Either way, those investors who don’t like the idea of getting in and out of the market might instead consider this list of five mutual funds that tend to do well during the summer doldrums:
FPA New Income Fund
The FPA New Income Fund (MUTF:FPNIX) has been in existence since 1969 and managed by FPA Funds since July 1984.
For those who aren’t familiar with FPA, it’s one of the most respected money management firms in the country. The fund’s annualized total return since inception is 7.97% — 26 basis points less than the Barclays US Aggregate Bond Index.
FPA’s philosophy, however, is to not lose money.
For instance, consider the ugly four-month period from April 30, 2011, to Sept. 30. For those of you that don’t remember — it wasn’t good. In those four months, the Vanguard 500 Index Fund (MUTF:VFINX) achieved a total return of -16.3% including dividends. In comparison, FPA’s fund actually gained 0.88%.
Approximately 86% of FPNIX’s $5 billion in total net assets are invested in mortgage-backed securities with credit quality ratings of “A” or better. The average life of its 399 holdings is 2.6 years, making it a reasonably short-term investment. And FPA New Income’s 2.56% SEC 30-day yield makes it a great place to park your money.
Metropolitan West High Yield
Yield-chasing is a big deal amid this low-interest-rate environment, so Metropolitan West High Yield (MUTF:MWHYX) is bound to catch the attention of many income investors with a SEC 30-day yield of 5.95% and 10-year annualized return of 9.53% through March 31.
While MWHYX didn’t hold up nearly as well during the four summer months back in 2011 — down 9.9%, including dividends — it has done just fine over the long-term. Morningstar gives this fund five stars for its weighted average return over the past three, five and 10 years. Furthermore, in recent years, it has seriously outperformed FPA’s fund.
In terms of risk, Metropolitan West High Yield is about average for bond funds. So for those with at least some risk appetite, MWHYX could be a great choice for summer.
Berwyn Income Fund
Berwyn Income Fund (MUTF:BERIX) is a balanced fund leaning toward income when it comes to its portfolio composition. With 30% in common stocks and another 6% in preferred shares, the $1.5 billion, 26-year-old fund might be conservative in its investing, but its five-star rating from Morningstar is well deserved.
Since inception, Berwyn Income has achieved an annualized total return of 9%. During the past 10 years, it has achieved a similar return to the S&P 500 with far less risk.
Most importantly, its annual expense ratio is 0.64% — considered low among its conservative allocation peers.
Over the past decade, the Vice Fund (MUTF:VICEX) has seen only one year of negative returns (2008), achieving an annualized total return of 11.8% — 408 basis points greater than the S&P 500 — and it’s up 12.6% year-to-date.
More impressive is the fact it had double-digit returns in eight out of nine of those years with positive gains. That’s what you would call consistent.
VICEX’s holdings — which include stocks like Diageo (NYSE:DEO), SABMiller (PINK:SBMRY) and Las Vegas Sands (NYSE:LVS) in its top 10 holdings — should do well this summer as Americans look to unwind a little more than in recent years.
ING Corporate Leaders Trust Series B
The last of my recommendations is more of a long-term pick rather than an absolute must-buy for the summer.
Composed of just 22 stocks, ING Corporate Leaders Trust Series B (MUTF:LEXCX) is the ultimate blue-chip stock fund. Around since 1935, it doesn’t add new stocks, with the exception of existing holdings that spin off divisions, etc. When it has enough money to buy 100 shares of each of its holdings — which include Berkshire Hathaway (NYSE:BRK.A, BRK.B) — it does so. There’s no considering the price paid or other financial metrics that an active manager might consider.
Some might see its management expense ratio of 0.52% as a tad high for what’s essentially an automated fund. However, LEXCX’s performance during the past 78 years has been equal to the task. Most active investors (Vice Fund an exception) can’t hold a candle to its performance over the long-term.
LEXCX might not do well this summer, but long-term, that won’t matter.
As of this writing, Will Ashworth did not hold a position in any of the aforementioned securities.