July 16, 2012

Patton’s Fund Picks, Pt. 1: Large-, Mid- and Small-Cap Stock Funds

Years ago, I would lunch regularly with a good friend and colleague. A discussion of our favorite mutual funds would always seem to develop. We would start with large-cap stock funds and work our way through the other categories until we had an understanding of each other's view. In this post—and for the next several—I'd like to do the same. Although we won't be sharing a meal, I would like to start a discussion on our "favorite funds." This week, we'll begin with stock funds. 

Large-Cap Equity Funds

In this category, I like Nuveen's Dividend Value I (FAQIX) and Vanguard's Equity Income Inv (VEIPX). The Nuveen Dividend Value fund has stable management (12 years) and has consistently ranked in the top half of its peer group over the past six years. This value fund has a very good risk/return profile and is well diversified over multiple sectors. 

The Vanguard fund has also performed well, and  it has a lower standard deviation than the Nuveen offering. Although VEIPX underperformed in 2009, it quickly bounced back in 2010 and 2011 and was in the top two percent of all large value funds last year with a 10.60% return. 

Mid-Cap Equity Funds

My favorite funds here include the Nicholas Equity Income I (NSEIX), and for the ultra-conservative client, the Gabelli ABC Advisor (GADVX). Management has been in place on the Nicholas fund for nearly a decade. It also sports a low risk profile rank compared to its peers and its returns have been in the top of its class over the past three-, five- and 10-year periods. Although it lost 23.59% in 2008 it outperformed 98% of its peers that year. 

On a performance chart, the Gabelli fund looks more like a bond fund than a stock fund. Actually, its standard deviation is under 4.14%, which would explain it. With a large amount of cash, this fund has weathered the last decade well. In 2008, it only lost 2.84%, a clear victory for its shareholders. There's not much here to keep you up at night. 

Small-Cap Equity Funds

I have a few favorites here, but unfortunately, my records indicate both are closed to new investors. First is the Royce Special Equity Inv (RYSEX). I also like the Perkins Small Cap Value I (JSCOX). 

Next week we'll discuss foreign funds. Which funds do you like? You can list yours below in the Comments section. 

Thanks for reading and have a great week!

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