1100 13th Street, NW, Suite 750Washington, DC 20005202.887.6400Toll-free: 800.544.0155
All Contents © 2016The Kiplinger Washington Editors
Saving for retirement in a company 401(k) plan is a smart choice. Not only can you put away thousands of dollars of your own pre-tax earnings every year, but many employers will match a portion of your contributions. Plus, if you change jobs, it's possible to transfer your saving into your new company's 401(k) plan or shift the money into a rollover IRA. The benefits of 401(k)s haven't gone unnoticed. Americans have $4.4 trillion invested in these tax-deferred savings accounts, according to the Investment Company Institute, making them a centerpiece of retirement planning for many workers.
Once you make the important decision to invest in a 401(k), the next step is choosing between the investment options within your plan. There will no doubt be some index funds from which to choose. Selecting the right one depends largely on what index you want to match and how much the fund charges (the lower the fee, the better). Assessing actively managed funds is more subjective. So we analyzed the management and performance of the actively managed mutual funds that rank among the 101 most popular actively managed mutual funds in 401(k) plans. The list was compiled by BrightScope, a financial-information company that rates retirement savings plans, based on the funds' 401(k) assets under management. Of the 101 most popular mutual funds, we identified the 28 best funds for you to invest in. If your 401(k) plan offers any or all of these 28 top-performing funds, they deserve strong consideration for your retirement savings.
Funds are listed in order of their retirement-plan assets, starting with the fund with the most assets, based on data from BrightScope. Although your plan may offer funds’ institutional share classes, whenever possible all data, including fund symbols, listed here refer to the share class that’s most accessible to the average investor. All returns are as of July 31; 5- and 10-year returns are annualized.
By Nellie S. Huang, Senior Associate Editor
| Originally published August 2015
Assets: $42.1 billion
Expense ratio: 0.82%
1-year return: 21.7%
5-year return: 20.1%
10-year return: 11.5%
This outstanding fund has been closed to new investors since 2006, so if you can buy it in your retirement plan, consider yourself lucky. You won’t be able to buy shares otherwise.
How lucky, you ask? In 2014, when 90% of all actively managed large-company funds lagged the S&P 500, Growth Company, under longtime manager Steve Wymer, earned 14.4%, beating the index by 0.8 percentage point. Since Wymer took over Growth Company in 1997, the fund has returned 10.3% annualized, outpacing the S&P index by an average of 2.6 percentage points per year.
Wymer has always been drawn to technology and health care companies. At last report, he had invested 56% of Growth Company’s assets in those sectors. But he keeps a fine balance between aggressively growing firms and established companies growing at a steady pace. The fund’s top holdings include Apple; Salesforce.com, a leader in customer-relationship-management software; and Facebook.
Assets: $90.2 billion
Expense ratio: 0.26%
1-year return: 6.4%
5-year return: 11.3%
10-year return: 7.8%
If you’re looking for a good balanced fund for your 401(k), you’ll be hard-pressed to find a better one than Wellington. The fund, which invests about 66% of its assets in stocks and 34% in bonds, is the oldest balanced fund in the country and Vanguard’s oldest actively managed fund.
The fund is run by Wellington Management, which has a long relationship with Vanguard. John Keogh has run the fund’s bond side since March 2006; Edward Bousa has handled the stocks since December 2002. Since their pairing, the fund has returned an annualized 7.6%, beating the typical “moderate allocation” fund (Morningstar’s designation for its category) by an average of 2.6 percentage points per year.
Wellington has also stood up well against Vanguard Balanced Index fund (VBINX), another popular 401(k) choice. Wellington’s 7.8% annualized return over the past 10 years topped Balanced Index by an average of 0.9 percentage point per year. Wellington is closed to new customers in a 401(k) plan, even for longtime plan members who don’t already have money in the fund. If you own shares in the fund, it’s a buy.
Assets: $59.9 billion
Expense ratio: 0.52%
1-year return: 6.7%
5-year return: 16.4%
10-year return: 6.9%
Dodge & Cox Stock has been a member of the Kiplinger 25, the list of our favorite no-load mutual funds, since 2008. So it’s no surprise that it makes the roster of the best 401(k) funds. Like other Dodge & Cox funds, Stock uses multiple managers—nine, in its case—who practice a long-term, valued-oriented, buy-and-hold strategy. And, of course, expenses are extraordinarily low for an actively managed stock fund. The upshot is a large-company stock fund that has delivered superior long-term results. Over the past 5 years, the fund beat its typical peer—funds that focus on large-company value stocks—by an average of 2.8 percentage points per year.
