comes from [franchisers] not meeting initial expectations, which are typically set during the sales process…by overly-aggressive salespeople, unfortunately,” Mr. Stites says. On the other hand, companies with the highest franchisee satisfaction scores typically “don’t oversell their systems – in many cases they undersell it — and are very selective in their recruitment process,” he says.

For their part, franchisers who get disappointing approval ratings say the surveys often guide their decision-making and can lead to better operations.

For example, when Great Harvest Bread Co. , a Dillon, Mont., bakery chain, got a significantly lower score in its Franchise Research Institute survey several years ago than it had previously, the company’s executives realized they had responded too slowly to the low-carb craze.

“We had taken the position that we sell carbohydrates for a living,” recalls company president and chief executive Mike Ferretti. “But our customers were saying, ‘We’ll go someplace else. Many of us are no longer eating what you sell.’ ” As a consequence, the chain introduced a low-carb bread that remains a popular item. “Franchisees were right about our head-in-the-sand attitude,” Mr. Ferretti says. That experience “taught us a very valuable lesson.”

Write to Richard gibson at dick.gibson@dowjones.com