From Frank Nash: “I question your recommendation of Lindner Dividend, categorically, and as a fund which “makes a little money in down markets.” In fact it lost money (-4.08 in ’87, -6.51 in 90, -3.31 in ’94) in the last three down markets while underperforming the S&P 500 for (at least) the last 15 years. A fund as mundane as Janus, has a lower (Morningstar) risk rating and has outperformed Lindner Dividend consistently.”

Thanks, Frank. You’re right that no one fund can categorically be recommended as the best. But my sense was that Syd didn’t want a host of options, he wanted a concrete suggestion to boost the return — conservatively — for his 96-year-old foster mother-in-law. My own feeling, based on what I’ve read about Eric Ryback, who manages this fund, is that Lindner Dividend is a good choice.

Janus has outperformed Lindner Dividend modestly over the last 5 years (15.4% compounded versus 14.3%) and very substantially over the last 10 (15% versus 11.2%). But Janus’ “standard deviation” — a measure of volatility and thus potential risk — was 2.2 versus 1.6 for Lindner. For example, during the bear market from July 1990 to October 1990, Lindner was down 3.6% while Janus was down 17.2%. So the Morningstar risk rating may not be the only number to look at.

Janus is 95% invested in stocks; Lindner Dividend is 43% in stocks, 39% in fixed income, 18% in cash — another reason to think it could be a more “defensive” holding for a 96-year-old.

(It is Lindner Dividend’s conservatism, of course, that accounts for its trailing the S&P 500 all these years. It’s pretty hard to beat a rising stock market when less than half your assets are in stocks.)

Lindner Dividend’s objective is to “generate relatively high current income and growth of income.” The Janus Fund seeks “maximum capital appreciation by investing in equity securities using aggressive investment techniques.”

So I stick by my suggestion, though not in the sense that it is the perfect recommendation (hey: free advice is worth what you pay for it!). I think it could double her income without taking what would seem to be, in the context of the situation, undue risk.

Thanks for your good question. And thanks to my friend Peter Tanous, author of Investment Gurus, due out at the end of this year, for his help with the answer.

 

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