We think keeping track of the holdings of best performing investment funds is a good thing to do. It doesn't mean you should mirror those portfolios, but it can't hurt to know where the leading funds are putting their money.
In this article we identify the 25 most widely held and heavily weighted stocks held by the best performing non-specialized mutual funds and ETFs.
Specialized funds, such as healthcare funds, which have done very well, are subject to sector rotation in an out of favor, while funds with general mandates, such as those in our filter, can rotate their holdings as economic and investment cycles take place.
While each fund is a stock fund (all domestic except for one world fund), they are not prohibited from owning other assets such as cash, bonds and derivatives to some extent. We did not account for any non-stock behavior of those funds currently or in the past.
For the purpose of this study, we defined "best performing" as those funds that produced higher total returns and lower volatility (standard deviation) than the S&P 500 proxy SPY over five-year and three-year periods, and that also produced higher total return over one year through January 31, 2012.
If we were to have produced a scatter diagram of the total returns (x-axis) and standard deviations (vertical axis) for either five years or three years, the data points would be in the upper left corner (commonly called the NorthWest Quadrant) - less risk per unit of return.
Because we might have wanted to invest directly in one or more of the mutual funds, or to recommend one or more to some investment coaching clients, and because it did not seem unreasonable, we limited the funds group to those that are available to retail investors at either Schwab or Fidelity.
That eliminated those that are closed to new investors, or are limited to distribution through advisors, or that require more than a $250,000 initial investment, or that are only available to institutional investors. In the end, there were 19 funds (five ETFs and 14 mutual funds).
That does NOT mean the individual stocks have less risk per unit of return than the S&P 500, but that the entire portfolio of all of the stocks in each of those funds produced a lower volatility and higher return than SPY.
Note that while a portfolio produces a weighted average of the returns of the constituents, it tends to produce a lower volatility than the weighted volatilities of the constituents. That is because the price fluctuations of the holdings do not occur at the same time, as a result of the same stimuli, or to the same degree - they tend to partially cancel each other as some rise and some fall.
Here are the 25 stocks that those 19 funds held most in common and that were most heavily weighted. They are listed in order from most heavily weighted to least.
- XOM Exxon Mobil Corporation
- AAPL Apple, Inc.
- CVX Chevron Corp
- IBM International Business Machines Corp
- MSFT Microsoft Corporation
- JNJ Johnson & Johnson
- MCD McDonald's Corporation
- UTX United Technologies Corp
- PX Praxair, Inc.
- GOOG Google, Inc.
- WMT Wal-Mart Stores Inc
- PEP PepsiCo Inc
- PG Procter & Gamble Co
- PM Philip Morris International, Inc.
- MMM 3M Co
- PFE Pfizer Inc
- T AT&T Inc
- VZ Verizon Communications Inc
- UNP Union Pacific Corp
- MRK Merck & Co Inc
- BRK.B Berkshire Hathaway Inc B
- GE General Electric Co
- KO The Coca-Cola Co
- ORCL Oracle Corporation
- OXY Occidental Petroleum Corporation
Disclosure: QVM has long positions in AAPL, CVX, MSFT, JNJ, MCD, PM and T, in some managed accounts as of the creation date of this article (February 11, 2012).
Disclaimer: This article provides opinions and information, but does not contain recommendations or personal investment advice to any specific person for any particular purpose. Do your own research or obtain suitable personal advice. You are responsible for your own investment decisions. This article is presented subject to our full disclaimer found on the QVM site available here.