Morningstar Advisor - April/May 2013 - (Page 71)

share classes, excluded institutional share classes, and limited ourselves to funds that are open to new investors. We also selected funds that were launched in 1970 or earlier. And ( Morningstar Analyst Rating  Gold Finally, we are only seeeking funds that Morningstar’s fund analysts say are still among the best available in their categories. We ran this screen in February and got 16 results. Below are a few funds that made the cut. American Funds American Mutual AMRMX Inception Date: Feb. 21, 1950 This conservative large-value load fund keeps its yield (currently 2.15%) above the S&P 500 by focusing on industry-leading, financially stable firms with a history of paying dividends. The fund is divided into seven separately run sleeves, and managers invest with a three- to five-year time horizon, which keeps turnover (22%) low. The fund’s managers will hold assets in cash and/or bonds if they don’t see opportunities in the market, an approach that has helped the fund outperform in bear markets but which can cause it to underperform during rallies. Annual expenses (0.63%) are low for a large-cap front-load fund. Dodge & Cox Stock DODGX Inception Date: Jan. 4, 1965 The veteran management team behind this large-value fund seeks out companies with good management, competitive advantages, and growth potential, but that are experiencing near-term problems. This contrarian approach courts volatility— the fund carries an above-average Morningstar Risk rating—but the managers have the courage of their convictions; turnover is a low 16%. The fund performed poorly in 2008 and 2011, in part because of its bets on financial-services stocks, but it still sports excellent 10-year and 15-year trailing returns. Annual expenses of 0.52% are low for a large-cap no-load fund. Selected American Shares SLASX Inception Date: Feb. 20, 1933 Comanagers Chris Davis and Ken Feinberg are low-turnover investors who seek companies with share prices that don’t reflect their ability to generate and profitably reinvest cash over the long term. They operate in an efficient space but have differentiated the fund by keeping above-average stakes in financials and foreign stocks, and by combining the opportunistic with the steadfast. The fund is run by a strong, shareholder-friendly firm that can learn from its errors. The managers invest in the fund, fees have stayed low as assets have ebbed, and the firm continues to invest in its capabilities. The fund’s long-term results remain impressive. It has never lost to the S&P 500 Index or large-blend average in any rolling 10-year period on Davis’ and Feinberg’s watch. Sequoia SEQUX Inception Date: July 15, 1970 The fund again acted in shareholders’ best interests in 2012 by initiating a soft close. New investors must now buy shares through the fund’s transfer agent. Management’s decision to close the fund owed more to a dearth of opportunities than the capacity of the fund. Comanagers Bob Goldfarb and David Poppe put cash to work in fall 2011 and again in spring 2012 but not in sufficient volume to offset inflows. As a result, cash has hovered around 15% to 20% over the past 12 months. This is a credit to the team’s valuation discipline but can hamper returns during rallies. That has been the case in 2012 and so far in 2013. But a talented team with dry powder leaves this fund well positioned. Vanguard Small Cap Index Inv NAESX Inception Date: Oct. 3, 1960 This fund can serve as a portfolio building block for long-term buy-and-hold investors. Despite their higher volatility, small-cap stocks tend to outperform large caps over very long periods of time. It is, therefore, common that strategic investors maintain an overweighting to small caps, which make up less than 10% of the equity market. No passive small-cap index is perfect, as there are no financial health screens to prevent distressed firms from entering the mix. Because this fund includes firms with shaky futures, investors should expect greater volatility. The fund currently tracks the MSCI US Small Cap 1750 Index but is transitioning to the CRSP US Small Cap Index. Or Morningstar Rating  QQQQQ ) Adding a screen for 5-star funds turns up some more good old-timers. First Eagle Global SGENX Inception Date: April 28, 1970 This fund’s managers take one of the moreuncommon approaches to investing: Their first priority is capital preservation. The team uses a flexible, value-oriented strategy. While the fund primarily invests in global equities, it also owns foreign and U.S. corporate bonds. The fund has one of the best records among world-allocation funds, both over its lifetime and under the current management team. ING Corporate Leaders Trust Series B LEXCX Inception Date: Nov. 18, 1935 The fund’s founders mandated in 1935 that the 30 stocks originally bought for the portfolio would essentially never be sold. The fund would never add holdings either. In fact, the only way that new stocks could enter the portfolio would be through spin-offs or mergers and acquisitions. With the very long term in mind, the original advisors wanted to find blue-chip, dividend-paying companies that could thrive for decades. That emphasis still holds today. The fund has returned an annualized 11.2% since 1972 versus 10.1% for the S&P 500. Adam Zoll is an assistant site editor with Morningstar. com. Morningstar fund analysts Dan Culloton, Bridget B. Hughes, Kevin McDevitt, and Michael Rawson contributed to this article. MorningstarAdvisor.com 71 http://www.MorningstarAdvisor.com

Table of Contents for the Digital Edition of Morningstar Advisor - April/May 2013

Morningstar Advisor - April/May 2013
Contents
Contributors
Letter From the Editor
The Pursuit of Happiness and Financial Advice
What Strategies Do You Use to Control Risk?
Driven to Succeed for Clients and Family
How to Assess a Portfolio’s Bond Risk
Luck, Skill, and Investing
Investments á la Carte
Investment Briefs
Investing’s No- Brainers Have Costs
A Defensive Ride
Risk On/On Risk
The Risk of Being Overconfident
Year of Living Dangerously
The Risk-Parity Approach
A Guide to Mutual Funds Running Risk-Parity Strategies
What Moats Tell Us About Risk
Risk’s Wake-Up Call
Seeing Is Believing
Why Investors Lag the Returns of Their Funds
Liquidity Signals
Pump Them Up
Golden Oldies Keep on Truckin’
Our Favorite Mutual Funds
50 Most-Popular Equity ETFs
Undervalued Stocks With Wide Moats
Our Social Blind Spot

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