9
Morningstar FundInvestor
May 2
014
comanagers Scott Davis and Mike Barclay are familiar
with the fund’s process, which looks for a combina-
tion of yield, price, and dividend-growth potential.
Holding financials like Citigroup also restrained the
returns of other large dividend-growth funds, such as
T. Rowe Price Dividend Growth,
T. Rowe Price
Equity Income
PRFDX
, and American Funds Wash-
ington Mutual, relative to the Dividend Achievers
Index. Reasonable expenses, experienced manage-
ment, and consistent processes still make these
funds contenders, but so far the passive Vanguard
Dividend Appreciation Index has won head-to-head.
Vanguard Dividend Growth looks like the strongest
for exposure to dividend-growth stocks. It has low
expenses, and Kilbride has proved adept at mixing
new dividend payers with old stalwarts, as well
as avoiding dividend cutters. He sold
AIG
and
Bank
of America
BAC
in early
2008
, for instance.
Three funds looked much worse compared with the
Dividend Achievers Index:
Fidelity Dividend Growth
FDGFX
,
Fidelity Equity-Income
FEQIX
, and
Fidelity
Equity Dividend Income
FEQTX
. It’s not surprising
that these funds would look erratic versus a dividend-
focused benchmark. Fidelity managers historically
have been more growth-leaning, and past leaders of
these funds have interpreted their dividend mandates
loosely. It has only been in recent years that the firm
has tried to make these more than “dividend in name
only” funds. All three have seen manager changes
in the past three years and are, at best, works in prog-
ress. Fidelity Dividend Growth got a new manager,
Ramona Persaud, on Jan.
1
,
2014
; Scott Offen and Jim
Morrow have run Fidelity Equity Dividend Income
and Fidelity Equity-Income, respectively, since
2011
.
Time will tell whether they stay dividend-focused
and add value compared with passive dividend-
focused options.
So far, evidence shows it will be a tall order. Few
active dividend-growth funds have been able to
consistently beat the Nasdaq
US
Dividend Achievers
Select Index on an absolute and risk-adjusted basis.
There are funds and managers out there that can, but,
as with other types of investments, it pays to have
high standards for manager experience, discretion,
execution, and expenses.
œ
Contact Daniel Culloton at
On average, dividend-growth funds
have more success on an absolute
and risk-adjusted basis against tradi-
tional benchmarks than the Nasdaq
US Dividend Achievers Select Index.
Few Overachievers
Name
Number
of Funds
Return USD
05/01/06
– 03/31/14
Russell 1000
Value Alpha USD
05/01/06
–03/31/14
Russell 1000
Alpha USD
05/01/06
–03/31/14
Economic
Moat Wide
% (Net)
Economic
Moat Narrow
% (Net)
Economic
Moat None
% (Net)
Average all Dividend Growth Funds
95
6.54
0.99
-0.20
37.52
40.24
9.42
Average Top Dividend Growth Funds
19
8.40
2.99
1.92
44.28
39.08
6.17
NASDAQ US Div Achievers Select TR USD
7.63
2.38
1.36
Vanguard Dividend Apprec Idx ETF
7.48
2.25
1.23
60.47
26.17
5.64
Average Lagging Dividend Growth Funds
76
6.00
0.41
-0.82
35.53
42.40
10.02
Russell 1000 TR USD
7.13
1.33
0.00
41.23
40.44
9.00
S&P 500 TR USD
6.88
1.13
-0.15
46.00
42.64
8.51
Russell 1000 Value TR USD
5.95
0.00
-1.16
31.49
46.81
12.07
