My Top 10 Holdings

It’s been a while since I last wrote about where I’m investing, so it’s time to revisit and share a little of my portfolio.

I think it’s important that all investors eat their own cooking. Nothing is more of a giveaway that a manager is selling you a product instead of an investment than seeing that they don’t own their funds. So, yes, I own Morningstar Medalist mutual funds. I own one stock, two money market funds, and the rest are all medalist mutual funds.

My approach is to invest in great funds for the long term and limit changes as much as is reasonable. I try to strike a decent balance in my investments. So, that means balancing value and growth, foreign and domestic exposure, bonds and stocks. I don’t worry too much about modest departures in weightings from broad benchmarks. If I have a little more in technology or France or mid-value, it doesn’t worry me.

I’m agnostic on active and passive as well. I own both. I’ll pick the one that does the job better. But it’s often the case that there are excellent choices of both kinds in many categories.

I have four main investment areas: a 401(k), taxable accounts, equity rewards, and a Roth IRA. In my 401(k), I contribute every paycheck through bears and bulls, and I have an auto-rebalance set to bring my funds back in line once a year. In tax-sheltered accounts, rebalancing is more or less free unless there are any commissions involved.

By investing every paycheck, it means I’m buying close to the bottom, close to the top, and at all points in between. It means that I’m putting bear markets to work by getting more exposure to shares than I do in a bull market, and it helps to recover the losses from the prior bear market. Let’s hope that works this time, too.

I spend my time researching mutual funds, so naturally I own funds, not stocks. And I stick to medalist funds. Because I have multiple account types, there is some redundancy across the accounts. What matters is my overall exposure to funds, asset types, and industries.

Occasionally, I will look to move from a fund with a Morningstar Analyst Rating of Bronze to a Silver- or Gold-rated fund, but generally I’ll let my investments ride. I’ve seen enough cycles on both an economic level and a fund level. Most of my holdings have gone through hot stretches and cold stretches. Knowing that my holdings are not as bad as their worst moments or as good as their highest-returning years helps me ride out the waves and avoid putting too much into one investment or giving up on a good one.

I’ll go through my top 10 investments in order of their weight in my portfolio. Here, I list the share class that’s in the Morningstar 500; in a couple of cases, however, I actually own a cheaper share class through Morningstar’s 401(k). (I left out one stock and money market funds from the list.)

Vanguard Primecap Core VPCCX

I own this fund in a taxable account, Vanguard Capital Opportunity VHCAX in a Roth IRA, and Primecap Odyssey Aggressive Growth POAGX in my 401(k). Each is a little different, but the main reason for owning three is that each closed to new investors and was not an option in the other vehicle. Vanguard Primecap Core is on the large-blend/large-growth border, Vanguard Capital Opportunity is more of a pure large-growth fund, and Primecap Odyssey Aggressive Growth is in mid-growth. Each has distinct holdings and some overlap. I make sure not to let the three collectively get too big in my portfolio given the overlap in people and stocks.

I consider Primecap to be one of the best fundamental growth investors around. It goes deeper into its stocks than many growth managers do, and this is a space where managers commonly chase momentum with an eye to stocks that will beat Wall Street estimates for the next quarter. Primecap can do this because it has some of the smartest people in the business, and those people tend to stay at Primecap their whole careers. Its funds are super cheap under the Vanguard label and pretty cheap under the Odyssey label. It has a consistent tilt toward healthcare/biotech, so when choosing other growth funds, I prefer those that don’t have such a bent.

My first Primecap investment was Vanguard Capital Opportunity, which I bought in the mid-1990s, then Vanguard Primecap Core in the late 1990s, and Primecap Odyssey Aggressive Growth in the 2000s. They have had their slumps, but I haven’t considered getting out. All told, I have 12% of my portfolio in Primecap.

