52 KIPLINGER’S PERSONAL FINANCE^ 05/2017INVESTING
the stock market’s winners from the
losers,” says Liz Ann Sonders, chief
strategist at Charles Schwab. Now,
Sonders says, that gap is widening
and the relative performance of stocks
in the large-capitalization benchmark
is starting to diverge, giving managers
a better chance to beat the index.
“Winds are shifting in favor of active
strategies,” she says.
Over the long haul, buying good
low-fee funds run by seasoned stockpickers who have their own money
invested alongside yours will serve
you well. And you don’t have to choose
between active and passive manage-
ment. In fact, a blended portfolio of
active and index funds has generally
outpaced strategies that focus solely
on one or the other (see “Index Every-
thing? Not So Fast,” March). For more
on how to mix the two styles, see the
box on page 54. Use the portfolios on
page 55 as a starting point.This year, we’re making only two
changes to the Kip 25 roster. To learn
more about the newcomers, see the
box on the facing page. For details on
how the Kip 25 funds fared over the
past year, see the box below. And for
returns and other key data for all 25
funds, see the table on page 57. To find
out why the 23 other funds on our list
deserve a place in your portfolio, read
on. (Returns are through February 28,
unless otherwise noted.)LARGE-COMPANY
U.S. STOCK FUNDSDODGE & COX STOCK
The focus: Bargain-priced large-
company stocks.
The process: The eight managers who
run this fund like to buy stocks that
are out of favor and are willing to wait
for a turnaround: A bet the managers
made on Hewlett-Packard more than
a decade ago paid off in a big way after
HP split into two entities in late 2015.
The track record: The longest-tenured
stock fund in the Kip 25, D&C is often
out of sync with the market. But its
long-term record is solid, and the fund
clocked the market over the past year.FIDELITY NEW MILLENNIUM
The focus: Fast-growing firms that
will benefit from technological
changes and demographic trends,
among other things.
The process: John Roth can invest in
firms of all sizes (the fund has 53%
of its assets in large caps; the rest
is in small and midsize firms). He is
more sensitive to a stock’s valuation
than most growth managers.
The track record: A contrarian bet on
energy stocks in late 2014 and 2015
has finally paid off. Since Roth took
the helm in mid 2006, New Millen-
nium has returned an annualized
8.8%, beating the S&P 500 by an aver-
age of 0.6 percentage point per year.MAIRS & POWER GROWTH
The focus: Firms based in the Upper
Midwest, where the fund companyIt was a great year for stocks, a ho-hum one for bonds. Over the past 12 months, Standard
& Poor’s 500-stock index returned 25.0%. Small-company stocks, measured by the Rus-
sell 2000 index, soared 36.1%. The MSCI EAFE index, which tracks foreign stocks in devel-
oped countries, staged a come-
back, returning 15.8%. The MSCI
Emerging Markets index fared even
better, netting 29.5%. But the
Bloomberg Barclays US Aggregate
Bond index (known as the Agg)
delivered a paltry 1.4% (returns
are through February 28).
As for the Kiplinger 25, it was a
mixed bag. As a group, the 12 diver-
sified U.S. stock funds on our list in
the May 2016 issue returned an av-
erage of 26.0% (we replaced two
funds during the course of the year
after they closed to new investors).
That’s a big improvement over a
year ago, when our stock funds lost
an average of 9.0% for the 12-month period that ended in February 2016. But the average
results don’t tell the whole story. Even though all of our diversified U.S. stock fund picks
posted double-digit gains, only five beat the S&P 500 over the past year.
Our foreign stock funds tell a similar story. FMI International nipped the MSCI EAFE index
over the past 12 months, but Fidelity International Growth lagged the benchmark. Baron
Emerging Markets delivered a 21.6% gain, but it lagged its bogey by 7.9 percentage points.
We had mixed results on the fixed-income side, with three bond fund choices beating
their respective benchmarks. Fidelity New Markets Income, which invests in emerging-
markets bonds, and Pimco Income, a multisector bond fund, trounced their respective
indexes by wide margins. But DoubleLine Total Return Bond trailed the Agg by a smidgen.
And Vanguard High-Yield Corporate lagged the junk bond index by 7.3 percentage points.
That’s largely because the fund tends to own better-quality high-yield bonds, and over
the past year the junkier the bond, the more it generally returned.
Finally, our portfolios posted respectable returns over the past year. The aggressive
portfolio gained 17.4%; the moderate package, 14.4%; and our conservative model, 11.1%.How Our Funds Fared
Update