This is part III of a series of articles on the best value mutual funds. See please Part I and Part II prior to reading this article. In this article I will discuss the last five funds and come to a conclusion.
1. Dodge & Cox is the oldest fund on the list. It has beaten the S&P 500 by an impressive margin for over 45 years. It also has a good ten year track record. The fund has a small minimum purchase fee of $2,500 and an extremely low expense ratio of 0.52%. With all due respect to the great fund managers I would avoid the fund for one reason. Dodge & Cox has $43 billion under management, which is a very large amount of money to be managing. It becomes extremely hard to beat the market with that large of a portfolio. In fact Dodge & Cox manage almost as much money in their flagship fund DODGX, as Warren Buffett does in Berkshire Hathaway’s stock portfolio. Dodge & Cox is limited to purchasing a few hundred, if not a few dozen stocks. While the fund might beat the market in the future it will probably not be by very high margins.
2. Long Leaf has a good ten year track record of 6.82% return per annum. It has a fairly low expense of 0.91%. It has beaten the S&P 500 since inception by less than .3% and on an after tax basis probably underperformed the S&P 500. In a tax free account however 10,000 placed in the fund in 1987 would be worth $111,000 today versus only $68,000 for the S&P 500. The fund has a high minimum purchase of $10,000. The fund manages $8 billion in assets but this number is deceptive. The fund manages $20 billion in separately managed accounts, it likely that many of those assets are in mid cap or small cap stocks similar to the LongLeaf fund. Although Mason Hawkins is a great investor I would avoid this fund.
3. Weitz Fund has a spectacular long term record. It has outperformed the S&P 500 by nearly 2%. The fund returned approximately 4% per annum over the past ten years which is impressive considering the “lost decade”. The fund also has a reasonable expense ratio of 1.19% a low minimum purchase of $2,500. The fund also has only has $600 million under management which is a big advantage as I mentioned early. However, Wallace Weitz manages several other funds that invest in similar stocks which add about $1 billion to equity assets under management. However, this number is not very large and the Weitz Funds seem like a very attractive choice. Their other funds also have a great long term record and are also worth a look.
4. The Yacktman Fund is another fund with a great long term record. It has outperformed the S&P 500 over the past 18 years by over 2% per annum. The fund also has a spectacular ten year return of 13.69% over the past ten years. Donald Yacktman was nominated as fund manager of the decade by Morningstar for this fantastic feat. The fund has a low expense ratio of 0.93% and a low minimum purchase of $2,500. The fund only has $2 billion dollars under management which is a big plus as mentioned several times in the article.
5. The Sequoia Fund I specifically saved for last. It has produced 14.14% returns for over 40 years which is nothing short of spectacular. The fund is run by Richard T. Cunniff. His father William Ruanne is a student of Benjamin Graham, and attended his class at the same time as Warren Buffett. The fund has a minimum purchase of $5,000 which is a bit high, but has a low expense fee of 1.01% and as very low turnover rate of 15%. The fund has about $3 billion under management but again this number is deceptive. A colleague of mine who worked at Sequioa informed me that the fund has at least another $10 billion in privately managed accounts, therefore the fund managers also have to put this money to work.
In conclusion all the above funds are run by top portfolio managers. If I had to pick the best funds based on all the criteria I listed they would be: Sequioa, Yacktman Fund, Weitz Fund, and Third Avenue Fund. Again, this is not to say the other funds are not great I am only listing my best of the best. In addition many of the fund families I mentioned manage great international funds, small cap funds, bond funds etc. These are all worth a look. In particular Bill Nygren of Oakmark Funds runs several international funds which have great long term track records and do not have too much assets in their fund.
The truth is the best performing fund in the future probably is not on this list. The best funds usually are small and are unknown. Once they develop a good track record assets under management swell which inhibits the portfolio manager’s ability to outperform the market. However, when a fund is getting started it has no track record and no way to judge if the portfolio manager is good. It really is a Catch-22. What I attempted in my article was to find funds with good track records without too many assets under management, which should outperform the market in the future.