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All Contents © 2018The Kiplinger Washington Editors
By Nellie S. Huang, Senior Associate Editor
| March 6, 2018Updated Sept. 27, 2018
Illustration by Joey Guidone
At Kiplinger, we’ve been writing about mutual funds since the 1950s, and we’ve been putting together a list of our favorite no-load mutual funds since 2004, drawing on the broad experience of our editors. We believe in holding funds rather than trading them, so we focus on promising funds with solid long-term records – and managers with tenures to match.
Also, we prefer funds with below-average volatility for their category, and we keep a close eye on a fund’s size because a gargantuan asset base makes managing a fund difficult. And, of course, low operating costs are crucial for our funds – all actively managed – to overcome the biggest advantage of index funds: microscopic expense ratios.
Our slide show will give you a quick introduction to each of the 25 low-fee mutual funds: what makes them tick, and what kind of returns they’ve delivered. Check it out.
Data is as of Sept. 25, 2018, unless otherwise noted. Three-, five- and 10-year returns are annualized. * Forward yield based on the most recent distribution.– Fund not in existence for the entire period.
1-year return: 15.5%
3-year return: 17.4%
5-year return: 12.8%
10-year return: 11.2%
Expense ratio: 0.52%
The focus: Undervalued, well-established midsize and large firms.
The process: A nine-member team picks stocks on a company-by-company basis with a three- to five-year time frame in mind. The managers like high-quality businesses that can increase earnings and cash flow over the long term, as well as executives who put profits to work wisely.
The track record: Value-focused stock funds had a tough go of it over the past year compared to their growth-oriented peers. The fund’s one-year 15.5% gain lagged the S&P 500’s 19.1% return, but it beat 82% of other funds that bet on large, cheap stocks. A low 0.52% expense ratio helped.
1-year return: 17.4%
3-year return: 15.8%
5-year return: 11.4%
10-year return: 12.0%
Expense ratio: 0.54%
The focus: Out-of-favor, growing firms of all sizes that benefit from trends in technology and demographics.
The process: Manager John Roth describes himself as “opportunistic,” but his penchant for cheap prices makes him a bit of a contrarian. He bought energy stocks in late 2014 and 2015 as oil prices fell, and he sold tech stocks in 2017 as share prices soared.
The track record: Roth’s against-the-grain style means the fund’s short-term results differ at times from its peers (funds that invest in large, growing firms). The fund’s 17.4% return over the past year was just average compared with other large-growth funds. Over the long haul, however, Roth carries the day. Since he took over in mid-2006, New Millennium’s 9.7% annualized return has beaten its peers and the S&P 500. The fund has outpaced the index in five of the past 10 full calendar years.
1-year return: 16.7%
3-year return: 15.7%
5-year return: 11.1%
10-year return: 10.9%
Expense ratio: 0.64%
The focus: Fast-growing firms of any size trading at reasonable prices.
The process: The fund’s two managers favor firms headquartered in the upper Midwest, where the fund company is based, on the theory that proximity gives them an edge. They like companies with durable competitive advantages, and they wait for the right price.
The track record: The fund tends to lead in down markets and trail in up markets. In 2017, the S&P 500 was driven by the type of stocks the managers tend to avoid: high-priced tech shares. Over the past 12 months, the fund’s 16.7% return trailed the S&P 500 by 2.4 percentage points.
1-year return: 30.7%
3-year return: 22.2%
5-year return: 16.7%
10-year return: 14.8%
Expense ratio: 0.67%
The focus: Stocks in fast-growing companies of all sizes that trade at temporarily low prices.
The process: Five managers pick firms that are under pressure but have a catalyst – a new product, a new CEO, a restructuring – that could spur growth.
The track record: Over the past 12 months, the fund trounced the S&P 500 by 11.6 percentage points, thanks to a 32% stake in technology stocks.
1-year return: 29.0%
3-year return: 20.9%
5-year return: 17.6%
10-year return: 14.9%
Expense ratio: 0.70%
The focus: High-quality, giant firms that are growing fast and trade at fair share prices.
The process: Larry Puglia holds 125 stocks in firms with above-average earnings, sustainable profit growth, strong free cash flow (cash profits after capital outlays), and executives who reinvest in the company wisely.
The track record: Morningstar nominated Puglia for U.S. stock fund manager of the year in 2017, the second time in five years. Blue Chip Growth was among the best-performing Kip 25 funds over the past 12 months. The fund’s gangbuster 29.0% return beat the S&P 500 by nearly 10 percentage points. Don’t expect a repeat this year, Puglia says. But, he adds, “I’m not sure this bull market is over or close to being over.”
