The Ugly Funds

The largest mutual funds are generally those that have delivered the most impressive track records. Investors love a winner, and they tend to chase after managers who have had the “hot hand.” Think of these mutual funds as the “cool kids” of the industry.

There are also some funds that post impressive results — but get no love from investors. These neglected mutual funds struggle to gain assets despite outperforming the market consistently. After an examination of all the all the mutual funds that have been around for at least 20 years, there are a few that have outperformed the S&P 500 (which gained about 370 percent between 1995 and 2015) — but that have small asset bases.

Below are brief summaries of three of these “ugly” mutual funds that have been turning in impressive results, but still get no love from investors:

Wright Selected Blue Chip Equities (WSBEX)

Since its inception in 1983, WSBEX has returned about 9.8 percent annually. This fund has less than $40 million in assets, making it much smaller than a number of funds that have delivered much lower total returns.

The underlying portfolio consists primarily of large and mid cap stocks, spread across a number of different industries. Holdings include MSCI, Towers Watson, and Jones Lang LaSalle.

FPA U.S. Value Fund (FPPFX)

This fund, formerly known as the Perennial Fund, focuses on value stocks. The fund has been around since 1984, and gained about 630 percent between 1995 and 2015. Despite the success, FPPFX has only about $165 million in assets.

The portfolio is rather concentrated, consisting of about 24 individual holdings and with a large allocation (more than 40 percent) to the consumer discretionary sector. As shown below, this mutual fund makes some very concentrated bets. Just 10 stocks — many of them media names — make up almost half of the portfolio:

Eagle Capital Appreciation Fund (HRCPX)

The goal of this fund is to find companies “that surprise the market by their participation in an earnings growth cycle.” This objective has worked out nicely in terms of performance, though this fund only has about $350 million in assets. HRCPX has done especially well during the market recovery of the last few years, distancing itself from the S&P 500 by a wide margin over the past few years:

The largest current holdings of HRCPX include Apple, Alphabet, Amazon, Microsoft, Gilead Sciences, and Mastercard.

These funds illustrate the various routes that can be taken to generate alpha relative to broad benchmarks. HRCPX has thrived primarily by loading up on high beta momentum names during a multi-year bull market. FPPFX, on the other hand, had invested primarily in smaller companies that aren’t on the radars of most investors.

If you’d like to see how we suggest building a mutual fund portfolio for the long run, take a look at the different strategies included in our model portfolio store.

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