Core Funds That Complement Index Trackers
Try this screen for core funds that zig when the index zags.
Index fund investors looking to diversify their portfolios may want to consider adding exposure to actively managed funds that don't move in lockstep with the overall market. These funds tend to be run by managers who don't let benchmarks guide their stock-picking or sector-weighting decisions. Using the following criteria, Morningstar's Premium Screener can point to intriguing large-cap funds that have delivered compelling returns without following an index, and sport other attractive traits for long-term-focused investors.
To set up the screen, narrow the field to domestic-stock funds with below average expense ratios and investment minimums of $25,000 or less. Next, set the three-year R-squared measure, which represents the percentage of a fund's performance that can be explained by movements in a benchmark index, to 85 or less. (The typical large-cap fund had an R-squared of 93 for that period.) In the case of all equity funds, the S&P 500 is used as the standard index, and an R-squared of 100 indicates that the fund's performance moved in tandem with that benchmark. Lastly, narrow the search to funds with top quartile five-year rankings and manager tenures of at least five years. To run the screen yourself, click here.
Side note: This screen can be run for international-stock funds, in which case the Premium Screener would compare those funds with the MSCI EAFE Index.
Karin Anderson does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.