Top-Performing Funds That Skimp on Energy
These funds have largely avoided the energy sector's turmoil.
These funds have largely avoided the energy sector's turmoil.
Some people may have invested in mutual funds with high energy sector exposure this year in the hope of benefiting from the bull market in crude oil. With crude oil futures down more than 20% from their record high earlier this year, those investors may be second-guessing themselves now. In fact, many large-cap mutual funds with low exposure to energy stocks have smaller year-to-date losses than those with high exposure. Of course, past performance is no indication of future returns, and you should analyze a fund's record over a longer time frame than eight months to make an educated investment choice.
Nonetheless, it's worth noting that many large-cap funds that we've liked for quite a while have low energy exposure, including Yacktman (YACKX), Tweedy, Browne Value (TWEBX), and Amana Trust Growth (AMAGX). These funds generally have low turnover as well, illustrating why it's important to stay the course. To be sure, there are some excellent large-cap funds with high energy exposure, such as American Century Equity Income (TWEIX) and Aston/Montag & Caldwell Growth (MCGFX). By and large, solid investing choices don't rely on the latest investing craze.
When we used the Premium Fund Screener to search for high-quality funds without a lot of energy exposure, we wanted to be sure we honed in on funds whose investment philosophy has been in place over the long term, so we required a manager tenure of 10 years or greater. We also limited ourselves to large-cap funds because they tend to have stable, well-established holdings, Of those, we focused on funds that ranked in the bottom quartile for energy sector exposure. Lastly, to help keep the list manageable, we selected the "Distinct Portfolio Only" option to limit the results to one share class per fund.
As of Aug. 18, 2008, the screen for funds with the lowest energy sector exposure returned 24 results. To view them, click here.
What has enabled some of these funds to beat out their peers amid this year's tough market? Here's a sneak peak of three we like:
Yacktman (YACKX): Key to this fund's stability is managers Don and Stephen Yacktman's preference for stable businesses--in particular they like consumables, which tend to produce lots of recurring revenue. They'll buy stocks only at a big discount to their estimates of the businesses' value, and they tend to hold double-digit cash stakes. Limiting losses in tough times has also helped the fund's long-term returns, as it has less ground to make up when markets move higher.
Amana Trust Growth (AMAGX): This fund and its large-value sibling Amana Trust Income (AMANX) are by far the largest among the small group of U.S. mutual funds that are aimed at Muslims and invest in accordance with Islamic law. The fund's single-digit annual turnover comes from manager Nick Kaiser's long-term perspective but is also compatible with Islamic law, which treats excessive trading as a form of gambling. Some longtime holdings that Kaiser has stuck with have posted big gains, notably top holding Apple (AAPL).
Tweedy, Browne Value (TWEBX): Tweedy's recent move into foreign markets has mainly resulted from company-specific factors rather than a deliberate attempt to capture non-U.S. growth or to diversify the portfolio. (The team here also tracks foreign stocks for Tweedy, Browne Global Value (TBGVX) and Tweedy, Browne Worldwide High Dividend Yield Value (TBHDX).) The managers continue to like the long-term turnaround story at Nestle (NSRGY), complete with higher operating margins, and the stock's stable growth rates and cheap valuation. More recently, they've been attracted to some overseas media stocks whose valuations have fallen hard, but which don't have the same issues that some printing and publishing firms in the U.S. face.
Morningstar.com Premium Members can run this screen themselves by clicking here. Not a Premium Member? You can still run this screen by taking a free, 14-day Premium Membership trial. (Note that the results may change as funds come in or drop out of the screen over time.)
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