1-year return: 16.2%
5-year return: 12.7%
10-year return: 11.0%
The focus: Big firms with the propensity and capability to raise dividends over
The process: Firms that dominate their industries and throw off cash get the nod
from manager Tom Huber, who also looks for experienced executives who are shareholder-focused. The
portfolio has increased payouts at an average of 9% per year and currently boasts a 12-month
trailing yield of 1.19%. Stock dividends overall may get a boost this year, Huber says, in light of
new corporate tax laws.
The track record: The fund tends to beat the broad market in bad times and lag
in good times. Over the past 12 months, Dividend Growth trailed the S&P 500. Over the long haul,
however, Huber’s focus on quality and increasing payouts wins handily.
1-year return: 24.5%
3-year return: 17.1%
5-year return: 13.5%
10-year return: 14.3%
Expense ratio: 0.79%
The focus: High-quality, highly profitable companies with stocks that trade at discounted prices.
The process: The QM stands for quantitative management, which means that computer models guide the stock picking. The strategy pinpoints small, growing companies that have consistent earnings, strong balance sheets and shares that trade at favorable prices in relation to cash flow.
The track record: Since Sudhir Nanda became manager in 2006, the fund has outpaced its peers and its benchmark, the Russell 2000 Growth index.
Editor’s note: The fund is open to new retail investors, but it has closed to registered investment advisers. That means on certain brokerage platforms – in particular, Fidelity and Charles Schwab – you have to call a broker to purchase shares. Or you can opt to buy directly through T. Rowe Price.
The track record: Since Sudhir Nanda became manager in 2006, the fund has outpaced its peers and its benchmark, the Russell 2000 Growth index.
1-year return: 8.8%
3-year return: 12.7%
5-year return: 10.4%
10-year return: 10.4%
Expense ratio: 0.80%
The focus: Bargain-priced shares of midsize to giant companies.
The process: When the shares of high-quality firms trade at a discount to their historical averages, their sector or the market, it typically means a problem is afoot. That’s when Mark Finn moves in. For example, he bought stock in Booking Holdings (BKNG, formerly known as Priceline) in late 2017, a firm pressured by competition in the online travel market.
The track record: Since Finn took over in early 2010, the fund has returned 12.5% annualized, which beats its benchmark, the Russell 1000 Value index. Share prices in relation to earnings and other yardsticks are “not great” these days, says Finn, so he’s focusing on quality over cheapness.
1-year return: 11.4%
3-year return: 15.0%
10-year return: 10.8%
Expense ratio: 0.26%
The focus: Dividend stocks.
The process: Two shops run this fund. Wellington Management’s Michael Reckmeyer controls two-thirds of the assets, picking firms that can sustain their dividend or raise it over time. Vanguard’s quantitative stock team screens for dividend stocks that meet four characteristics, including consistent earnings growth and relatively low prices. The fund yields 2.7%.
The track record: Reckmeyer and Vanguard’s quant team joined forces in 2007. Since then, the fund has returned 8.7% annualized, which beats 96% of its peers (funds that invest in value-priced stocks).
1-year return: 10.6%
3-year return: 13.8%
5-year return: 10.9%
10-year return: 11.4%
Expense ratio: 0.99%
The focus: Midsize firms that meet environmental, social and governance standards. For instance, the fund avoids companies that pull in hefty revenues from tobacco or guns.
The process: Matt Gershuny and Lori Keith focus on fast-growing firms that offer a product or service that’s in demand. Price matters, too. The stock must trade at a discount to what the managers deem the firm to be worth.
The track record: Since Gershuny and Keith took over in 2008, Mid Cap has outpaced the S&P 500. But it has lagged its benchmark, the Russell Midcap index, by an average of 0.4 percentage points per year.
1-year return: 15.8%
3-year return: 17.8%
10-year return: 10.6%
Expense ratio: 0.91%
The focus: Small businesses with good long-term growth prospects and stocks trading at cheap prices.
The process: The hunt for discount stocks starts with troubled companies that have stumbled temporarily but have a catalyst to turn things around. The strategy requires patience: Shares in Green Dot (GDOT), best known for its prepaid debit cards, took three years to rebound (from 2014 to 2017).
The track record: Since manager David Wagner took over in July 2014, his respectable 9.9% annualized return misses beating the 10.3% return of the Russell 2000 index.
1-year return: 18.7%
3-year return: 15.4%
5-year return: 12.7%
10-year return: 11.9%
Expense ratio: 1.41%
The focus: Small, well-managed firms that trade at a discount.
