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SJan 27, 2004

The Long Distance Runner Fund List

The trouble with the ephemeral heroes of investment management is that your money becomes ephemeral when they do. Putnam Voyager fund, for instance, was a Hero Fund in 1999 when it returned an impressive 56 percent. That was better than the S&P 500 Index by a whopping 35 percentage points. Unfortunately, the fund then proceeded to lose nearly 17 percent in 2000, 22 percent in 2001, and nearly 27 percent in 2002.

Talk to the surviving Putnam Voyager shareholders today and you'll see lots of gritted teeth.

Which leaves us with a question. Can any funds cut the mustard over a really long period of time? Not the Top-Performer-of-the-Moment lists that befoul media reporting. No, I'm talking about the long distance runners of fund performance.

To find those funds I started with the Morningstar Principia database. I searched through the surviving domestic equity funds with 20-year track records. When I did this late in 2002 (see URL below) I found 306 such funds. That list, however, included specialized and hybrid funds. To get a better measure of broad domestic stock picking, I eliminated those fund categories. Result: a list of 234 surviving domestic equity funds.

I use the word "surviving" because our friends in the investment/retirement complex are a bit like surgeons--- they like to bury their failures quietly. Many of the domestic equity funds that existed at the end of 1983 suffered the fate of Al Pacino's enemies in The Godfather. They "sleep with the fishes."

Of the 234 survivors, only 27 beat the S&P 500 Index over the period and only 31 beat the Vanguard 500 Index fund. In other words, although some of these funds were the small cap, mid cap, and growth funds that are supposed to do better than a broad index of large cap stocks, less than 12 percent actually beat the index. Only 13.2 percent beat what the fund salespeople like to call "merely average," the Vanguard 500 Index. An investment of $10,000 in this merely average fund would have grown 12.78 percent a year, compounded. What was it worth at the end 2003? An impressive $110,826. (This assumes it was in a tax-deferred account and all dividends and capital gains were reinvested.)

As always, the odds favor index investing.

Ok, but who's at the top of the list? What was the payoff for picking a star manager? Did many investors actually do it?

The top manager was Robert Rodriguez at FPA Capital. If you had invested $10,000 in this front end load, small cap value fund 20 years ago your initial investment would have grown at 16.71 percent a year. That's a stunning 3.73 percent a year of extra annual return. As a result, you'd now have $219,868--- twice what you'd have in the index fund. For readers who think I only write about index funds, I interviewed Rodriguez for columns in 1992 and 1994 and mentioned his fund in 7 other columns between 1992 and 1999.

Unfortunately, few investors benefited from the full twenty-year trip. The fund had $41.1 million in assets at the end of 1983, an amount that would have grown to over $900 million by the end of the 20-year period. Since the fund now has $918 million in assets, only two things could have happened:
  • A small group of original investors could have taken the entire 20-year ride and no new investors joined the party.
  • People traded and most investors missed the ride. In fact, Rodriguez told me late in 1999 that his fund, like most small cap value funds, was suffering from net redemptions!
What were the other long distance runner funds? Check the list below: these eleven funds beat the S&P 500 index by at least 1 percentage point for 20 years.

  
Eleven Funds that Beat the Index Over 20 Years
List of surviving broad domestic equity funds with 20 year track records, rank ordered by annualized rate of return

Fund Name

  Category

Tot Ret Annizd 20 Yr

Excess over S&P 500

Net   Assets   $MM

Ticker

FPA Capital Small Value

16.71

3.73

917.60

FPPTX
Weitz Partners Value Mid-Cap Value

15.62

2.64

2811.00

WPVLX
Dodge & Cox Stock Large Value

15.42

2.44

22754.00

DODGX
Mairs & Power Growth Large Blend

15.32

2.34

1307.40

MPGFX
Davis NY Venture A Large Blend

15.18

2.20

11563.00

NYVTX
Fidelity Contrafund Large Blend

14.84

1.86

36051.40

FCNTX
Smith Barney Aggr Grth A Large Growth

14.78

1.80

2787.50

SHRAX
Legg Mason Value Prim Large Blend

14.78

1.80

10738.20

LMVTX
Spectra N Large Growth

14.45

1.47

0.00

SPECX
Selected American Large Blend

14.35

1.37

5975.60

SLASX
Salomon Bros MdCp O Mid-Cap Growth

14.04

1.06

20.40

SMDOX
Source: Morningstar Principia, December 31, 2003 data
  

Dodge and Cox Stock fund, frequently mentioned in this column, the third ranking fund on the list, and the second largest in assets under management, closed for new investors on January 16th. On their website the fund company cites a need to slow the flow of new money to invest.

Will these funds continue their outstanding performance?

The odds suggest not, but hope springs eternal.

Next Tuesday:   A closer look at the long-term list.

November 3, 2002: Indexing Is Built for the Long Haul

October 10, 1999: It's a Bear Market--- William Nasgovitz

Filed Under: Income Investing