Hard-Hit Large-Cap Funds for Your Watchlist
Although these offerings have endured steep losses in the recent market tumble, they remain worthy top picks.
Although these offerings have endured steep losses in the recent market tumble, they remain worthy top picks.
The market has been riding a downhill slope for the past three weeks, but the sell-off really began to pick up steam late last week. Very little has emerged from this downward spiral unscathed, and there's no telling how much further stocks might fall before it's all over.
At the same time, the market inevitably overshoots on the downside, so it's not too early to start making a shopping list of prospective investments to add to on weakness. Morningstar's equity analysts think that the stocks in their coverage universe are trading at a sizable discount to fair value, and large caps appear to be particularly inexpensive, according to Morningstar's exchange-traded fund Fair Value Quickrank tool. For example, high-quality names like 3M (MMM) and Cisco Systems (CSCO) are highly undervalued according to our analysts.
Large- and mega-cap ETFs and index funds are one way to obtain unadulterated exposure to beaten-down (and potentially cheap) blue chips. Actively managed funds are another option. To help identify a preliminary watchlist, we turned to the Premium Fund Screener to home in on large-cap mutual funds that have recently been hard-hit but are worth sticking by--or even adding to--in periods of market weakness.
We started with the domestic and foreign large value, blend, and growth categories. We then homed in on Fund Analyst Picks--offerings that our in-house fund analyst team considers the best of the lot. Additionally, we filtered for funds whose four-week returns ranked in the bottom quartile of their categories. When we eliminated all but the distinct portfolio of each fund, the screener yielded several funds, three of which we've highlighted below. To replicate the screen, Premium users can click here.
Jensen (JENSX)
This offering has suffered significant losses in the past month. While its 10- and 15-year trailing returns are at the top of its large-growth class, its negative 11.7% one-month drop lands it in the bottom quartile of its peer group during that period. But don't toss this fund yet; its disciplined approach is one that is apt to hold up well over the long haul. Management pursues a rigorous investment strategy, focusing on firms trading at deep discounts to their estimates of fair value, as well as those that have delivered returns on equity of at least 15% in each of the past 10 years. These days, managers are globetrotting via domestic firms by stocking up on companies that derive a large share of revenues overseas, such as 3M. Moreover, management invests with conviction, as evidenced by the fund's compact portfolio of 28 stocks and management's minuscule 7% turnover.
Oakmark International (OAKIX)
This offering's trailing four-week losses total 13.4%, in comparison with the MSCI EAFE Index's 12% loss and the foreign-value category's 11.4% loss), putting it deep in its category's basement. But given that lead manager David Herro is a famed contrarian, plunging into areas like Japanese stocks that others shun, short-term volatility is to be expected. Still, its long-term track record is standout, ranking in the category's top decile for all trailing periods of three years or longer. All in all, this fund is worth holding onto--and perhaps even adding to--through thick and thin.
Primecap Odyssey Growth (POGRX)
In the last month, the fund lost 15% significantly more than the negative 10.2% loss of the S&P 500 and the 11.0% loss of the typical fund in the large-growth category. Thus, its near-term returns sit near the bottom of the category. Such short-term losses shouldn't be surprising. The fund has a Morningstar Risk rating of above average, and it typically maintains higher exposure to small and mid-caps than its typical peer. Such names have been hard-hit during the recent sell-off. But don't overlook this fund's potential. Five managers each independently manage a percentage of the assets using a sensible, contrarian-growth strategy. They seek highflying growth firms but wait until they are out-of-favor and selling at low valuations. Although the portfolio (at 121 stocks) is more sprawling than Jensen, its annual turnover of 5% indicates that management sticks to a similar buy-and-hold approach. Even though the fund has a considerable stake in health-care heavyweights, its penchant for smaller-cap names gives it an edge over its peers when investors have an increased appetite for risk.
Christine Benz contributed to this article.
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