Related topics: ETF, dividends, growth stocks, mutual funds, taxes
If 2011 is anything like 2010, we are going to see flux in equities.
That said, I suspect that we're going to see more upside in stocks of all stripes, which should turn out to be good for owners of well-thought-out 401k portfolios.
Vanguard Dividend Growth Fund
Among the funds you might consider for 2011 is Vanguard Dividend Growth (VDIGX). Large-cap dividend payers were underwhelming in 2010, and the stock picks of manager Don Kilbride were also underwhelming. After a three-year run of strong outperformance, Kilbride lagged in the last two.
But this fund has generated annualized returns in excess of 5% over the last five years, and the long-term performance remains well above its benchmark.
The difference between this fund's portfolio and an index fund is that Kilbride has the flexibility to go overseas. With domestic markets outperforming, it's a good bet that some of Kilbride's international holdings got swept along in the current foreign-market pessimism.
More important is the fact that Kilbride's portfolio consists of fewer than 50 stocks. In other words, when he's right on a stock or two he's going to be very right, and when he's wrong it's going to hurt.
I've got confidence that Kilbride and his colleagues at Wellington Management will outperform again. This is one fund that meets many of my criteria for a winner -- a single manager, a tight portfolio, a strong track record and resources to back it up.
Among the top holdings in the fund are Automatic Data Processing (ADP, news), Johnson & Johnson (JNJ, news) and Medtronic (MDT, news).
Primecap Odyssey Aggressive Growth Fund
The Primecap Odyssey Aggressive Growth (POAGX) fund invests in common stocks of companies expected to show rapid earnings growth. I feel strongly that this fund is going to be a long-term winner (it's my single largest personal holding), and one big reason is its management team, led by Theo A. Kolokotrones, president of Primecap Management Company, which he co-founded. The fund's annualized return over the last five years is greater than 8%.
The strength of the team lies in its consistency. While the team only outperforms its index benchmarks about 60% of the time, when it does outperform, it more than makes up for months when it lags these benchmarks. Periods of underperformance are perfect opportunities to add to holdings. Of course, if you're a long-term investor, periods of outperformance are also great for adding to holdings.
Among the fund's top holdings are companies operating in the biomedical sector, a market segment with tremendous earnings growth potential. The fund holds shares of high-profile biotechs Crucell (CRXL, news), Dendreon (DNDN, news) and Cepheid (CPHD, news).
Fidelity Low-Priced Stock Fund
Manager Joel Tillinghast has rarely owned fewer than 800 names, and often owns more than 1,000. At last count, the Fidelity Low-Priced Stock (FLPSX) fund had 907 holdings. Tillinghast buys stocks priced at $35 a share or less, which increases the likelihood of small- and mid-cap investments in bull markets but in bear markets can net him companies of virtually any size.
His long-term track record has been one of solid, consistent performance, particularly when markets and economies find a bottom and begin to rebound. Average annual total returns over the last 10 years exceed 11%, almost double the performance of its Russell 2000 ($RUT.X) benchmark.
