(PUB) Morningstar FundInvestor

What Does the Box Say? Continued From Cover

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place in the Morningstar Style Box. We call the dot a centroid . The centroid represents the midpoint of value and market-cap scores for the fund’s portfolio. It’s what determines which style box we assign to a fund. I color-coded the funds based on their five- year returns with darkest blue for the lowest returns and darkest green for the highest. As you can see, there is a slant toward small caps and toward growth, but it’s clear that style isn’t the only factor at work as we don’t have all the greens in one box and all the blues in another. Every fund produced a double-digit annualized return through March 21 , 2014 . Fittingly, the large-blend index funds are right in the middle on returns. See that cluster of lightly colored funds near the top of the box in the middle? The Laggards At Morningstar, one clear line of demarcation in looking at performance is whether it fits what you’d expect with hindsight. Looking at 2013 , we’d be more concerned about a lagging aggressive-growth fund than a cautious one, and the reverse is true in years like 2008 and 2011 . In fact, three of the four lowest performers in the Morningstar 500 are conservative funds that play defense. American Century Equity Income TWEIX holds 20% to 25% of assets in convertible bonds, for instance. Sure enough, it was the top fund in its category in 2008 and top 20% in 2011 . Its value proposition is clear, and 2013 didn’t really change that. First Eagle US Value FEVAX and Auxier Focus AUXFX hold a fair amount of cash, and First Eagle also owns some gold bullion. However, their caution is really their calling card, so these funds don’t worry me too much. The weakest performer is Neutral-rated CGM Focus CGMFX . It’s not really cautious, though; it’s a fast-trading, sector-moving fund that can short stocks. However, this latest drought illustrates just how extreme and unpredictable its performance swings can be.

Many funds from the next group of laggards fall into the high-quality bin. They hold companies with steady growth and wide moats, but their defensive nature means they often lag in big rallies. You’ll see these funds clustered in large caps on the blend/growth border. Aston/Montag & Caldwell Growth MCGFX , Amana Growth AMAGX , Amana Income AMANX , and Dreyfus Appreciation DGAGX all fit the bill. A surprising entrant is Janus Twenty JAVLX —a fund once famous for making hay while the sun is shining. It wasn’t actually bad in 2013 —it placed just below the large-growth average. However, I’d have liked it to do better than that, and it suffered two really weak years in 2010 and 2011 . Janus replaced Ron Sachs with Marc Pinto last year. You may know Pinto from the successful Janus Balanced JABAX . Pinto has made this fund something of a quality- focused fund rather than the superaggressive fund it once was. Another laggard is the Silver-rated Perkins Mid Cap Value JMCVX , which we lowered from Gold in 2013 . The fund’s double-digit cash stake held it back in some years, though that’s actually wound down to a small position today. The cash, some energy, and some weak stock selection has held back perfor- mance. That was worrying enough to us that we lowered the fund a notch. Even so, Perkins’ cyclical performance pattern suggests you shouldn’t count it out. The Leaders There’s definitely a growth theme to the leaders, but it isn’t a requirement. T. Rowe Price New Horizons PRNHX , Primecap Odyssey Aggressive Growth POAGX , Bogle Small Cap Growth BOGLX , and Touchstone Sands Capital Select Growth PTSGX have ridden a mix of health care and tech to gains of 29% annualized or more.

Meet Josh in Chicago

Josh Peters, editor of Morningstar DividendInvestor , will be presenting at the BetterInvesting National Convention free event.

Saturday, May 17

Register as our guest here: betterinvesting.org/biconvention