Now here's something exciting -- a mutual fund that hasn't lost money in some 16 years! Meet the T. Rowe Price Capital Appreciation fund (FUND:PRWCX). When I read about it in an interview in Bottom Line Personal magazine, I wanted to scoff, at least a little.
Why would I scoff? Well, because it seems a little silly to embrace a fund just because of something like that. After all, much of that performance might be luck. Given that there are several thousand mutual funds out there, a few lousy funds may end up with decent records just by happenstance, or simply as a result of the odds.
Digging in
So I did a little digging. First, I noted, reluctantly, that the fund belongs to T. Rowe Price (NASDAQ:TROW), which is actually a top-notch mutual fund family with generally low fees and generally strong funds. The fund's turnover ratio, according to Morningstar.com, is 54%, which is not super-steep, but is also not as low as many respected funds. It holds about 100 securities, which is not as concentrated as many respected focused funds but is also nowhere near as scattered as lots of funds with hundreds of different holdings. The fund's top holdings recently included stock in Tyco (NYSE:TYC), Murphy Oil (NYSE:MUR), AT&T (NYSE:T), Wyeth (NYSE:WYE), and Home Depot (NYSE:HD). It also held a lot of bonds.
The dividend yield for the fund is a rather healthy 2.13%, and its expense ratio is 0.73%, which is considerably lower than the average 1% or so for stock funds. This fund, though, is more of a "balanced fund," including bonds.
At the T. Rowe Price website, I read that the fund's compound average annual return over the past decade has been a very healthy (and market-beating) 11.4%. Over the past five years, it's 13.6%. It recently had about 60% of its assets in domestic stocks, 3% in foreign stocks, 21% in convertibles and domestic bonds, and 17% in cash.
So ...
What do I think of the fund, now that I've looked at it more closely? I must confess that I'm impressed. It has racked up a very respectable record, especially considering that it hasn't invested completely in stocks. In fact, its record trounces many stock-only funds. For those who seek a little more balance in their investments, such as some exposure to bonds, this fund seems like a compelling candidate. The fact that it has nearly a fifth of its assets in cash is a bit of a twist, too. On the one hand, that suggests that it could have achieved better results had those funds been deployed into strong performers. But on the other hand, the fund does stand ready, with cash in hand, to act on attractive new opportunities as they arise.
Still, the bottom line for me is that many of us would probably do best to stick mainly with stock funds -- because over the long periods that many of us have for our investments, stocks simply perform better than bonds. Consider the research of University of Pennsylvania professor Jeremy Siegel, who found that stocks outperformed bonds 74% of the time over all five-year periods between 1871 and 2001. Over all 10-year periods in the same span, that figure rises to 82%. Meanwhile, stocks have outperformed bonds 95% of the time over all 20-year periods and 99% of the time over all 30-year periods!
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