The 25 Best Mutual Funds
Use the new Kiplinger 25 to achieve your financial goals. Plus: Three ways to build your portfolio.
By Steven Goldberg, Contributing Columnist, Kiplinger.com
May 2006
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A team pilots Vanguard Primecap Core (VPCCX), too, but this quintet comes from the same firm. Primecap Management has shepherded Vanguard Primecap (closed to new investors) since 1984. There are slight differences between the two, but both funds essentially feature the same people doing the same things: buying industry leaders with vibrant growth stories while paying attention to price. The original Primecap returned an annualized 15% since its inception in late 1984. Primecap Core earned 16% in 2005, its first full year.
Large undervalued-company funds
Like Cal Ripken Jr., who made his mark in Baltimore as baseball's Iron Man, Brian Rogers shows up for work every day in downtown Baltimore and quietly gets the job done. Rogers has run T. Rowe Price Equity Income (PRFDX) fund since its inception more than 20 years ago, placing him among the nation's longest-tenured fund managers. Over both the past ten and 15 years, his fund topped the S&P 500 by an average of one percentage point per year.
Unlike Ripken, who hit with some power, Rogers is a self-professed singles hitter. "I don't hit many home runs, but I don't strike out a lot, either," he says. As a result, Equity Income, which invests mainly in large companies that are cheaply priced and that pay decent dividends, holds up better than most during bear markets.
Rogers looks for financially solid, industry-leading companies that have fallen out of favor. "The hard part is figuring out which of those companies will turn around," he says. He's finding bargains today among media and drug stocks. Consumers are willing to pay for content, no matter its source, says Rogers, so he's been buying shares of Dow Jones, New York Times and Time Warner. And he's invested in nearly all of the major drug makers, including Bristol-Myers Squibb, Eli Lilly, Johnson & Johnson, Merck and Wyeth.
Dave Williams is not a household name, but maybe he should be. Williams has done wonders running Excelsior Value & Restructuring (UMBIX), which invests in bargain-priced stocks and then holds on to them for years. It outpaced the S&P 500 in 11 of the past 13 calendar years, and over the past ten years the fund gained an annualized 15%.
Williams broadly defines the restructuring mandate suggested by the fund's name -- he considers just about any action a company takes to improve its fortune to be a restructuring. But there's no question about his credentials as a value investor. One of his favorite spots for finding bargains is the list of stocks hitting new 52-week lows.
Chris Davis and Ken Feinberg are no slouches at uncovering bargains, either. In the 11 years since Davis took the reins, Selected American Shares (SLASX) earned an annualized 14%. However, Davis and Feinberg (who joined in 1998) generally invest in sounder businesses than Williams does and are willing to pay higher prices for stocks.
Davis contends that the market today is practically giving away big, high-quality stocks, such as American Express, Costco and JPMorgan Chase. "These are companies with above-average growth and below-average prices," he says. (Davis and Feinberg recently assumed the helm of Clipper fund, which holds only about 20 stocks. It will be more volatile than Selected, but, in theory, should deliver better gains over the long term.)
Why own a Chevy, asks Bill Nygren, co-manager of Oakmark Select (OAKLX), when you can get a BMW for the same price? Like Clipper, Select owns only about 20 stocks. And like Davis and Feinberg, its managers are bullish on blue chips. Normally, Nygren and co-pilot Henry Berghoef invest in below-average companies with shares selling at dirt-cheap prices. But nowadays, Nygren says, they can find plenty of above-average companies selling at average prices relative to their earnings.
Select's long-term record is superb. Since its inception in late 1996, it has returned an annualized 19%. But hurt by the emphasis on blue chips, Select has trailed the S&P by two percentage points annually for the past three years. "I believe we were just early," says Nygren.