Throughout the market downturn, Yacktman Fund (Stock Quote: YACKX) has beaten its benchmarks. For the past year, the fund outperformed 98% of its large value competitors. During the last decade, Yacktman returned 4.9% annually, ahead of the S&P 500 by 6.2 percentage points.
Portfolio manager Donald Yacktman has shined by holding steady performers, high-quality stocks that have little debt and the potential to deliver growing earnings. A diehard value specialist, he buys solid shares when they have fallen out of favor and when they sell for discounts to their fair values.
Lately the portfolio has owned a list of well-known names, including Coca-Cola (Stock Quote: KO), Clorox (Stock Quote: CLX) and Procter & Gamble (Stock Quote: PG). Such modestly priced blue-chip stocks have proved resilient in the downturn as investors have sought companies that can survive the recession.
Along with finding winners, Yacktman protected shareholders by steering away from trouble. Because he avoids companies with heavy debt, the fund held few of the big financial companies when their shares collapsed this past year.
Yacktman's recent performance is particularly noteworthy because the fund was given up for dead by many shareholders in the 1990s. At the time, the markets were shunning steady, low-priced stocks and embracing Internet businesses with little or no earnings.
With investors dumping value stocks in 1999, Yacktman lost 16.9%, trailing the S&P by 37.9 percentage points. Investors fled the fund, as assets under management dropped from more than $1 billion in 1997 to $70 million in 2000. Members of his board of directors tried to fire Don Yacktman, but he held on.
Shareholders who remained loyal to the fund were richly rewarded. While the S&P 500 lost 9.1% in 2000, Yacktman gained 13.5%. In each of the next two years the benchmark sank into the red, and Yacktman outpaced the S&P 500 by more than 30 percentage points.
Yacktman is one of a number of value funds that specialize in high-quality stocks -- and have long records of excelling during downturns. Will the high-quality funds outperform if the market rebounds in the next year or two? Maybe not. Funds that focus on steady stocks often lag in roaring bull markets when optimistic investors grab riskier shares.