With mad-cap stock prices doing their best
Jerry Lewis impression over the past couple of weeks, it's probably a good time to look deep into the heart of your portfolio.
That's because the right (read: steady-Eddie) large-cap U.S. stock fund can be the glue that holds your portfolio together when your stock picks and/or once-hot sector funds start cracking. (See our April 8 multisector bond fund
Screen if you're looking for a core bond fund.)
"Picking the right core fund gives you a lot more freedom with the rest of your portfolio. And if you choose your core fund incorrectly, that can be your most painful mistake," says
Let's see how you might find a good one, shall we? This week's Saturday Screen focuses on the large-cap blend category funds that tend toward large-cap stocks and own both growth and value stocks.
A good core stock fund gives you broad exposure to the market without taking big, risky bets on individual stocks or sectors. Instead of a highflier you're looking for a fund that chugs along, rising with the market, but not falling as hard. Essentially, you want
To make our list, funds had to beat their average peer since Jan. 1, as well as over the past one- and three-year periods. They also had to have below-average expenses, at least 90% of their assets invested in U.S. stocks, and a manager who'd been on board for at least three years. Here's our top 10, ranked by their year-to-date return, since you want a core fund that can weather the choppy waters, like those we've seen so far this year.
Where are the index funds? The volatility we've seen since Jan. 1 has hit index funds a bit harder than active funds, which are better able to take evasive action, so those that track the
or the broader
lag their peers in the year to date. Still, index funds can be an excellent choice for a core holding because they give you broad diversification with low expenses.
If you want to go that route, two things you might consider are -- surprise, surprise --
no-load $107.4 billion
500 Index or its $19.7 billion
Total Stock Market Index, which track the S&P 500 and Wilshire 5000, respectively.
What's the difference? The S&P 500 is primarily a large-cap index, while funds that track the Wilshire 5000 offer a bit more diversification, spreading your assets among all cap ranges.
An index-like option that made our list is $367 million
Schwab Analytics. The fund offers S&P-like diversification across industry sectors, but San Francisco subadviser
Symphony Asset Management
uses quantitative models and limited active management to pick stocks in each sector that are poised for growth. Since the fund's 1996 launch, the strategy has helped the fund stay ahead of its bogey.
Some planners recommend you blend one to three actively and passively managed funds for your core investment so the bulk of your assets aren't riding on one company or investment style. You might find your actively managed fund on our list.
Some of the names are pretty obscure, including four of our top five. Let's face it,
aren't household names. Among the no-names, broker-sold $175 million
Magna Growth & Income might be the strongest option. Since its 1994 inception, manager Gary Guthrie, who runs the fund for
Magna Bank of Missouri
, has kept a diversified portfolio with steady performance.
Still, it irks some investors to invest a big chunk of their assets with a company they know little about. If you're looking for a similar fund from a big company you've heard of, you should probably consider $7.2 billion
T. Rowe Price Blue Chip Growth or $6.4 billion
Eaton Vance Tax-Managed Growth.
Larry Puglia has skippered no-load Blue Chip Growth since its 1993 inception and the name says it all. He holds more than 125 stocks, covering all industry sectors with a low-turnover approach. That's ranked him in the top quarter of the category and kept the fund ahead of the S&P 500 over the past one-, three- and five-year periods.
Since he tends to stick with his picks -- the fund's 35% turnover ratio is less than half that of the average stock fund -- the fund is also one of the category's most tax-efficient options. Ironically, it's even more tax-efficient than broker-sold Eaton Vance Tax-Managed Growth, but that's an intriguing pick, too.
Since the fund's 1996 inception, manager Duncan Richardson has followed a similar low-turnover approach to Puglia's with an even broader portfolio of nearly 700 stocks. The main difference between the two is that Richardson is a bit more valuation-conscious, so the fund has a slight value flavor compared with Blue Chip.
Two funds you might consider that aren't on our list are $532 million
TIAA-CREF Growth & Income and $17 billion
Fidelity fund, says Kinnel.
The no-load CREF fund, from the giant New York firm known best for managing billions in teacher pension assets, would be a great pick if you want a core investment that blends indexing and active management. Manager Carlton Martin does exactly that, splitting the fund in two halves: one tied to the S&P 500 and one he conservatively manages himself.
So far that approach has worked out. The fund's 15.5% return over the past year beats its average peer and the S&P 500, according to Morningstar. The fund missed our list because it doesn't yet have a three-year record.
Fidelity fund might be best for more aggressive investors. Beth Terrana has built a solid reputation since taking the reins in 1993. But her taste for wireless and tech stocks has hurt the fund recently. The no-load fund is down 10% over the past month, worse than about 90% of its peers.
Aggressive types looking for a core fund on our list should also consider the two broker-sold
, Kinnel says. The firm's trademark is an earnings momentum investment style and he says these funds are "mild-mannered" versions of its more aggressive funds. Although the funds have great growth potential, both have held up well during the market's recent turmoil.