by Tom Taulli | May 29, 2013 11:35 am
The stock market might be cooling off a little this morning, but it’s still been red-hot all year. Heck, the Dow Jones Industrial Average is up a whopping 17% since the start of 2013!
Of course, such a run means it may feel a bit unnerving to jump in the market right now … but there are some experts who there’s more room on the upside. One is Jeremy Siegel. The author of the classic Stocks for the Long Run and finance professor at The Wharton School has a great track record and thinks the Dow can reach 17,000 this year. That would translate into double-digit return from current levels.
If he’s right, then it’s a pretty good bet that large-cap stocks are a good place to put your money since they will not only enjoy nice capital gains, but offer solid dividends too. Plus, if he is wrong, large-cap stocks are also less vulnerable to big downturns.
Another way to add safety to your bet is to play this is with mutual funds. With that in mind, let’s take a look at four that stand out:
Expense Ratio: 0.99%
Robert Shearer took the helm of the BlackRock Equity Dividend Fund (MDDVX) about a decade ago. During this time he racked up a 10% average return and now the fund has about $29.4 billion in assets.
Another perk is that Shearer focuses on companies that have a good chance of increasing dividends. To this end, he looks for powerful barriers to entry, positive industry trends and solid management teams. Well, and he also looks for a bargain, of course!
Once Shearer finds a good pick, he tends to stick with it. In fact, the turnover of the portfolio is a mere 3%.
The fund’s expense ratio is 0.99%, while its front-end sales charge varies depending on your investment. Some of the top holdings include Chevron (CVX), JP Morgan Chase (JPM), Wells Fargo (WFC) and Pfizer (PFE).
Expense Ratio: 0.74%
When equity funds get large — say over $25 billion — it’s tougher to generate strong returns. After all, even if a manager buys a small-cap growth company, a big move will likely have a negligible impact on the fund’s overall gain.
Will Danoff — who operates the Fidelity Contrafund (FCNTX) — does not seem to be bothered with this, though. His fund has $93.7 billion in net assets, yet he still finds ways to achieve stellar returns.
And Danoff is not just a flash in the pan. He has been running the FCNTX fund since 1990 and thus has a pretty good feel for how to handle just about any type of market environment. Plus, Danoff also has the benefit of a strong bench of top-notch analysts.
The returns support this. For the past three years, FCNTX has posted an average return of 16.8%. The top holdings currently include Google (GOOG), Berkshire Hathaway (BRK.A, BRK.B) and Coca-Cola (KO).
Expense Ratio: 1.21%
While it’s easy to think only of domestic investments when it comes to large caps, there are countless great companies in foreign markets as well. One way to take advantage of this is with the MFS International Value Fund (MGIAX), which has $10.4 billion in net assets.
While portfolio managers Barnaby Wiener and Benjamin Stone look for good values (as obvious by the fund’s name), this does not mean they invest in distressed companies. Instead, the focus is mostly on those that have strong operations but may be temporarily out-of-favor with investors.
Such a philosophy sure has paid off. Over the last decade, the fund has returned an average of 11.4% annually, while that number jumps to 15.8% over the last three years.
At this point, nearly 70% of MGIAX’s portfolio is in Europe. Of course, in light of the economic troubles, there are certainly lots of undervalued companies there. Top holdings include KDDI (KDDIF), Danone (DANOY), GlaxoSmithKline (GSK) and Roche Holding (RHHBY).
Expense Ratio: 1.16%
In today’s highly competitive markets, there are cases where large-cap companies that have imploded. A classic example is Kodak. Still, there are lots of times when a struggling company is able to get back on track as well … and thus make juicy profits for investors.
Essentially, this is what Columbia Contrarian Core Fund (LCCAX) looks for. As the fund’s prospectus puts it, LCCAX has a “unique contrarian philosophy based on the belief that investment opportunities can be found where the market displays an inordinate amount of pessimism.”
For example, Pope bought Citigroup (C) in 2010, when the company’s shares bottomed out. Then there was a gutsy purchase of Hewlett-Packard (HPQ) late last year. As of now, some of his major holdings include IBM (IBM) and Apple (AAPL).
While it’s a risky strategy, the fund’s manager Guy Pope has a solid track record. For the past three years, the average annual return was over 18%.
Tom Taulli runs the InvestorPlace blog IPO Playbook. He is also the author of High-Profit IPO Strategies, All About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.
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