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3 stock funds to reduce risk as fiscal cliff looms

Associated Press Modified: November 8, 2012 at 5:00 pm •  Published: November 8, 2012

In terms of the risks taken to achieve their investment returns, each is rated "Low" by Morningstar, the lowest on a five-level scale. These ratings assess a fund's risks versus peers by a number of measures. Among them are the amounts of gains the fund was able to capture when stocks were rising, and the extent of losses in periods when the market was falling. These are known as a fund's upside and downside capture ratios. They're among the fund volatility measures found on by clicking on a fund's "risk & ratings statistics" tab.

Each of the four funds charges fees of 1 percent or less. That's relatively modest given that these are actively managed funds that seek to beat the market, rather than index funds seeking merely to match it.

Each requires a minimum initial investment of $5,000 or less, so they're accessible to many individual investors. None charges an upfront sales fee, known as a load.

The three, listed in order of their 10-year returns:


This fund's 5- and 10-year returns rank within the top 5 percent of its large-cap blend peers. It was a standout performer during the financial crisis, losing a relatively small 27 percent in 2008 while the S&P 500 plunged 37 percent. The team that manages the fund looks for businesses with the financial strength to hold up well even if the economy slows down. FMI Large Cap recently owned a relatively compact portfolio of 27 stocks, led by 3M Co. at 5.3 percent of the portfolio and Berkshire Hathaway, Warren Buffett's company, at 5.1 percent.


This fund's 5-year return ranks in the top 3 percent among its peers, and its 2008 loss was a relatively small 26 percent. It's one of the standout managed funds at Vanguard, best known for index funds. With an expense ratio of just 0.31 percent, it's among the lowest-cost managed funds. The emphasis in the portfolio of around 50 stocks is dividend-payers. Recent top holdings include PepsiCo, Johnson & Johnson and Occidental Petroleum. Don Kilbride has run the fund the past six years, and has more than $1 million personally invested in the fund.


This fund's 3- and 5-year records rank within the top 2 percent of its peers. Managers Robert Goldfarb and David Poppe typically hold just 10 to 25 favored stocks, and stick with them for years. Recent top holdings include Valeant Pharmaceuticals and TJX Cos., owner of the T.J. Maxx and Marshalls retail chains. The fund recently had nearly 18 percent of its portfolio held in cash, which could provide a cushion if the market drops. In 2008, Sequoia lost a relatively modest 27 percent.


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