These funds aren't hot performers. They are simply funds that have gradually built strong records.
In the old days, the manager of a stock fund could put up good numbers for a few years, then sit back and watch the money roll in. That’s not the case today. Of course, chasing the hottest funds isn’t such a hot idea. But neither is avoiding stocks altogether, which is evidently the current strategy of many shell-shocked investors. Enough already. It’s time to stop fighting the last war.
If you’re ready to give stocks another try -- or you never abandoned them in the first place -- I’ve got a few names for you to consider. These funds aren’t new, and they aren’t hot performers. They are simply funds that have gradually built strong records. The closer we looked at them, the more we were impressed. In recent months, we’ve added them to our list of Analyst Picks.
Vanguard Dividend Growth (symbol VDIGX) benefited from two key changes a few years back. In late 2002, Vanguard changed the fund’s mandate so that instead of focusing on utility stocks, it would follow a dividend-growth strategy. The emphasis on dividend growth rather than yield pushed the fund to invest in healthier companies than it might have otherwise owned. That helped it avoid the losses many other dividend-oriented funds suffered during the recent market cataclysm. And in 2006, the fund’s adviser, Wellington Management, put Don Kilbride in charge. He has now run the fund long enough for us to judge his abilities, and we like what we see. As you would expect with a Vanguard fund, annual expenses, at 0.36%, are quite low.
Unlike Kilbride, the men running Royce Premier (RYPRX), Chuck Royce and Whitney George, have records that go back decades. Premier is somewhat concentrated, holding 68 stocks at last report. It generally invests in the highest-quality small and midsize companies that Royce analysts follow. The stocks also tend to be among the most liquid in the Royce universe -- a good thing, considering the fund’s hefty $5-billion asset base. Premier held up much better than most stock funds in 2008, losing 28%, and it has performed admirably in 2009.
Among overseas funds, Scout International (UMBWX) is a winner. Stationed in Kansas City, lead manager James Moffett has chalked up good results despite lacking a big staff and a global presence. Moffett combines big-picture analysis with a search for companies with strong balance sheets and stable growth. He’s not the only overseas investor who operates that way, but few deliver better results. And few are as patient: Moffett holds stocks for about six years, on average. But he will not invest in China or Russia because he doesn’t believe that those countries sufficiently protect shareholder rights. Moffett has consistently beaten his peers while avoiding larger-than-average losses in down years. Another plus is the fund’s relatively economical price: Its annual expense ratio is 1.02%.
I’m a big fan of the Matthews fund family for its long-term dedication to Asia. Matthews Asian Growth & Income (MACSX) is a great fund for toning down risk in a high-risk area. Andrew Foster, who joined Matthews in 1998 and became the fund’s lead manager in 2008, recently had about two-thirds of its assets in dividend-paying stocks, about one-fourth in convertible securities and the rest in straight bonds, cash and preferred stock. Compared with other investors in fast-growing Asia, Foster’s income strategy is unusual, but it serves to cushion losses in market selloffs. For example, the fund’s 32% loss in 2008 was 21 percentage points less than the decline of its average competitor. But its 54% gain from the March 9 bottom through November 5 lagged the category average by 35 points. That may sound unimpressive, but if you invest in emerging markets at the wrong time, it can take ten years to recoup your losses. I welcome a chance to cut down the rebound time.
Columnist Russel Kinnel is director of mutual fund research for Morningstar and editor of its monthly FundInvestor newsletter.