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5 / 5 Stars
#7 in Mid-Cap Value
U.S. News evaluated 109 Mid-Cap Value Funds. Our list highlights the top-rated funds for long-term investors based on the ratings of leading fund industry researchers.
The fund has returned 19.31 percent over the past year, 13.43 percent over the past three years, 20.28 percent over the past five years, and 10.48 percent over the past decade.
|Trailing Returns||Updated 01.31.2014|
|Year to date||-5.1%|
|3 Years (Annualized)||13.4%|
|5 Years (Annualized)||20.3%|
|10 Years (Annualized)||10.5%|
Looking for a fund that will pay a steady penny and strive for conservative growth? That’s the Nicholas Equity Income fund in a nutshell. Manager Albert Nicholas’s fund, aimed at retirees and those who want an extra income stream, has built a portfolio that’s chock full of high-dividend companies. The fund’s objective is to provide a steady dividend and moderate capital appreciation.
As of February 05, 2014, the fund has assets totaling almost $485.03 million invested in 57 different holdings. Although the fund has very few investing limits—it can hold up to 20 percent in bonds or non-investment grade, preferred stocks—nearly all of its assets are held in value stocks with above-average dividend payouts. While it is situated in the mid-cap value category, the fund strays away from a mid-cap only policy and invests in companies of all sizes.
The average dividend yield in the portfolio’s top 25 holdings is more than 4 percent. That premium provides investors with a 2 percent payout at bare minimum, while any excess payout gives the fund an insurance policy in rough markets. Albert Nicholas says he designed the fund, which he is highly invested in, so he could “sleep well at night.”
Even with the market ambivalence of mid-2010, Nicholas says large dividend payers like cigarette-maker Altria and high-yielding energy names like PAA Natural Gas Storage have proven business models that are more likely to grow than cut their payouts.
Holding all dividend paying companies has appeared to provide some cushion in bear markets. In 2008, when other mid-cap funds lost an average of 37 percent, this fund lost just 24 percent.
“If you don’t lose a lot of money in the downturn, you’ll do well over the long term,” Nicholas says. And what about the immediate term? “We’re reasonably optimistic,” says Nicholas. “The atmosphere of the market is very difficult but we don’t believe in the double-dip.” That’s easier to say when Altria and PAA are both handing out dividends close to 7 percent.The fund has returned 19.31 percent over the past year and 13.43 percent over the past three years.
And while the fund isn’t primarily focused on capital appreciation like other mid-cap value funds, well-timed investments in small-cap dividend payers have boosted returns. Over the past 15 years, Nicholas Equity Income notched an annualized return comparable to appreciation-focused funds, while maintaining a two percent yield on the side.
Nicholas’s long-term strategy is to find little-known dividend payers that will not only continue to grow their dividends but grow earnings significantly over a couple of years. Stakes in National Presto Industries and Rocky Mountain Chocolate Factory have done just that. The fund has returned 20.28 percent over the past five years and 10.48 percent over the past decade.
Management looks for firms with a combined growth rate and dividend yield of 10 percent or better and low debt levels. Its top 10 stock holdings evidence a strong attraction to high-yield companies—those paying more than 4 percent. In the first two quarters of 2010, the fund’s portfolio yield ranged from 2 percent to 3.2 percent.
Role in Portfolio
Morningstar has not assigned a role to this portfolio.
Albert Nicholas is the Nicholas Equity Income fund. Though he draws on the reports of few analysts, those analysts spread their time among several of the family’s funds. Nicholas said he owns between 3 and 4 percent of the fund himself.
Nicholas Equity Income Fund has an expense ratio of 0.75 percent.
According to its prospectus, “this portfolio may include investment grade and non-investment grade, as well as rated and non-rated securities.” While management can invest in whatever it wants, Albert Nicholas’s penchant for stable companies keeps most nontraditional invesments off the table. As of early October 2010, the fund has less than 1 percent of its portfolio stocked with bonds. Also as of that date, its largest holding by far is in cash.