At Houston’s Wealth Development Strategies, President and CEO Cheryl D. Creuzot says the key to long-term investment success is asset allocation: successfully dividing a portfolio between equities and fixed income or cash and their related sub-categories. One’s investment time horizon is generally determined by one’s age and ability to tolerate risk. Creuzot is attracted to mutual funds that focus strategically on mitigating risk and growing returns. Such virtues are shared by her three picks: PIMCO Total Return A, American Funds American Mutual A, and Harbor Capital Appreciation. Each offers experienced managers and competitive expense ratios. Moreover, Creuzot commends their “disciplined, consistent processes that have resulted in long-term performance relative to their peer groups.â€
1 PIMCO Total Return A (PTTAX) Creuzot sees this multi-sector bond fund as a great fixed income foundation for a portfolio. She says it has the strength to weather financial storms and to “provide capital appreciation as a plus for the capital preservation and income seeker, and volatility reduction for the growth investor.†Its diversified allocation and performance are heartening. The $281 billion fund’s emphasis is on higher-quality bonds, and it holds mostly U.S. government issues (41.5%) and corporate bonds and notes (21.3%), along with Treasury obligations, sovereign issues, short-term instruments, mortgage-backed securities, and others (37.2%). More agile than most bond funds, it can reallocate resources depending on changing market conditions to better manage risk, and it’s been known to outperform its benchmark, Barclays US Agg Bond TR USD. Its year-to-date return is 9.43% compared with Barclays 5.05%.
Yield:
One-year return: 10.54%
Three-year return: 7.15%
Five-year return: 8.20%
Minimum taxable investment: $1,000
Expense ratio: 0.85%
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2 American Funds American Mutual A (AMRMX) This is a risk-averse, mostly domestic large-value fund. Its $250 minimum investment and 0.62% fees are attractive, complementing the 62-year-old fund’s consistent approach. Its multi-manager team invests in financially stable companies that have an average market cap of $44 million; 83% are domestic and have a history of paying dividends. Its largest holdings are in Abbott Labs, Amgen, and Home Depot; the largest sectors are pharmaceuticals, oil and gas, and diversified telecommunications. The $22.7 billion fund’s managers
conserve cash or bonds when investment opportunities are scant or market conditions foreshadow change. While past performance doesn’t ensure future returns, this fund has been slightly above or below its S&P 500 benchmark since 2009. Year-to-date performance is 9.22% versus 14.29% for the S&P 500. Creuzot says the fund’s “flexibility tempered by management’s decision-making process has helped reduce downside capture in recent difficult markets.â€Yield: 2.36%
One-year return: 10.65%
Three-year return: 9.95%
Five-year return: 2.62%
Minimum taxable investment: $250
Expense ratio: 0.62%
3 Harbor Capital Appreciation (HCAIX) Creuzot likes this domestic large growth fund for younger, long-term investors because of its “occasional inherent volatility,” she says, which younger investors can ride out. She believes that the success of the 10-year-old fund stems from its disciplined, strategic management by a veteran analyst at Jennison Associates, a subadvisory and asset management firm. Its holdings include large growth companies such as Apple, EMC, and Google that have a projected earnings growth rate of one-and-a-half to two times the market. The managers of the $16.4 billion growth fund project trends one to three years out instead of quarterly. Creuzot likes its “consistency in style as a true large growth position. Once a client’s portfolio is modeled up, I don’t want to be concerned with drift into, say, large value or other spaces.”
Yield:
One-year return: 4.95%
Three-year return: 8.44%
Five-year return: 2.57%
Minimum taxable investment: $2,500
Expense ratio: 1.05%