Topnotch Portfolio Diversifiers
Our Premium Fund Screener picks valuable supporting players.
Near the conclusion of each Fund Analyst Report on Morningstar.com, the analyst covering the fund designates a "role in portfolio" for the offering. This designation reflects our opinion on the best way to use certain types of funds in the context of a well-diversified basket of holdings.
Three designations are possible: Core offerings are portfolio anchors, the kind of funds you'll want to invest most of your assets in. Specialty funds, on the other hand, should be used (if at all) for just a very small sliver of your portfolio. Funds designated as supporting players, meanwhile, should be used judiciously in order to diversify your portfolio in terms of style, strategy, market-cap focus, etc.
Say, for instance, that you're heavily invested in a value-oriented large-cap fund--an area of the Morningstar style box replete with core holdings. Depending on your investment time horizon and risk tolerance, you might want to consider increasing your exposure to smaller-cap growth stocks. The added diversity should give you a smoother ride over time, after all, and help to buoy your portfolio when large caps or value investing fall from favor.
Still, small-cap growth stocks can be quite volatile, and consequently, the vast majority of the small-growth offerings we cover are designated as supporting players. These funds can contribute to your portfolio, in other words, but they're best used as just a supplement to the core.
With that as a backdrop, today we'll use the Premium Fund Screener to home in on the domestic-equity universe's finest supporting players. We'll filter for low expenses and superior trailing 10-year returns, and we'll ensure that the management team responsible for that track record has remained in place. We'll kick out multiple share classes of the same fund by including the "distinct portfolio only" screen, and, finally, we'll check to make sure that the funds are open to new investors and that initial investments don't require enormous sums.
Click here to run this screen yourself.
As of Jan. 6, 2004, a grand total of 18 funds make our grade. Analysis highlights for two of our supporting players appear below.
Calamos Growth (CVGRX)
Management uses a quantitative model to search for fast-growing companies, typically small and mid-caps, that it thinks will surpass analyst expectations. The team estimates the fair value of a company by determining its free cash flow and then comparing that with the capital invested in the business. It then looks to buy stocks that are attractively priced relative to its estimate of the company's fair value as well as to the company's own historical valuations. The team will promptly exit a name once its price target is reached or its outlook weakens. As a result, the fund tends to have a high turnover rate.
Royce Total Return (RYTRX)
An emphasis on dividend-paying stocks is just one of the ways this fund maintains its low-risk profile. Chuck Royce thinks the dividend provides a cushion during market downturns. Though the fund spreads its bets across many holdings, it does not seek diversification across all industries. Financials and industrial stocks have been its favorites.
Shannon Zimmerman does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.