When I first started writing regularly about funds and investing, it was as an analyst for FundAlarm, a site whose publisher proclaimed
Our view of the mutual fund industry is slightly off-center. We help you decide when it’s time to sell a fund, instead of when it’s time to buy. The mutual fund industry is full of broken promises, arrogance, greed, hypocrisy — the list goes on. We try to shine a light in the darker corners, and poke holes in balloons that could use some poking.
In honoring that heritage, we routinely publish a roll call of the wretched, funds that have distinguished themselves by their inability to rise even to the level of honorable mediocrity.
The flip side of that equate are the funds that have achieved outstanding returns without sacrificing protection in falling markets. We’ll identify those funds by using the inverse of the roll call of the wretched methodology:
instead of starting with Three Alarm funds (those that have trailed at least 80% of the peers over the past 1, 3 and 5 year periods), we start with Honor Roll funds (those that have beaten at least 80% of the peers over the past 1, 3 and 5 year periods).
we’ll still use four different measures of downside risk –downside deviation, down month deviation, bear month deviation –
Using the tools at MFO Premium, we’ve identified the 10 best equity-oriented funds of the past decade based on each of three different downside measures.
Lowest 10-year downside deviation
Downside deviation can be thought of “day-to-day downside.” It measures only downward variation; specifically, it measures a fund’s return below the risk-free rate of return, which is the 90-day T-Bill rate (aka cash). Downside deviation doesn’t worry about how the stock market is doing, it just identifies funds which – in any market – return less than money in a savings account would.
|Lipper category||Downside deviation||10-year annual returns||Worst drawdown||vs peer group|
|Vanguard Total Stock Market VTSMX||Multi core||7.9||13.3||-17.7||1.6%|
|Vanguard Balanced Index VBINX||Growth allocation||4.4||9.5||-9.0||1.0|
|Akre Focus AKREX||Multi-Cap Growth||5.6||17.1||-8.6||3.5|
|First Trust Value Line Dividend Index FVD||Multi-Cap Value||5.7||13.4||-11||2.6|
|Vanguard Dividend Growth VDIGX||Equity Income||6.2||12.9||-11.2||2|
|WisdomTree US LargeCap Dividend DLN||Large-Cap Value||6.6||12.4||-11.3||1.4|
|FAM Dividend Focus FAMEX||Equity Income||6.7||13.8||-14.4||2.8|
|Madison Investors MINVX||Multi-Cap Core||6.7||12.7||-15||1|
|Parnassus Core Equity PRBLX||Equity Income||6.8||12.9||-14.8||2|
|Vanguard Dividend Appreciation Index ETF VIG||Equity Income||6.8||12.5||-14.2||1.6|
|Hartford Core Equity HAIAX||Large-Cap Core||7||14||-16.2||1.7|
|Nuveen Santa Barbara Dividend Growth NSBRX||Equity Income||7.1||12.4||-13.9||1.5|
Lowest 10-year down market deviation
Down market deviation can be thought of as “the downside in any sort of declining market.” Pure downside deviation includes only fund returns less than zero. Basically, DMDEV indicates the typical annualized percentage decline based only on a fund’s performance during negative market months. So, if the market drops by even 0.1% in a month, we report how each fund did and then project it over 12 months.
|Lipper category||Down market deviation||10-year annual returns||Worst drawdown||vs peer group|
|Vanguard Total Stock Market VTSMX||Multi core||7.8||13.3%||-17.7||+1.6|
|Vanguard Balanced Index VBINX||Growth allocation||4.3||9.5||-9.0||1.0|
|Akre Focus||Multi-Cap Growth||5.5||17.1||-8.6||3.5|
|First Trust Value Line Dividend Index||Multi-Cap Value||5.6||13.4||-11||2.6|
|Vanguard Dividend Growth||Equity Income||6.1||12.9||-11.2||2|
|WisdomTree US LargeCap Dividend||Large-Cap Value||6.5||12.4||-11.3||1.4|
|FAM Dividend Focus||Equity Income||6.6||13.8||-14.4||2.8|
|Madison Investors||Multi-Cap Core||6.6||12.7||-15||1|
|Parnassus Core Equity||Equity Income||6.7||12.9||-14.8||2|
|Vanguard Dividend Appreciation Index ETF||Equity Income||6.8||12.5||-14.2||1.6|
|Hartford Core Equity||Large-Cap Core||6.9||14||-16.2||1.7|
|Nuveen Santa Barbara Dividend Growth||Equity Income||7||12.4||-13.9||1.5|
Lowest 10-year bear market deviation
Bear market deviation can be thought of as “the downside in a seriously declining market.” Basically, bear market deviation indicates the typical annualized percentage decline based only on a fund’s performance during bear market months. For equity-oriented funds, a bear market month is one in which the market declined by 3% or more in 30 days.