Vanguard Tax-Managed Capital Appreciation VTCLX

When is an index fund not an index fund? When a passive fund diverges slightly from an index and thus is not technically tracking an index. Before there were exchange-traded funds, Vanguard worked on ways to improve tax efficiency in index funds. It came up with some tax-managed funds that would be more active in harvesting losses, shade toward no or low dividend stocks to avoid income payouts, and have the flexibility to deviate from the index in order to minimize taxes. And this has worked like a charm. Pretax returns of this fund are a tad ahead of the Russell 1000, and tax bills have been kept to a minimum. Passive ETFs generally do a good job on taxes and have some advantages that these open-end funds don’t, so they attract most of the money seeking tax-efficient returns. I bought this one in a taxable account in the 1990s, and I’m happy with how it has worked out.

Dodge & Cox International DODFX

This is another fund I bought fairly soon after launch. Dodge & Cox doesn’t rush things out. When it launches a fund, it is sure to have all the resources it needs, and it charges low costs right away rather than asking early investors to foot the bill of a smaller fund. Dodge is simply a very good stock-picking firm with a value tilt. Many of the same qualities you see at Primecap exist here. You have a firm owned by managers and analysts, a place where people stay their whole careers, and low costs. Although it slumps when value slumps, the fund’s 10- and 15-year returns are in the top decile of its category.

Pimco Total Return PTTRX

Core bond funds typically are a shelter from the storm when stocks melt down. But not this year. Rising inflation has spurred the Fed to aggressively raise rates. Not only is that hard on bonds but corporate bonds are also hurt by fears that the Fed will push the economy into a recession. This fund lost 14% in 2022, and that’s a little worse than most core-plus bond funds fared.

The good news is that this is something of a 100-year flood. Interest rates and inflation won’t often spike like that. And the next few years should be rewarding for investors in this fund. Pimco has an outstanding team across the board including managers, analysts, quantitative analysts, and traders. Few firms can find opportunities in as many bond types as Pimco.

American Funds New World NEWFX

This fund straddles the emerging-markets and foreign-equity categories because it focuses on where companies are doing business rather than what exchange they are trading on. That’s very sensible, and it does mean that returns tend to be between the two groups, too. The fund has posted top-decile returns for the trailing five-, 10, and 15-year periods, though no one will be too excited about a 22% loss in 2022. American has excellent analysts overseas, and over time, that and the fund’s low fees should make this fund a winner.

Jensen Quality Growth JENSX

This fund’s defensive nature appealed to me in early 2009 when the economy and markets were melting down. Jensen takes a low-turnover approach to investing in companies with wide moats—defensible market positions that are hard for competitors to overcome. Such companies tend to hold up better in recessions because they have strong balance sheets and are well-positioned in the marketplace. It’s not the most exciting fund, but it has worked quite nicely.

American Funds Washington Mutual AWSHX

Dividend investing is another reliable strategy that steadily rewards investors. Capital Group has proved quite good at finding solid dividend payers that are on strong-enough footing to grow those dividends and withstand recessions. The fund’s low fees mean more of that income flows through to investors. I own this fund in my 401(k). In my taxable account, I also have a smaller position in Vanguard High Dividend Yield ETF VYM, which is an even cheaper route to dividends.

Oakmark Select OAKLX

This fund finished 2022 at a low ebb, as stock-picking has worked against Bill Nygren in recent years. He’s had dry patches before and came roaring back. When you invest in a focused stock fund, it is a certainty you will have to endure some extreme droughts and quite likely you will have some very strong stretches, too. We believe in the unique take on value that Nygren and the rest of Harris Associates plies, though it clearly requires a lot of patience. For what it’s worth, the fund’s 15% gain so far in 2023 is top percentile for the category.

Royce Small-Cap Special Equity RYSEX

For a fully invested equity fund, this is one of the best defensive plays around. Charlie Dreifus and Steven McBoyle are accounting nerds who scour company reports for red flags and healthy balance sheets. Their defensive stocks generally hold up beautifully in downturns. I would note that Dreifus is 78 years old, and we gave it a Bronze rating rather than a Silver because it’s likely he will retire in the next few years.