Fund Watch


2013 Was an Awesome Year for the Kip 25

Nellie S. Huang

Our favorite stock funds soared and most beat their benchmarks. And all but one of our bond fund picks outpaced the bond market.



Many of the world’s stock markets soared in 2013, so it’s no surprise that the Kiplinger 25, the list of our favorite mutual funds, enjoyed a bang-up year. But most of our funds did even better than their benchmarks, including those that invest in markets that didn’t soar.

See Also: The Kiplinger 25 at a Glance

U.S. Stock Funds

The group’s 12 U.S. stock funds gained an average of 36.0%, beating Standard & Poor’s 500-stock index by 3.6 percentage points. Highlights included three funds that focus on large-capitalization stocks: Dodge & Cox Stock (DODGX), which climbed 40.6% in 2013; Mairs & Power Growth (MPGFX), which earned 35.6%; and Fidelity Contrafund (FCNTX), which gained 34.2%. All handily outpaced the S&P 500’s 32.4% return last year.

But one of our large-company funds lagged. Artisan Value (ARTLX), which we added to the Kip 25 in 2012, trailed the index by 6.6 points. Its 25.8% return ranked behind 91% of its peers in the large-company value category. “It’s not odd for our group to lag in a big up-market,” says George Sertl, one of the fund’s managers (along with Scott Satterwhite, Jim Kieffer and Daniel Kane). “We’re anti-momentum investors, and we’re in a momentum environment.” Indeed. The four managers are contrarian investors, looking in pockets of the market that others are shunning. And they buy with a four-year time horizon. “It takes patience,” says Sertl. The fund’s cash holdings—about 10% of assets at last report—hurt performance, and two of its 34 holdings were real drags: Annaly Capital Management (down 18.3%) and Newmont Mining (down 47.8%), part of the awful gold sector.

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It was an excellent year for active management in the midcap arena. The typical midsize-company fund gained an average of 34.7%, topping the S&P MidCap 400 index by 1.2 percentage points. Our picks shone. Wells Fargo Advantage Discover (STDIX) and Vanguard Selected Value (VASVX) each returned a bit more than 42%, which ranks them among the top 8% of all midsize-company funds. Akre Focus (AKREX) beat the peer group, too, with a 38.9% return. Only Fidelity Low-Priced Stock (FLPSX), with a return of 34.3%, failed to beat its peer group, albeit by a whisker—just 0.4 percentage point.

As for our small-cap funds, it’s complicated. Don’t misunderstand--they did well. But their performance puts in stark relief the matter of absolute returns versus relative returns. Baron Small Cap (BSCFX), Homestead Small Company Stock (HSCSX) and T. Rowe Price Small-Cap Value (PRSVX) posted healthy gains of 37.8%, 36.6% and 32.7%, respectively. Yet all trailed the small-company Russell 2000 index, which climbed 38.8%.

Indeed, active managers who focus on small companies on average trailed their benchmark in 2013. The typical small-company fund gained 38.2%, a bit shy of the Russell 2000’s advance. “Given the run that small caps have had, I’m happy to turn in a performance that’s close to the index,” says Peter Morris, who runs the Homestead fund with Mark Ashton and Stuart Teach. The fund got a boost from several huge winners. Cracker Barrel Old Country Store, a top-ten holding, climbed 75.2% in 2013. And the shares of shipbuilder Huntington Ingalls Industries nearly doubled.



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