Susan Dziubinski: Hi, I’m Susan Dziubinski from Morningstar.com. At Morningstar, we’re fans of wide-moat companies: those companies with durable advantages that should allow them to thrive and keep competitors at bay for a decade or longer. Many money managers like these kinds of companies, too. Here are three highly rated funds focused on wide-moat stocks.
Robby Greengold: Harbor Capital Appreciation is a large-growth fund subadvised by Jennison Associates. The managers in charge are talented, and they have a long-shared history. But what makes this strategy stand out--what makes this investment team really stand out--is the team of dozen or so equity analysts who are deeply knowledgeable about their areas of expertise. The team puts together a portfolio of about 60 stocks that are routinely invested-in companies with competitive advantages. About 50 of those stocks, as of the most recent available portfolio, have been awarded either wide or narrow economic moat ratings by Morningstar's team of equity analysts. What you'll find here are companies that derive economic benefits, competitive advantages from, for example, their network effects. Visa and Mastercard are perfect examples. We like the strategy a lot. We've liked it for a long time, and we currently rate it Silver.
Jack Barry: Silver-rated ClearBridge Appreciation benefits from two experienced managers taking a risk-averse approach to investing in large-cap stocks. Scott Glasser and Michael Kagan have worked together on this strategy for 10 years, but they've been colleagues going back to the 1990s. They're supported here by ClearBridge's well-regarded central analyst team of 13 sector specialists. The strategy seeks to modestly outperform the S&P 500 while displaying significantly less risk. In order to do so, the managers invest in both growth and value stocks, looking for blue-chip companies with either underappreciated earnings potential or sustainable growth stories. To defend against volatility, the managers pay close attention to valuations and invest in companies with economic moats that have predictable cash flows. Altogether, this fund continues to be a solid choice for risk-averse investors.
Dan Culloton: Jensen Quality Growth is a low-muss, low-fuss fund. There’s very experienced managers; each of the six team members have more than a decade with the strategy. And the strategy limits them to a very manageable circle of competence. The managers won’t even consider any company that hasn’t earned returns on equity of 15% or more over 10 consecutive years, which puts it in a very high-quality pond to fish from at the start. And then they dig into those companies to discern which ones are able to sustain those returns over the long term. It’s a very high bar to meet. So that’s why the fund usually limits itself to fewer than 30 stocks. And despite this concentration, it’s been able to be very resilient on the downside, including the fourth quarter of 2018 when it lost around 6 percentage points less than the Russell 1000 Growth Index. That’s because this fund tends to gravitate to steady-Eddie growth stocks rather than highfliers that are not priced for perfection. This fund offers a very attractive risk/reward profile.
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