Steady-Eddie Stock Funds
These rock-solid offerings won't sink your boat in rough waters.
These rock-solid offerings won't sink your boat in rough waters.
When the market looks anemic and the economic outlook uncertain, you want to make sure the investments in your portfolio don't follow suit. So what are some dependable, high-conviction stock funds that investors can rely on to hold steady even when the going gets tough?
Using the Premium Fund Screener, we featured our tool's newest screenable data point--Average Moat Rating--to home in on funds that emphasize companies with competitive advantages. (Currently, this data point is only available in our the Premium Fund Screener tool, but we are working on adding it to our individual report pages soon.)
Investors should note that while wide-moat companies won't necessarily outperform narrow-moat firms during periods of market euphoria, they tend to hold up well during storms. For example, Morningstar's calculations revealed that domestic large-cap stock funds with the highest average moat ratings were the best category performers in 2008, whereas the reverse held true in 2009 with the widest-moat funds largely underperforming the narrow-moat funds by a long shot.
For this screener, we kept the focus on domestic stock funds with below-average expenses and at least a moderately wide average moat rating. And to keep a lid on risk, we eliminated any funds with a Morningstar Risk rating higher than "below average" and with a Morningstar Rating for funds of less than 4. (It's important to note that in contrast with Morningstar's moat ratings for stocks, which are qualitative and forward-looking, Morningstar's star ratings and risk ratings are quantitative measures based on a backward-looking view of risk and return.) We also required that managers have at least a decade of experience at the helm. Finally, we called up distinct portfolios and funds that were open to new money. You can replicate this screen by clicking here. The screener yielded six funds, three of which we highlight below.
Amana Trust Income (AMANX)
This fund is geared toward Muslim investors, and as such, it must follow the tenets of Islam. For example, it can't engage in excessive stock trading or invest in financial stocks as well as debt-ridden companies. That may sound exceedingly restrictive, but in the hands of a talented and experienced manager, the fund has managed to soar above its more flexible peers. Half of the most recently available portfolio's 10 top holdings were wide-moat stocks, with familiar names such as Procter & Gamble (PG), Nike (NKE), and ExxonMobil (XOM) leading the way. And the fund's strictures have actually worked in investors' favor in the past. The microscopic turnover promotes tax efficiency, and the fund held up extremely well in the bear market of 2008 when financials, which it avoids, were hit. While these same restrictions held this fund back during the 2009 rally, the fund didn't trail its large-value peers. For the buy-and-hold investor with a long-term investing approach, this fund comfortably fits the bill.
Aston/Montag & Caldwell Growth (MCGFX)
Investors should not be deterred by this fund's recent slip in performance. While it tends to underperform during the early stages of market rallies, its performance has been exceptional over full market cycles. Manager Ron Canakaris and his investment team employ a combination of top-down analysis and fundamental bottom-up research. And they keep a fairly concentrated portfolio of just more than 30 large-cap names with earnings-growth rates of at least 10%. At the same time, the team keeps price in the picture; they will consider selling a stock when it reaches a 20% premium to their calculation of fair value. Its top seven holdings were recently wide-moat, low-uncertainty stocks such as Coca-Cola (KO) and Google (GOOG). All in all, this fund merits consideration as a core holding in a portfolio.
T. Rowe Price Dividend Growth (PRDGX)
Manager Tom Huber takes a measured approach to stock selection and portfolio management. Rather than solely reaching for yield, Huber focuses on a company's ability to increase its dividend and kick off free cash flow. He also considers a stock's valuation before making purchases or trimming shares. Although the portfolio's top holdings are not as heavy on wide-moat companies as the preceding two funds, this offering has still managed to effectively temper risk in comparison to its rivals. It has beaten 86% of its peers and the S&P 500 index during Huber's 10-year watch. His confidence in his stock selection and long-term outlook is evident in the fund's low turnover rate. With its diversified portfolio of large-cap stocks, this fund is a solid option for conservative investors.
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