The process: Manager Jim Larkins calls Small Cap Value a “fallen angel” fund. That’s because he piggybacks on what the firm does most of its research on – fast-growing, high-quality firms. When a good one falters, he swoops in and buys it at a discount.
The track record: Larkins has been with the fund since it launched in 1997, first as an analyst and as the manager since 1999. (The fund, in fact, was partly his idea.). Over the past decade, Small Company Value has returned an annualized 11.9%, better than the Russell 2000 by an average of 1.1 percentage points per year.
1-year return: 6.9%
3-year return: 10.1%
5-year return: 6.5%
10-year return: 7.6%
Expense ratio: 1.03%
The focus: Reasonably priced foreign firms with good growth prospects that dominate their industries.
The process: Growth and price matter to manager Jed Weiss. But he’s most attracted to firms that can maintain or raise prices even when the economy is in a slump. “The truth serum” that can reveal a good firm, says Weiss, “is what happens when demand is lousy.” He likes to buy when shares trade at a relative discount to earnings growth.
The track record: Over the past year, International Growth beat the MSCI EAFE index, which tracks foreign firms in developed countries, by 2.8 percentage points. Over the past decade, the fund beat 91% of its peers.
1-year return: -4.3%
3-year return: 10.8%
5-year return: 4.1%
10-year return: 8.6%
Expense ratio: 0.95%
The focus: Large foreign companies with shares that trade at a discount.
The process: The managers are classic bargain hunters. They seek firms that generate a lot of cash and are run by executives who reinvest profits wisely. Oakmark managers only buy stocks that trade at least 30% below their assessment of the firm’s intrinsic value.
The track record: Outstanding results make this core foreign-stock fund worth buying, even though it might be a bother to do so: The fund recently announced that new investors can only buy shares directly from Oakmark (current shareholders can add to their holdings through their brokers). Over the past decade, International outperformed 97% of its peers, with an 8.6% annualized return.
1-year return: -7.5%
3-year return: 9.6%
5-year return: 3.7%
10-year return: —
Expense ratio: 1.36%
The focus: Growth companies of all sizes in emerging economies.
The process: Michael Kass favors fast-growing businesses with sustainable competitive advantages and a high return on invested capital (a measure of profitability). Lately, he has found opportunities in India and China.
The track record: Over the past five years, the fund has outperformed 82% of its peers and the MSCI Emerging Markets index.
1-year return: 1.1%
3-year return: 11.9%
5-year return: 10.0%
Expense ratio: 1.24%
The focus: Firms with market values of $5 billion or less (though the fund can invest in businesses valued between $16 million and $8.3 billion.)
The process: Magnus Larsson and Robert Madsen run the fund with three analysts. Although headquartered in New York, the group is truly international. Larsson is Swedish, Madsen is Danish, one analyst hails from Taiwan, another is from Turkey and a third is French. “We have lived and worked in the markets we invest in,” says Larsson.
The track record: Since the start of 2014, TimesSquare International Small Cap has beaten its peers (funds that invest in small, fast-growing foreign firms) in each full calendar year. The fund’s five-year return beats its bogey, the MSCI EAFE Small Cap index, as well as 82% of similar funds. The kicker: Over the past five years, the fund held up better in down markets than all but a handful of its peers.
1-year return: 14.3%
3-year return: 9.4%
5-year return: 14.6%
10-year return: 14.0%
Expense ratio: 0.38%
The focus: Health care firms of all sizes that will benefit from medical innovation and growth in spending as the world’s population ages.
The process: Jean Hynes balances innovative young drug companies in her portfolio of nearly 90 health care stocks with more-established firms that are quick to adapt to changing times.
The track record: A double-digit gain over the past 12 months wasn’t enough to beat the fund’s peer group. Hynes owns fewer biotech stocks than other health care funds, and that crimped relative returns.
1-year return: 8.9%
3-year return: 11.2%
5-year return: 9.0%
10-year return: 9.1%
Expense ratio: 0.25%
The focus: Income generation and growth through an all-in-one portfolio of 60% dividend-paying stocks and 40% high-quality bonds.
The process: Wellington Management’s Ed Bousa does the stock picking. A trio of fixed-income managers run the bond side. The fund yields 2.6%.
The track record: Over the past three, five and 10 years, this fund stands among the top 11% of its class or better. New investors to the fund must buy shares directly through Vanguard.
1-year return: -0.50%
3-year return: 1.6%
5-year return: 2.6%
Expense ratio: 0.72%
The focus: Mortgage-backed securities with intermediate-term maturities.
