Rock-Solid Funds That Excel in Downturns
NEW YORK (TheStreet) -- At first glance, the performance record of AMF Large Cap Equity (IICAX) might appear uninspiring. During the past 15 years, the actively managed mutual fund returned 4.6% annually, compared to 4.5% for the S&P 500. Why bother with the active portfolio when you might do about as well with an index fund?
But the fund is worth a second look because of an important trait: During downturns, AMF outperforms the benchmark like clockwork. AMF topped the S&P by 6 percentage points in 2002, a year when Internet stocks sank and the benchmark lost 22.2%. In the turmoil of 2008, the S&P lost 37% and AMF outperformed by 8 percentage points.
AMF is not the only large blend fund to top the S&P by limiting losses in downturns. Other low-risk funds that excelled in the past 15 years include American Funds Investment Company of America (AIVSX), Dreyfus Appreciation (DGAGX), and Legg Mason ClearBridge Appreciation (SHAPX). All those winners achieved steady records by focusing on rock-solid blue chips. Because of their reliable performance, the funds can be sound core holdings.
For conservative investors, AMF is especially appealing. The fund ranks as one of the steadiest large blend choices, as indicated by standard deviation, a measure of how much an investment bounces up and down.
AMF's caution is no accident. The fund started in 1953 as a conservative vehicle for New York State savings banks that sought to invest in stocks. The AMF fund is unusual because most states bar savings banks from putting their spare cash in equities. New York regulators took a different approach, figuring that investments in blue chips could help strengthen bank balance sheets. So far the confidence of regulators has been justified. Since its inception, the fund has returned about 10.5% annually. A bank that invested $10,000 at AMF's beginning would now have $3.4 million. Several of the original bank investors have enjoyed strong returns, staying with the fund over the decades. In recent years, the AMF fund has been opened to retail investors. Portfolio manager Mark Trautman joined the fund in 1995, and he has kept things simple. The fund typically holds 30 high-quality stocks. The aim is to find solid companies that can increase earnings and dividends consistently.
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