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 - 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
Advertisement

Most Popular

Social Security Recipients, Veterans Must Act Now to Get Extra $500 Stimulus Check
Coronavirus and Your Money

Social Security Recipients, Veterans Must Act Now to Get Extra $500 Stimulus Check

The deadline for seniors and veterans to request an additional $500 stimulus check for a dependent child is approaching fast. See how you can claim yo…
September 25, 2020
Trump Promises $200 Prescription Drug Card for Seniors
Medicare

Trump Promises $200 Prescription Drug Card for Seniors

Medicare beneficiaries will soon receive a debit card in the mail that they can use to pay for prescription drugs.
September 25, 2020
Election 2020: Joe Biden's Tax Plans
taxes

Election 2020: Joe Biden's Tax Plans

With the economy in trouble, tax policy takes on added importance in the 2020 presidential election. So, let's take a look at what Joe Biden has said …
September 18, 2020

Recommended

The 5 Best iShares ETFs for a Core Portfolio
ETFs

The 5 Best iShares ETFs for a Core Portfolio

You can assemble a simple, diversified and dirt-cheap portfolio using just a handful of the best iShares ETFs from its 'Core' series.
September 18, 2020
10 of the Best Target-Date Fund Families
mutual funds

10 of the Best Target-Date Fund Families

The best target-date funds are a 'set it and forget it' approach to your retirement, but which fund family should you trust your money?
September 17, 2020
Best Bond Funds for Every Need
Investing for Income

Best Bond Funds for Every Need

In a changing market, it’s important to remember why we hold bonds in the first place.
September 15, 2020
50 Top Stock Picks That Billionaires Love
stocks

50 Top Stock Picks That Billionaires Love

These 50 companies, of various shapes and sizes, are among the top stock picks held by billionaire investors or high-asset hedge funds.
September 4, 2020