| |
|
|
|
|
| Decision Center | The top funds for the next 20 years
|
These balanced mutual funds have been consistent top performers. When analysts look back in a few years, they might be the stars of this era.
By Scott Burns
Picking mutual funds isn't easy. Deciding when to change from one to another is even harder. Small wonder most of us dream of finding The Perfect Fund, the one choice that grows (and pays) forever.
Does it exist?
I don't know. Forever isn't over yet.
But there is a handful of funds that have been consistent top performers for long enough that we can conclude their managers know how to do the right thing and keep doing it.
Time-tested and golden
If you look back to near-prehistoric days among balanced funds, a literal handful continue to perform well:
The Bruce (BRUFX) fund. The virtually unknown fund has only $110 million in assets but has returned a whopping 13.58% annually for the 20 years ending Dec. 31, 2005. That's an incredible return, doubling your investment in about six years. Over the last three years, the fund has continued to put in a good performance, returning an incredible 41.35% a year.
Dodge & Cox Balanced (DODBX), a fund mentioned frequently in this column, has a magnificent record. It returned 12.71% annually over the last 20 years and 14.54% annually over the last three years. Sadly, it has also been closed to new investors.
Others: Van Kampen Equity and Income A shares (ACEIX), Vanguard Wellington (VWELX) and Mairs & Power Balanced (MAPOX) have all returned more than 11% compounded over the last 20 years and did reasonably well over the last three years. They beat at least 70% of their competitors.
Related news and commentary on MSN Money
Unfortunately, when you start that far back, you face some painful limitations:
- First, the starting group is small, so you may miss younger funds with great potential.
- Second, the really successful funds -- like Dodge & Cox Balanced -- are often closed to new investors, so you can't invest in them anyway.
How about up-and-comers?
Query: Are there any balanced funds that are top-performing candidates that are likely to be at the top of the 20-year performance list when they have 20 years of history?
I think there are.
We'll start with an index fund to use as benchmark: Vanguard Balanced Index (VBINX), 60% total-market and 40% total-bond-market, provided a return of 8.20% a year over the last 10 years, beating 66% of its managed competition. I mention this because it will probably continue to beat the average balanced fund long term. The measure of a good fund isn't the average fund but an index fund like this. Until the manager beats the index, he's just another monkey throwing darts. Short term, he may still be just another monkey throwing darts, but he's a lucky monkey.
Here are three that may be top-ranked funds when they put up their 20-year numbers:
Leuthold Core Investment (LCORX) now has a 10-year track record. Managed by Steve Leuthold, one of my favorite researchers and market strategists, the fund's performance shows what consistent research can do. Over the last one-year, three-year, five-year and 10-year periods, it has never been below the top 3% of balanced funds. The fund has no load, a minimum investment of $10,000 and an expense ratio of 1.37% a year.
T. Rowe Price Capital Appreciation (PRWCX) has a 15-year record and has been in the top 5% or better over the last three, five, 10 and 15 years. Last year it ranked in the top 22% of balanced funds. The fund has a minimum investment of $2,500 and an expense ratio of only 0.78%.
Value Line Income & Growth (VALIX) also has a 15-year record and has ranked in the top 3%, 4%, 12%, 5% and 17% of balanced funds in the one-, three-, five-, 10- and 15-year periods, respectively. The fund has a minimum investment of $1,000 and an expense ratio of 1.11%.
This table compares the performance records of a balanced index fund and the average managed balanced fund with three no-load balanced funds that have outperformed the index and the average over periods of at least 10 years.
| Time-tested balanced funds | | Fund | 2005 | 3 years | 5 years | 10 years | 15 years | | Vanguard Balanced Index (VBINX) | 4.65% | 11.10% | 3.77% | 8.20% | NA | | Average Balanced Fund | 5.32% | 11.25% | 3.16% | 7.31% | 9.22% | | Leuthold Core Investment (LCORX) | 14.58% | 22.35% | 9.41% | 11.67% | NA | | T. Rowe Price Capital Appreciation (PRWCX) | 6.85% | 15.62% | 11.37% | 12.40% | 13.05% | | Value Line Income & Growth (VALIX) | 9.95% | 16.50% | 5.48% | 11.09% | 11.17% |
|
Source: Morningstar Inc 12/31/2005 data.
Will they do well in the future?
Who knows? What we know is that each fund comes from a rigorously disciplined shop. That means the tools they have been using to beat the competition -- and the market -- over the last 10 years or more will be used in the future. If you were starting an investment program and had limited funds and still less time to fret over fund choices, these funds are good candidates.
E-mail scott@scottburns.com and see his Web site (free registration required).
|
|
|
|
|
|
MSN Money's editorial goal is to provide a forum for personal finance and investment ideas. Our articles, columns, message board posts and other features should not be construed as investment advice, nor does their appearance imply an endorsement by Microsoft of any specific security or trading strategy. An investor's best course of action must be based on individual circumstances.
|
|
