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Kip 25

2 New Funds Join the Kiplinger 25

Baron Emerging Markets and T. Rowe Price Dividend Growth take the place of funds that have closed their doors to new investors.

In the steamy days of summer, two of the hottest members of the Kiplinger 25 closed to new investors: Harding Loevner Emerging Markets (HLEMX), which, like most of its peers, went through a rough patch in 2014 and 2015, soared 14.8% in this year’s first seven months. That clocked the average diversified developing-markets stock fund by 4.0 percentage points. Vanguard Dividend Growth (VDIGX), which has a superb long-term record, returned 7.5% year-to-date, beating the typical large-company stock fund by 1.6 percentage points.

In keeping with our custom of removing funds from the Kip 25 if they shut to new investors, we must bid farewell to these two funds. Their replacements: Baron Emerging Markets (BEXFX) and T. Rowe Price Dividend Growth (PRDGX).

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The Baron fund’s manager, Michael Kass, has a solid record. From the time he launched the fund in January 2011 through July 31, it returned 3.0% annualized. That isn’t a lot, but it trounced the typical diversified emerging-markets stock fund by an average of 5.3 percentage points per year. The fund charges 1.45% annually for expenses, about average for the category.

Kass focuses on midsize to large companies with above-average growth and competitive advantages over their peers. Take Indonesia’s PT Matahari Department Store. It lets space in its stores to other merchants, who pay rent or share a percentage of their sales. The firm should benefit as more Indonesians join the middle class, says Kass.

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After a nearly five-year-long bear market during which emerging-markets stocks lost 35%, on average, Kass thinks a turnaround is near. Finding good businesses at prices too low to resist, he has moved back into companies based in countries, such as Brazil and Russia, that he had avoided recently. One example: BM&F Bovespa, a Sao Paolo–based stock exchange whose stock soared 76% over the first seven months of the year. The fund holds 80 to 90 stocks, with China, India and Brazil representing its three biggest country weightings.

Given his fund’s name, it’s not surprising that Dividend Growth’s Tom Huber seeks large, sturdy firms that have the capacity to consistently raise their payouts. Pfizer (PFE), General Electric (GE) and Danaher (DHR) top the portfolio’s list of 104 stocks. A commitment to pay a dividend encourages company executives to make smart decisions, says Huber. The result, he says, is an “all-weather” fund that has beaten the market over the long haul. Since Huber took over in March 2000, Dividend Growth has returned an annualized 6.8%. That topped Standard & Poor’s 500-stock index by an average of 2.5 percentage points per year. The fund’s expense ratio of 0.64% is well below average for its category.

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