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Funds we love
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February 1, 2002: 5:59 p.m. ET
Need reassurance? These five mutual funds are in it for the long haul.
By Annelena Lobb
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NEW YORK (CNN/Money) - Everyone's had their heart broken too many times. Like any relationship, an affair with even the most promising mutual fund can sometimes go sour. One minute, the fund is on the rise and the world is your oyster. The next, things take an unexpected turn, and you find yourself right back where you started -- alone, brokenhearted, and broke.
Perhaps you've been looking for love in all the wrong places.
If you're interested in investing for the long haul, consider the five lovable funds below. We love the first four so much they made it into our latest Money 100 list, by the way.
The five we love
The volatility on Wall Street during the past few years and the losses related to Enron's collapse have highlighted the importance of picking long-term investments with care.
The following cross-section of bond funds, mid-cap value funds and tried-and-true index funds have been a match made in heaven for investors who employ a buy and hold strategy -- in sickness, in health, and for richer (though hopefully not for poorer).
And while past performance is no guarantee of future returns, the following funds have made the list with management teams that stay put and don't get caught up in fads or trendy sector investing. They're not into wild flings, fickle hearts or showoffs -- but they're perfect if you're looking for a solid backbone to your portfolio.
Dodge and Cox Income
If you're looking for a long-term bond with a bond fund, you may have found your sweetheart in Dodge & Cox Income. This intermediate-term bond fund has stayed in the top 10 percent of its category over the past one, three, five and 10 years. It's a cheap date, too -- its expense ratio is 0.45 percent, as compared with 0.99 percent, the average expense ratio for all bond funds in its category, according to Morningstar.
Dodge & Cox's management team focuses on solid security selection, rather than sowing its wild oats in the latest trends. They stick with stable debt issues like U.S. government bonds, mortgage bonds and corporate bonds, all rated A or better. They emphasize non-callable bonds, they're tax-efficient, and turnover is low.
"They have a team approach to management, but the strategy has been consistent," said Paul Herbert, a Morningstar analyst. If your goal is to find reliable income over the years, this bond fund may be for you.
Wasatch Core Growth
If you own a slice of Wasatch Core Growth, you've got a quality relationship -- that's a shop with considerable expertise in the small-cap arena. And if you've been together a few years now, you probably already know it has delivered consistently superb returns. Over the past five- and 10-year periods, Core Growth has been in the top 1 percent of its category. Over the past one and three 3 years, the fund has been in the top 10 percent.
The managers at Core Growth -- starting with lead manager Sam Stewart, on board since 1986 -- believe you need consistent, quality companies to deliver consistent, stellar returns. "Everything boils down to our core investment philosophy, which is to buy great companies at reasonable prices," said Ryan Snow, lead analyst for the fund. "We want a company that is going to grow its earnings by 15 percent and has a management team that's the best in the industry."
In order to keep the relationship with investors steady, fund managers keep their relationships with their companies steady. Snow said managers spend extensive time on the road, checking in at least once a year with companies they buy. And they believe in companies that have stuck it out during bad times.
"Allied Capital (ALD), one of our [main] holdings, has been paying a dividend to shareholders for something like 160 quarters in a row," Snow said. "Management has been there, done that, survived recessions and just knows what they're doing."
Vanguard Primecap
If you're looking for a quality fund that doesn't need to follow the crowd, consider Vanguard Primecap. "Primecap is led by managers who look long term, don't succumb to fads, and don't make any judgments in terms of relative performance versus peers or an index," said Jeff Mollitor, a principal and director of portfolio review at Vanguard. "They're just focused on generating wealth for their clients."
So peer pressure is a non-issue. When the going gets tough, the fund's managers are still going strong, led by Howard Schow and Theo Kolokotrones, who have both been with Primecap since the mid-1980s. At 0.48 percent, expenses are low, even for the notoriously cheap Vanguard fund family.
Though it invests to the beat of a different drummer, Primecap has outdone its peers for years. During the past 10 years, they've beaten 99 percent of their peers -- and the S&P 500 by more than 4 percentage points on an annualized basis, according to Morningstar.
"They don't always get things right -- they had a big bet on airlines, and then Sept. 11 happened," said Cooley. "But when you look over long periods of time, they get it right more often than not." Think about the love of your life. Wouldn't you say the same?
Longleaf Partners
Longleaf Partners was off the market to new suitors, er, investors, for a while, but reopened today. If you're an investor who has been through some expensive heartbreak with overly aggressive growth funds, you may find the steady mate you need in this mid-cap value play.
Its managers are comfortable keeping a percentage of their portfolio -- currently, 7.1 percent -- in cash. Though that may mean you miss out on wild growth in volatile sectors when the market is strong, you'll also have a fund you can rely on when the going gets rough.
"I think it's a good long-term investment. They've got a ton of experience between Mason Hawkins and Stanley Cates, and the managers have significant portions of their own net worth in the Longleaf funds," said Chris Traulsen, an analyst at Morningstar. "They have every incentive to do right by their shareholders."
Longleaf Partners has the record to prove it. Investors who bought into the fund 10 years ago would have earned an annualized return of 17.31 percent on their investment during that period. Not too shabby. And at 0.93 percent, its expense ratio is low, well under the 1.42 percent average for mid-cap value funds as a whole, according to Morningstar.
Vanguard Total Stock Market Index
OK, so you may not feel like you're entering the most exciting relationship out there when you invest in oh-so-passive index funds. But no list of funds you can count on for long-term success would be complete without one.
Vanguard Total Stock Market Index, managed by indexing guru Gus Sauter, mimics the Wilshire 5000, a collection of stocks meant to broadly represent the whole U.S. market. The idea is simple: if you buy the whole market, you benefit from its overall return. Sometimes simplicity is the best way to go. The fact remains that index funds tend to beat actively managed funds over the long haul based on after-tax returns, almost every time.
If you're the type who wants a low-maintenance relationship, this is it. With a 0.2 percent expense ratio, it's dirt-cheap. It doesn't matter what sector or stock is up or down. You'll always get exactly what the market has to offer, for better or worse. If you can't beat 'em, join 'em -- and consider sticking around for a while. Maybe even for a lifetime. 
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