There's been an interesting and unusual financial story in the news recently. It's about a mutual fund, the Voya Corporate Leaders Trust Fund, that has been flying under the radar for a long time. A long time. It has been performing quite well, though, and rightfully garnering some attention now. And best of all, it has some investing lessons to teach us, because of a few amazing details in its story.
What's so amazing? Well, in a world where many mutual funds don't stick around too long, the Voya fund really did. It began back in 1935, fully 80 years ago – before World War II even began and the year when Amelia Earhart flew solo across the Pacific Ocean. For context, according to the Investment Company Institute, by the end of 2013, there were nearly 9,000 mutual funds in existence, with 660 debuting during the year and 424 disappearing, via merger or liquidation.
An unusual approach
The Voya fund has another characteristic that's even more impressive and interesting than its age: Its strategy. It started out as a trust, with its originators buying stock in 30 companies and directing that they never be sold. That may seem like an index fund, which tracks a particular index and doesn't have professional money managers studying stocks and deciding what to buy and sell. But the holdings of indexes change regularly, with successful companies being added to them and less successful ones falling off. A very recent example is Apple, which is being added to the Dow Jones Industrial Index of 30 companies, while AT&T is getting the boot.
The never-sell strategy has unfolded in interesting ways over the years. The fund began by dividing its assets equally among 30 holdings but now has 21, due to bankruptcies, mergers, spin-offs and acquisitions. For example, it started out with Standard Oil investments, which have turned into stock in ExxonMobil and Chevron. Its shares of iconic retailer F. W. Woolworth are now shares of Foot Locker, as Woolworth bought Foot Locker in 1974. Some holdings have simply remained true to themselves over the years, such as General Electric and Procter & Gamble.
So how has this approach worked for the fund? Well, according to the folks at Morningstar, it has outperformed 98% of its peers over the past five and 10 years, respectively averaging 17.3% and 9.4% annually, over those two periods. Not bad, eh?
Part of its success can be tied to some terrific holdings. Its stake in the Atchison Topeka and Santa Fe Railway eventually became a stake in the Burlington Northern & Santa Fe Railway, which was acquired by Warren Buffett's Berkshire Hathaway in 2010. Another part of its success is due to its inactivity. By not buying and selling stocks frequently, as many mutual funds do, the Voya fund avoided commission fees and short-term capital gains tax hits.
The story has many citing it as a great example of the power of buying and holding stocks for the long term. It is indeed a good reminder of the value of that approach, but we should be careful to not read too much into it. Its future isn't guaranteed to be as glorious as its recent past.
Remember, for example, that it wasn't the most stellar fund for many years. Remember, too, that it always involved a relatively small number of holdings, and had they been a bit different, things might not have turned out so well.
From its initial equal weighting, the Union Pacific Corp. railway has become its top holding, with 15.5% of assets. Berkshire Hathaway is in second place, at 10.4%. Next is ExxonMobil, at 9.2%. Clearly, if the railroad industry were to fall on hard times, the fund would suffer, as it would if the price of oil fell sharply. Oh, wait a minute ... that did happen. That might explain the fund's underperformance over the past year.
Overall, though, the Voya Corporate Leaders Trust Fund does have instructive value for us. It shows that blindly holding for the long term can work, despite some holdings going out of business. It offers evidence that winning holdings can more than make up for losing ones. It offers some useful historical perspective, too, as we see weaker companies gobbled up by stronger ones, which often turn out to be solid long-term holdings.
What to do
If you're interested in investing in the Voya fund, you could certainly do worse. Its expense ratio (annual fee) is considerably lower than the typical non-index stock fund, at 0.50%, with no load. Its minimum investment amount is merely $1,000. Another plus is that you know its turnover ratio, reflecting its trading activity, will be 0%, and you can assess all its holdings any time, because they won't change. If you like the prospects of the companies it owns, you might want to buy them all in a basket via this fund.
Otherwise, just enjoy the story, and learn the lessons it offers. And perhaps tune back in in 2035, when it's 100 years old!