Like most contributors to Seeking Alpha, this is not my day job. I manage money for a living, just over $1.1 billion. But I enjoy sharing my experiences with others who struggle in the stock market. I learn a lot in the process, and its fun. Every once in a while, however, I toot my own horn. This is one of those times. If you're interested in learning about one of the best all-weather U.S. stock funds that you've likely never heard of, read on. Otherwise, click elsewhere.
The fund I'm referring to celebrated its tenth birthday on January 1st. Ten years is long enough to find out if your manager knows what he or she is doing. Morningstar categorizes it as a "Large Cap Blend" fund, though the prospectus was written with the latitude to allow investments in other asset classes if market conditions warrant.
Portfolio holdings currently show an asset mix of 84% stocks and 16% cash and bonds, with decided sector overweights in the stock portfolio in telecommunications and industrials. Top individual holdings in telecom include AT&T (T), Verizon (VZ) and Comcast (CMCSA). These are "lifeline" businesses that generate steady cash flows in a deflating, delevering U.S. economy. Industrial names held in the fund include Honeywell (HON), Boeing (BA), General Electric (GE) and Parker-Hannifin (PH). Aerospace oriented businesses are prominent, as worldwide air traffic continues to grow despite halting overall economic growth.
As for results, the fund generated annualized total returns of 5.96 percent between the first day of 2002 and the last day of 2011, a period many have characterized as a "lost decade" for stocks. The Wilshire 5000 and the S&P 500 returned 3.93 percent and 2.92 percent, respectively, for the same period. The dollar difference in cumulative outperformance for this fund versus the S&P 500 over the period on a $1 million portfolio is just over $400,000, enough to fund 4 years of tuition at most private universities, for example. Three percent per year doesn't sound like much, but over a decade the compounding effect is dramatic. Einstein called compound interest the greatest force in the universe; he was right.
The fund outperformed 60% of the 25 largest U.S. equity funds rated "Gold" by Morningstar over the decade, including each of the 5 largest "American Funds" managed by the well respected Capital Research and Management. It nearly doubled the cumulative performance of the $128 billion Growth Fund of America (AGTHX). It also bested such luminaries as the Sequoia Fund (SEQUX), Oakmark (OAKMX) and Oakmark Select (OAKLX). Each of the latter funds was nominated for 2011 "Manager of the Year" by Morningstar. Finally, it beat the total return of Berkshire Hathaway by 170 basis points annualized over the period.
The best part of the story is on the risk side. All of the above was accomplished with far less volatility than both the popular averages and the average stock fund. For all you Modern Portfolio Theorists out there, the fund sports Sharpe and Shortino ratios more than double both the market and the category. The fund's "Alpha" was 3.02 for the decade. For the average investor, this means the fund not only provided market-beating returns, but did it with fewer ups and downs, making it easier for shareholders to stick with the strategy. Over its ten-year existence, portfolio turnover averaged 17 percent, far below the nearly 100 percent average for domestic equity funds. This helped to make the fund extremely tax efficient as well.
One of the great beauties of the mutual fund world is accountability. A public fund's Net Asset Value (NAV) is immutable. There is no fudging, massaging or otherwise explaining away bad or mediocre results. This is in stark contrast to the murky realm of hedge funds, where audited, public track records are rare as hen's teeth. Yet data for calendar 2011 show that U.S. hedge funds raked in an additional $70 billion last year, despite generally disappointing results. The mutual fund I'm referring to here has a total asset base of $36 million, or 5 hundredths of 1 percent (0.0005) of the amount that hedge funds added last year!
We'll sum up with a question: Why do people continue to pay 2% of assets under management plus 20 percent of the profits earned for the privilege of locking up their money with a hedge fund, when the same (or better!) service is available in funds like the Fort Pitt Capital Total Return Fund (FPCGX)?
Additional disclosure: System would not accept symbol FPCGX for the Fort Pitt Capital Total Return Fund. Ninety percent of my liquid net worth is invested in this fund, which I manage.