10
In the cover story I discussed what makes for a good
match of investor and mutual fund. Stability and
patience from both sides are crucial. An investor must
be patient and stick to his or her plan. Funds should
stick to their strategies, provide management stability,
and moderate the extremes of performance. Here are
some funds with strong past investor returns where
prospects are pretty good for future investor returns.
Vanguard Wellington
VWELX
/
Vanguard Wellesley Income
VWINX
Pick your asset mix. Wellington is equity-heavy, and
Wellesley is mostly bonds. They both are run by Well-
ington with a large-value tilt on the stock side and
a high-quality emphasis on fixed income. Wellington’s
depth has served the funds well as they have con-
sistently outperformed. In addition, fees are so low
that they are cheaper than most index funds. Not
only do low fees lead to higher returns, but they also
lead to lower risk as managers have a lower hurdle
to overcome.
Sequoia
SEQUX
Sequoia is limited to investors who open up accounts
with it directly, but it’s worth the effort. The fund
has excellent managers and a time-tested value strat-
egy that has consistently held up well in down
markets. David Poppe and Bob Goldfarb look for com-
panies with sustainable advantages and strong
management. They want those managers to be good
capital allocators who avoid taking on too much
debt. That strategy and a willingness to let cash build
has given the fund strong defensive characteristics.
In
2008
and
2011
the fund held up better than nearly
all its peers. I also like the fact that they keep a lid
on asset size much more than their peers.
FPA Crescent
FPACX
Steve Romick is a cautious investor who still delivers
strong long-term returns. He wants cheap stocks
trading at big discounts, and he tends to hold a lot of
cash, too. In addition, he will short stocks with a
small piece of the fund, adding to the fund’s downside
protection. Yet his stock-picking skills have enabled
the fund to beat the broad stock market over the long
haul. Our biggest concern right now is the fund’s
popularity. It now stands at $
13
billion, but we haven’t
yet seen any troubling signs of asset bloat in
the portfolio.
Vanguard Dividend Growth
VDIGX
This fund has a little less defense against losses than
the funds above. Manager Don Kilbride keeps the
fund fully invested, so there’s no cash or bond buffer
to shore up the fund against bear markets. However,
it does have a good strategy that leads it to compa-
nies with clean balance sheets, and that’s a good
thing in recessions and most bear markets. Only com-
panies with low debt levels have the prospects of
boosting dividends that Kilbride is looking for. Low
costs further buoy the fund.
Vanguard Total Stock Market Index
VTSMX
Now we come to a fund with absolutely no cash or
bond cushion. And by definition, a falling stock
market means this fund will be in the red. Yet for in-
vestors who understand those things, this fund can
be quite dependable and consistent. It lost less than
most large-blend peers in
2008
and in
2000
–
02
because of diversification. Each bear market tends
to hit a different sector harder than the rest.
A fund like this will take a hit, but it won’t have a
huge weighting to any one sector or any one name.
Thus, it rarely ends up in the bottom quartile. It’s
the extreme losses and surprising losses that are the
most damaging to investors, and that’s what this
fund ought to avoid.
œ
Good Bets for Strong Investor Returns
The Contrarian
|
Russel Kinnel
Our Contrarian Approach
I go against the grain to find
overlooked funds that may be
ready to rally.
