The strange and happy story of Voya Corporate Leaders Trust


Depression Baby
This story is neither New nor unspeakable. There is, however, more to be said on the subject.

Voya Executive Trust (LEXCX), born Lexington Corporate Leaders Trust, is the strangest duck in the business. Founded in 1935, the fund was the industry’s first passive offering, beating the Vanguard 500 Index (VFINX) to the starting line by four cool decades.

The fund has a very different heritage from today’s indexers. It was not launched to refute claims of active management, based on academic research suggesting that good performance generally regresses towards the average. Rather, its strategy reflected its structure. Established before the passage of the Investment Companies Act 1940, the fund was established as a mutual fund and was therefore prohibited by regulation from actively managing its investments.

So Lexington Corporate Leaders Trust bought 30 of the major companies of the Great Depression – that number, one suspects, being heavily influenced by the Dow Jones Industrial Index – and waited. And waited. Its first five holdings, listed alphabetically, convey its original flavor: 1) Allied Chemical & Dye, 2) American Can Company; 3) standard American and sanitary radiator; 4) American telephone and telegraph (T), and 5) Columbia Gas & Electric.

Not quite buggy whips and coolers, but unattractive companies in modern eyes. Certainly AT&T looks promising, being in the communications industry, and DuPont (NOT A WORD), General Electric (GE), and Procter & Gamble (PG) also appear. But the fund had few future mainstream brands (no automobiles, no Coca-Cola (KO), no Gillette), no banks and no insurers. He also neglected IBM (IBM), which had made a profit of $ 7 million in the difficult year of 1934 and was growing.

More kicks
You would think that this collection of yesterday’s affairs would have churned out for a few years, maybe even decades, and then expired. Rather the opposite. Not only does the fund continue to exist, it is doing quite well. In recent years, it has more often than not exceeded the index. As of this writing, the fund’s 15-year returns are 137 basis points annualized higher than the index.

One of the reasons for the fund’s success is that it has indeed changed. He is not allowed to trade his positions, but the companies in the fund can certainly undertake equity actions. That they have. Over the years, most of its original holdings have been sold to other companies. If these transactions were concluded through a share swap, the fund gained a new position. Managing investments by accident!

(The most curious transaction took place in 2010, when Berkshire Hathaway (BRK.B) bought the Burlington Northern Santa Fe Railroad. Breaking with his usual policy of buying businesses only in cash or in stock from another company, Berkshire chairman Warren Buffett agreed to fund part of the deal with Berkshire equity. Here is ! the fund became a shareholder of Berkshire Hathaway, and the company is now its second largest holding.)

This process gradually modernized the portfolio. Its school remains old, with industry, energy and basic materials making up 70% of its assets, but the names are familiar: Union Pacific (UNP), Exxon Mobil (XOM), Honeywell (HON). Aside from its primary position of Union Pacific, which occupies a whopping third of the portfolio, the fund is fairly well diversified, with 21 companies filling the remaining two-thirds.

Buy and Hold
The natural reaction when examining the 1935 fund’s portfolio is to assume that the companies that no longer exist – at least under those names – were total failures. This is not necessarily the case. Even if these companies ended up going bankrupt, they could have distributed enough money along the way to be at least somewhat useful investments. And most did not go to zero. They retained enough value to reincarnate, as the business units of their acquirers.

Also, the flip side of holding steadily declining positions, without trying to cut losses along the way – a tactic generally seen as misguided, but integral to the fund’s formula – is that the fund doesn’t sell never its winners. too early. The Procter & Gamble share price alone, excluding dividends, has gained 10% on an annualized basis over the past 50 years. That’s an increase of 120 times. It’s also good that the fund hasn’t rebalanced itself.

The fund has also benefited from being relatively inexpensive. Modern ITUs generally incur an upfront selling expense and have a relatively short lifespan. After a few years, they officially expire; investors who wish to stay the course must “move” their assets to a new ITU, thus generating additional subscription fees. But this fund has no entry fees and a termination date of 2100. At 0.59%, its ongoing expense ratio is high by ITU standards but low compared to mutual funds. ‘actions.

Break the usual rules
Voya Corporate Leaders Trust shows that poor futurists can still achieve strong investment results, as companies that operate in slow growing industries can generate high levels of cash for many years and can extend their lives through selling. actions or by developing their activities. (The original holding company FW Woolworth remains in the portfolio, except that the company is now called Foot Locker (FL).) The fund is also challenging standard investment practices for due diligence and portfolio rebalancing.

The fund is therefore an instructive example. Having said that, one must also admit that part of its success simply owes to luck. That the fund’s initial investment decisions and its unusual structure did not detract from the fund is quite remarkable. It would be even more remarkable, but not credible, to claim that these aspects have help he. This is not the case: Basically, the fund is positioned to match the long-term returns of the overall stock market. That it is currently slightly better has to chance.

In 2008, Voya Financial (VOYA) (then ING) launched an updated version of Corporate Leaders, called Voya Corporate Leaders 100 (VYCCX). It would be a good passive fund, mimicking the equally weighted S&P 100 Index, with appropriate exposure to the behemoths of the 21st century. It would contain pharmaceuticals, multinational banks, technologists, … today’s cutting edge companies. A new fund for the new generation.

Voya Corporate Leaders 100 has followed its predecessor since its creation. Go figure it out.

John Rekenthaler has been researching the fund industry since 1988. He is now a columnist for and a member of Morningstar’s investment research department. John is quick to point out that while Morningstar generally agrees with the opinions of the Rekenthaler Report, his opinions are his.


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