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All Contents © 2018The Kiplinger Washington Editors
By Nellie S. Huang, Senior Associate Editor
| March 6, 2018
At Kiplinger, we've been writing about mutual funds since the 1950s, and have 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 funds: what makes them tick, and what kind of returns they've delivered. Check it out.
Returns are through Feb. 28, unless otherwise noted.
1-year return: 14.1%
3-year return: 11.5%
5-year return: 15.1%
10-year return: 8.9%
Expense ratio: 0.52%
The focus: Bargain-priced large-company stocks.
The process: The eight managers who run this fund like to buy stocks that are out of favor and are willing to wait for a turnaround: A bet the managers made on Hewlett-Packard more than a decade ago paid off in a big way after HP split into two entities in late 2015.
The track record: The longest-tenured stock fund in the Kip 25, D&C is occasionally out of sync with the market. But its long-term record is solid, and the fund turned in a respectable gain over the past year.
1-year return: 15.4%
3-year return: 9.7%
5-year return: 13.1%
10-year return: 10.3%
Expense ratio: 0.54%
The focus: Fast-growing firms that will benefit from technological changes and demographic trends, among other things.
The process: John Roth can invest in firms of all sizes (the fund has 53% of its assets in large caps; the rest is in small and midsize firms). He is more sensitive to a stock’s valuation than most growth managers.
The track record: A contrarian bet on energy stocks in late 2014 and 2015 paid off in 2016. But Roth's contrarian tilts had him selling tech stocks in 2017—a banner year for the sector. Patience for this fund will pay off. Since Roth took the helm in mid-2006, New Millennium has outperformed the S&P 500.
1-year return: 8.9%
3-year return: 7.9%
5-year return: 11.5%
10-year return: 9.6%
Expense ratio: 0.66%
The focus: Firms based in the Upper Midwest, where the fund company is based. The managers believe proximity gives them an edge.
The process: Mark Henneman and Andrew Adams like companies with durable competitive advantages. And they tend to be long-term holders. Toro, a Bloomington, Minn., landscaping-equipment firm, has been in the fund since 1993. Over the past year, the stock gained 9%.
The track record: The fund lagged over the past year, but its long-term record is solid.
1-year return: 32.5%
3-year return: 16.4%
5-year return: 19.1%
10-year return: 13.1%
The focus: Midsize and large companies that are expanding at above-average rates and trade at favorable share prices. Health care and technology dominate the fund.
The process: The fund has five managers: Theo Kolokotrones, Joel Fried, Alfred Mordecai, M. Mohsin Ansari and James Marchetti. Each has a chunk of his own money invested in the portfolio, and each one manages his own piece of the fund’s assets. They all look for a catalyst—the introduction of a new product, a restructuring or the arrival of new executives, for example—that they think will push a stock higher over the next three to five years.
The track record: Over the past year, the fund beat 88% of its peers (funds that invest in large, growing companies) and the S&P 500, with a 32.5% gain.
1-year return: 36.8%
3-year return: 16.2%
5-year return: 19.6%
10-year return: 12.9%
Expense ratio: 0.72%
The focus: Fast-growing companies with good long-term prospects.
The process: Manager Larry Puglia invests in 125 to 140 large and midsize firms with above-average, sustainable earnings growth, strong free cash flow (cash profits after capital outlays) and executives who reinvest in the company wisely.
The track record: The ride can be bumpy—the fund crushed the S&P 500 in 2015, lagged badly last year and soared 36.6% in 2017.
1-year return: 14.9%
3-year return: 10.2%
5-year return: 13.5%
10-year return: 9.5%
Expense ratio: 0.64%
The focus: Large firms with the capacity to raise dividends in the future.
The process: Manager Tom Huber seeks sturdy companies that dominate their businesses. JPMorgan Chase, Microsoft and UnitedHealth Group are top holdings. The fund yields 2.5%.
The track record: Since Huber took over in March 2000, Dividend Growth has earned 7.4% annualized, destroying the S&P 500 by an average of 1.9 percentage points per year.
1-year return: 17.4%
3-year return: 9.9%
5-year return: 14.9%
10-year return: 12.7%
Expense ratio: 0.81%
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.
