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Some of the fund's holdings stem from John D. Rockefeller’s Standard Oil. Photo: AP

Fund that hasn’t picked a stock in 80 years beats 98pc of peers

Equity investors pursuing a buy-and-hold strategy might want to check out a fund that hasn’t made an original stock market bet in 80 years.

The Voya Corporate Leaders Trust Fund, now run by a unit of Voya Financial, bought equal amounts of stock in 30 major US corporations in 1935 and hasn’t picked a new stock since.

Some of its holdings are unchanged, including DuPont, General Electric, Procter & Gamble and Union Pacific. Others were spun off from or acquired from original components, including Berkshire Hathaway (successor to the Atchison Topeka and Santa Fe Railway); CBS (acquired by Westinghouse Electric and renamed); and Honeywell (which bought Allied Chemical and Dye). Some are just gone, including the Pennsylvania Railroad and American Can. Twenty-one stocks remain in the fund.

This fund has been around a lot longer than I have, and it’s working
Craig Watkins, analyst

The plan is simple, and the results have been good. Light on banks and heavy on industrials and energy, the fund has beaten 98 per cent of its peers, known as large value funds, over both the past five and 10 years, according to Morningstar.

“This fund has been around a lot longer than I have, and it’s working,” said Craig Watkins, 29, an investment analyst for Conover Capital Management in Bellevue, Washington. Conover has recommended the Voya fund to superannuation plans it advises.

Watkins compared the Voya fund’s “deep-value” approach to investor Warren Buffett’s, whose Berkshire Hathaway is the fund’s second-largest holding.

“It’s deep-value in the sense that all the companies in the portfolio have an amazing tenure,” Watkins said. He said the Voya fund’s strategy can be better than an index fund because it doesn’t have to change its weightings when the index changes

The winning performance has drawn record inflows: Since 2011, the fund has taken in about US$708 million from investors, its best four years ever, according to Lipper.

The fund has made a comeback since 1988, when it was reorganised by New Jersey-based Lexington Management. Former Lexington executive Lawrence Kantor said high fees tied to its outdated trust structure kept it from getting any flows, and changing to a unit investment trust made it competitive with modern funds.

The fund “was dead in the water for like 20 years” because “it had such an outdated structure that it wasn’t saleable”, Kantor said. Told the fund now has US$1.7 billion, Kantor, 67, said “That’s incredible, because when we reopened the fund I think it had US$60 million in assets.”

The flows to the fund come as low-cost index funds have pulled money away from poorly-performing stock-pickers and prompted a debate around the value of active management.

According to Lipper, passive stock mutual funds pulled in US$153.2 billion last year and exchange-traded funds took in another US$181.3 billion, while actively-managed stock mutual funds had net flows of just US$39 million, compared with assets of US$5.5 trillion at the end of the year. The figures for the active group includes the Voya fund, whose success with its hands-off approach illustrate the issues.

To be sure, investors could buy any of the fund’s stocks directly without having to pay the fee of 52 basis points. There were few capital gains-tax consequences of owning the fund, because of its low turnover, said Ron Rough, director of portfolio management at Financial Services Advisory in Washington. But some question whether the fund is right for everyone.

“It would be interesting to know how many of the people who actually put their money into [the fund] actually know what it is,” said Rob Brown, chief investment strategist at United Capital Management, an investment advisory firm. “In a lot of cases, I bet they don’t.”

The fund appealed to investors who “like simple, transparent, buy and hold strategies”, said Voya spokesman Christopher Breslin. The fund’s fees were lower than comparable equity funds, he said, a point backed up by Lipper.

The fund’s original sponsor, Corporate Leaders of America, was incorporated in 1931, according to New York State records. A series of deals starting in 1971 eventually put the fund under the control of Voya, a 2013 spinoff from ING. Its unique nature has often drawn attention including from Vanguard founder Jack Bogle, who said he remembers the fund from his days as an undergraduate around 1950. “It’s not a bad idea at all,” he said.

The fund’s holdings shine a light on some big moments in American corporate history. It holds Foot Locker, for example, because that’s what’s left of retail pioneer F.W. Woolworth, which acquired Foot Locker in 1974.

The original fund held shares in Standard Oil of New Jersey, Standard Oil of California and Socony-Vacuum Oil, the former Standard Oil of New York. All stem from John D. Rockefeller’s Standard Oil, and are now known as ExxonMobil (New Jersey and New York) and Chevron (California).

Over the five-year period to February 24 the fund returned an average of 17.32 per cent a year, including fees, 1.03 percentage points better than the S&P 500, Morningstar said. For the 10 years to February 24, the fund returned an average of 9.40 per cent a year, including fees, 1.32 percentage points better than the S&P 500.

Performance has fallen lately as low oil prices hurt ExxonMobil and Chevron. Its returns over the past year were about 12 per cent, compared with more than 16 per cent for the S&P 500. Still, some professionals say the fund proves the value of staying the course.

“Too many portfolio managers have traded their way out of jobs by constantly changing stock positions and strategies,” said Tim Pettee, investment strategist at SunAmerica Asset Management. He oversees a fund that trades just once a year - a jackrabbit pace compared to Corporate Leaders.

 

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