|Lipper category||Bear market deviation||10-year annual returns||Worst drawdown||vs peer group|
|Vanguard Total Stock Market Index VTSMX||Multi core||7.4||13.3||-17.7||1.6|
|Vanguard Balanced Index VBINX||Growth allocation||3.9||9.5||-9.0||1.0|
|Akre Focus||Multi-Cap Growth||4.9||17.1||-8.6||3.5|
|First Trust Value Line Dividend Index||Multi-Cap Value||5.1||13.4||-11||2.6|
|Vanguard Dividend Growth||Equity Income||5.8||12.9||-11.2||2|
|FAM Dividend Focus||Equity Income||5.8||13.8||-14.4||2.8|
|WisdomTree US LargeCap Dividend||Large-Cap Value||6.1||12.4||-11.3||1.4|
|Madison Investors||Multi-Cap Core||6.2||12.7||-15||1|
|Fidelity Select Wireless Portfolio||Telecom||6.2||12||-16.1||2.9|
|Parnassus Core Equity||Equity Income||6.3||12.9||-14.8||2|
|Vanguard Dividend Appreciation Index ETF||Equity Income||6.3||12.5||-14.2||1.6|
|Neuberger Berman Real Estate||Real Estate||6.4||13.2||-17.9||1.2|
|Nuveen Santa Barbara Dividend Growth I||Equity Income||6.5||12.4||-13.9||1.5|
|Johnson Equity Income||Equity Income||6.5||12.1||-14.9||1.2|
|Virtus Duff & Phelps Global Real Estate Securities||Global Real Estate||6.5||11.4||-18.6||2.6|
Let’s step back and assess what we’ve done and what we’ve discovered. What we did was:
Step One: identify funds with top tier returns over the last 1, 3 and 5 years – the FundAlarm Honor Roll
Step Two: from among those funds, identify the ones that has subjected their investors to the smallest routine trips and falls (downside deviation), the smallest trips and falls in months where the market was tripping and falling (down market deviation) and the smallest trips and falls in months where the market was falling hard (bear market deviation).
What we found was that the same funds appeared over and over. Apparently, the discipline that limits small, day-to-day trips also points toward funds that protect in far more serious declines. Here, then, is a very short list of very good funds. Each appeared on all three lists. Funds in blue are designated as MFO Great Owl funds, funds that have delivered top quintile risk-adjusted returns, based on Martin Ratio, in its category for evaluation periods of 3, 5, 10, and 20 years.
Akre Focus AKREX
FAM Dividend Focus FAMEX
First Trust Value Line Dividend Index FVD
Madison Investors MINVX
Nuveen Santa Barbara Dividend Growth NSBRX
Parnassus Core Equity PRBLX
Vanguard Dividend Appreciation Index ETF VIG
Vanguard Dividend Growth VDIGX
WisdomTree US LargeCap Dividend DLN
Bottom line: as we’ve found before, dividends matter and quality matters, most especially to investors who are less obsessed about shooting for the stars and more concerned about sustainable gains in good times and manageable losses in bad ones. We commend our profiles of Akre Focus and FAM Dividend Focus (formerly FAM Equity Income) to you, but admit the Parnassus Core Equity has an amazing array of attractions from its long-term ESG focus, stable team, huge insider ownership, and first-rate risk-return profile.