The fund that beats all comers in the Large-Cap Core sector is a high-conviction portfolio with a track record of getting its big bets right, all for a cost substantially lower than most other active funds.
The catch? It’s closed to new investors.
The $52.3 billion Vanguard Primecap fund has returned 118.9% over the past five years, carrying an expense ratio of just 0.39%, but even existing investors face restrictions over how much more money they can invest, with the limit currently set at $25,000 a year.
At the heart of the fund’s success has been a punchy management style, with the management team behind it willing to stray far from the index in their search for returns.
Pasadena, California-based group Primecap Odyssey Funds runs the strategy with a team of managers each individually responsible for their own portion of the portfolio, and able to allocate across all sectors with it.
While the fund’s money is spread across 132 holdings, the managers’ high-conviction approach is shown in the allocation across sectors. Their three favourites – technology, healthcare and industrials – make up 78% of the fund, while less than 1% is held in consumer staples, energy, real estate and utilities combined.
Top tech tips
Their biggest bet is to technology stocks, at 37.8% of the fund, a huge overweight to the S&P 500’s 22.5%. It’s a play that has paid off handsomely, especially in the semiconductor space, which makes up 12% of the fund, four times the index weighting.
Top-10 holding Nvidia is up 240% over the last year, while Micron Technology, their 15th largest holding, has rallied 158% over the same period. And the managers see semiconductors going from strength to strength, as the possibilities unleashed by the ‘internet of thing’ become apparent.
‘The so-called “internet of things” is expected to transform the manufacturing and healthcare industries as the availability of real-time information will allow for dramatic cost and quality improvements,’ they said. ‘Semiconductors are the physical devices that enable the internet of things, self-learning algorithms, and the vast majority of other information processing, storage, and transmission-based products and services that businesses and consumers increasingly rely on.’
For those keen to get a slice of Primecap’s investment strategy but without a foothold in the Vanguard fund, they only need to cast their eyes two places lower in the performance tables.
Third over five years is the Primecap Odyssey Stock fund, one of the group’s proprietary funds, although like the Vanguard fund, it doesn’t feature in our table, which is based on manager ratio rather than total returns. Without the juggernaut of Vanguard behind it, it’s smaller, at $7 billion, and crucially, open.
It’s not as cheap as its Vanguard counterpart, with an expense ratio of 0.69%, nor are its bets quite as punchy. Like the Vanguard fund, it’s heavily into technology, healthcare and industrials, and at 65% of the fund they are still dominant, but with a tad more restraint.
And while the portfolio may not look quite as racy, with JPMorgan and Eli Lilly as the two top holdings compared with Alphabet and Biogen, returns of 101% over five years are hardly pedestrian.