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Golden Oldies Keep on Truckin’

These funds that have been around since at least 1970 are among the best in their categories.

Adam Zoll, 04/22/2013

They’ve outlasted Watergate and the Arab oil embargo, the 1987 market crash, the bursting of the tech bubble, the 2008 financial crisis, and countless bull and bear cycles in between, yet they’re still going strong. Although many of their competitors have come and gone, some mutual funds have stood the test of time and continue to serve investors who may be attracted, in part, to their longevity and the stability it implies.

Out of more than 7,000 U.S. open-end mutual funds in Morningstar’s database, only about 140 (2%) have been around since 1970, and roughly half of those are U.S. large-cap stock funds. The very first U.S. open-end mutual fund, MFS Massachusetts Investors Trust MITTX, which was created in 1924, is still going strong today, with more than $4 billion in assets and a Bronze Morningstar Analyst Rating.

However, just because a fund has been around since the days of flower-power and psychedelic rock doesn’t necessarily mean it’s worth holding in the year 2013. For example, a fund may have earned a great reputation under a superstar manager who since has left. A case in point is Fidelity Magellan FMAGX, which was born in 1963 and soared to great heights under manager Peter Lynch in the 1980s but has been among the worst performers in the large-growth category during the past decade.

Another consideration when thinking about buying a fund with a long track record is whether its strategy suits your needs and is right for today’s market environment. A process that has proved successful in the past might be less effective during periods of volatility, such as what we’ve seen in recent years.

Even for funds that have been around for several decades, caveat emptor applies. Take into account the current fund manager’s skill and experience, the fund’s current process, and fees.

We will use this screen, performed using Morningstar Principia, to find funds that have stood the test of time and that Morningstar’s fund analysts say are still among the best available in their categories.

Special Criteria = Distinct portfolios only
And Share Class Type does not = Inst
And Purchase Constraints does not = Closed-New Investment
And Fund Incept Date < or = 1970-12-01

Our screen is a simple one. We applied a distinct portfolio screen to eliminate multiple share classes, excluded institutional share classes, and limited ourselves to funds that are open to new investors. We also selected funds that were launched in 1970 or earlier.

And ( Morningstar Analyst Rating = Gold

Finally, we are only seeeking funds that Morningstar’s fund analysts say are still among the best available in their categories. We ran this screen in February and got 16 results. Below are a few funds that made the cut.

American Funds American Mutual AMRMX
Inception Date: Feb. 21, 1950
This conservative large-value load fund keeps its yield (currently 2.15%) above the S&P 500 by focusing on industry-leading, financially stable firms with a history of paying dividends. The fund is divided into seven separately run sleeves, and managers invest with a three- to five-year time horizon, which keeps turnover (22%) low. The fund’s managers will hold assets in cash and/or bonds if they don’t see opportunities in the market, an approach that has helped the fund outperform in bear markets but which can cause it to underperform during rallies. Annual expenses (0.63%) are low for a large-cap front-load fund.

Dodge & Cox Stock DODGX
Inception Date: Jan. 4, 1965
The veteran management team behind this large-value fund seeks out companies with good management, competitive advantages, and growth potential, but that are experiencing near-term problems. This contrarian approach courts volatility— the fund carries an above-average Morningstar Risk rating—but the managers have the courage of their convictions; turnover is a low 16%. The fund performed poorly in 2008 and 2011, in part because of its bets on financial-services stocks, but it still sports excellent 10-year and 15-year trailing returns. Annual expenses of 0.52% are low for a large-cap no-load fund.

Selected American Shares SLASX
Inception Date: Feb. 20, 1933
Comanagers Chris Davis and Ken Feinberg are low-turnover investors who seek companies with share prices that don’t reflect their ability to generate and profitably reinvest cash over the long term. They operate in an efficient space but have differentiated the fund by keeping above-average stakes in financials and foreign stocks, and by combining the opportunistic with the steadfast. The fund is run by a strong, shareholder-friendly firm that can learn from its errors. The managers invest in the fund, fees have stayed low as assets have ebbed, and the firm continues to invest in its capabilities. The fund’s long-term results remain impressive. It has never lost to the S&P 500 Index or large-blend average in any rolling 10-year period on Davis’ and Feinberg’s watch.

Sequoia SEQUX
Inception Date: July 15, 1970
The fund again acted in shareholders’ best interests in 2012 by initiating a soft close. New investors must now buy shares through the fund’s transfer agent. Management’s decision to close the fund owed more to a dearth of opportunities than the capacity of the fund. Comanagers Bob Goldfarb and David Poppe put cash to work in fall 2011 and again in spring 2012 but not in sufficient volume to offset inflows. As a result, cash has hovered around 15% to 20% over the past 12 months. This is a credit to the team’s valuation discipline but can hamper returns during rallies. That has been the case in 2012 and so far in 2013. But a talented team with dry powder leaves this fund well positioned.

Vanguard Small Cap Index Inv NAESX
Inception Date: Oct. 3, 1960
This fund can serve as a portfolio building block for long-term buy-and-hold investors. Despite their higher volatility, small-cap stocks tend to outperform large caps over very long periods of time. It is, therefore, common that strategic investors maintain an overweighting to small caps, which make up less than 10% of the equity market. No passive small-cap index is perfect, as there are no financial health screens to prevent distressed firms from entering the mix. Because this fund includes firms with shaky futures, investors should expect greater volatility. The fund currently tracks the MSCI US Small Cap 1750 Index but is transitioning to the CRSP US Small Cap Index.

Or Morningstar Rating = QQQQQ )

Adding a screen for 5-star funds turns up some more good old-timers.

First Eagle Global SGENX
Inception Date: April 28, 1970
This fund’s managers take one of the moreuncommon approaches to investing: Their first priority is capital preservation. The team uses a flexible, value-oriented strategy. While the fund primarily invests in global equities, it also owns foreign and U.S. corporate bonds. The fund has one of the best records among world-allocation funds, both over its lifetime and under the current management team.

ING Corporate Leaders Trust Series B LEXCX
Inception Date: Nov. 18, 1935
The fund’s founders mandated in 1935 that the 30 stocks originally bought for the portfolio would essentially never be sold. The fund would never add holdings either. In fact, the only way that new stocks could enter the portfolio would be through spin-offs or mergers and acquisitions. With the very long term in mind, the original advisors wanted to find blue-chip, dividend-paying companies that could thrive for decades. That emphasis still holds today. The fund has returned an annualized 11.2% since 1972 versus 10.1% for the S&P 500.

Adam Zoll is an assistant site editor with Morningstar.com


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