Finding Cheap Core Holdings
In a lower-return environment, these funds should have a leg up on rivals.
Equities' sharp, painful plunge has driven down stocks' valuations, but the recession has also taken a big bite out of profits. Consumer spending has dropped significantly, and consumer confidence may not rise to previous levels anytime soon. What's more, the financials crisis, brought on in part by excessive use of leverage, means companies are less likely to take on big debt loads to juice their profits in the near future. As a result, the economy may grow at a more modest pace over the intermediate to long term, which could in turn lead to more-muted returns for stocks than they have historically provided. In such a scenario, lower costs become more important.
We used Morningstar's Premium Fund Screener to identify cheap, proven offerings run by veteran skippers that can serve as the foundation of an investor's portfolio. We screened for domestic- and international-stock funds (distinct portfolios only) that Morningstar's fund analysts believe can serve as core holdings, by using the Role in Portfolio, Fund Category, and Distinct Portfolio Only criteria. We also required the funds to not charge sales loads, be open to new investors, and be available for an initial investment of $10,000 or less. (These criteria can be found under Fees & Expenses, Closed to New Investment, and Minimum Initial Purchase, respectively.) Then using the Fund Manager Tenure, 10 Yr Return % Rank Category, and Fees & Expenses criteria, we narrowed the list down further to find funds with managers who have been on the job for at least a decade, who have generated top-third returns in their categories over that span, and that carry expense ratios of less than 0.8% (which puts them among the lowest quartile among domestic-stock funds).
The screen returned the following funds as of May 18, 2009:
Greg Carlson has a position in the following securities mentioned above: DODGX. Find out about Morningstar’s editorial policies.