posters like holdings that show them the money, while others are taking a contrarian tack.
By Christine Benz | 01-08-12 | 06:00 AM | Email Article

If you're like many investors, your portfolio has a problem child or two--funds or stocks that consume a disproportionate share of your worries, even if the positions aren't large in size. The good news is that those securities are frequently counterbalanced by holdings in which you have the utmost confidence--you have a thesis, you've done your homework, and you're confident that the stock or fund will deliver a risk/return profile in line with your expectations.

Christine Benz is Morningstar's director of personal finance and author of 30-Minute Money Solutions: A Step-by-Step Guide to Managing Your Finances and the Morningstar Guide to Mutual Funds: 5-Star Strategies for Success. Follow Christine on Twitter: @christine_benz.

This week, I asked participants in the HandsOn forum of Morningstar's Discuss boards to share their highest-conviction holdings. Recognizing that what's high-conviction for one investor might not be for another, I asked posters to construe the term in whatever way they saw fit. Predictably, the posts were all over the map: Sleep-at-night funds like  Vanguard Wellington  received repeat mentions, but so did individual stocks, bond funds, and contrarian picks like  Fairholme The complete thread is worth reading, whether you're in the market for anchor holdings or simply trolling for new investment ideas to research.

The Tried and True
In my original posting, I mentioned that a high-conviction idea "could be that mutual fund you rely on to generate reliable returns year in and year out." For many posters, that fund is the venerable Vanguard Wellington.

Sniper66 summed up the case for Wellington with this post: "It has a fairly consistent performance year over year (with the obvious exceptions like 2008), a good portfolio of large blue-chip value stocks, high-quality bonds, a nice dividend, and low expenses. I don't have to spend any time monitoring this fund." Armagh63 provided a list of the fund's positive attributes, including "stability," "low costs," "anxiety-free," and "a home for long-term expectations." 

Vangrothsap--and others--likes the fund's fairly low volatility, and also finds the fund's staying power to be extremely appealing. He wrote, "This fund has been around for 80-plus years. It has survived the 1929 crash, the Great Depression, World War II, the Cold War, and so on. Hundreds, if not thousands, of mutual funds (and exchange-traded funds) have collapsed, merged or gone under in that time. In short, this is a fund that has stood the test of time. It provides acceptable, stable returns which can even out a portfolio in good times and bad!"

Another Vanguard fund,  Dividend Growth , also received repeat mentions from our users. Stanglx7 enthused: "Since this fund had been converted from a utility fund in 2004 the risk/return profile is virtually unmatched. Low expenses, seasoned management team, and focusing on the sweet spot of investments (dividend growers) ensures future success."

Tomarcher, meanwhile, likes  Vanguard Wellesley Income , a conservative-allocation fund. "If you want best in category returns over the long term, you can't beat Vanguard Wellesley Income for a core holding. I've tried and failed. Wellesley offers rock bottom expenses and a track record that is hard to match." ColonelDan concurred: "[Wellesley's] management team and track record since inception tells me it's a proven reliable winner through thick and thin and fits my retirement priorities perfectly."

But the thread wasn't just a Vanguard love-fest. A handful of tried and true Fidelity funds made posters' lists of high-conviction holdings. Peter5 cited  Fidelity Low-Priced Stock  as a top choice. "It's such a great long-term performer with a solid risk/return profile. I'll stick with [manager Joel Tillinghast] until he retires."  Fidelity Contrafund , another offering with an extremely long-tenured manager, also popped up on a few lists.

Other posters mentioned boutique-managed offerings in which they've placed their faith. Given its extremely strong recent performance,  Sequoia  was top-of-mind as a high-conviction pick for fund investors who have been lucky enough to own it;  Yacktman  also appeared on many posters' lists as an easy sleep-at-night pick. LandOlake likes both Yacktman and  Permanent Portfolio , writing, "They always make the playoffs with a balanced offense and defense."  Jensen Quality Growth  also received at least a few mentions.

For Arora1 First Eagle Global  epitomizes an all-weather, sleep-at-night pick. This poster wrote, "I bought this mutual fund in 1990 after watching Jean-Marie Eveillard on Louis Rukeyser's show. It has performed better than anything I have ever owned with much lower volatility. Eveillard is not managing the fund any longer but the fund still seems to be sticking to the same basic knitting."

The Contrarians
Showing an impressive level of tenacity in the wake of poor recent performance, several posters said that they're happy to hang tough with--and even add to--their high-conviction holdings.

Fairholme topped several posters' lists as a high-conviction idea, despite its recent travails. Zweb2011 wrote, "My highest-conviction holding is Fairholme. Simply being contrarian for sake of being contrarian. Also it was beaten down most in 2011 of all my holdings."

Vangrothsap is also thinking like a good contrarian. He views the recent drop in  Dodge & Cox International  as a reason to add to his holdings in this high-conviction fund. "I have confidence in management, their investment selection approach, and their corporate culture. As a result, I view this drop in price as a buying opportunity for my Roth IRA!"

In a similarly contrarian mode, GeorgeBMac, and a few other posters, likes the Matthews funds, which focus on investing in Asia. With several of Matthews' China-focused offerings in his portfolio, GeorgeBMac is holding tight. "Even though they got crushed--when I look at their fundamentals, they still look like something I would buy. In fact, if I wasn't already overweight in them I would." 
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Christine Benz does not own shares in any of the securities mentioned above. Find out about Morningstar's editorial policies.
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