What Sets These 6 Gold-Rated Large-Cap Funds Apart?

Alex Lucas: Investors who have become accustomed to large-cap value stocks on average trailing their growth counterparts over the past decade would do well to recall that these stocks dominated the early 2000s and could well come back into favor again. The large-value Morningstar Category currently has 333 actively managed, U.S. open-end mutual funds. Only six receive a Morningstar Analyst Rating of Gold, and all six are open to new investors. These six funds are American Funds Washington Mutual, American Funds American Mutual, Dodge & Cox Stock, MFS Value, Diamond Hill Large Cap, and AMG Yacktman.

These six funds share certain attributes that support their Gold rating. Each has veteran management and has at least one manager who invests more than $1 million alongside shareholders. Five of the six face lower fee hurdles than similarly distributed peers. AMG Yacktman is an outlier in this respect. Its $100,000 minimum investment level places it in the competitive large-cap institutional peer fee group, and as result its 0.71% expense ratio ranks as average.

While each fund keeps portfolio turnover low, they differ most in their approaches and the kind of portfolios those approaches give rise to. The two American Funds both use a multimanager approach that splits the funds' respective asset bases into separately run, high-conviction sleeves. In each case, this adds up to a diversified portfolio of about 150 stocks. Washington Mutual and American Mutual differ from one another in that Washington Mutual stays fully invested while American Mutual's combined cash and bond stake often climbs into the double digits. AMG Yacktman also isn't afraid to hold huge cash stakes but does so in service of a top-heavy portfolio of about 40 stocks run by two comanagers. Diamond Hill uses a lead manager approach to build a less top-heavy portfolio of about 50 stocks. It includes more mid-cap exposure than any of the other funds. MFS Value's two comanagers invest in about 80 to 100 companies and keep the Russell 1000 Value Index in mind when sizing individual positions, though not in building sector weights. Dodge & Cox uses a benchmark-agnostic, committee-based approach that has very proven very effective over a full market cycle but can be volatile.

In the end, all six funds stand out in their own way from their category peers and merit consideration by investors seeking to add large-cap value exposure to their portfolios.