1-year return: 13.0%
3-year return: 8.6%
5-year return: 13.3%
10-year return: 9.3%
Expense ratio: 0.82%
The focus: Large-cap and mid-cap stocks trading at discounted prices.
The process: When a high-quality company hits a bump—say, a controversy that drags the stock down—you can bet that manager Mark Finn will look at it closely. If he can identify a catalyst for a turnaround and if the business trades at a discount to Finn’s assessment of its true value, he buys. Finn added to his position in Wells Fargo last year after news broke about its questionable sales practices.
The track record: Since Finn took over at the start of 2010, the fund has returned 13.2% annualized, beating the average large-cap value fund by 1.5 points.
1-year return: 12.2%
3-year return: 10.1%
5-year return: 12.8%
Expense ratio: 0.26%
The focus: Large companies with above-average dividend yields.
The process: Two shops run this fund. Wellington Management’s Michael Reckmeyer, who controls two-thirds of the fund’s assets, picks 60 to 70 firms that can sustain their dividend and raise it over time. Vanguard’s quantitative equity team holds about 100 stocks that have four key growth characteristics, including consistent earnings growth and a healthy balance sheet. A final test homes in on share prices relative to various measures of value. The fund yields 2.8%.
The track record: Since mid-2007, when the current management arrangement was put in place, Equity-Income has kept pace with the S&P 500 with an annualized return of 8.7%.
1-year return: 7.6%
3-year return: 5.9%
5-year return: 11.0%
10-year return: 11.4%
Expense ratio: 0.89%
The focus: Off-the-radar, small-cap stocks in the U.S. that the fund can hold for long periods.
The process: Mark Ashton and Prabha Carpenter travel to far-flung corners of the country to find companies that generate a lot of cash and are run by shareholder-friendly executives.
The track record: The fund's one-year return is disappointing, but over the past decade, Homestead handily beat the Russell 2000 index, which tracks small-cap stocks.
1-year return: 9.5%
3-year return: 8.7%
5-year return: 12.1%
10-year return: 10.7%
Expense ratio: 0.99%
The focus: Midsize firms that pass environmental, social and governance screens. The fund won’t invest in companies that sell tobacco, liquor or weapons, among other things.
The process: Matt Gershuny and Lori Keith favor businesses that offer a product or service that’s in demand or companies that dominate their industry. The managers must conclude that a company’s intrinsic value—their estimate of its true worth—can increase, on average, by at least high-single-digit percentages annually over the next three years.
The track record: Over the past five and 10 years, Parnassus has beaten the typical mid-cap fund.
1-year return: 8.3%
3-year return: 10.5%
5-year return: 10.9%
10-year return: 9.7%
Expense ratio: 0.93%
The focus: Cheap, unloved or undiscovered small-company stocks.
The process: Manager David Wagner favors firms run by managers who are shareholder-oriented. The fund is big, with more than $10 billion in assets. But Wagner manages to skew small: Holdings in the 300-stock portfolio have an average market value of $2 billion, which is less than the $3.5 billion average of the typical small-company fund.
The track record: After a rough 2014 and 2015, the fund has been on a roll lately.
1-year return: 22.3%
3-year return: 6.9%
5-year return: 8.2%
10-year return: 5.6%
Expense ratio: 1.03%
The focus: Fast-growing companies, mostly in developed countries.
The process: The ideal firm, says manager Jed Weiss, is a tough competitor that can maintain or even raise prices when the economy turns against it. Weiss likes to buy when stocks are cheap.
The track record: Since Weiss launched the fund in 2007, it has returned 4.1% annualized. Still, that compares favorably with the 1.4% gain in the EAFE index, which tracks large firms in developed markets.
1-year return: 24.5%
3-year return: 8.2%
5-year return: 9.4%
10-year return: 8.2%
Expense ratio: 0.95%
The focus: Companies in foreign countries that trade at a bargain.
The process: David Herro and his comanager Michael Manelli seek firm with executives who act like owners, that generate positive free cash flow (cash earnings after capital expenditures) and that reinvest profits wisely. But they only buy if the stock sells for at least 30% below their assessment of a firm’s intrinsic value per share—what a buyer would pay to acquire that entire business.
