A year ago, the last time we published our annual update of the Kiplinger 25, our favorite actively managed no-load funds, we were in the throes of a bear-market downturn—and still in the Kiplinger offices, debating whether to shut the doors and work virtually or keep calm and carry on. The market recovered (and then some), but we’re still hunkering at home.
As the world moves toward a new normal, it’s a good time to get one’s ducks in a row, so to speak. In many ways, the markets have simply come full circle. Just as before the pandemic began, stock and bond prices are high, yields are low, and the picture of a new economic and business cycle is beginning to come into focus.
But the past 12 months have been a wild ride, both for markets overall and for the Kip 25 funds. The period was marked by the end of the bear market and the beginning of a rocky, tech-driven recovery, punctuated by a shift toward small companies and economically sensitive sectors such as energy and financials after the election and the release of COVID-19 vaccines. All told, however, we’re happy with our funds. Our diversified U.S. stock funds, on average, beat the S&P 500 index; our foreign stock funds trounced the MSCI EAFE index of stocks in foreign developed countries; and our bond funds, overall, delivered bigger gains than the Bloomberg Barclays U.S. Aggregate Bond index. For a closer look at how our funds performed, see the box below.
We’re making three changes to the Kip 25 roster this year: We’re cutting Fidelity New Markets Income after a string of manager changes and poor performance that has persisted since before longtime manager John Carlson left in 2019. Its replacement, Vanguard Emerging Markets Bond, has a short résumé, but it impresses. T. Rowe Price Blue Chip Growth is losing its longtime manager, Larry Puglia. After 27 years, he will retire in October. We wish him— and new manager Paul Greene—well. But we’re moving on with Fidelity Blue Chip Growth. Finally, we are replacing AMG TimesSquare International SmallCap with Brown Capital Management International Small Company. We’ve been patient with the AMG fund, but Brown Capital’s offering has performed better and with less volatility.
We summarize each of the Kip 25 funds—new and old—on the pages that follow. For a full summary listing of the Kip 25, see the table on page 27. And we’ve created three model portfolios that incorporate our Kip 25 funds, geared for different goals and time horizons, on page 25. All returns and data are through March 5.
How Our Funds Fared
For the 12-month period ending March 5, the S&P 500 index climbed 29.3%. That’s a 74.6% recovery from its bottom in late March 2020. Foreign markets did well, too, with the MSCI EAFE index gaining 18.6% over the past 12 months. And though a terrible liquidity crunch hit bonds during the market downturn last year—buying or selling almost every type of fixedincome security became nearly impossible—massive bond buying by the Federal Reserve helped buoy debt markets. Even so, recent market conditions have weighed on the Bloomberg Barclays U.S. Aggregate Bond index, which is down 0.3%.
Kip 25 highlights: Seven of our diversified U.S. stock funds beat the S&P 500 over the past 12 months, including one value-oriented fund (Dodge & Cox Stock) and all three of our smallcompany stock funds. The best performer was Wasatch Small Cap Value, with a 52.9% gain. Prime cap Odyssey Growth snapped out of a funk and returned 41.0%. Lowlights include our dividend stock funds, which continue to lag the broad market, including T. Rowe Price Dividend Growth and Vanguard Equity-Income.
Our foreign stock funds together returned an average of 26.2% over the past 12 months— but it was lopsided. Baron Emerging Markets climbed a whopping 40.7% (beating its index); Fidelity International Growth rose 20.6%. Meanwhile, Janus Henderson Global Equity Income was held back by a value-priced, dividend focus.
Finally, our bond funds prevailed over the Agg index, too, with an average 1.9% return. Four funds had solid returns: Fidelity Strategic Income, Metropolitan West Total Return Bond, Vanguard High-Yield Corporate and Vanguard Short-Term Investment Grade. TIAA-CREF Core Impact Bond missed beating the Agg index by 0.03 percentage point. And Fidelity New Markets Income lost ground but beat the 1.6% loss of the JPM Emerging Markets Bond Global index.
LARGE-COMPANY U.S. STOCK FUNDS
DODGE & COX STOCK
The focus: Reasonably priced shares in large and midsize companies.
The process: Eight managers select stocks to buy and hold for at least three to five years (but typically longer). They favor firms with steady cash flow and earnings growth.
The track record: The fund’s 10-year annualized return of 12.8% beat 98% of all large value-oriented funds. After lagging their growth-focused counterparts for a decade, value-priced stocks are waking up.
The last word: This fund is a sturdy option for investors looking to balance FAANG-heavy portfolios. Capital One Financial, Charles Schwab and Wells Fargo are among the top holdings.
(NEW) FIDELITY BLUE CHIP GROWTH
The focus: Fast-growing large firms.
The process: Sonu Kalra’s portfolio can be sorted into three buckets: firms with robust long-term growth (e-commerce companies, for example), companies in a cyclically driven growth phase (financials, say) and a smaller group he calls “self-help stories,” which are businesses with a new manager or product (think of a retailer, for instance, with a growth driver that’s underappreciated).
The track record: The fund’s 10-year 18.9% annualized return beat the S&P 500 and 95% of peers (large-company growth funds).
The last word: Except for the brief bear market in early 2020, Kalra has had a bull market behind him since he took over in 2009. But he beat the S&P 500 as manager of Fidelity OTC between 2005 and mid 2009, a period that included a bigger downturn.
MAIRS & POWER GROWTH
The focus: Growing companies of all sizes trading at a reasonable price.
The process: The Saint Paul, Minn.– based managers like to know their companies well, so they invest a majority of the fund’s assets in firms based in the Upper Midwest. The portfolio has a hefty helping of industrial and health care stocks but less tech than similar funds, on average.
The track record: The fund’s value tilt is part of the reason its 10-year annualized return, 12.9%, lagged the S&P 500’s 13.6% gain. Still, the fund beat the majority of its peers (funds that invest in firms with growth and value characteristics). Last year, graphics chip maker Nvidia and Bio-Techne, which makes biotech research tools, were big gainers.
The last word: The fund is quirky, but it offers diversification from tech-heavy growth funds.
PRIMECAP ODYSSEY GROWTH
The focus: Fast-growing firms.
The process: Five managers divide the fund’s assets and run each share independently. Each manager looks for firms with long-term growth potential that the market has underestimated.
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