There’s no such thing as a free lunch, however, and the trade-off with this fund is that its returns are slightly jumpier than those of its typical peer. The above-average volatility came home to roost in 2008, when the fund plunged 43.3%, compared with a 37.0% decline in Standard & Poor’s 500-stock index. But investors who held on have seen their value of their shares rise an annualized 23.6% since the current bull market began in March 2009. During the run, the fund has topped the S&P 500 by an average of 1.7 percentage point per year.
Assets: $46.6 billion
Expense ratio: 0.44%
1-year return: 11.4%
5-year return: 17.6%
10-year return: 10.0%
We’re green with envy if your 401(k) plan includes this fund, which is run by Primecap Management, and you already have money in it. As is the case with Wellington, Primecap is closed to new investors, including those 401(k) plan participants who don’t already own the fund.
Primecap’s long-term record is superb. Over the past decade, it earned 10.0% annualized, an average of 2.3 percentage points per year better than Standard & Poor’s 500-stock index.
Managers Theo Kolokotrones, Joel Fried, Alfred Mordecai and M. Mohsin Ansari, whom we recently described as the best stock pickers you've never heard of, invest in large, growing companies that trade at discounted prices. More than 60% of the fund’s assets are invested in two sectors: technology and health care. At last report, two biotech stocks, Biogen and Amgen, and a traditional drug company, Eli Lilly, were the fund’s top three holdings.
Assets: $25.2 billion
Expense ratio: 0.92%
1-year return: 6.9%
5-year return: 9.9%
10-year return: 5.8%
The first thing you need to know about this foreign stock fund is that 12% of its assets were invested in U.S. companies, at last report.
Why does that matter? For starters, it helps explain why Diversified International, Fidelity’s biggest foreign stock fund, has performed relatively well in recent years. (U.S. stocks did better than foreign stocks in 2013 and 2014.) Over the past three years, the fund’s 14.5% annualized return outpaced its peer group—funds that focus on large, growing companies—by an average of 3.3 percentage points per year. It also beat the MSCI EAFE index, which tracks stocks of large foreign companies in developed countries, by an average of 1.3 points per year.
William Bower, who has run Diversified International since 2001, has delivered consistently good results. The fund has outpaced or matched the EAFE index in seven of the past 10 calendar years. Bower searches for high-quality, growing companies with strong balance sheets. Over the past two years, the fund has handily outpaced the EAFE index and its peers, with a 10.2% annualized return.
Assets: $69.7 billion
Expense ratio: 0.64%
1-year return: -4.3%
5-year return: 8.6%
10-year return: 6.5%
International Stock closed to new investors in early 2015, but it’s still open to new accounts if the fund is offered in your 401(k) plan. If you’re eligible, consider that good news. International Stock may not be the tamest foreign-stock fund around, but it has rewarded patient investors who held tight during bumpy periods. The fund’s 10-year return outpaced the MSCI EAFE index, which tracks foreign stocks in developed countries, by an average of 0.9 percentage points per year. Over that period, International Stock beat 83% of its peers—foreign large-company funds that invest in a mix of growth and value stocks.
International Stock has nine managers, all but one of whom has at least $1 million of his or her own money invested in the fund (the exception has between $500,000 and $1 million in the fund). They look for large companies in developed and emerging countries trading at bargain prices. That often leads them to stocks that are out of favor. But because the managers and analysts do a prodigious amount of research on each company, they can invest with conviction and an intention to hold for the long term. The fund’s 12% turnover (implying an average holding period for each stock of more than eight years) is considerably lower than that of the typical large-company foreign stock fund. The fund’s top three countries at last report: the United Kingdom, Japan and Switzerland.
Symbol: RPMGXAssets: $25.8 billion
Expense ratio: 0.77%
1-year return: 20.1%
5-year return: 18.4%
10-year return: 11.2%
This may be one of T. Rowe Price’s all-time best funds. If your 401(k) plan offers it, then load up. It has been closed to new investors since May 2010, so otherwise you’d be shut out.
