Of all the lessons from last year's 10 Monster Stocks for the Next Decade, I like this one the best: You would have had to buy and hold every stock from the portfolio to achieve the report's market-thumping 23% average return.
Now, raise your hand if you buy every stock anybody recommends. Anyone? Hello? OK, how about one? Two? Three? Ah, that's better.
The truth about diversified returns
Stock-picking is no easy game, and rarely does any investor, or any Fool, buy a portfolio wholesale. That doesn't make the returns from last year's report invalid; it just means that great performance is often achieved in a diversified setting, where the returns from winners chew up and swallow the losses of losers.
So if we can agree that some diversification matters, and if we agree that the evidence favors a blue-chip resurgence, then doesn't it make sense to at least look at cheap, championship-caliber blue-chip funds? I'd say so.
Three blue-chip funds worth a look
Accordingly, I screened for large-cap funds with the sort of characteristics Motley Fool Champion Funds advisor Shannon Zimmerman seeks for his selections:
- An expense ratio of less than 1%, with no loads (less than the category average).
- A 10-year annualized return of 8% or better (market-beating).
- A lead manager with at least five years of experience running the fund.
Here are three solid candidates.
|
T. Rowe Price Equity | |
|---|---|
|
Expense ratio |
0.71% |
|
Fund size |
$21.3 billion in assets |
|
1-year return |
10.08% |
|
5-year return |
5.98% |
|
10-year return |
10.01% |
There's so much to like about this fund, starting with its minuscule expense ratio. But T. Rowe Price is like that. The company bearing the name of its founder, the famous growth-stock investor, has been offering good returns in exchange for reasonable fees for decades.
What's more, this fund is led by Brian Rogers, who has been at the helm since 1985 and has led the firm's investment advisory committee since 1993. Rogers and his team were off to a fast start this year, too, with a return surpassing 5%, no doubt thanks to significant holdings in energy firms such as ExxonMobil (NYSE:XOM) and Chevron (NYSE:CVX).
|
Neuberger Berman | |
|---|---|
|
Expense ratio |
0.85% |
|
Fund size |
$3.6 billion in assets |
|
1-year return |
21.41% |
|
5-year return |
9.36% |
|
10-year return |
9.79% |
This fund sports a value orientation, but it isn't shy about concentrating in the hope of attaining outsized gains. Indeed, an emphasis on energy stocks helped propel the fund well ahead of blue-chip peers in years past. Recently, however, that's created volatility.
Don't expect that to shake fund manager Basu Mullick. He's been at the helm since 1998, and in that time, he has produced generous returns by focusing on unpopular choices. For example, despite all of the housing-bubble babble, builder Pulte Homes (NYSE:PHM) is a top-10 holding.
|
Sound Shore Fund | |
|---|---|
|
Expense ratio |
0.98% |
|
Fund size |
$2.5 billion in assets |
|
1-year return |
12.27% |
|
5-year return |
6.51% |
|
10-year return |
10.72% |
If not for its $10,000 minimum direct investment -- that figure drops to $5,000 through a broker or $2,000 for an IRA -- the Sound Shore Fund would be my favorite of the three. Sound Shore founders Harry Burn III and T. Gibbs Kane Jr. have co-managed the fund since it opened to investors in 1985. A third manager, John DeGulis, was promoted in 2003.
Sound Shore's brain trust has delivered for investors by emphasizing stocks that sell for less than their historical or normalized P/E ratios. And that's led to some very interesting selections, including Freescale Semiconductor (NYSE:FSL) and Time Warner (NYSE:TWX), both of which are top-10 holdings.
A true champ
I'm still very much a stock jock when it comes to my own portfolio. But I'm no small-f fool. I appreciate the instant diversification that funds provide, and so does our research team. That's why our newest blue-chip report, 10 Monster Stocks to Anchor Your Portfolio, includes a large-cap fund, which Shannon chose.
What's more, one of the three funds profiled above, Neuberger Berman Partners, is an active selection of Champion Funds. It's also a market-beater, up nearly 2% since joining the portfolio, which itself has risen by an average of 15%, versus an average of just 6% for the relevant benchmarks. For a closer look at this Champ and all of Shannon's picks, ask us for an all-access pass to the service. It'll only cost you the price of a click.
Fool contributor Tim Beyers didn't own shares in any of the companies or funds mentioned in this story at the time of publication. You can find out what is in his portfolio by checking Tim's Fool profile. Time Warner is a Stock Advisor recommendation. The Motley Fool has an ironclad disclosure policy.
