I was pleased to read that the Wall Street Journal chose to do a quick case study on one of the most interesting investment trusts ever created: The ING Corporate Leaders Trust. I have written before about the virtues of investing for the very long term with companies like Johnson & Johnson (NYSE:JNJ) or The Coca-Cola Company (NYSE:KO), but while those numbers fall into the "woulda, coulda, shoulda" category, the ING Corporate Leaders Trust offers a very real example of what happens when you construct a portfolio with the intent to buy-and-hold forever.
The Corporate Leaders Trust offers us a glimpse of the total returns offered by one particular flavor of forever investing. On November 18, 1935, the management of the Corporate Leaders Trust selected the 30 top-quality blue chip stocks at the time with the instruction to hold forever, with portfolio changes occurring due to events such as mergers, spinoffs, dividend elimination, or a share price less than a $1. If a stock falls by the wayside, the fund sells the stock and then invests the proceeds among the remaining stocks held. The Corporate Leaders Trust is one of the few places in the market where we can truly observe the effects of long-term investing.
Since there is no rebalancing in this portfolio, there is a fair amount of concentration among the fund's top six holdings: Exxon Mobil Corporation (NYSE:XOM) accounts for 15.12% of the fund's holdings, Union Pacific Corporation (NYSE:UNP) accounts for 10.84%, Praxair, Inc. (NYSE:PX) accounts for 10.07%, Chevron Corporation (NYSE:CVX) accounts for 9.16%, Berkshire Hathaway, inc. (NYSE:BRK.B) accounts for 8.41% (Berkshire found its way into the portfolio after Buffett added Burlington Northern to the stable of Berkshire businesses), and Procter & Gamble Co. (NYSE:PG) is worth 5.46% of the total holdings. That's almost 60% of the fund right there.
And how has this buy-and-hold fund that has largely tracked the same stocks bought in 1935 performed in the modern economy? Year to date, the fund has returned 7.10%. Over the past three years, it has returned 19.93% annually. Over the past five years, the fund has returned 3.36% annually. And over the past 10 years, the Corporate Leaders Trust has returned 8.32%. And these impressive returns have come from a portfolio that was constructed based on the American companies that were dominating in 1935. This is a nice reminder that it can be better to think as a long-term part owner of a business when making stock purchases instead of as a short-term renter of two to three letters on a computer screen that might shoot up in value.
Of course, when we see results such as these, we can't help but ask: How should this affect our own approach to investing? While we might all answer this question differently, I can tell you the type of insights that I gain from looking at the long-term performance of this fund.
First of all, it further cements the notion that a few failures in a buy-and-hold portfolio do not spell disaster. This fund got burned by International Harvester and American Can Co., and more recently, Eastman Kodak. Despite these setbacks, the outperformance of a few select winners—remember, the top six holdings comprise 60% of the fund due to a lack of rebalancing—can compensate for losers elsewhere.
But my biggest takeaway from looking at the Corporate Leaders Trust is the wisdom in "letting the winners run." Charlie Munger, the Vice Chairman of Berkshire Hathaway, has often remarked that investors can serve themselves well by seeking out companies that will "drown you in cash." Does it really seem far-fetched to suggest that this fund will continue to deliver outperforming returns over the coming decades due to the continued success of Exxon, Chevron, Berkshire Hathaway, and Procter & Gamble, which currently comprise almost 40% of the holdings?
You can click here to see that over the past 10 years, the Corporate Leaders Trust has ranked number one out of 250 in the large cap value category. I find that to be statistically significant—a ghost fund with absolutely minimal oversight built upon a foundation of what dominated American enterprise in 1935 has outperformed 249 other funds run by MBA graduates seeking to navigate the market. This is yet another example that there is not a lot of virtue in trying to make the easy things harder.
The best dividends can come from buying companies that drown their investors in cash and then holding through good times and bad. Despite technological changes and global shifts that would probably boggle the mind of the men who created this fund in 1935, many of the blue-chip companies that dominated the old economy of the 20th century have managed to adapt to the new world of the 21st century. I treat the outperformance of a 1935 ghost fund as yet another entry into the investing lexicon that refutes the notion that buy-and-hold investing is dead.