Mid-Cap Growth truly focuses on midsize companies but is willing to hold onto them as they grow into behemoths. It homes in on firms with market values that fall in the range of either the S&P 400 MidCap index or the Russell Midcap Growth index—basically $834 million to $12 billion, and $275 million to $28 billion, respectively. Netflix, with a market value of $49 billion, is one of the largest companies in the fund.
The fund’s 14.1% annualized return since manager Brian Berghuis took over in June 1992 beats all but one midsize company fund (it’s a load fund). And it has been consistently good. Over the past 10 calendar years, Mid-Cap Growth outpaced the typical midsize-company growth fund eight times.
Berghuis favors highly profitable companies that boast double-digit earnings or cash-flow growth, and that have low debt. The fund holds 134 stocks. Financial-services firm Fiserv is the fund’s top holding, representing just 2.2% of the fund’s assets.
Assets: $27.6 billion
Expense ratio: 1.02%
1-year return: 20.1%
5-year return: 18.2%
10-year return: 8.9%
Back in the 1990s, when big-cap growth stocks ruled, Spiro Segalas and Harbor Capital Appreciation, the fund he has managed for 25 years, were topping the performance charts. News flash: Despite occasional hiccups, Capital Appreciation remains a stellar long-term performer. The fund’s 10-year record stands among the top 26% of its peer group—funds that invest in large, growing companies. And it lags its benchmark, the Russell 1000 Growth index, by an average of just 0.01 percentage points per year.
Segalas, founder of Jennison Associates, the fund’s subadviser, shares management duties with Kathleen McCarragher, who became a comanager in 2013. The pair hunt for solid companies that are growing faster than the companies in the S&P 500. That means they’re willing to pay a premium price for the right opportunity. One top holding is Facebook, which few would ever consider a value stock.
Assets: $29.2 billion
Expense ratio: 0.56%
1-year return: 9.0%
5-year return: 11.8%
10-year return: 7.2%
As is typical of balanced funds, Fidelity’s product tilts more toward stocks than toward bonds. Lately, Balanced has tilted big-time toward stocks, with 67% of its assets in them at last report. With the stock market rolling, that’s been a wise move. Another good decision: More than 70% of the fund’s stock assets have been in shares of large companies, which have performed better than small-company stocks in recent years. Balanced’s five-year return of 11.8% annualized beat the results of 93% of its peers.
Running the show are Robert Stansky, who has led the stock side of the portfolio since 2008 (he has nine co-managers), and Pramod Atluri, Fidelity’s former chief economist, who came on board in 2012 to run the bond portfolio. Since Stansky, a onetime manager of Fidelity Magellan, stepped in, Balanced has beaten its typical peer in every calendar year, including so far in 2015.
But on the bond side, Balanced is less risky than its rivals. It holds a similar mix of government, municipal, corporate and bank loans as its peers, but Alturi tilts the portfolio more toward debt with investment-grade credit ratings (triple-B or better).
Assets: $26.0 billion
Expense ratio: 0.56%
1-year return: 9.6%
5-year return: 12.1%
10-year return: 7.3%
At first glance, Puritan looks like a classic balanced fund, with 70% of its assets in stocks and 30% in bonds. But truth be told, Puritan takes on a tad more risk than the typical balanced fund. Has it been worth it? Yes.
Ramin Arani, who took over stock-picking duties in 2007, dials up the risk with big bets on technology and health care stocks; 22% and 19% of the fund’s assets are invested in each sector, respectively. He invests in burgeoning biotech names, including Xoma and Geron, but balances them with more established names, such as Amgen and Gilead Sciences. Since Arani came on board, the fund has outperformed the typical balanced fund in every calendar year except 2008, when Puritan lost 29.2%, while its typical peer lost 28.0%.
Pramod Atluri, Fidelity’s former chief economist, runs the bond side of the portfolio, though Harley Lank handles the fund’s junk bond investments. At last report, junk (debt rated double-B or lower) made up 5% of the fund’s assets and 15% of the bond portfolio, a bit greater than the high-yield allocation in the average balanced fund.
With Fidelity’s stock and bond analysts behind it, Puritan has turned in reliable results over the years compared with its peers. Its five-year annualized return of 12.1% beat 96% of all other balanced funds.
