Fund Portfolios Top Benchmarks
Our two recommended fund portfolios beat their targets by a wide margin in 2009. The Growth Portfolio gained 32.8%, versus an increase of 27.5% for its passive benchmark portfolio and a return of 26.5% for the S&P 500 Index. The Conservative Portfolio gained 25.3%, compared to an increase of 22.0% for its benchmark. Our recommended fund portfolios were fine-tuned in the Dec. 21 Forecasts.
Last year was no fluke. Our recommended fund portfolios have outpaced their benchmarks in seven of the last 10 years. During that span, the Growth Portfolio returned an annualized 2.6%, versus 0.5% for its benchmark. The Conservative Portfolio gained an annualized 2.8%, compared to 2.5% for its benchmark. By comparison, the S&P 500 Index delivered an annualized loss of 0.9%.
Investors seeking top picks for year-ahead gains should consider the four standouts reviewed below. All four funds have proved their mettle in both good times and bad, outpacing category averages in 2008 and 2009. All four are members of our recommended portfolios and rank among the top 10% of their fund categories in our fund-rating system. Our fund rankings are computed monthly using total returns, expense ratios, tax efficiency, and risk-adjusted performance. Ratings for nearly 3,600 funds are available at www.DowTheory.com/go/Funds.
Heartland Select Value ($26; HRSVX) earns a solid fund score of 90, meaning it ranks better than about 90% of its fund-group peers. The fund, which has outperformed its peer group for five consecutive years, focuses on value stocks among shares of small, midsize, and large companies. Up 38.6% in 2009, the fund’s five-year annualized return of 6.9% ranks among the top 4% of the midcap-value category.
T. Rowe Price New Horizons ($26; PRNHX), our top pick among small-cap growth funds, returned an impressive 43.9% last year, compared to 35.5% for its category. The fund invests mostly in emerging-growth companies, preferably early in their corporate life cycle. The fund held more than 240 stocks on Sep. 30, and technology accounted for 24% of assets.
Vanguard Emerging Markets Stock Index ($27; VEIEX) soared 76.0% last year — after tumbling 52.8% in 2008. The fund’s five-year annualized return of 16.4% ranks among the top 20% of its peer group. At the end of November, the portfolio held 824 stocks and was 18% invested in China. The fund, an aggressive holding, makes up 5% of the Growth Portfolio.
Vanguard International Value ($32; VTRIX) boasts a fund score of 98 and an outstanding track record. Over the last five years, the fund gained 7.0% annually, versus 3.9% for its peer group. The fund invests in underpriced foreign companies in both established and developing markets.