Core Mutual Funds In Danger Of Losing Performance Lead
Core funds, which invest in both growth and value funds, have outperformed their growth- and value-focused counterparts in the past 10 years. But recent stock market volatility has taken its toll. Their lead over growth funds has dwindled to almost nothing.
A $ 10,000 investment in the average core fund on June 30, 2005, would have grown to $ 23,385 by Aug. 28 this year, according to Morningstar Inc. data. The same amount would have grown to an average $ 23,217 in growth funds, $ 17,821 in value funds and $ 20,680 in the S&P 500.
The narrowing gap between core and growth mutual funds can be seen in the reversal of fortunes in growth and value stocks this year. Growth funds are up 3.6%, while value funds have fallen 5.3%. Core funds’ value tilt has left them down 3.9%.
But a few top-performing core mutual funds of the past 10 years are still beating the broad stock market this year.
Hennessy Cornerstone Mid Cap 30 has returned an average annual 10.51% the past 10 years vs. 7.38% for the S&P 500, a proxy for the broad stock market. And so far this year, the $ 893 million fund has handed investors a 10% gain vs. the S&P 500’s 2% decline.
The fund has been managed by Neil Hennessy since 2003 and by Brian Peery since 2011. The managers had about 35% of the fund’s assets invested in consumer cyclical stocks as of June 30. Holdings there included Skechers (NYSE:SKX), Sealed Air (NYSE:SEE) and Mohawk Industries (NYSE:MHK).
Skechers has an IBD Composite Rating of 98, tops in its Apparel-Shoe & Related Manufacturing group. The stock is 13% off its 52-week high and holding above its 50-day moving average.
Sealed Air, which makes packages and containers for food, industrial, medical and consumer products, has a Composite Rating of 80. The stock is 7% off its high and has slipped below its 50-day line. Analysts polled by Thomson Reuters see earnings rising 22% and 15% next year.
Mohawk carries a Composite Rating of 95. The floor covering maker is 7% off its high and struggling to retake its 50-day line. Earnings are expected to rise 25% this year and 18% next year.
Follow Doug Rogers on Twitter: @IBD_DRogers.