An 87-year-old mutual fund formed in the depths of the Great Depression beats the S&P 500 this year. His strategy: Do nothing. What is today the Voya Corporate Leaders Trust Fund was established in 1935 as a concentrated portfolio of 30 blue chip companies considered unlikely to fail – a vital concern after the crash of 1929 and the global depression that followed. Since these 30 original shares were chosen, nothing has changed in the operation of the trust. The rules of the trust state that the only time a stake can change is when there is a corporate action outside of the fund’s control, such as a merger or acquisition. Other cases can occur when a company cancels its dividend, defaults or downgrades its debt, or a stock is delisted or falls below $1 for more than 15 days. As a result, those original 30 stocks have shrunk to a portfolio of just 19 names over time. “Think of it as the ultimate buy and hold,” said Chrissy Bargeron, client portfolio manager for equities at Voya Investment Management, which oversees the trust. She says the fund was ‘passive’ before the term was used to describe an investment strategy. Almost all of the changes within the trust have come in response to buyouts and spinoffs. In 2010, for example, Corporate Leaders became the owner of Berkshire Hathaway only after Warren Buffett bought Burlington Northern Santa Fe, which the fund owned. Today, Berkshire is the only stock it owns that pays no dividends. “What’s in” In a year characterized by volatile markets, Voya Corporate Leaders Trust remained on solid ground. Confidence has fallen less than 8% this year, far outpacing the 24% drop in the S&P 500. Corporate Leaders has also outperformed both its investment category peers as well as the Russell 1000 Value Index over the of the past 10 years, according to Morningstar. Part of the trust’s success this year stems from the common stock it owns, said Morningstar analyst Bryan Armour. Union Pacific, the railroad that accounts for a whopping 40% of trust, has fallen less than the S&P 500 this year. It’s an example of a stock an investor could use to help maintain a stable portfolio, as it’s known for consistent performance with little growth over time, he said. The real driver of the Corporate Leaders Trust’s relative success this year comes from the fact that nearly a quarter of its holdings are in energy, Armor said. The sector is up about 31% in the S&P 500, the only one of the 11 major industrial groups to have gained this year. “It’s obvious in retrospect, but by having a diverse portfolio you’ll always capture what’s trending,” Armor said. Bargeron said the enduring strength of the trust lies in its focus on the “less sexy” areas of the market. For example, the trust does not hold any interests in sectors such as technology or healthcare. This means the fund missed the tech rally that followed the 2008 global financial crisis. ‘Good market research’ Due to its long life, the trust has benefited from acquisitions. Today, its 19 stocks are drawn solely from the Industrials, Energy, Financials, Materials, Consumer Staples, Utilities, Communication Services and Consumer Discretionary sectors. economy. Its only consumer discretionary holding, Foot Locker, is also the smallest, at just 0.2% of the portfolio. Why Foot Locker? Corporate Leaders Trust originally owned FW Woolworth Co. The trust has a net expense ratio of 51 basis points. “There’s never that knee-jerk reaction to sell or that greedy reaction to buy low,” Bargeron said. “And I think that helps take advantage of those opportunities that arise because of the irrational behavior of other investors.” Bargeron called a sister fund, Voya Corporate Leaders 100 Fund, a “child” of the original trust. He still has an equally weighted portfolio, she said, just with more diversification and the added element of systematic rebalancing. But for the original trust, Bargeron said there were no plans to change the way the fund is managed or its holdings – just as it has been for the past nine decades. “I really don’t see us ever coming in here,” she said. “It’s good market research.” Disclosure: Corporate Leaders Trust owns 2.3% of its assets in Comcast, owner of NBCUniversal, parent company of CNBC.
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