If you’re a mutual fund investor, it’s sensible to build your portfolio around a core fund offering good overall exposure to the market (whether stocks or bonds), explains Genia Turanova in The Complete Investor.
A core fund anchors your portfolio, leaving you free to add on more specialized funds. A typical candidate for a core equity fund is a large-cap blend fund.
The blend aspect means you get both growth and value. And the large-cap part ensures broad market exposure, since S&P 500 stocks account for about 80% of overall US market capitalization.
Our fund portfolio’s large-blend Vanguard Dividend Growth Fund (VDIGX), which we first recommended more than four years ago, makes an ideal core fund.
Its positive attributes include its ultra-low 0.31% expense ratio, below-average 18% turnover, and 1.8% yield. Morningstar assesses its risk level as low for the category and gives the fund strong four-star and gold ratings.
The fund’s strategy of buying reasonably valued companies that are able and willing to implement dividend increases has paid off over time.
While its total returns put it right in the middle of its category both for 2013 (top 55%) and so far in 2014 (top 50%), its long-term performance is very strong.
The fund’s annualized returns of 14.4% over the past five years place Vanguard Dividend in the top 39% of its peers; over the past 10-year period, with annualized gains of 9.2%, the fund ranks in the top 5%.
And relative performance has picked up over the past six months: in the summer, the fund was in the top 45% for the past five-year stretch and top 7% over the past 10-year period.
The fund’s portfolio consists of 50 stocks, most of them US companies. This makes it concentrated, but not overly so, with the top 10 holdings accounting for under 27% of total assets.
A few sectors stand out: compared to its peers, the fund is significantly underweighted in technology and financials but overweighted in healthcare and industrials.
Subscribe to The Complete Investor here…
More from MoneyShow.com:
