These Equity Funds Have Played Good Defense

Stocks' 2016 losses have been especially jarring, with the S&P 500 dropping more than 9% for the year to date through Feb. 8, 2016. Aggressive categories like small-cap growth have fallen nearly twice as far. But the U.S. stock market's losing streak actually dates back to mid-2015: After scraping its high point in late May of last year, the S&P 500 has dropped roughly 15%.

Some investors' natural response to such bruising losses might be to run for cover, yanking money from stocks and seeking shelter in less-volatile asset classes like cash or Treasury bonds. Sure enough, true high-quality bonds have proved their mettle amid this tough environment; most such categories are in the black so far in 2016, and the typical long-term government-bond fund has gained more than 7% through Feb. 8.

But major asset-allocation adjustments--all in or all out--are usually not advisable. While getting out of stocks altogether may provide some short-term relief, you're apt to be left with yet another set of nagging worries. Is the worst over? Is it time to get back in? As seasoned investors know, you won't hear bells clanging when the market has bottomed.

Instead, it's better to use a rocky stock market as an impetus to check your portfolio's asset allocation relative to your target. If you've been hands-off for the past several years, you may find out that your portfolio is still equity-heavy given your life stage; lightening up on stocks is particularly important for pre-retirees, as I discussed here.

It's also worth checking on your portfolio's intra-equity exposure; here again, hands-off investors might find that, even with their recent weakness factored in, their aggressive positions are crowding out their more defensively minded holdings.

To help shine a light on some worthwhile versions of the latter, I turned to Morningstar's Premium Fund Screener. I screened for large-cap funds rated Silver that have exhibited strong downside protection, as evidenced by Morningstar Risk ratings of below average or low and returns during the past rocky 12 months that land in the top 25% of their peer groups. I kicked out closed funds and those that are only accessible to institutional investors. (Note that the inclusion of large-growth funds in the screen means that our output includes some funds whose losses aren't small in absolute terms, such as

To see the complete list or tweak it to your own specifications, please click here. Here's a closer look at some of the funds that made it through the screen.

Category: Large Value | Analyst Rating: Silver | Morningstar Risk Rating (5 Year): Low | 12-Month Return: -2.6%

This is a classic equity-income fund with a twist. Long-tenured lead manager Phil Davidson generally focuses on high-quality dividend-paying stocks, which hold up better than non-dividend-payers in times of market tumult. Here's the twist: The fund usually holds a component of convertible bonds and preferred stocks, which help increase its income payout and tend to lose less than stocks in equity-market sell-offs. So far in 2016, the fund is performing exactly as we have come to expect it to; its 3% loss through Feb. 8 is about six percentage points better than the S&P's loss over the same time frame. The fund also held up relatively well in 2008, losing 20% while the S&P 500 lost 38%.

Category: Large Growth | Analyst Rating: Silver | Morningstar Risk Rating (5 Year): Low | 12-Month Return: -3.6%

Although many large-growth funds have gotten clobbered so far in 2016, losing much more than the S&P 500, this offering has bucked that trend. It has lost 5% thus far this year, four percentage points better than the S&P 500 and eight percentage points better than the large-growth category average. Its strategy is fairly formulaic: Its managers focus on companies that have generated returns on equity of 15% or better in each of the past 10 years. That screen means it ends up with a basket of highly profitable, highly stable firms. Fully 70% of the portfolio is invested in companies classified as "wide moat," meaning that our equity analysts think they have sustainable competitive advantages. Like all of the funds on this list, this fund will earn its keep during equity-market downdrafts and look worse in big rallies.

Category: Large Blend | Analyst Rating: Gold | Morningstar Risk Rating (5 Year): Low | 12-Month Return: -3.9%

This fund has been raking in assets hand over fist; it's now the largest actively managed large-cap blend fund with a single manager. Donald Kilbride of Wellington Management oversees the fund, focusing on companies with a history of increasing their dividends. That dividend-growth focus means its yield isn't high in absolute terms, but it gives the portfolio a high-quality bent. More than three fourths of the portfolio lands in "wide-moat" stocks. So far in 2016, the fund has lost 6.2%, versus a 9.2% loss for the S&P 500 and a 9.7% loss for the large-blend category. It lost 26% in 2008, versus 38% for the S&P 500. Like all Vanguard funds, this one benefits from low costs: Its 0.32% expense ratio means it's not a whole lot more expensive than many index funds and ETFs.