The Corporate Leaders Trust Fund (MUTF:LEXCX) is a testament to the power of buy and hold investing. The mutual fund (originally established as a trust) was founded in November 1935 on the heels of The Great Crash and in the heart of The Great Depression. Skepticism and painful memories ruled the day, so the original portfolio managers opted for the relative safety of blue-chip dividend-paying stocks. Here's the magical part: The fund was built to function like a time capsule and its stock holdings are essentially unchanged over 81 years!
The original 30-stock portfolio looks different than it appeared in 1935. Some companies have gone out of business, others have changed their names, merged or been acquired. But the fund has stuck to its core holdings and its core promise to not change those holdings, rewarding patient investors for decades. (Nobody has done a better job detailing this fund's history than Kevin McDevitt, CFA for Morningstar.)
You can ooh and aah at the hypothetical growth of $10,000 invested at the fund's inception, but it's a silly thing to do. $10,000 was a small fortune during The Great Depression and it's no surprise that eight decades of compounding would grow to tens of millions of dollars. The thing that amazes me is how well this fund has performed during the latter half of its life. Let's take a trip back to 1976 in order to make a fun and practical comparison.
This was the year that John Bogle revolutionized the mutual fund industry when he launched the first index fund: The Vanguard 500 Index Fund (MUTF:VFINX). The fund was designed to mirror the stocks in the S&P 500 index, providing investors with a passive way to invest in the stock market. You'd have done well investing with Bogle in the summer of 1976, but you'd have done better investing in the Corporate Leader's Trust Fund:
Vanguard 500 vs. Corporate Leaders Trust vs. S&P 500
(Growth of $10,000 since Aug. 31, 1976)
|Fund/Index:||Total Return:||Compound Annual Growth:|
|Data via Morningstar|
The compound annual growth rate between the Vanguard 500 fund and the Corporate Leaders Trust differs by less than 1%, but over four decades, this seemingly small difference is worth more than $200,000.
As an aside, you'll notice that the returns of the Vanguard 500 differ from the hypothetical returns of the S&P 500. That happened for a couple of reasons: First, Vanguard didn't have enough money to buy all the stocks in the S&P 500 when Bogle launched his revolutionary fund (he had to fight hard to sell people on the idea of passive investing). Second, the trading associated with any index fund will always cause it to deviate from the index it attempts to mimic. That second point ties into something that many index fund investors don't realize: Stock indices are actively managed.
Small changes are made to the S&P 500 index almost every year. Sometimes big changes are made too, like when the index was reconstituted in 1976 and 1988. (This archived article from CF Tech is a great guide to the S&P 500 and its history.)
On the other hand, the Corporate Leaders Trust Fund has made almost no active changes during the same period. The fund holds 21 stocks today. Because there are so few stocks in the fund, I was able to do a bottom-up valuation of each one. That research is below, along with a subsequent valuation for the fund itself:
|Holding:||Weight (incl. cash):||Weight (ex. cash):||LACFY:||Contribution to Fund:|
|Union Pacific Corp (NYSE:UNP)||17.43%||17.85%||2.55%||0.45%|
|Exxon Mobil Corp (NYSE:XOM)||11.02%||11.29%||2.81%||0.32%|
|Berkshire Hathaway (NYSE:BRK.B)||10.75%||11.01%||2.34%||0.26%|
|Procter & Gamble (NYSE:PG)||5.44%||5.57%||3.70%||0.21%|
|Honeywell International (NYSE:HON)||5.16%||5.28%||2.96%||0.16%|
|Marathon Petroleum (NYSE:MPC)||4.30%||4.40%||4.37%||0.19%|
|Consolidated Edison (NYSE:ED)||3.33%||3.41%||1.04%||0.04%|
|Dow Chemical (DOW)||3.05%||3.12%||2.79%||0.09%|
|Foot Locker (NYSE:FL)||3.00%||3.07%||4.26%||0.13%|
|E. I. DuPont (DD)||2.96%||3.03%||2.29%||0.07%|
|General Electric (NYSE:GE)||2.89%||2.96%||3.37%||0.10%|
|Fortune Brands Home & Security (NYSE:FBHS)||2.57%||2.63%||1.69%||0.04%|
|Marathon Oil (NYSE:MRO)||1.01%||1.03%||1.09%||0.01%|
The Corporate Leaders Trust Fund has a liability-adjusted cash flow yield* of 2.50%. Unfortunately, that's not a great deal. I'd want the ownership yield of the fund to be at least 2.75%, which, as of this writing, is 1.5 times the yield offered by the 10-year U.S. Treasury Note. To play devil's advocate, this may not be a fair valuation method. The fund skews toward energy and railroad companies which are cyclical by nature and hard to value. But valuation isn't the only reason why I don't own LEXCX. I've been tempted to buy this fund many times, but I never do and it's always for the same reason: the fees.
The Corporate Leaders Trust Fund doesn't change its holdings and yet Voya charges 0.53% in management fees. That's a king's ransom. You can find an index fund that charges 0.05% in expenses (i.e. 90% less!). Yes, 0.53% sounds like a small number, but remember the math above. One fund outgrew the other by hundreds of thousands of dollars even though the annual growth rate was less than 1% apart.
Still, I'll raise a glass on November 18th and wish the Corporate Leaders Trust Fund a happy 81st birthday: May it beat the market for decades to come. I don't own the fund, but I owe it a debt of gratitude. Its rich history (and performance) inspired me to build my own portfolio of dividend growth stocks to hold forever. So far, I am happy with the results.
*5-Year Avg. Free Cash Flow / ((Outstanding Shares x Per Share Price) + (Liabilities - Cash))
This formula tells you what kind of return you might expect if you bought an entire company outright. I ran this calculation for each of the 21 stocks that the fund holds. Then, I pro-rated each company's yield with respect to the stock's weighting within the fund portfolio. The combined weighting of the Corporate Leaders Trust Fund doesn't equal 100% because the fund keeps some cash on hand. Therefore, I've included a second column in the table above: It details each stock's portfolio weight if you ignore the fund's cash allocation.
Disclosure: I am/we are long PG.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.