Buy-and-Hold Taken to The Next Level by This Mutual FundAuthor: Kathryn Gaw
It’s no secret that passive funds have become the norm over the past few years. But they don’t come much more passive than the Voya Corporate Leaders Trust. While the most conservative mutual funds focus on bonds and cash holdings, which are updated on a month-to-month basis, this 81-year old fund has a remit to do basically nothing. And it’s outperforming many of its competitors.
Over the past 15 years, the Voya Corporate Leaders Trust has almost consistently outperformed both the Standard and Poor’s 500 and the Dow Jones Industrial Average Index, returning an average of 7.75 per cent per year, compared with S&P’s 5.58 per cent average. In 2016 alone, it returned 19.39 per cent, compared with S&P’s 11.96 per cent. That doesn’t mean that it hasn’t had bad years – in 2008 for instance, it was down by 29.25 per cent, yet it still did better than its benchmark of 37 per cent.
But Voya’s investors are not put off by the odd poor performance. They are in this for the long term. The very long term.
How it works
The fund’s motto is ‘Companies That Have Stood the Test of Time’ , and it really means that. Founded in 1935 in the wake of the Great Depression, the fund stands by almost every one of its original stock picks. The founders took the mindset that if a company could weather an economic depression, it could survive anything. So they bought up equal shares of stock in the top 30 companies of that year (minus banks and financial firms), and that was that. Thanks to mergers and acquisitions, those 30 firms have now become 22 firms, and include such well-known names as Berkshire Hathaway (which bought out original stock picks Burlington Northern and Santa Fe Railway), ExxonMobil (which was originally known as Standard Oil of New Jersey), General Electric, and Proctor & Gamble.
No new companies are added to the portfolio unless they have been acquired by existing investments, and no companies are removed, unless they have been dissolved due to bankruptcy or if their dividend has been suspended.
Since the fund managers haven’t picked any new stocks since 1935, they can afford to keep their fees low – much lower than the four per cent plus which is charged on some actively managed funds. This in turn results in minimal charges on annual returns, increasing customer profits.
Why it works
The Voya Corporate Leaders Trust is the ideal investment vehicle for the risk-averse investor. It is established, transparent, and while it isn’t going to double your money, it will deliver a modest annual return that builds up over time. While much of this is testament to the fund’s well-worn strategy, it is also down to the oldest investment rule in the book. Time.
Markets rise and fall and investments fluctuate on a day to day basis, but over the long term (ten years, twenty years or even 81 years), any volatility will even itself out. Meanwhile, compound interest ensures that even a modest annual return is increased slowly over the years. So one per cent on $10,000 in year one becomes $10,100 in year two, and $10,201 in year three. By year ten, a $10,000 initial investment earning just one per cent per year would be worth $10,936.85 thanks to compound interest. That’s a bonus of almost $1,000 (before fees, of course) on an extremely conservative – yet extremely consistent – return.
It’s no wonder that Voya’s investors are happy to simply sit back and do nothing. After all, if it’s worked for 81 years, why stop now?