Throughout the market downturn,
has beaten its benchmarks. For the past year, the fund outperformed 98% of its large value competitors. During the last decade, Yacktman returned 4.9% annually, ahead of the
by 6.2 percentage points.
Portfolio manager Donald Yacktman has shined by holding steady performers, high-quality stocks that have little debt and the potential to deliver growing earnings. A diehard value specialist, he buys solid shares when they have fallen out of favor and when they sell for discounts to their fair values.
Lately the portfolio has owned a list of well-known names, including
Procter & Gamble
. Such modestly priced blue-chip stocks have proved resilient in the downturn as investors have sought companies that can survive the recession.
Along with finding winners, Yacktman protected shareholders by steering away from trouble. Because he avoids companies with heavy debt, the fund held few of the big financial companies when their shares collapsed this past year.
Yacktman's recent performance is particularly noteworthy because the fund was given up for dead by many shareholders in the 1990s. At the time, the markets were shunning steady, low-priced stocks and embracing Internet businesses with little or no earnings
With investors dumping value stocks in 1999, Yacktman lost 16.9%, trailing the S&P by 37.9 percentage points. Investors fled the fund, as assets under management dropped from more than $1 billion in 1997 to $70 million in 2000. Members of his board of directors tried to fire Don Yacktman, but he held on.
Shareholders who remained loyal to the fund were richly rewarded. While the S&P 500 lost 9.1% in 2000, Yacktman gained 13.5%. In each of the next two years the benchmark sank into the red, and Yacktman outpaced the S&P 500 by more than 30 percentage points.
Yacktman is one of a number of value funds that specialize in high-quality stocks -- and have long records of excelling during downturns. Will the high-quality funds outperform if the market rebounds in the next year or two? Maybe not. Funds that focus on steady stocks often lag in roaring bull markets when optimistic investors grab riskier shares.
Whether or not you expect a revival in the markets, it is worth buying and holding a high-quality fund. By sticking with Yacktman or one of his peers, investors stand a good chance of protecting assets in downturns and achieving healthy returns over the long term.
A top high-quality fund is
GAMCO Westwood Equity
, which favors very profitable companies with rising returns on equity. Portfolio manager Susan Byrne seeks undervalued stocks that are likely to beat Wall Street earnings estimates. Like the Yacktman fund, GAMCO lagged in 1999 and then went on to crush the S&P 500.
As a value fund, GAMCO typically buys stocks with price-earnings ratios of less than 20. In the past, the value approach prevented Byrne from buying high-priced growth stocks. But lately many longtime growth champions have slipped into value territory. Now GAMCO is buying such former growth stars as
Byrne is also partial to
Automatic Data Processing
, a stock with a long history of increasing earnings and dividends. The company processes payrolls for thousands of businesses. At a time of shrinking payrolls, the shares have skidded, but Automatic Data continues to maintain a sterling balance sheet.
Investors who prefer focusing on dividend payers should consider
Pioneer Equity Income
. Portfolio manager John Carey looks for solid companies that can increase their dividends at above-average rates. Those steady choices enabled the fund to outperform 92% of large value competitors during the past year.
Each of Carey's holdings pays a higher dividend yield than the average for its industry. Overall, the portfolio aims to yield a bit more than the S&P 500.
A longtime holding is
, which boasts a strong balance sheet and steady sales during recessions. While the company has raised its dividend over the years, the management has been conservative about increasing the payout.
In lean years, Colgate-Palmolive has postponed raising the dividend, waiting for better times when the management was sure that it could afford to cover the bills. That careful approach has produced steady results and helped Pioneer Equity Income protect shareholders during the downturn.
Stan Luxenberg is a freelance writer who specializes in mutual funds and investing. He was formerly executive editor of Individual Investor magazine.