Celebrating 75 Years of Sloth!
ING Corporate Leaders Trust has defied expectations for decades.
Warren Buffett could have been describing passively managed ING Corporate Leaders Trust (LEXCX) approach rather than his own when he said, "Lethargy bordering on sloth remains the cornerstone of our investment style." Buffett has nothing on this fund, which recently celebrated its 75th birthday, when it comes to sloth. Nevertheless, it has beaten the S&P 500 Index over a number of decades despite maintaining a largely static portfolio. This makes the fund an anomaly among open-end offerings (even among index funds). But its uncommon strategy and success hold potential lessons for investors of all stripes.
Less Active Than the S&P 500 Index
The fund takes passivity to a level that would be intolerable for most investors. Knowing how difficult it is for most investors to do nothing, the fund's founders mandated in 1935 that the 30 stocks originally bought for the portfolio would essentially never be sold. (Buffett again: "For investors as a whole, returns decrease as motion increases") It was just six years after the 1929 crash, and the Great Depression was in full swing, so memories of swashbuckling investors who had gone down in flames were still fresh. They didn't want any part of manager risk.
The fund would never add holdings either. In fact, the only way that new stocks could enter the portfolio would be through spin-offs or mergers and acquisitions. On the other hand, a company would only be sold if it suspended its dividend or was in danger of being delisted or going bankrupt. As a result, the fund often goes years without selling a position, although it did sell Citigroup (C) in 2009 when the share price fell to just $1. Ironically, though, that ended up being poor timing, as the stock has bounced back to nearly $5 per share since then. (It's perhaps another cautionary example of activity hurting returns.)
Kevin McDevitt does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.