Assets: $83.3 billion
Expense ratio: 0.59%
1-year return: 7.8%
5-year return: 12.2%
10-year return: 7.0%
American Balanced is a consistent performer. The fund’s solid five-year return ranks among the top 4% of all balanced funds. And the fund’s performance has been steady in recent years. Between 2011 and 2014, American Balanced ranked among the top 19% of its peers or better. (So far in 2015, it ranks in the top 49%.)
The fund follows the typical 60%-40% stock-bond divide of balanced funds. Over the past 10 years, for instance, the fund’s stock exposure has been as low as 60% and as high as 74%, says Capital Group’s David Polak. (The fund has a cap of 75% on stock exposure. On the fixed-income side, the fund must hold at least 25% of assets in bonds.)
Lately, the fund’s 10 managers (four on the fixed-income side, six on the stock side) have pulled back on risk. At last report, stocks accounted for 61% of assets. The managers had 7% of assets sitting in cash. “The idea is to provide a package for a prudent investor,” says Polak. The fund’s primary goal is to preserve capital; providing income is second; and long-term growth is third. Its top three stock holdings: Microsoft, Comcast and Philip Morris International.
Assets: $28.8 billion
Expense ratio: 0.72%
1-year return: 18.5%
5-year return: 19.9%
10-year return: 9.8%
T. Rowe Price Blue Chip Growth comes with above-average risk, but it could be worth your while. Since it opened in mid 1993, Blue Chip Growth’s annualized 10.6% return has beaten the S&P 500 by an average of 1.2 percentage points per year. It has been more volatile, too, but only by about 8% over that period. For long-term investors, we think it’s worth the ride. Just don’t assume that the fund is a steady Eddy because it has the words “Blue Chip” in its name.
Larry Puglia has managed the fund since it opened (he had a comanager in the early years but has run it solo since 1997). In seven of the past 10 calendar years (including the first seven months of 2015), he has outpaced his peers, turning in annual returns that ranked among the top 25% of all funds that invest mainly in large growing companies. Puglia likes well-run companies with steady growth prospects that throw off cash and are run by managers who reinvest wisely in the business. His top three holdings: Amazon.com; McKesson, a drug distributor; and Priceline Group. Lately, the fund has gotten a boost from its biotech stocks. Morningstar analyst Katie Rushkewicz Reichart says the fund’s biotech exposure reached 10% of its assets in 2014, a record high.
Assets: $11.3 billion
Expense ratio: 0.93%
1-year return: 5.7%
5-year return: 14.4%
10-year return: 6.7%
American Beacon got its start managing pension money for American Airlines. But the advisory firm doesn’t actually run its American Beacon mutual funds. Instead it hires other advisers to manage its funds.
Large Cap Value has four subadvisers, and each one has its own process for finding bargain-priced large-company stocks. Boston-based Barrow Hanley, for instance, likes to home in on stocks with below-average ratios of price to earnings and price to book value (assets minus liabilities) and above-average dividend yields. MFS Investment Management, also headquartered in Boston, favors undervalued high-quality companies with strong executives at the helm.
Hotchkis & Wiley, in Los Angeles, looks at for out-of-favor firms with strong balance sheets. And Brandywine Global, based in Philadelphia, prefers bargain stocks that pay dividends.
The result is a portfolio of more than 200 stocks with a heavy tilt lately—27% of the fund’s assets—in financials. The top three holdings are JP Morgan Chase, Citigroup and Bank of America.
Assets: $77.8 billion
Expense ratio: 0.58%
1-year return: 7.5%
5-year return: 15.0%
10-year return: 7.1%
When Washington Mutual fund opened in 1952, safety was a primary concern. To lower risk, the fund’s creators came up with a strict set of rules that clearly defined what kinds of stocks were eligible for the fund. Those rules—combined with the fund’s income-first, growth-second objectives—make Washington Mutual ideal for conservative investors who want a low-volatility stock fund.
The fund’s seven current managers still follow these rules when they search for stocks. There are too many rules to list here, but many target the characteristics that are common among high-quality, blue-chip stocks. For starters, the company must have paid a dividend in eight out of the previous 10 years. (Up to 5% of holdings can be non-dividend payers, but they must pass even stricter requirements.) And 90% of the holdings must be S&P 500 constituents. In addition, companies cannot derive the majority of their revenue from alcohol or tobacco. The rules, says Polak, represent “a very strict interpretation of ‘quality.’”
