Welcome, Fools, to part 31 of our several-thousand-part series, "Better Know a Stock Picker," which is loosely, but not too loosely, based on Stephen Colbert's "Better Know a District" from The Colbert Report.
Like Stephen and his thorough investigations into America's congressional districts, each week I take a look at a fund you may want to own. What's on tap this week?
|
American Century Equity Income (TWEIX) |
|
|---|---|
|
Expense ratio |
1.00% |
|
Fund size |
$4.64 billion |
|
One-year return |
13.47% |
|
Five-year return |
10.85% |
|
10-year return |
12.46% |
Top 5 holdings
|
Company |
% of Assets |
|---|---|
|
General Electric |
4.94% |
|
ExxonMobil |
3.98% |
|
AT&T |
3.78% |
|
Bank of America |
3.24% |
|
H.J. Heinz |
2.59% |
Meet Phil Davidson
The fightin' team at American Century Equity Income is led by Phil Davidson and a team of co-managers who emphasize bargains in their stock picking. If that sounds conservative, it is. But that hasn't held back returns. Equity Income is up by more than 4% a year on the S&P 500 over the last decade.
Color me unsurprised. When Kiplinger's named Equity Income one of its 25 best funds to own in 2004, it pointed to the downside protection offered by Davidson's cheapskate approach. "The fund is not a leader in strong markets," columnist Steve Goldberg -- a particularly enjoyable chronicler of the fund industry -- wrote at the time.
Oh really? Value-driven Equity Income is up almost 20% year-to-date. That's more than 3.5% better than the S&P over the same period, reports Morningstar. Eat that, Wall Street.
How he invests
What gives this year? Dividends are probably helping. Equity Income yields an impressive 1.80% as of this writing. That compares favorably with the average S&P tracker, which yields just 1.61%.
Then there are the superstantial stocks in Davidson's portfolio. He recently told Fortune that top holding General Electric remains among his favorites, saying, "The probability of success with this investment is so high that I don't care if it goes sideways for another year." If so, he'll be in good company: GE's Foolish CEO Jeff Immelt has been a regular buyer of the shares.
Davidson will have less company in the murkier waters of convertible notes. He told Kiplinger's he likes them because they provide for above-average dividend yields, but with less risk than common stocks. Current favorites include notes from Hasbro
Is this fund for you?
Could Davidson be the next Peter Lynch? I'm tempted to say yes given his stellar long-term record. Usually, you have to be a growth-hugger like me to be swimming in the warm waters of 20% annualized returns.
Not Davidson. He's a firm follower of Warren Buffett's most famous rule: never lose money. That has to be comforting to investors in Equity Income. So, too, is its load-free 1.00% expense ratio. Why, then, has Motley Fool Champion Funds advisor Shannon Zimmerman failed to add it to the portfolio? Wish I knew.
But don't let that small-f fool you into thinking Shannon somehow overlooked Equity Income. Far from it. He's all too familiar with American Century funds, having chosen a solid market-beater from that shop not long ago. It remains one of the dozens of winners powering the portfolio to this day. (Want to see them all? Click here to get 30 days of free access to the service.)
And that's today's profile. See you back here next week, fund nation. Good night and Happy New Year.
For more Foolish coverage of investing cheapskates:
- Harry Burn III and Gibbs Kane transformed a side business into a superior fund.
- Joel Tillinghast prefers low prices when it comes to seeking high returns.
- Small-cap sensation Chuck Akre knows cheap when he sees it.
Think you can't beat the market with funds? Think again! The selections in Shannon Zimmerman's Motley Fool Champion Funds portfolio are up an average of 29% vs. just 19% for their comparable benchmarks. Ask us for an all-access pass to get an unfettered look at all of Shannon's picks, manager interviews, and model portfolios. Go ahead; it's free for 30 days and there's no obligation to buy.
Fool contributor Tim Beyers , ranked 1,400 out of more than 18,600 in Motley Fool CAPS , is a regular viewer of The Colbert Report. (Stay the course.) Tim didn't own shares in any of the stocks or funds mentioned in this article at the time of publication. Get the skinny on all of the stocks in Tim's portfolio by checking his Foolprofile. Bank of America and H.J. Heinz areIncome Investor recommendations. Hasbro is aStock Advisor pick, while AT&T was a former selection of that newsletter. The Motley Fool'sdisclosure policyis always championship caliber.
