Despite the January rally, many investors shaken by the turmoil in the last year are searching for funds that post strong long-term performance in both bull and bear markets. Those investors looking for safer bets amid a period of heightened volatility might consider the $7.3 billion AMG Yacktman fund (YACKX), the $15 billion Parnassus Core Equity fund (PRBLX), the $9.3 billion Neuberger Berman Genesis fund (NBGNX), the $1.5 billion Invesco Dividend fund (LCEAX) and the $5.8 billion JPMorgan Small Cap fund (VSEAX), which have posted strong risk-adjusted returns over 15 years, per Barron’s. While these funds still posted losses in down markets, they have generally fared much better than peers. Additionally, they ranked well on risk-oriented metrics, like the Sortino ratio, which focuses on a fund’s resilience in downturns.
“People have mistaken low-cost for low-risk with passive investing,” says Jim Lowell, editor of independent newsletter Fidelity Investor and co-head of money management firm Adviser Investments. “And those baskets of stocks are likely to spoil the fastest in a downturn, whereas highly selective active managers can avoid the rotten food and pick up great long-term ideas at deep discounts. These are the biggest values on the Street.”
5 Stock Funds for a Market in Upheaval
· AMG Yacktman; Ticker: YACKX
· Parnassus Core Equity; PRBLX
· Neuberger Berman Genesis; NBGNX
· Invesco Dividend; LCEAX
· JPMorgan Small Cap; VSEAX
Source: Barron's; Morningstar
Barron’s asked Morningstar to look at 15-year risk-adjusted returns to asses how funds performed through the crisis, given a 10-year window could offer a highly skewed view thanks to the abnormally calm bull market prior to 2018’s downdrafts. Analysts also focused on active funds run by managers with long tenure, and who all had a few themes in common including concerns about high levels of corporate debt. Those funds that performed well did so in particularly rocky times for active funds, as many investors shifted focus to passive strategies and away from value investing.
AMG Yacktman, head by co-managers Jason Subotky and Stephen Yacktman, has made its way to the top of the large-cap value category over the past year. With a 9.2% average annual return over the recent 15 years, it is also number one in its group over the longer-term, despite windows of lackluster performance.
AMG Yacktman’s concern has revolved around inflated valuations, holding 28% in cash as of the end of Q3. In light of falling stock prices, the fund has targeted a few companies to buy on the dip, including the preferred shares of Korea’s Samsung Electronics, included in its “unbelievable bargains” segment of its portfolio, as well as France’s Bolloré (BOIVF). The other part of AMG Yacktman’s portfolio is comprised of large-cap companies with massive market shares, who managers view as equipped to meet changing consumer preferences, such as PepsiCo (PEP) and Procter & Gamble (PG).
Parnassus Core Equity
The 18-year-old Parnassus Core Equity fund uses environmental, sustainable, and corporate governance criteria in its investment process. Its 9.2% return over the recent 15 years has beaten 98% of its peers, and its performance has brought it near the top of the large-blend category over the past year.
Founder Todd Ahlsten prefers highly innovative companies with recurring revenue streams, suggesting that these factors position firms well to grow through economic cycles.
While Parnassus has trimmed its technology holdings lately, the fund highlights chip maker Nvidia Corp. (NVDA), citing its depressed valuation and strong balance sheet.
“It’s a great company with a lot of growth in terms of data centers and gaming,” says Ahlsten. “We are not just playing defense, but always looking for companies that can go up. You have to be looking at finding the decade long winners that we can invest in when downdrafts emerge.”
Neuberger Berman Genesis
Among the small-cap funds, Barron’s highlighted the $9.3 billion Neuberger Berman Genesis fund, which unlike many of its high-performing peers, remains open to new investors. Co-manager Judith Vale, who learned how to hedge against risk during the financial crisis when the fund was owned by Lehman, prefers companies with consistent free cash flow, steady lines of revenue and strong balance sheets.
It's important to note that while these active funds could very well outperform, there also remains risk that they do poorly in a steeper downturn. Investors will have to be willing to hold on for the long-term.