Mutual fund born during Great Depression proves the value of buy-and-hold

If you want to convince your clients that doing nothing is sometimes the best thing to do, point them to Voya Corporate Leaders Trust (LEXCX).

Now in its 81st year, the fund has beaten the Standard and Poor’s 500 stock index the past 15 years, according to Morningstar, the Chicago investment analyst. Voya Corporate Leaders is up an average 7.75% a year, vs. 5.58% for the S&P 500 index. Voya proudly proclaims on its website that the fund has beaten the S&P 500 and the Dow Jones Industrial Average “for over 40 years.”

The secret: Doing very little.

The fund was born in the middle of the Great Depression — 1935, to be exact — and it had a simple premise. If a company could survive and even prosper during the 20th Century’s worst economic downturn, it could probably survive another 75 years — or more.

The fund’s founders bought the 30 largest companies in 1935. It ruled out banks and financials because of lingering distrust of the sector, something investors today can emphasize with.
The rules: No stock could be sold, unless it suspended its dividend or became delisted. No stocks could be added, except through mergers and spinoffs. Original names included E.I. DuPont de Nemours (DD), General Electric (GE), Sears, Roebuck (SHLD), Procter & Gamble (PG), AT&T (T), and International Harvester, now Navistar (NAV).

Over the course of time, the fund has picked up some happy accidents. Standard Oil of New Jersey eventually became ExxonMobil (XOM). Berkshire Hathaway (BRK) became part of the portfolio when it bought the Burlington Northern and Santa Fe Railway. Foot Locker (FL) is in the portfolio because Woolworth once was.

And some companies have been dumped. Citibank, for example, became part of the portfolio when it was spun off from American Can. The company got booted when its share price fell below $1 during the financial crisis. The New York Central Railway and The Pennsylvania Railroad left the portfolio when it went bankrupt in 1970.

The fund changes its portfolio holdings less frequently than the S&P 500 (and charges 0.53% annually for doing so). On the other hand, it has beaten the other two large-cap value funds that have a record dating from 1935, as well as the four other large-company growth funds. (Those rivals include the venerable MFS Massachusetts Growth Stock (MIGFX) and the Fidelity fund (FFIDX). And that’s a record that spans World War 2, the Vietnam War, and the worst recession since the Great Depression.

However, the fund has some stronger rivals. The American Funds Investment Company of America (AIVSX), Pioneer (PIODX) and Sentinel Common Stock (SENCX) have beaten Voya Corporate Leaders. Nevertheless, the fund’s record at fourth place is highly respectable.

You can buy lower-cost, buy-and-hold investments today. But few funds are such a testament to the value of long-term investing.