Funds Built for a Slower-Growth World
These proven offerings often choose steady-Eddie companies.
After a brutal decline between late 2007 and early 2009 in the midst of a global recession and financial crisis, equities have come roaring back as the once-severely gloomy economic outlook has somewhat improved. The most economically sensitive fare, such as highly leveraged companies, has led the way in the rally. But will such firms thrive over a longer time frame? Many top fund managers and other notable investors expect more muted economic growth over the next five to 10 years (or longer), as we try to recover from the financial crisis and companies become less willing to use leverage to juice their financial results. In such a scenario, where consumers tend to spend less and save more, firms with hefty competitive advantages and management teams that wisely allocate capital and keep a close eye on the balance sheet could very well post the strongest returns.
We used Morningstar's Premium Fund Screener tool on Morningstar.com to identify funds that invest primarily in companies that should fare well in a slow-growth environment. First, we screened for funds whose holdings boasted an average return on equity of 15% in each of the prior two years. We also required the funds' holdings to have lower debt/capital ratios, on average, than the S&P 500 Index over the past two years. To further narrow down the list, we screened for distinct funds that have recently been covered by Morningstar's fund analysts, are open to new investors, and can be purchased with a minimum investment of $10,000 or less. Finally, we wanted funds with veteran skippers (with tenures of at least 10 years) who have generated top-quartile returns over that span, land in the top half of their categories over the past year, and have an expense ratio of no more than 1%--in a slower-growth, lower-return environment, fees should play a bigger role.
Here are the results as of Aug. 17, 2009. Click here to run the screen yourself.
Greg Carlson does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.