(PUB) Investing 2015

March 2015

Morningstar FundInvestor

13

Davis and Matthews Funds Break Out Leaders & Laggards | Robert Goldsborough

Laggards Longleaf Partners International LLINX

This Bronze-rated fund bested 96% of the peers in its foreign large-blend category in 2013 only to turn around and return negative 15% in 2014 and negative 13% the 12 months ended February, placing it in the cellar of its category. Seesaw-like performance hasn’t been uncommon for Longleaf Partners International, which performed nicely in 2010 and 2012 but endured a dismal 2011 . The most recent underperformance has been caused by depressed iron ore prices amid lower Chinese demand, which hurt large positions in Brazilian iron ore company Manabi and Australian mining services firm Mineral Resources. T. Rowe Price International Bond RPIBX A strong dollar has been a major headwind for this Neutral-rated fund, which has a nearly 100% exposure to overseas currencies. Some of its competitors in the world-bond category hedge all or part of their foreign-currency exposure. Although this high-quality fund can be a fine way to diversify U.S.-centric portfolios, it lags gutsier bond funds when credit leads the way or when the dollar surges. Over the longer term, this fund’s results are uninspired even when compared with peer funds that exclude U.S. debt and don’t hedge currency exposure. Looking ahead, manager Arif Husain has his work cut out for him. Buffalo Small Cap BUFSX Although this Bronze-rated fund historically has posted good relative returns in both up and down markets, it struggled in 2014 , returning negative 6 . 55% and lagging 95% of small-growth peers as some previous successes, such as Financial Engines FNGN and Chart Industries GTLS , fizzled. Over the past 12 months, the fund is off 3 . 9% . The fund’s managers scour the landscape for fast-growing small caps that will benefit in a three- to five-year period from long-term trends. With a long-term focus, they hold tight with positions, despite volatility. œ Contact Robert Goldsborough at: robert.goldsborough@morningstar.com

Leaders Davis Financial RPFGX A recent makeover has served this fund well, contrib- uting to a 15% return over the past 12 months. Manager Chris Davis succeeded Ken Feinberg in late 2013 ; seeing relatively attractively valued finan- cials stocks, Davis decided to shed some nonfinan- cials from this fund’s portfolio in favor of regional banks and insurers. Davis’ long tenure with the firm includes comanaging this fund from 1991 to 2007 and working alongside Feinberg. Matthews Pacific Tiger MAPTX This Gold-rated large-growth Asia stock fund long has offered superior risk-adjusted returns. The past 12 months has been no exception, as the closed fund returned 20% even as emerging Asia’s markets have posted mixed results. Manager Sharat Shroff and comanagers have done a fine job of uncovering strong and sustainable growers selling at moderate valua- tions, and they’re comfortable with sector and country weightings that deviate meaningfully from other Pacific/Asia ex-Japan funds and from this fund’s benchmark. Over the past 10 years, this fund has topped 90% of competitors in its category. Vanguard Long-Term Investment-Grade VWESX A bond rally has helped long-duration funds, including this one, over the past 12 months. Managers from subadvisor Wellington and from Vanguard’s own fixed-income group select highly interest-rate-sensi- tive, long-dated bonds for this Bronze-rated fund. Investors should note two aspects of this fund. First, its defining feature is its long average duration of 13 . 7 years, which is above its current category. Second, head manager L.T. Hill hews reasonably closely to the fund’s index, with sector allocations normally remaining within 10% of the benchmark.

Ten Best-Performing Funds

Fund Name

YTD Cat Rank %

Artisan Value Investor Century Small Cap Select 1 Fairholme Focused Income 1 JOHCM International Selec 1 Oakmark International Sma 1 Bogle Small Cap Growth In 2 Fidelity Capital & Income 2 Franklin Mutual Beacon A 2 Harbor Commodity Real Ret 2 Longleaf Partners Small-C 2 1

Ten Worst-Performing Funds

Fund Name

YTD Cat Rank %

Dodge & Cox Balanced

99 99 99 99 99

FPA Perennial GoodHaven Greenspring

Janus Overseas T

Loomis Sayles Bond Retail 99 AMG Yacktman Focused Serv 98 AMG Yacktman Service 98 Delafield Fund 98 FPA Capital 98