Three Top Stock Funds
Subscribers seeking superior stock funds should emphasize two factors we find particularly useful:
• High scores in our proprietary rating system, which favors funds with low expenses and attractive relative risk and return characteristics. Ranks are computed monthly based on total returns, expense ratios, tax-efficiency, and risk-adjusted performance. To see ratings on more than 3,700 funds, visit www.DowTheory.com/Go/Funds.
• Solid Quadrix® scores for portfolio holdings. Numerous back-tests in recent years have shown that stock portfolios containing the highest Overall scorers typically outperform, while those with the lowest scorers tend to languish. To calculate Quadrix scores, we used a fund’s most recently published holdings, weighting the Quadrix scores for each stock in the portfolio by its percentage of fund assets.
Three standout funds are profiled below. All three earn fund ratings above 80, ranking them among the top 20% of their peer group. Also, the stocks in all three funds earn above-average Quadrix Overall scores, with at least one-fifth of assets in stocks with Overall scores above 80. In addition, the funds have moderate exposure to stocks with low Overall scores. All three mutual funds are components of our recommended Growth and Conservative portfolios.
Heartland Select Value ($25; HRSVX), our top pick among midcap value funds, has nearly 28% of its assets in stocks with Quadrix Overall scores above 80, compared to only 13% for the S&P MidCap 400 Value Index. The fund’s weighted average Value score is a solid 62, versus 57 for the index. Heartland Select Value, with a fund rating of 83, ranks among the top 11% of its peers based on five- and 10-year performance.
T. Rowe Price New Horizons ($27; PRNHX) earns an outstanding fund rating of 96. The fund, which invests mostly in rapidly growing small companies, has outperformed its peer-group average for five consecutive years and so far in 2010. With a weighted-average Overall score of 53, the fund earns above-average scores in four of the six Quadrix categories, paced by a solid 64 for Quality.
Vanguard Dividend Growth ($13; VDIGX), investing mostly in high-quality large-caps, boasts a fund rating of 97 and solid weighted-average Overall score of 67. Nearly one-quarter of the fund’s assets are in stocks with Overall scores above 80 — and no stock scores below 20. The fund ranks among the top 6% of large-cap blend funds for three- and five-year performance. A modest annual expense ratio of 0.38% is well below the category average of 1.30%.