Mutual Fund Site

In our recent post about the attractiveness of value funds, we mentioned how the ING Equity Dividend Fund (IEDAX) was one of those large cap equity funds that we found particularly attractive. This is one of those mutual funds that has not only been rather successful on a year to date basis, but has managed to fly under the radar for a couple of reasons. The biggest would be that this equity fund does not have a Morningstar rating just yet; it does not have a 3-year track record.

An Equity Fund Worth Discovering

Where this equity fund actually shines is in its category, ranking 2nd for its 1-year return, 2nd in its YTD return, and 6th for 2008. (As a side note, 2009 was not much of a hit as it underperformed the Index as well as the Category). Since it has flown under the radar for as long as it has, we cannot pinpoint what exactly went wrong last year. But this year, this fund has been increasing its financial services exposure to the point where it now makes up almost 26% of its total holdings.

Its largest financial services holding is JP Morgan (3.44% of holdings), which has provided a negative return of 8% to the fund, just as Bank of America (3.26% of holdings) has returned -11.6%. As another top holding, however, General Electric (3.4% of holdings) which previously billed itself as a financial services company but has since stopped, has returned just 1.15% and Travelers Co has returned just 2.11%. Its best performing financial services position has been Cullen/Frost Bankers with a 7.92% return (but it represents just 1.52% of overall holdings).

The interesting trend with some of the better equity funds has been to hold big chunks of financial services firms. With the ING Equity Dividend Fund, assets under management are just a notch about $89 million, so it is increasingly important for it to properly manage those 57 stock positions.

But what surprises us most about this equity fund is that it provides a health yield of 1.82%, something many large cap equity funds cannot provide. On the flip side, this fund considers itself a dividend fund which leaves the 1.82% a little short of what many dividend fund investors are looking for. (We would sooner see it referred to as a large cap equity fund with that dividend as an added bonus).

Where the ING Equity Dividend Fund has seen a tremendous amount of success has been with Qwest Communications (1.87% of holdings) which has returned a staggering 42% as well as EI du Pont (1.8% of holdings) which has returned 28%. Although the fund is overweight in communications compared to its peers which justifies the Qwest holding, it is underweight in Industrial Materials compared to its peers, suggesting that the EI du Pont holding is something of an inconsistency.

Truthfully, the heavy investment in financial services has dragged this mutual fund down. But with an average Price-to-Earnings ratio of just over 11:1, this equity fund remains attractively priced and a lot of that can be owed to those same dog holdings.

While Morninstar has not provided a rating just yet, investors should expect a below average risk rating with above average returns provided that this mutual fund continues to deliver. By the time its 5-year return figures are ready (in a little more than 2 years), the gamble on JP Morgan, Bank of America and others will have likely come to fruition and yielded positive returns.

This mutual fund will appeal best to investors with a moderate risk tolerance who want to see some dividends from their equity fund. With such a short track record, though, only time will tell just how successful this equity fund will be.