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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