Russel Kinnel is director of manager research for Morningstar.
Let's get right to the core of a portfolio and examine some of our favorite large-blend funds. I've selected six with Morningstar Analyst Ratings of Gold for performance reviews. (You can see me chat with Christine Benz about four of these funds in this video
Vanguard Dividend Growth
has been a star performer since we made it a Gold-rated fund in 2011 (when we started rating funds), but now it's in the penalty box. A post-election rally has left the fund in the dust as its bias toward steady high-quality names had it in the wrong place when financials and energy stocks surged. It now actually lags since earning its Gold rating, but we obviously still have faith in the fund.
, on the other hand, remains a winner. Bill Nygren has beaten the Russell 1000 and most peers since November 2011, but also over the past 10 years and all the way back to the fund's inception in 1996. He does own financials and energy, and the fund is going strong. Nygren was early in both cases, as he's a value investor who isn't afraid of controversy--his current portfolio includes American International Group
and Chesapeake Energy
. He sometimes gets an earful from investors when he owns a prominent flop, but clearly the flops are vastly outnumbered by winners.
As you'd expect from a good index fund, Vanguard Total Stock Market Index
finishes third out of our six featured Gold medalists in the trailing one-, three-, and five-year periods. It's the world's biggest mutual fund, and unlike some others that held that title, asset growth isn't slowing it down. It's easy to own, too. Over the past 13 years, it produced top-half performance in every 36-month period and landed in the Morningstar Category's top quartile in 65% of those periods.
One notch ahead of Vanguard Total Stock Market in all those periods since 2011 was Primecap Odyssey Stock
. The fund places a slightly greater emphasis on valuations than the typical Primecap offering. This emphasis is just sufficient to land the fund in blend instead of growth. But like the rest of the Primecap stable, it boasts great returns across the board. You can see the value tilt in greater weightings to value sectors like financials and more modest investments in healthcare, though the latter sector still constitutes a fairly robust 22% of assets.
has the worst five-year returns of the group and the best 10-year returns. The fund is on the border between value and blend, so it really sticks out in this group. In addition, Stephen Yacktman and Jason Subotky tend to hold double-digit cash stakes. So a year like 2015 that featured a strong growth rally will leave it well behind. But we're fans of the fund's defensive approach and management's stock-picking skills.
American Funds Fundamental Investors
is an $80 billion giant that just keeps moving along. The fund aims for strong returns and a yield equal to the S&P 500's. The fund's portfolio is less distinctive than the other active funds on this list, but with low costs and good managers it still produces steady outperformance versus peers and the Russell 1000. It owns about 150 stocks, and its sector weightings are pretty close to the large-blend average.