(PUB) Morningstar FundInvestor

April 2 014

Morningstar FundInvestor

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Mapping the M 500 Returns

Valuation

Value

Blend

Growth

Highest 5- Y r Returns

Small Mid Large

Lowest 5- Y r Returns

Market Capitalization

We mapped the returns of the U.S. stock funds in the M500. As you can see, place in the style box was no guarantee of strong or weak returns, but many of the weakest returns were near the top and many of the best were near the bottom, indicating that small caps fared better than large. You also see a modest growth bias in large caps as the deep-value large-cap funds in the upper left-hand corner are almost all blue.

Yet some value funds, particularly small-value funds, found a way in, too. Royce Opportunity RYPNX , Skyline Special Equities SKSEX , and value-leaning Ariel ARGFX produced equally big returns. Small- cap value-priced tech names, cyclical stocks, and industrials helped these funds to brilliant results. Just as we haven’t downgraded many conservative funds for lagging, not many of these funds have been upgraded for rallying. Gold-rated Fidelity Small Cap Discovery FSCRX is another value-leaning blend fund that continues to thrive. Chuck Myers employs a Buffett-influenced approach to value that’s been quite effective. We’re not ignoring returns, though. T. Rowe Price Value TRVLX manager Mark Finn continues to impress with excellent results since he took over in 2009 , and we recently upgraded the fund to Bronze.

The key link in all those ratings is that we look at a manager’s full body of work, whether that’s four years or 40 . Letting recent performance influence you too much can be costly. The Script Flips In fact, if you go back to 2009 , you’ll see what I’m talking about. American Century Equity Income, Amana Income, and First Eagle US Value were all 5 stars then. Ariel was just 2 stars. Fidelity Small Cap Discovery and T. Rowe Price New Horizons were 3 , and they are 5 now. Bogle Small Cap Growth was 1 star. Royce Opportunity was 2 stars. Or, to put it another way: The investment world moves in cycles, and it’s when those cycles have a long run that shorter-term performance can deceive us the most. œ

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