The Fund That Does a Lot by Doing Nothing

Voya Corporate Leaders Trust hasn’t made a major change to its portfolio since 1935, but it’s still going strong.

Rip van Winkle, who took a drink from the wrong keg and spent the next 20 years snoring, was a newbie at sleeping. Let me tell you about a mutual fund that bought a few stocks 84 years ago and hasn’t moved a muscle ever since.

The fund, known today as Voya Corporate Leaders Trust, was launched Nov. 18, 1935, with its hands tied. It would hold the identical number of shares in each of its 30 stocks. It could never buy new holdings or sell out of its existing ones unless a company went bankrupt, underwent a merger or became “inadvisable” to keep. Corporate Leaders became a portfolio frozen in time.

Crazy?

Not at all.

Corporate Leaders is so old, nobody seems to know its performance back to 1935. Between the beginning of 1970 and Nov. 30, 2019, the fund gained an average of 11.1% annually, according to Morningstar Inc.; the S&P 500 returned 10.5% annually over the same period. Corporate Leaders ranks 16th among the 62 U.S. stock funds that have been around since 1970. That’s a stellar result for a fund that doesn’t even have a portfolio manager.

What has kept it going strong all these years?

In the earliest record I could find, as of Dec. 31, 1940, Corporate Leaders held 139 shares apiece in American Radiator & Standard Sanitary Corp., American Tobacco Co., Socony-Vacuum Oil Co., Union Carbide and Carbon Corp., Westinghouse Electric and Manufacturing Co., F.W. Woolworth Co. and 24 other giants of the time.

Some of those holdings, like the Pennsylvania Railroad Co. and what is now Sears Holdings Corp. , ended up essentially worthless. Others, such as General Electric Co. , are fallen titans.

But the fund ended up owning Warren Buffett’s Berkshire Hathaway Inc. in 2010 after Mr. Buffett bought Burlington Northern Santa Fe Corp.—an offspring of one of the fund’s 1935 holdings, the Atchison, Topeka & Santa Fe Railway. And Union Carbide has morphed into Linde PLC, which is up 1,200% over the past 20 years, a period when the S&P 500 gained 230%, according to FactSet.

Without ever adding anything from scratch, Corporate Leaders still has 22 stocks, a mix of its holdings in 1935 and their descendants through mergers and other restructurings. When investors add money, the fund buys more shares in the stocks it already holds; when they withdraw money, the fund sells some of its shares proportionately. Its annual turnover rate of 7%—implying that it holds onto its typical share of stock for more than 14 years—is one of the lowest of any mutual fund.

Morningstar analyst Kevin McDevitt says the fund was set up to counteract some of the hazards that led to the crash of 1929. Because risk-loving portfolio managers had inflamed the mania that triggered the crash, the fund was put on permanent autopilot. It would buy, hold and do nothing for 80 years. In 2015, its charter was extended to the year 2100.

Annual management fees—now 0.59%—were fairly low. By almost never trading, Corporate Leaders eliminated the brokerage costs that dragged most funds’ returns down by at least 1 percentage point per year.

The founders built in a degree of diversification with the requirement to hold 30 stocks across the energy, industrial, railroad and utility sectors. Hot stocks of the day like Nash Motors Co. and Radio Corp. of America found no home in the portfolio.

Source: The Wall Street Journal

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