The track record: Over the past year, the fund’s return outpaces all but 7% of its peer group, funds that invest in large, value-priced foreign companies. The fund’s long-term record is even better: Over the past 10 and 15 years, it ranks among the top 1% of its peers. If you want to buy shares for the first time in Oakmark International, you must now buy directly from the firm. The fund is closed to new investors at most brokerage firms, including Fidelity and Schwab. If you already own shares, this news doesn’t affect you. You can still buy shares through your brokerage firm or directly from Oakmark.
1-year return: 31.9%
3-year return: 9.5%
5-year return: 8.6%
10-year return: N/A
Expense ratio: 1.45%
The focus: Midsize to large companies in developing countries.
The process: Michael Kass focuses on companies with above-average growth and competitive advantages. China, India, South Korea and Brazil are the fund’s biggest stakes, by country.
The track record: Since Kass took over in early 2011, the fund has gained 6.7% annualized, compared with a 3.0% gain for the MSCI Emerging Markets index.
1-year return: 34.3%
3-year return: 15.3%
5-year return: 13.4%
10-year return: 8.1%
Expense ratio: 1.20%
The focus: Small and midsize companies in developed nations (80% of assets) and emerging countries.
The process: Justin Thomson, the fund’s longtime, London-based manager, works with analysts located in Japan, Hong Kong and Europe to look for buying opportunities. “The trick is to buy early in their lifecycles, before they’re recognized by the rest of the market,” says Thomson. That usually means the companies are relatively inexpensive, too. Thomson often holds stocks for long periods
The track record: Over the past five years, International Discovery returned 13.4% annualized, compared with 9.9% a year for an S&P index that tracks small- and mid-cap foreign stocks. The fund charges a below-average annual fee of 1.20%.
1-year return: 8.8%
3-year return: 4.7%
5-year return: 16.0%
10-year return: 12.4%
Expense ratio: 0.37%
The focus: Companies that can cash in on the long-term growth in health care spending and medical innovation.
The process: Manager Jean Hynes looks for newcomers that are at the forefront of innovative drug-development techniques and older firms that have adapted quickly to new technologies.
The track record: Although the fund posted a double-digit gain over the past year, it’s hard to sugarcoat disappointing results. Vanguard Health Care trailed the average health fund by 6.7 percentage points, in part because of a below-average exposure to foreign stocks compared to its peers.
1-year return: 9.8%
3-year return: 7.5%
5-year return: 9.7%
10-year return: 7.8%
Expense ratio: 0.25%
The focus: Income and growth generated by a balanced portfolio that keeps 60% to 70% of its assets in stocks and the rest in high-quality bonds.
The process: Wellington Management runs this fund. Ed Bousa, who has picked stocks for the fund since 2003, focuses on dividend payers. A trio of fixed-income managers fill the bond side of the portfolio with investment-grade debt. The fund, which yields 2.3%, is available to new investors only if purchased directly from Vanguard.
The track record: A fund with one-third of its assets in bonds will never keep up with pure stock funds in a powerful bull market. Since 2006, when Bousa and lead bond picker John Keogh were first paired, Wellington has returned 7.9% annualized, outpacing 95% of similar funds.
1-year return: 1.7%
3-year return: 1.8%
5-year return: 2.3%
Expense ratio: 0.73%
The focus: An intermediate-term bond fund that mostly holds mortgage-backed securities.
The process: Jeffrey Gundlach and Philip Barach balance government-guaranteed mortgage-backed securities with non-agency mortgage-backed securities. The former carry virtually no credit risk but will fall in value as interest rates rise. The latter come with more credit risk but relatively little interest-rate risk. The fund’s average duration, a measure of interest-rate sensitivity, is 4.0 years, implying that if rates were to rise by one percentage point, the fund would lose roughly 4% of its value. The fund yields 3.3%.
The track record: Total return outpaced the Bloomberg Barclays US Aggregate Bond index by almost twofold over the past year. Since its inception in 2010, the fund has topped the Agg by 2.6 percentage points per year.
