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Large-cap stocks have spent the last several years playing catch-up with their more popular small-cap counterparts. Over the last five years, the small-cap Russell 2000 index posted a return of 12%, compared with the total return of 7.8% for the large-cap Standard and Poor’s 500. “Smaller companies and international companies have really stolen the show,” says Karen Dolan, mutual fund analyst with Morningstar Inc. in Chicago. “But one of the greatest things investors can do for themselves is to avoid those temptations.”
Investors shouldn’t forget that large-cap companies should be the cornerstone of their investment portfolio because their earnings tend to be more stable. So if appreciation has made international stocks and small caps a dominant part of your portfolio, you should rebalance, says Dolan.
While no investment offers guaranteed future performance, investors looking for a good long-term mutual fund holding would do well to consider a fund’s established performance record over a lengthy period. Using data from Morningstar, BLACK ENTERPRISE selected five large-cap funds that have some of the best five- and 10-year performance records among their peers.
We also sought funds with expense ratios below the large-cap average of 1.3%. An expense ratio is the percentage of a fund’s assets deducted each year to pay the costs of running it. Those costs4usually in the neighborhood of 1.5% for an actively managed fund4include everything from management to accounting to marketing. We also limited the funds to those with a minimum initial investment of $2,000 or less.
The strongest of the bunch is Hartford Capital Appreciation (ITHAX), which boasts five- and 10-year total returns of 12.7% and 15.6%, respectively. The fund is among the top performers in Morningstar’s large blend category, meaning its managers invest in both growth companies, poised for exceptionally strong earnings growth, and value stocks, those selling more cheaply than their intrinsic worth.
American Funds Fundamental Investors (ANCFX) has a minimum investment of $250; however, investors will have to pay a load of 5.75%. Before you recoil at the thought, American Funds is one of the most well-respected fund families and offers well seasoned managers4the average tenure for this fund is nearly 10 years4with one manager guiding the fund since 1984.
The fund’s charter allows its holdings to be almost 30% foreign stocks. The company that manages the fund, Capital Research and Management Co., was among the first U.S. firms to open a research office on foreign soil; it now has two in Europe and three in Asia.
The managers of Homestead Value (HOVLX) are known for sticking to their investment convictions. Managers sold less than 10% of the fund’s holdings in 2004 and 2005. That means that its fine performance entailed little of the taxes that apply when stocks are sold at a profit. “It’s not only tax efficient,” says co-manager Peter Morris, “it allows us to take advantage of something called patience.”
Despite its name, TCW Dividend Focused (TGIGX) can invest a fifth of assets in non-dividend paying stocks. It has an experienced lead manager in Diane Jaffee, who has been with