Highflying funds might grab headlines, but let's look for some that quietly beat their peers year in and year out because they probably make a lot more sense for you and your portfolio.
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We hear a lot about gun-slinging fund managers who bet the farm on a hot sector and ride it to eye-popping gains in one year or another, but we often miss the second part of the story, where those big bets sour and the fund comes crashing down to Earth. The
Janus Twenty fund's tech-heavy, concentrated strategy tends to lead to outsize gains and sales so steep that the fund is closed to new investors. But if you'd invested $10,000 in that fund at the start of 1999 and made the same investment in the
Vanguard 500 Index fund, you'd be about $400 in the red with the Janus fund and about $450 in the black with the meek
Fat returns are tantalizing, but are often followed by equally big losses. So, unless you buy your fund shares or sell your shares after one year, it's not so easy to make money from chart-topping funds.
So today, the
is looking for Steady Eddies in three big-cap stock fund categories: growth, value and blend. We screened that 1,277-fund pack for those that beat their average peer in each of the past five years according to
, screening out institutional funds with high investment minimums. We turned up a grand total of 18 large-cap growth, large-cap value and large-cap blend funds. Let's look at which ones made our cut, as well as some other funds worth noting, starting with big-cap growth funds.
The big-cap growth funds on our list didn't do anything drastic. On average, their sector weightings predictably, tech is the biggest, at 28% -- are right around their peers'. But it seems they've consistently risen more than their competitors in good times and fallen less in tough times. If you toss these four funds into a portfolio, its worst 90-day loss over the past 10 years would be 20.7%, below flashier and more popular fare such as the Janus Twenty fund, whose worst 90-day loss in the past 10 years was 27%, according to Morningstar.
Leading off our list is another Janus fund that's more suitable for less aggressive investors, the no-load
Janus Growth & Income fund. Manager David Corkins took the reins from Tom Marsico back in 1997, and the fund has topped its average peer in each of the past six years. Like his colleagues at the Denver growth shop, Corkins has a taste for tech stocks, but he tends to take a more price-conscious approach that cuts down on volatility. He also keeps about 10% of the fund in bonds to generate income, which also makes the fund less shaky.
The fund's 15% average annual gain over the past three years beats the S&P 500 by more than eight percentage points and leads 80% of the fund's peers, according to Morningstar.
One growth fund on this list that's had the same manager for the past five years is the
Northern Select Equity, a no-load fund that Robert Streed has run since its 1994 inception. Streed's biggest sector bets vs. the S&P 500 are in retail, utilities and health care stocks. That has held him back so far this year, but he has trounced his average peer over the past one-, three- and five-year periods, according to Morningstar.
A more aggressive fund you might consider is the no-load
Harbor Capital Appreciation fund, which missed our cut because of a 17% loss last year.
Sig Segalas, manager of the Harbor fund since 1990, focuses on stocks of companies growing their revenue faster than the S&P 500, which has led him to pricey fare. While the fund lost 17% last year, it still tops its average peer over the past one-, three-, five- and 10-year periods, according to Morningstar. The fund's 18.3% annualized gain over the past 10 years beats 96% of its peers and tops the S&P 500 by more than three percentage points.
Our screen of the big-cap value pack turned up some solid performers with steady management.
A far cry from their growth counterparts, these six funds keep nearly 30% of their money in the relatively sleepy financial services sector and just about 11% in tech stocks.
At the top of our list is the broker-sold
Alliance Growth & Income fund, where Paul Rissman has called the shots since 1994. While willing to let his winners run a bit, he hasn't taken big risks in running the fund and that's worked out pretty well. The fund beats both its average peer and the S&P 500 this year and over the past three- and five-year stretches, according to Morningstar.
Susan Byrne, manager of the no-load
Gabelli Westwood Equity fund since its 1987 launch, also sticks mainly with financials and less shaky sectors like utilities. But her approach is hardly vanilla. She tries to pick out broad growth trends and then combs the market for companies that might be both undervalued and positioned to benefit from these trends. This approach might sound fairly humdrum, but it's led to eye-popping returns.
The fund has topped its average peer in each of the past eight calendar years, according to Morningstar. The fund's 16.4% annualized gain over the past 10 years beats the S&P 500 and more than 90% of its peers.
As long as you can stomach a big bet on financial stocks, even by value-fund standards, you might want to check out the broker-sold
Davis New York Venture fund and the no-load
Selected American fund, both run by lead manager Chris Davis since the mid-1990s. Davis and co-manager Kenneth Feinberg shop for stocks they think are undervalued and hold them for years. That's led them to keep about 40% of the funds' money in the financial sector with a near-market weighting in the tech sector. Both funds have topped their average peer in each of the past six calendar years, according to Morningstar.
Another value fund you might want to consider is the no-load
Legg Mason Value fund, run by value guru Bill Miller since 1982. Miller, a former Morningstar Manager of the Year, is the only fund manager to beat the S&P 500 in each of the past 10 calendar years. Unlike most traditional value managers, Miller doesn't shy away from pricey shares like
America Online Time Warner
if he thinks they're trading at a discount to their future cash flows. This has kept him behind his tech-light peers at times, but his 25.7% average gain over the past five years tops all of his peers, according to Morningstar.
Finally, let's see what we found in the large-cap blend bin, where funds typically use both the growth and value styles.
Living up to their name, these funds keep about 20% of their dough in tech stocks and another 20% in financial-services shares. That's precisely the tack taken by Bill Fries, manager of the broker-sold
Thornberg Value fund since its 1995 inception. The fund beats at least 88% of its peers and the S&P 500 over the past one-, three- and five-year periods, according to Morningstar.
Of course, the idea of blending value and growth styles does lend itself to a vanilla image. That's borne out by the broker-sold
State Street Research Investment Trust, where John Wilson has held the reins since 1996. Wilson hems closely to the S&P 500's sector weightings, essentially buying shares of blue-chip shops in each bin. The fund narrowly trails the S&P 500 over the past one-, three-, five- and 10-year periods and its ranks vs. its peers are consistently middle-of-the-road.
The same can't be said of the broker-sold
Putnam Research fund, which also keeps its sector weightings in check. The fund is essentially a compendium of 40 analysts' top picks with a trio of fund managers keeping the fund's sector weightings in line with the market. The fund has beaten its average peer each year since its 1995 inception and its 18% five-year annualized gain beats 95% of its peers and tops the S&P 500 by more than two percentage points.
Another large-cap blend fund you might look at is, surprise, the
Vanguard 500 Index fund, which tracks the S&P 500. The fund's 9.1% loss last year snapped a six-year, peer-beating streak. If you're looking for broad access to the big-cap market with low costs -- the fund's 0.18% annual expense ratio is far below its average peer's 1.24% fee -- you really can't go wrong.
There you have it, a roster of big-cap funds that have had an uncanny knack for stringing together good years.