The process: Bond gurus Jeffrey Gundlach and Philip Barach pair complementary types of mortgage-backed securities. Government-guaranteed bonds, which are high in credit quality but sensitive to swings in interest rates, are balanced with non-agency mortgage securities, which bear a higher risk of default but less interest-rate risk. (Bond prices typically fall when rates rise, and vice versa.)
The track record: Since its inception in April 2010, Total Return Bond has returned 5.5% annualized, which beats the Bloomberg Barclays U.S. Aggregate Bond index by an average of 2.5 percentage points per year (with a tad less volatility, too). The fund yields 3.5%.
1-year return: -0.4%
3-year return: 1.8%
10-year return: 3.6%
Expense ratio: 0.36%
The focus: Bonds that pay tax-free interest income.
The process: Reasonably priced muni bonds with stable finances draw Mark Sommer and his three comanagers. The foursome monitor safety with a proprietary tool that analyzes risk in the portfolio. Sommer plans to retire at the end of 2019, but the remaining trio have between them decades of experience.
The track record: The fund isn’t a chart topper, but it offers a smooth ride that pays off long term. Over the past decade, its risk-adjusted return bests all but a few in its category. Its 2.2% yield translates to a 3.5% yield for investors in the highest tax bracket.
1-year return: -5.7%
3-year return: 6.2%
5-year return: 4.4%
10-year return: 7.5%
Expense ratio: 0.82%
The focus: Emerging-markets government bonds issued in U.S. dollars.
The process: John Carlson blends big-picture economics with security-specific analysis to find bargain bonds in developing countries. At last report, Mexico, Turkey and Ukraine are big country bets. The fund yields 5.6%.
The track record: Since Carlson took over in mid-1995, the fund has returned an annualized 10.9%. That beats the JPMorgan Emerging Market Bond Global Diversified index by an average of 0.7 percentage points per year.
1-year return: -1.8%
3-year return: 1.1%
5-year return: 2.0%
10-year return: 5.4%
The focus: Discount-priced, high-quality intermediate-term bonds.
The process: The four bond pickers at this fund have been playing defense for the past year by loading up on investment-grade corporate debt, government mortgage bonds and Treasuries. “The longer and more extreme the party gets,” says comanager Tad Rivelle, referring to what he views as an economic cycle at its peak, “the more cautious you should be.”
The track record: The fund’s safety-first position has dulled results. “We were early,” says Rivelle, of the fund’s defensive stance. The fund yields 2.7%.
1-year return: 0.3%
3-year return: 4.8%
10-year return: 6.0%
Expense ratio: 0.68%
The focus: Higher quality, investment-grade bonds balanced with junkier, higher-yielding bonds to deliver protection in down markets and more income than the bonds in the Bloomberg Barclays U.S. Aggregate Bond index.
The process: Managers Ford O’Neil and Adam Kramer make the big-picture decisions and leave the bond picking to experts – other solid portfolio managers at Fidelity – in each bond subsector. Mark Notkin is Strategic Income’s high-yield guru, for instance, Eric Mollenhauer selects floating-rate bank loans and Franco Castagliuolo specializes in government debt.
The track record: Over the past 10 years, its 6.0% annualized return beats the Agg’s 3.7% return. The fund also holds up better in rough bond markets. In 2013, the Agg index lost 2.0%; Strategic Income gained 0.4%. The fund yields 3.6%.
1-year return: 1.7%
3-year return: 5.9%
5-year return: 5.1%
Expense ratio: 0.23%
The focus: Income generated from corporate debt rated double-B or lower.
The process: Manager Michael Hong tilts conservatively toward the better-rated end of high-yield “junk” bonds; he sticks with companies with strong balance sheets and stable free cash flow. The fund yields 5.6%.
The track record: Over the past five years, the fund’s 5.1% annualized return puts it ahead of its 80% of its typical peers.
1-year return: -0.1%
3-year return: 1.5%
5-year return: 1.6%
10-year return: 3.0%
Expense ratio: 0.20%
The focus: High-quality bonds maturing in one to five years.
The process: Longtime manager Gregory Nassour recently retired in April and handed the reins to Samuel Martinez and Daniel Shaykevich. They’re sticking with the recipe Nassour created, and they deliver a 3.2% yield by playing around with the mix of short-term corporate debt, government bonds, and mortgage-and asset-backed securities.
The track record: Over the past five years, Short-Term Investment Grade has returned 1.6% annualized – better than 77% of its peers.
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