As you may guess, not many firms meet the standards. At last word, Washington Mutual held 140 stocks, with Microsoft, Home Depot, and Wells Fargo occupying the three top spots in the portfolio. Once a stock makes it into the fund, it doesn’t move out quickly. The fund has a turnover ratio of 19%, which implies an average holding period of about five years.
The cautious strategy helps reduce volatility. Over the past 10 years, Washington Mutual has been 13% less jumpy than the typical large-company stock fund. That helped during 2008’s disastrous downturn. While the S&P 500 lost 37.0% and the typical large-company stock fund plunged 37.1%, Washington Mutual dropped 33.1%.
Assets: $61.3 billion
Expense ratio: 0.76%
1-year return: 9.7%
5-year return: 12.8%
10-year return: 8.7%
In 1973, inflation in the U.S. hovered above 6%, Billie Jean King defeated Bobby Riggs in a tennis match billed as the “battle of the sexes,” and The Exorcist was popular among moviegoers. In the same year, Capital Group launched New Perspective, a fund designed to invest in firms poised to benefit from “changing global trading patterns,” as the current annual report puts it. It sounds quaint. After all, most large companies today—and even many small ones—operate all over the world.
But change has served this fund well. Its 10-year annualized return ranks among the top 7% of all world-stock funds.
New Perspective’s eight managers focus on growing multinational companies. The fund’s top three holdings at last report were Novo Nordisk, a Danish drug company with a commanding share of diabetes treatments worldwide; Amazon.com; and Regeneron Pharmaceuticals, a Tarrytown, N.Y., biotech firm.
Assets: $15.4 billion
Expense ratio: 0.53%
1-year return: 5.2%
5-year return: 13.1%
10-year return: 6.6%
We’re big fans of Dodge & Cox. Each of its six mutual funds is run by multiple managers (Balanced has 16 managers), all of whom typically have a sizable chunk of their own money invested in the funds they run. The managers generally buy undervalued securities and hold them for years. Plus, Dodge & Cox charges some of the lowest fees you’ll find among actively managed funds.
Dodge & Cox Balanced isn’t typical of the genre. The typical balanced fund holds about 60% in stocks and the rest in bonds. In Balanced, managers have the latitude to hold as much as 75% of the fund’s assets in stocks. At last word, they had 72% of assets in stocks and 28% in bonds. The above-average stock allocation can make Balanced more volatile than its peers and result in bigger losses during inhospitable markets. In 2008, for instance, Balanced lost 33.6% and trailed 89% of all moderate-allocation funds (Morningstar’s designation for its category). Over the past 10 years, however, Balanced ranks in the top 21% of its category.
Assets: $13.5 billion
Expense ratio: 0.76%
1-year return: 21.3%
5-year return: 20.3%
10-year return: 12.2%
OTC Portfolio is often compared to other large-company stock funds that use the S&P 500 as a benchmark. But as its name suggests, this fund aims to beat the technology-heavy Nasdaq Composite index. That’s why OTC Portfolio has double the exposure to tech stocks than the average large-company fund. According to Morningstar, the fund also holds more small and midsize companies than the typical large-company fund. Holdings in the fund have an average market value of $30.1 billion, compared with a $76.4 billion average market value for holdings in the typical large-company stock fund.
Since Gavin Baker became manager in 2009, the fund has returned 20.6% annualized, topping the Nasdaq index by an average of 1 percentage points per year. (The S&P 500 returned 16.9% annualized over that period.)
Just be sure to buckle up for the ride: Over the past five years, the fund has been nearly 20% more volatile than the typical fund that focuses on large, growing companies. Three of the fund’s five biggest holdings are the usual suspects: Apple, Amazon.com and Google. The other two are Microsoft and Facebook.
Symbol: OTCFXAssets: $9.3 billion
Expense ratio: 0.91%
1-year return: 11.9%
5-year return: 17.0%
10-year return: 9.6%
You can’t buy this fund outside of a 401(k) plan (or other type of employer-sponsored retirement plan) because it has been closed to new investors since December 2013.
Manager Greg McCrickard, who has been at the helm since 1992, tries to walk the line between growth and value. He’s drawn to small, growing firms with robust cash flow and solid management teams. But he also likes out-of-favor companies with a catalyst for change that trade at reasonable prices. And when he buys, he hangs on for longer than most other small-company fund managers. Small-Cap Stock has an 18% turnover, which implies a typical holding period of almost six years, way longer than the average 17-month holding period in the typical small-company fund.
