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6 Rumbling Big-Cap Buys to Consider

03/22/2011 12:18 pm EST

Focus: FUNDS

Christine Benz

Director of Personal Finance, Morningstar, Inc.

Even before the markets took a ride on the seesaw last week, large caps were back in the spotlight with their attractive growth numbers and solid dividends. In this exclusive interview with, Christine Benz of Morningstar gives us six plays with potential.

I know you look at the personal finance arena for Morningstar. What types of investing ideas are on your radar right now?

Well, I draw heavily on our fund and stock analyst team, and hear what they’re thinking about the markets.

In terms of equity ideas, certainly one thing that’s been bubbling up within our equity-analyst team for a while now is that high quality looks relatively cheap, in a market that’s looking pretty fairly valued to them overall.

They are spotting some pockets of value among the high-quality, mega-cap stocks—in particular companies that they see as having what they call “moats.” Warren Buffett’s concept of a moat.

Barriers to interest.

Exactly—those sustainable competitive advantages. They think that universe of companies is actually looking pretty reasonably valued.

Do you have any names there?

Well, they like some of the big-cap pharma. Abbott Labs (ABT) is a big favorite.

Then for funds—sort of translating that idea into mutual funds—one fund we like is Jensen Portfolio (JENRX). This is a basket of high-quality mega caps.

Another one is Vanguard Dividend Growth (VDIGX), also, a fund that looks for high-quality companies with a history of growing their dividends.

Now, while we have the stock market really volatile and everything like that, some flexibility is needed. Do you have any ideas there?

Well, you know certainly for people who have fixed income, I think you need to be careful in the current interest-rate environment. So, one fund that we like quite a bit is PIMCO Unconstrained Bond (PUBAX) for people who want to go the no-load route.

There is a no-load clone that is Harbor Unconstrained Bond (HAUBX) and also, the big PIMCO Total Return Fund (PTTAX) is a very good, go-anywhere, flexible fixed-income offering.

It won’t be impervious if we do see a sustained period of rising interest rates, but I think that that flexibility to buy international, to buy corporates, mortgage-backed—whatever they want—is an important benefit in this kind of fixed-income environment.

Christine, is there ever a reason for an investor to buy a load fund? Is there an advantage to that?

If someone is working with a broker and advisor, and they do use that commission-based model—and you’re getting good advice—then that’s money well spent.

I’m pretty agnostic on that no-load versus load issue, but certainly if you’re doing all the homework yourself and you are investing, no reason not to opt for a no-load fund.

And now a lot of exchange-traded funds are available without commissions. I think that’s a very good, low-cost option as well.

A lot more efficient too.


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