The Big Screen: Core Stock Funds
If your portfolio let you down over the past year or two, it's a good time to look deep into its heart.
A broad, cheap, vanilla stock fund focused on big-cap stocks could've held your portfolio together as stock prices tumbled over the past two years. Here's why: Tethering the bulk of your assets to a broad range of stocks helps your portfolio rise with the broader market and makes it less likely that you'll suffer outsize losses when your favorite sector or style folds.
Consider that a portfolio evenly split between a big-cap growth fund and a tech fund -- top-selling categories in 2000 -- would've averaged a 4% annual loss over the past three years. But if 50% of that growthy portfolio was in shares of the (VFINX)Vanguard 500 Index fund, which meekly tracks the S&P 500 index, those losses would've been halved.Of course, knowing you need one of these funds and fishing a solid choice from the ocean of choices are two different things. This week's Big Screen casts the net for you. It's instinctive to focus on performance, but in your core fund you're looking for steady, marketlike returns without nasty surprises such as hidden sector bets or fast tax bills. Translation: We're looking for Clark Kent, not Superman. First off, we focused on large-cap blend funds, rather than funds that pin their hopes on the growth or value styles (you can run a similar screen of value or growth funds if you like). We screened out any fund that hadn't topped its average peer over the past one, three and five years with its current manager at the helm. Then we yanked out funds that were more volatile than their peers over the past three years, stuck shareholders with above-average capital gains distributions, charged high expenses or carried an investment minimum north of $10,000. Finally, we pulled out funds that were closed to new investors or had less than $50 million in assets, which could shorten their life span. That left us with some 10 funds, which we ranked by their annualized gains over the past five years. Let's look at a few standouts and then talk about a few that didn't make our cut but merit a look.
These same funds cleared our main hurdles
|Fund||Five-Year Return||One-Year Return|
|(FDGFX)Fidelity Dividend Growth||14.4%||-0.2%|
|(GEEQX)GE U.S. Equity||10.6||-5.4|
|(SHAPX)Smith Barney Appreciation||9.7||-2.8|
|(TWRSX)Hibernia Capital Appreciation||9.2||-3.1|
|(FGRIX)Fidelity Growth & Income||9.1||-2.7|
|(VFINX)Vanguard 500 Index||8.9||-6.6|
|(VTSMX)Vanguard Total Stock Market Index||8.4||-5.2|
|Source: Morningstar. Returns through March 5.|
|Why You Bother
A good core fund would've stemmed
a growthy portfolio's losses
|Source: Morningstar. Data through Jan. 31.|
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