Searching for a Safer Haven?
These steady core funds are worth a look.
During the third quarter of 2007, worries about the mortgage and housing markets led to big market swings. And as we near the end of the year, the Dow Jones Industrial Average as well as the S&P 500 Index continue to be stung. Bets on risky debt that have torpedoed financial stocks like Citigroup (C), Merrill Lynch (MER), and Morgan Stanley (MS) are part of the problem, as well as general concerns about a slowing economy.
The typical large-blend fund posted returns of 5% for the year to date ending Nov. 16, 2007, so investors haven't fared too badly. But we wanted to see which core funds have held up well over the longer term and look good on a forward-looking basis due to low expenses and experienced management.
In designing this screen, we zeroed in on diversified domestic funds whose current style boxes are large blend. We selected only those that are open to new investment and that have a minimum initial purchase amount of $10,000. We also screened for funds that posted top-third trailing five-year returns within their respective categories, making sure that the current manager was responsible for that solid record.
In addition, we selected funds with below-average volatility compared with their typical peer's using three-year standard deviation. This helps eliminate funds that have taken on lots of risk and may keep you from getting a good night's sleep. Lastly, we eliminated those with above-average expenses, because Morningstar has found that reasonable price tags are often linked to solid future performance.
As of Nov. 20, 2007, the screener pulled the following 15 funds:
Davis NY Venture A (NYVTX)
FMI Large Cap (FMIHX)
Homestead Value (HOVLX)
MassMutual Select Large Cap Value S (MLVSX)
RiverSource Fundamental Value (AFVAX)
Selected American Shares S (SLASX)
Sentinel Common Stock A (SENCX)
Sound Shore (SSHFX)
State Farm Growth (STFGX)
Van Kampen Comstock A (ACSTX)
Van Kampen Growth and Income A (ACGIX)
Vanguard LifeStrategy Growth (VASGX)
Vanguard Tax-Managed Capital A (VMCAX)
Vanguard Total Stock Market Index (VTSMX)
Not surprisingly, some of our favorite funds made the cut, including mid-cap blend Fairholme (FAIRX). Manager Bruce Berkowitz started this fund in December 1999 as an extension of his separate-accounts practice at Fairholme Capital Management. His Warren Buffett-style approach has produced returns that handily outpace the competition. Annualized returns since inception clock in at a whopping 18%, and the fund has skipped much of the market carnage in 2007. Its year-to-date return is an eye-popping 20%. While the fund's recent gains may be unsustainable, we still think Fairholme is a good long-term pick.
Another standout on the list is Sound Shore (SSHFX). Harry Burn and Gibbs Kane of Sound Shore Management have managed this large-value fund since its 1985 launch, and their contrarian style has produced enviable results in a competitive category--even relative to other large-value funds in 2007's difficult market. They both invest large sums in the fund, and the firm's profit-sharing plan is invested in the fund. This underscores the conviction that they have in their stock-picking.
One of the large-blend picks that met our criteria is Davis NY Venture (NYVTX). In spite of a hefty stake in hard-hit financial stocks, volatility has remained below average for this fund. Longtime managers Chris Davis and Ken Feinberg keep holdings well-diversified across the financial sector, which has helped offset some hard-hit stocks and has kept the fund within spitting distance of the S&P 500 thus far in 2007. Over the long term, Davis and Feinberg have shown their talent at finding and sticking with companies that can pick themselves up after taking a tumble. All told, the management duo shows up three times on this list of funds: They also manage RiverSource Fundamental Value (AFVAX) and Selected American Shares (SLASX).
Those using taxable accounts may want to check out Vanguard Tax-Managed Capital Appreciation (VMCAX). Michael Buek has run the fund since 1994, and he has delivered returns that are highly correlated with the Russell 1000 Index. He keeps capital gains distributions to a minimum by selecting the lowest-yielding stocks in the index and by selling stocks at a loss to offset gains. Also, this fund's low costs and tax efficiency rival that of most ETFs.
The screen also captured funds such as FMI Large Cap (FMIHX) and Homestead Value (HOVLX), which Morningstar analysts consider to be rising stars in the large-cap space. Stable management teams paired with ample analyst support have produced good long-term records for these funds.
Morningstar.com Premium Members can run this screen themselves by clicking here. (Note that the results may change as funds come in or drop out of the screen over time.) Not a Premium Member? You can still run this screen by taking a free, 14-day Premium Membership trial.
Karin Anderson does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.