After more than two decades as manager, McCrickard has earned his stripes. Since he took over, the fund has returned 12.2% annualized, which is an average of 2.2 percentage points better than the Russell 2000 index, which tracks the stocks of small U.S. companies. And it has been about 13% less volatile than the benchmark over the past 22 years and change.
Assets: $21.2 billion
Expense ratio: 0.80%
1-year return: 19.6%
5-year return: 19.5%
10-year return: 9.9%
Sonu Kalra is a rising star at Fidelity. He took over Blue Chip Growth in 2009 after a stint as manager of OTC Portfolio. This fund takes on less risk than his previous charge, and it has $8 billion more in assets. The blue-chip mandate is on the loosey-goosey side. Kalra is charged with investing the majority of the fund’s assets in companies that are members of the S&P 500 index or the Dow Jones industrial average, or that have a market value of at least $1 billion if they are not in at least one of those indexes. On top of that is the “growth” requirement: Kalra looks for firms with long-term expected earnings growth of at least 10%.
Kalra’s experience at other tech-oriented funds, including OTC Portfolio and Fidelity Select Computers, is reflected in Blue Chip Growth. More than 30% of its assets are invested in tech stocks: Apple, Google, Amazon and Facebook are among the fund’s top five holdings (Gilead Sciences, the biggest biotech company, is the outlier).
Blue Chip Growth’s 20.7% annualized return during Kalra’s tenure smashed the S&P 500 by an average of 3.8 percentage points per year. Of course, his ascension as manager closely coincided with the start of a powerful bull market that continues to this day. And in 2011—the only calendar year Blue Chip Growth lagged the S&P 500 since Kalra became manager—the fund lost 2.7%, compared with a 2.1% return for the index. That’s a minor blemish in what otherwise has been excellent performance.
Assets: $16.0 billion
Expense ratio: 1.23%
1-year return: 12.7%
5-year return: 17.1%
10-year return: 8.9%
This midcap fund hasn’t hit our radar screens because it normally charges a sales load, but it has our attention now. It is closed to new investors, but that restriction doesn’t apply if the fund is offered in your employee retirement plan. This fund has consistently rewarded investors with above-average returns and below-average volatility.
Mid Cap Value’s managers—Jonathan Simon, who has been on board since the fund’s 1997 launch; Lawrence Playford, who joined in 2004; and Gloria Fu, who joined in 2006—focus on undervalued stocks with market values of $1 billion to $20 billion at the time of purchase. They favor companies with a strong balance sheet, consistent earnings growth and steady cash flow. The fund’s top three stocks at last report were health insurers Cigna, retailer Kohl’s and flooring manufacturer Mohawk Industries. (Cigna is being taken over by Anthem Inc.)
Assets: $16.2 billion
Expense ratio: 0.79%
1-year return: 18.5%
5-year return: 22.2%
10-year return: 11.5%
We are every shade of green with envy if your retirement plan offers this small-company fund because it is otherwise closed to new investors. Translation: If your 401(k) offers New Horizons, run, and do not tarry, to buy shares today.
The small-company growth fund has delivered stunning results in recent years under manager Henry Ellenbogen. Since he took over in March 2010, the fund has returned 21.0% annualized, which outdid all other small-company funds except two (AllianzGI Ultra Micro Cap and Lord Abbett Micro Cap Growth). This is no one-hit wonder: In every calendar year from 2010 through 2014, New Horizons has ranked among the top 22% or better of its category.
Ellenbogen is a versatile stock picker. He likes small, fast-growing companies that cater to niche markets and have solid footholds in their industry. But he isn’t afraid to bet on burgeoning companies before they go public. He invested in Twitter, for instance, before its initial public offering. And he’s willing to hang onto winners even after they grow into midsize- or large-company territory. Top holding O’Reilly Automotive, the auto parts retailer, has been in the fund since before Ellenbogen came on the scene and now has a market value of $24 billion, thanks to a 60.2% advance over the past 12 months.
With $16.2 billion in assets at last report, it’s no wonder the fund closed to new investors. New Horizons is the largest actively managed small-company fund in the country. Ellenbogen hasn’t let the asset creep affect his stock picking too much (the fund had roughly $6 billion in assets when he came on in early 2010). But it’s worth noting that the 191 stocks in the fund have an average market value of $4.2 billion. That falls within the range—albeit at the top—of firms in the Russell 2000.
