I don't usually discuss mutual funds in my Investopedia articles; however, every so often something catches my eye that begs attention. In this instance it's a unique offering from ING Funds, a subsidiary of Dutch financial services giant ING Groep N.V. (NYSE:ING). By no means am I the first to mention this smallish-sized fund ($338.5 million in assets as of June 30), but I'm likely the most enthusiastic. In my opinion, the Corporate Leaders Trust Series B (LEXCX) is to buy-and-hold investing what Ben Graham was to security analysis. Naysayers of long-term investing are fooling themselves if they don't take this fund and its premise seriously. This is the rare occasion where corporate leaders earn your trust.
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Created in 1935 as a passively managed grantor trust, it bought an equal number of shares in 30 leading companies of the day. It then took a detour. For starters, the trust is actually two funds, a trust fund and a distributive fund. The trust fund consists of stock units and cash. One stock unit represents a single share in all 30 companies. Today, this is down to 21 although there are 22 holdings because it received both Class A and Class B shares of Berkshire Hathaway (NYSE:BRK.A,BRK.B) in the takeover of Burlington Northern Santa Fe Corp. The cash raised from the sale of participations (an interest in trust and distributive funds) sits idle until there is enough to buy 100 stock units, the equivalent of 2200 shares. It's important to note that every purchase of stock units involves an equal number of shares. This means it currently requires $11.8 million in cash for Berkshire Hathaway, $5,980 for Exxon Mobil (NYSE:XOM) and $1,747 for Nisource Inc (NYSE:NI). It's an interesting twist.
Growth and Income
The second part of the trust is the distributive fund. While any cash from the sale of participations goes into the trust fund, all dividends and other cash received from the stock units is deposited in the distributive fund. Twice a year, June 30 and December 31, the distributions buy additional participations. Participants can request cash instead, which makes it a wonderful investment for those with an uneven income history. However, those who bought $10,000 in 1941 and reinvested the dividends were sitting on more than $11 million at the end of 2009. That's not too shabby for an outdated buy-and-hold investment philosophy.
Recently I wrote an article about the average lifespan of an S&P 500 company as a publicly traded stock. Down from 50 years in 1957 to 25 in 2003, today, some suggest it could be as low as 18 years. Whatever the number, you would think this spells the end for the Corporate Leaders Trust. Eventually, it has to run its course. After all, it can't buy new stocks and it can't sell existing ones. It's stuck in a rut and that's the beauty of it. A rival large-cap value fund like Yacktman Focused (YAFFX), which doesn't turnover stock, has few holdings and outperforms the market, is rare. You can buy this fund and likely you'll do well. However, if you have an aversion to risk, there's no comparison. The Corporate Leaders Trust has outperformed the S&P 500 in eight of the last 10 years with little or no risk.
Corporate Leaders' original mandate was to invest in quality companies paying reasonable dividends. Compare this to PowerShares Dividend Achievers Portfolio (NYSE:PFM), based on the Broad Dividend Achievers index, which invests in a diversified group of companies (212 to be exact) that have raised dividends for 10 consecutive years. With almost identical mandates, the ETF's quarterly rebalance and annual reconstitution led to higher tax-related expenses and lower performance. Since 2005, the Corporate Leaders Trust has outperformed the ETF by an average of 4% annually. This is one corporate leader you can trust. (To learn more, see Mutual Funds Or ETF: Which Is Right For You?)
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