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All Contents © 2019The Kiplinger Washington Editors
By Dan Burrows, Contributing Writer
Nellie S. Huang, Senior Associate Editor
| June 25, 2018
Volatility has returned to the stock market, and that’s when a seasoned fund manager can really earn his or her keep. Whether it’s rising interest rates, trade-war fears or geopolitical instability, a professional investor who’s seen both good times and bad is usually a wiser steward of capital.
That’s why Kiplinger prefers mutual 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.
When it comes to investing through volatile markets, these 12 stock funds culled from the list of our favorite low-fee mutual funds all make the grade.
Funds are listed alphabetically by ticker symbol. Returns, yields and expense ratios are as of June 20, 2018. Three-, five- and 10-year returns are annualized. Data provided by Morningstar.
1-year return: 14.6%
3-year return: 11%
5-year return: 13.5%
10-year return: 9.6%
Expense ratio: 0.52%
The focus: Undervalued, well-established midsize and large firms.
The process: Dodge & Cox’s nine-member team picks holdings on a company-by-company basis, with an investment horizon of about three to five years. 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 for some time, at least compared with their growth-oriented peers. The fund’s 14.6% gain over the past year lagged the S&P 500’s 15.8% return, but it beat 86% of other funds that bet on large, cheap stocks. A low expense ratio of 0.52% helped.
1-year return: 18.3%
3-year return: 10.3%
5-year return: 12.7%
10-year return: 10.5%
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 1.2% return over the month ended June 20 lagged 81% of its peers. Over the long haul, however, Roth carries the day. New Millennium’s 10.5% annualized return over the past decade beat its peers and the S&P 500.
1-year return: 13.2%
3-year return: 6.9%
5-year return: 10.6%
10-year return: 11.7%
Expense ratio: 0.88%
The focus: Little-known small-cap companies that are out of favor but primed for a turnaround.
The process: The fund takes a risk-averse approach to a typically volatile corner of the market. Prabha Carpenter and Mark Ashton look for firms that generate a lot of cash and are run by shareholder-friendly execs.
The track record: Homestead Small-Company Stock has a solid long-term track record. Its 10-year annualized return of 11.7% is better than the S&P 500 and 90% of its peers. More recently, a portfolio light on tech and health care has hurt results, as those sectors helped lead the market’s gains. Although the fund has trailed the index and its category over the past one, three and five years, the managers haven’t changed their process, which we view as a good thing. But we have the fund on watch for now.
1-year return: 7.2%
3-year return: 8.6%
5-year return: 11%
10-year return: 10.1%
Expense ratio: 0.64%
The focus: Fast-growing firms of any size trading at reasonable prices.
The process: Mairs & Power Growth has two managers, both of whom favor firms headquartered in the upper Midwest, where the fund company is based. The theory: 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 7.2% return trailed the S&P 500 by 8.6 percentage points.
1-year return: 6.8%
3-year return: 6%
5-year return: 7.4%
10-year return: 8.3%
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 98% of its peers, with an 8.3% annualized return.
1-year return: 30.4%
3-year return: 17.4%
5-year return: 18.2%
10-year return: 13.4%
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 companies that are under pressure but have a catalyst – a new product, a new CEO, a restructuring – that could spur growth.
The track record: POGRX trounced the S&P 500 by 14.6 percentage points over the past 12 months, thanks to a 31% stake in technology stocks.
1-year return: 11.1%
3-year return: 10.5%
5-year return: 12.8%
The focus: Big firms with the propensity and capability to raise dividends over time.
The process: Manager Tom Huber looks for companies that dominate their industries and throw off cash, and seeks out experienced executives who are shareholder-focused. The portfolio has increased payouts at an average of 9% per year and currently yields 1.3%. Stock dividends overall may get a boost this year, Huber says, in light of new corporate tax laws.
The track record: PRDGX tends to beat the broad market in bad times and lag in good times. Dividend Growth has trailed the S&P 500 over the past 12 months. However, Huber’s focus on quality and increasing payouts wins handily long-term.
1-year return: 17.9%
3-year return: 13.4%
5-year return: 12.4%
10-year return: 10.0%
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: Over the past three years, the fund has outperformed 93% of its category peers.
1-year return: 31.5%
3-year return: 17.8%
5-year return: 19.9%
10-year return: 13.1%
Expense ratio: 0.7%
The focus: High-quality, giant firms that are growing fast and trade at fair share prices.
The process: Larry Puglia holds roughly 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 – after Blue Chip Growth’s gangbuster 36.6% return beat the S&P 500 by 14.7 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: 8.7%
3-year return: 7.5%
5-year return: 11.5%
10-year return: 9.4%
Expense ratio: 0.8%
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 indicates trouble. That’s when Mark Finn moves in. Recently, he bought stock in Priceline (PCLN), a firm pressured by competition in the online travel market.
The track record: TRVLX has returned 13.2% annually since Finn took over in early 2010. That’s better than its benchmark, the Russell 1000 Value index. Share prices in relation to earnings and other yardsticks are “not great” these days, Finn says, so he’s focusing on quality over cheapness.
1-year return: 9.8%
3-year return: 10.1%
5-year return: 11.7%
10-year return: 9.9%
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 controls the rest; it screens for dividend stocks that meet four characteristics, including consistent earnings growth and relatively low prices. The fund yields 2.4%.
The track record: Reckmeyer and Vanguard’s quant team joined forces in 2007. VEIPX has returned 9.1% annualized over the past decade, which beats 89% of its peers (funds that invest in value-priced stocks).
1-year return: 7.3%
5-year return: 9.1%
10-year return: 8%
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 2.4%.
The track record: Over the past three, five and 10 years, this fund stands among the top 15% of its class. New investors to the fund must buy shares directly through Vanguard.
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