In any case, the fund has proved to be a hardy performer in good years and bad. In 2013, a bang-up time for small-caps, Ellenbogen walloped his competition with a 49.1% return (10.3 percentage points better than the Russell 2000). In the next year, a tough one for the category, the fund gained 6.1%, 1.2 percentage points ahead of the index.
Assets: $5.8 billion
Expense ratio: 1.16%
1-year return: 6.5%
5-year return: 14.3%
10-year return: 7.1%
This fund has above-average volatility relative to other small-company funds, but its above-average returns make up for it. Small Cap Value has outpaced its peer group—funds that invest in bargain-priced small-company stocks—in every calendar year since 2010, including the first seven months of 2015. Over the past 10 years, the fund outpaced its category by an average of 0.3 percentage point per year.
Like other American Beacon funds, Small Cap Value relies on multiple subadvisers—six, to be exact. Each has its own take on finding promising undervalued companies with market capitalizations of $5 billion or less. The result is a portfolio of nearly 600 stocks, each of which boasts above-average potential for earnings growth and below-average price-earnings, price-to-book book-value and price-to-sales ratios. No stock gets too hefty a weight. The top stock at last report—Con-way, a freight transport and logistics firm—made up just 1% of assets.
Target-date funds—those one-stop funds that hold stocks, bonds and other assets in a mix that grows more conservative over time—are popular these days. But even we were surprised to see that Price’s most popular retirement-plan fund—the one holding the most 401(k) assets—was Retirement 2020. That’s not to say it’s the biggest target-date fund in the country; Vanguard Target Retirement 2025 wins that distinction. But it is T. Rowe’s most popular retirement-plan fund. And that’s notable.
The firm’s flagship target-date series, called Retirement, has won high marks from many—including Kiplinger’s—in recent years. The obvious reason is the above-average allocation to stocks along the series’ glide path (the change in the stock-bond mix over time as the fund nears its target year). T. Rowe Price Retirement 2030, for instance, devotes 77% of its assets to stocks; the average 2030 target-date fund invests 70% of its assets to stocks. Even the firm’s Retirement 2015 fund, at 54% stocks, is more aggressive than the typical 2015 target-date portfolio, at 42%.
The series’ underlying funds have provided some oomph as well. Among the 18 funds in Retirement 2020 are Kip 25 member T. Rowe Price Value, as well as Mid-Cap Growth, Small-Cap Stock and New Horizons (funds we wish we could add to the Kiplinger 25 but can’t because they are closed to new investors).
The riskier allocation means above-average volatility. In 2008, when the S&P 500 plunged 37%, all of the top T. Rowe target-date 401(k) funds landed in the bottom half of their respective peer groups. But the good times have outweighed the bad, as evidenced by the funds’ performance during the current bull market. Thanks to their strong results in a blistering market, every one of the Retirement target-date funds on this list boasts 10-year returns that rank among the top 1% of its peer group.
T. Rowe Price Retirement 2015 (TRRGX)
Assets: $10.2 billion
Expense ratio: 0.63%
1-year return: 3.7%
5-year return: 9.5%
10-year return: 6.4%
T. Rowe Price Retirement 2020 (TRRBX)
Assets: $25.6 billion
Expense ratio: 0.67%
1-year return: 4.5%
5-year return: 10.5%
10-year return: 6.7%
T. Rowe Price Retirement 2025 (TRRHX)
Assets: $18.3 billion
Expense ratio: 0.70%
1-year return: 5.3%
5-year return: 11.4%
10-year return: 6.9%
T. Rowe Price Retirement 2030 (TRRCX)
Assets: $24.7 billion
Expense ratio: 0.73%
1-year return: 5.9%
5-year return: 12.1%
10-year return: 7.2%
T. Rowe Price Retirement 2035 (TRRJX)
Assets: $13.5 billion
Expense ratio: 0.75%
1-year return: 6.4%
5-year return: 12.7%
10-year return: 7.3%
T. Rowe Price Retirement 2040 (TRRDX)
Assets: $17.2 billion
Expense ratio: 0.76%
1-year return: 6.8%
5-year return: 13.0%
10-year return: 7.4%
Skip This Ad »
View as One Page