David Kathman, CFA, PhD, senior fund analyst at Morningstar Inc., Chicago, which tracks 570,000 investment offerings. Morningstar.com
Date: August 15, 2018
Bottom Line: Don’t let their troubles keep you away
Just because a mutual fund is experiencing a cold streak doesn’t mean that you should shun it. Sometimes the approach that a very good fund manager takes grows temporarily out of favor but eventually comes roaring back. Example: Over the past year, cold streaks have hit several high-quality funds that invest in stable, debt-free companies with consistent profits. Investors have largely turned their backs on that type of company in favor of fast-growing technology stars from Amazon.com to Netflix. But if history is any guide, that tide will turn.
My advice: Get exposure to the best of these underperforming funds. The stocks they own are the most likely to hold up well in what could be rough times ahead. Examples…
AMG Yacktman (YACKX) focuses on large, undervalued consumer-goods companies that dominate their industries. In the past year, many of the top holdings have sunk (including Colgate-Palmolive, down 6.7%, and Procter & Gamble, down 5.3%). The fund’s one-year performance: 13.3% vs. 16.7% for the Standard & Poor’s 500 stock index. 10-year annualized performance: 13.2% vs. 10.9% for the S&P 500.
Mairs & Power Growth (MPGFX) favors large, financially sound manufacturers and health-care companies, some of which are having a particularly rocky period, including 3M (down 2.3% over the past year) and Johnson & Johnson (down 1.9%). One-year performance: 8.8%. 10-year annualized performance: 10.9%.
Parnassus Mid-Cap (PARMX) practices so-called socially responsible investing focused on high-quality medium-sized companies. That often leads to unglamorous manufacturers, including underwear-maker Hanesbrands (down 3.3% over past year). One-year performance: 10.7%. 10-year annualized performance: 12.5%.