1-year return: 2.2%
3-year return: 1.6%
5-year return: 2.0%
10-year return: 3.7%
Expense ratio: 0.35%
The focus: Bonds that pay tax-free interest income.
The process: Lead manager Mark Sommer and two comanagers search for value in muni sectors with stable finances, such as issuers of general obligation debt and health care revenue bonds. The only tax-free fund in the Kip 25, Intermediate Muni yields 2.0%, which is equivalent to 3.3% for someone in the highest federal tax bracket.
The track record: The specter of lower income-tax rates fueled a rally in muni bonds late last year. The Fidelity fund navigated the period well, edging out its group during the past year.
1-year return: 4.4%
5-year return: 4.2%
10-year return: 7.5%
Expense ratio: 0.86%
The focus: Bonds issued by governments and firms in developing nations.
The process: Longtime manager John Carlson currently holds 80% of the fund’s assets in dollar-denominated government bonds, with a small slug in corporate debt. New Markets is the highest-paying fund in the Kip 25 with a yield of 4.4%.
The track record: New Markets Income was one of our best-performing bond funds over the past year, but it trailed its peer group of emerging-markets debt funds, largely because of its focus on dollar-denominated debt. A rebound in emerging-markets currencies helped FNMIX's peers that had exposure to local-currency debt.
1-year return: 0.3%
3-year return: 0.8%
5-year return: 1.7%
10-year return: 5.0%
Expense ratio: 0.69%
The focus: Medium-maturity, investment-grade bonds.
The process: With $78.7 billion in assets, this is the nation’s second-biggest actively run bond fund. Its four managers have more than half of the fund’s assets invested in fortress-strength bonds: Treasuries and mortgage bonds and bundles of student loans backed by the government. Another 20% is invested in investment-grade corporate bonds. The rest is in a mix of asset-backed securities not backed by Uncle Sam. The fund yields 1.9% and has an average duration of 5.9 years.
The track record: Met West's defensive stance has stifled returns. The fund lagged the Agg over the past year. Over the past 10 years, it beat 93% of taxable intermediate-term bond funds.
1-year return: 5.2%
3-year return: 5.5%
5-year return: 5.3%
10-year return: 8.6%
The focus: Steady income generated by a variety of bond types.
The process: Dan Ivascyn and Alfred Murata divide the go-anywhere fund into two parts: One invests in high-yielding bonds, such as non-agency mortgage-backed securities and emerging-markets debt, that should perform well in a strong economy; the other holds high-quality debt, including Treasuries, that should rally in a weak economy. The fund yields 3.5%.
The track record: Income’s one-year gain outpaced the Agg by nearly 5 percentage points. Over the past 10 years, the fund's 8.6% annualized return outranks 99% of its peers. But Pimco is folding its D share class into its A share class on March 23. Current shareholders won't pay any sales charge or fees in connection with the conversion. And the bond-fund firm says investors—new and existing—will be able to buy A shares for no sales charge or fee at any broker-dealer that previously offered the no-load D share class.
1-year return: 3.5%
3-year return: 4.3%
5-year return: 4.7%
10-year return: 7.0%
Expense ratio: 0.23%
The focus: Junk bonds (debt rated double-B or lower).
The process: Manager Michael Hong, who works for Wellington Management, tilts toward higher-quality junk and likes to buy and hold. Hong favors firms with stable free cash flow and strong balance sheets. “It’s all about avoiding losers,” he says. The fund yields 5.5%.
The track record: This fund often lags in strong markets, but it shines when junk bonds are under pressure. Over the past five years, High-Yield Corporate landed in the top third of its group.
1-year return: 0.7%
3-year return: 1.5%
5-year return: 1.5%
10-year return: 2.6%
Expense ratio: 0.20%
The focus: A diversified blend of mostly short-maturity, high-quality bonds.
The process: Manager Gregory Nassour doesn’t have much wiggle room to adjust maturities, so most of his tweaks involve the mix of bond types. These days, corporate bonds make up 62% of the fund’s assets. The fund yields 2.7% and has a duration of 2.6 years.
The track record: Over the past year, Short-Term outpaced the returns of the Agg index. Over the past five years, it outperformed 80% of taxable, high-quality short-term bond funds.
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