Fund Watch
A One-Stop Investing Solution
Looking for a balanced fund with consistent performance? Consider Oakmark Equity & Income.
By Andrew Tanzer, Senior Associate Editor, Kiplinger's Personal Finance
March 9, 2009
As a do-it-yourself investor, you can pick what you perceive to be the best stock funds and the top bond funds, then set up your portfolio, rebalance it, and alter your allocations between stocks and bonds in a dynamic environment. That requires quite a lot of time, multiple decisions and considerable confidence in your own judgment.
We're guessing that the carnage in the markets and extreme levels of volatility have shattered the confidence of many folks in designing and managing their fund portfolios. You probably don't have the time anyway. With that in mind, we suggest you consider a one-stop solution in Oakmark Equity & Income (symbol OAKBX), a balanced fund with an outstanding long-term record.
Oakmark, which is co-managed by Clyde McGregor and Ed Studzinski, was launched in November 1995. From then through March 6, it returned an annualized 10%, an average of seven percentage points per year better than Morningstar's benchmark of balanced funds and seven points more than Standard & Poor's 500-stock index. Over the past ten miserable years, the fund gained 8% a year, while a basket of balanced funds returned a shade above 0% on average.
And Oakmark Equity & Income has been remarkably consistent. In its 13 full years of operation, it has landed in the top 20% of balanced funds nine times and has never been in the bottom 40% of its peer group. In 2008, the fund lost 16%, compared with the S&P 500's decline of 37%.
McGregor and Studzinski are disciplined bargain hunters who constantly compare values among stocks, among bonds, and between stocks and bonds (for this reason, Oakmark invests in companies of all sizes). Currently, for example, the portfolio has a relatively low weighting in stocks -- 52% -- but that allocation has reached as high as 66%.
In this dreadful economy, McGregor says, he's focusing on businesses with Gibraltar-like balance sheets that sell products and services with a "reason to exist in any environment." He holds a number of low-cost energy producers, such as XTO Energy (XTO) and EnCana (ECA); several makers of consumer necessities, such as Diageo (DEO), Nestlé (NSRGY.PK) and ConAgra Foods (CAG); and a bunch of health-care outfits, including Covidien (COV), Medtronic (MDT) and Laboratory Corp. of America (LH).
McGregor says he's constructed a stock portfolio of "shorter duration" than normal. By this fixed-income parlance, he means that he's reducing the portfolio's risk by leaning toward income-producing stocks that pay out cash now. So the average yield in his stock portfolio is higher than normal, and he's happy to hold stocks, such as Avon Products (AVP) and Nestlé, with a record of raising their dividends. The managers typically replace about 65% of fund's stock portfolio holdings yearly.
Oakmark Equity & Income carries annual expenses of 0.81%. With two sensible and sober managers at the helm, it makes a solid core holding for a tax-deferred portfolio.
Reader Comments (6)
Posted by: R at 03/09/2009 08:24:51 PM
I've had Oakmark funds since 1997. Since my Oakmark Select fund starting doing rather badly last spring, I transferrd my shares to this fund. Once it started losing too much money, I sold it all, but I kept track of how much I WOULD HAVE LOST since I bought them last April - right now it is down 32% since then!!! which is far from the figures given in this article.
Posted by: Steve Bell at 03/10/2009 01:14:55 PM
According to the data provided by OAKBX in the last 52 weeks shares have dropped from $28.5 to around $18.5; a loss of 34%, not nearly as little as the article indicates.
Posted by: Brad Ferguson at 03/10/2009 08:21:20 PM
I have held Oakmark Equity & Income throughout 2008; counting reinvested distributions, the loss for 2008 was 16.2%. It's all a matter of how you view an investment.
Posted by: andrew tanzer at 03/10/2009 10:35:28 PM
Hi, Andrew Tanzer here, author of this article. Precise returns for the fund are provided on the Oakmark website. In 2008 the fund was down 16% and in the year through February 28, 2009 the fund was off 24.6%. Hope this helps.
Posted by: C. Cook at 03/11/2009 03:41:55 PM
I have had the fund since 2002. The ups and downs of the market have been leveled out over the long term. This is a fund that works for buy and hold investors who want to keep investing the dividends. I am very happy with it.
Posted by: Robert Dobson at 05/04/2009 05:05:01 PM
The OAKBX fund has been an amazingly consistent performing fund. I dumped my freedom funds and invested in the OAKBX fund and have not regretted it. It is now the foundation of my 401k, Roth IRA, and my wife's Traditional IRA. I also recommend PRPFX for your reserve fund account mixed with some tax free muni bond funds.