Have you ever wondered what businesses that Mutual Funds focused on high quality stocks hold? You can compare and contrast their Top 10 largest holdings and invest in these high quality businesses yourself without paying the management fee. In this article, we will look at the top 10 holding of 5 mutual funds focused on high quality stocks. Finally, you will see what stocks these mutual funds have in common.
GMO Quality III – GQETX
The GMO Quality fund has a tilt toward technology based on its Top 10 holdings. IBM, GOOG, MSFT, ORCL, and CSCO are all technology businesses. GMO defines quality as stocks with “high and stable profitability, and low debt”. The fund holds 4 Dividend Aristocrats in its top 10 (JNJ, PG, CVX, KO). PM would be a Dividend Aristocrat as well if you counted its dividend history before being spun off from Altria.
Haverford Quality Growth Stock – HAVGX
The Haverford Quality fund defines quality as stocks that “have a history of consistent and predictable earnings growth; have regular, growing dividend payments; and be industry leaders in their respective categories”. The top 10 holdings of the Haverford Quality growth stock fund are well diversified. The fund holds 2 Dividend Aristocrats in its top 10 (JNJ & MCD).
Jensen Quality Growth – JENSX
The Jensen Quality Growth Fund defines quality as stocks that “have consistently achieved a high return on equity and have a trend of growing free cash flow over the prior ten years; be in excellent financial condition; and be capable of sustaining outstanding business performance. The fund holds 5 Dividend Aristocrats in its top 10 holdings (BDX, PEP, MMM, CL, & ADP).
Vanguard Dividend Growth Fund – VDIGX
The Vanguard Dividend Growth Fund seeks to invest in “high-quality companies that have both the ability and the commitment to grow their dividends over time”. The fund holds 5 Dividend Aristocrats in its top 10 holdings (MCD, WMT, JNJ, CVX, & ADP).
Equity Company Quality Dividend Fund – QDVAX
The equity company quality dividend fund defines quality as stocks that are “Large and established businesses; strong balance sheets; growing sales, earnings, and cash flow; dividend history and management commitment to a stated dividend policy; lower than average stock price volatility”. The fund has 2 Dividend Aristocrats in its top 10 (KMB & T).
Of the 5 quality mutual funds above, several businesses appeared multiple times. Microsoft (MSFT) and Johnson & Johnson (JNJ) appeared 3 times each. These businesses are selected most often by mutual funds looking for quality businesses.
Each fund defined quality somewhat differently. Some funds use an entirely qualitative approach, while others are entirely quantitative. Many use both. Sure Dividend does not define quality per se; instead the 8 Rules of Dividend Investing seek to find excellent investments for dividend growth investors. Many of these businesses are high quality companies, as high quality is a prerequisite for years of sustainable dividend growth.