Mutual Fund Dog OwnersInvesting in the dogs is a relatively straightforward proposition for retail investors. Those who prefer to invest in the dogs through a mutual fund, however, can choose from one of three funds, though none of the funds invests its assets entirely in the 10 dog stocks. The $21 million ( HBFBX) Hennessy Balanced fund puts 50% of its assets in the dogs and the other half in one-year Treasury bills, while the $91 million ( HDOGX) Hennessy Total Return fund has a 75%/25% dogs-to-T-bills ratio. According to fund-tracker Morningstar, the funds are down 1.62% and 0.49% this year (see chart below). Neil Hennessy, portfolio manager for both funds, says investors should know that there is more to the dogs strategy than just performance, especially in the current tax environment. "The yield on the dogs is 4.15% and that's for one year," says Hennessy. "That's tough to beat when you compare it to the five-year Treasury, which is yielding 4.15%, or even the 10-year Treasury at 4.33%. Plus, under the new tax laws dividend income is only taxed at 15%, not 40%." Jay Wong, co-portfolio manager for the $48 million ( PDOGX) Payden Growth and Income fund, which uses the dogs strategy for 50% of its portfolio, agrees that the new tax advantages on dividends are being overlooked by investors. "A lot of investors still have not fully appreciated the impact of the dividend tax cuts," says Wong. "On an after-tax basis it makes a big difference to your total return." Furthermore, Wong says that unlike bonds, a dogs strategy offers investors the potential for capital appreciation potential with some high-quality value stocks. "You don't have the potential to make 10% to 15% equity-size returns in Treasuries," says Wong. "And from a style perspective, value continues to outperform growth."
|Hot Diggity! |
Dogs of the Dow Funds
|Fund/Index||Ticker||YTD %||Annual Returns %||Expense Ratio %|
|Hennessy Total Return||HDOGX||-0.49||2.3||22.6||-8.7||1.27|
|Payden Growth & Income Fund||PDOGX||-0.24||9.6||21.1||-14.1||0.8|
|Source: Morningstar (returns through Aug. 1).|