Mutual Fund Site

The Mutual Fund Site has done this before: gone out on a limb and made a fairly wild claim that if you do X, you will enjoy Y. As far as the variables, X is normally what mutual fund to buy and Y is usually enjoying some kind of returns. Well, to get more specific, we claimed at the beginning of the year that if you bought a particular Janus High Yield Fund, you would enjoy steady returns in 2010. We were right. If fixed income is not your cup of tea, we said the same about the Ivy Small Cap Value fund. Again, we were right.

Today, the story is much of the same. Only those variable have changed (although we are not suggesting you drop those two investments). But for investors who want to see less volatility than that the Ivy Small Cap and for those who are really starting to get nervous about how interest rates might impact the Janus High Yield Fund, then why not do what makes the most sense?

Invest in a Dividend Growth Fund ahead of the economic recovery

Here’s the thing. We know there is an economic recovery on the horizon. The yield curve tells us as much. Even the most bearish investors realize that a recovery will take place. It may not happen today (although it very well might) and it may take several years before equities that enjoying the wild growth they have seen in the past, but it will happen.

And until/when it does, then the Vanguard Dividend Growth (VDIGX) is one of your safest best. As a dividend fund, this Vanguard has been recognized by Morningstar as a top performer for its Overall, 3-year and 5-year performance, earning a coveted 5-star rating for those period.

But what really impresses us is that this dividend fund achieved maximum returns with nearly no risk at all. The dividend yield alone is a decent 2.32% and while several of its slimly-held 49 securities have performed poorly (take ExxonMobile, for example, a top 10 holding contributing -12.3% on a YTD basis), the balance of the securities continue to perform the point that this fund is set to gain just as soon as the markets get a whiff of that recovery.

Among the fund’s top holdings are Johnson and Johnson, ADP, UPS, Mcdonald’s, Wells Fargo, ConocoPhillips, Wal-Mart… all companies that continued to produce during the toughest economic moments.

These strong holdings of course are the fund’s biggest downfall; everyone knows that most investments that performed well were not these larger, well-capitalized companies. Instead, smaller cap stocks tore up the markets in 2009 and into 2010. Quality is not so much an issue as the speculative opportunities for growth that the small cap value play offered.

At this point, the fund remains in the red to the tune of roughly 3%. This makes it somewhat uncertain for some investors. However, it leads its peers by a hair and its track record sure says a lot about how well Donald Killbride of Wellington Partners has done with this fund. With a low turnover, the Mutual Fund Site recommends holding this fund for the long-term (3-5 years minimum) and adding it as a core holding to your portfolio; with a $3,000 minimum investment to get in, this is not a specialty fund.