Advertisement
investing

American Century Equity Income Focuses on Value

This fund chooses high-quality but overlooked stocks.

Famed Hollywood director Howard Hawks is said to have defined a good film as one with three good scenes and no bad ones. The management team behind American Century Equity Income (symbol, TWEIX) takes a similar approach when it comes to undervalued large-company stocks. "Any value index will have stocks that do poorly and go to zero. If you avoid those firms that are significantly impaired or that have poor balance sheets, you'll do better than the index with less volatility," says comanager Phil Davidson. The fund's strategy goes beyond filtering out losing firms, but its performance reflects that basic tenet. Over the past 15 years, the fund's 8.2% annualized return beat that of its benchmark Russell 3000 Value index by 0.4 percentage point. Over the period, Equity Income was 33% less volatile than the benchmark and 29% less volatile than the broad stock market. (Returns are through September 30.)

The avoidance of stock market horror shows and a focus on high-quality, dividend-paying stocks have led to the fund's su­perior downside performance. For instance, the fund lost only 39.2% during the 2007–09 bear market, when Standard & Poor's 500-stock index plunged 55.3%. More recently, the fund surrendered 13% during the S&P's near-20% downdraft in late 2018.

Advertisement
Advertisement - Article continues below
Advertisement - Article continues below

The fund's four comanagers and 15 analysts favor financially healthy firms that trade cheaply relative to measures such as earnings and free cash flow (cash profits left over after capital outlays). Top holdings include medical device maker Medtronic (MDT), telecom giant Verizon (VZ) and PNC Financial Services Group (PNC).

FUNDTRENDS_RANKINGS._final.indd
FUNDTRENDS_RANKINGS._final.indd

Getty Images

The managers further tamp down volatility by allocating nearly 20% of assets to preferred stocks, convertible securities and bonds, all of which tend to be less volatile than common stocks. These investments also help boost the fund's yield, which currently stands at 2%.

The value-oriented fund has lagged the broad stock market over the past decade, a period that has seen fast-growing stocks outperform undervalued names. "But investors looking for a diversified portfolio with sustainable yields will appreciate our fund's ability to hold up in tougher markets," says Davidson.

Advertisement

Most Popular

HSAs Get Even Better
Financial Planning

HSAs Get Even Better

Workers have more options with flexible spending accounts, too.
July 2, 2020
Find a Great Place to Retire
happy retirement

Find a Great Place to Retire

Our cities provide plenty of space to spread out without skimping on health care or other amenities.
July 2, 2020
What Are the Income Tax Brackets for 2020 vs. 2019?
tax brackets

What Are the Income Tax Brackets for 2020 vs. 2019?

The IRS unveiled the 2020 tax brackets, and it's never too early to start planning to minimize your future tax bill.
June 20, 2020

Recommended

10 Stocks to Invest in the Health Care Revolution
healthcare stocks

10 Stocks to Invest in the Health Care Revolution

These companies are fighting disease and improving our standard of care.
July 2, 2020
17 Wonderful Work-From Home Stocks
stocks

17 Wonderful Work-From Home Stocks

Is the run in work-from-home stocks over? The pros don't think so. These 17 "WFH" stocks appear poised to continue climbing on the longer-term remote-…
July 1, 2020
Cash In With This Gaming ETF
Technology

Cash In With This Gaming ETF

Cash in on the video gaming craze with this fund.
July 1, 2020
13 Best Vanguard Funds for the Next Bull Market
mutual funds

13 Best Vanguard Funds for the Next Bull Market

Optimistic that the bounce since March is indeed the start of the next bull market? Here are the 13 best Vanguard funds to help you make the most of i…
June 25, 2020