(PUB) Investing 2015

January 2 015

Morningstar FundInvestor

13

Another Strong Year for T. Rowe Price Capital Appreciation Leaders & Laggards | Leo Acheson

Laggards Buffalo Small Cap BUFSX

Buffalo Small Cap’s 6 . 6% loss in 2014 puts it in the small-growth category’s bottom decile. A couple of stocks halved in value, and many others suffered double-digit losses. Several of the fund’s worst performers during the year were among the biggest gainers in 2012 and 2013 , such as Financial Engines FNGN and Chart Industries GTLS . While the managers have trimmed some of those positions, for the most part they’ve held tight. American Funds New Economy ANEFX This fund’s 4 . 6% return in 2014 was a decent absolute showing, though its typical large-growth rival gained more than twice that much. The managers have the flexibility to look throughout the globe and across the market-cap spectrum; thus, the portfolio currently holds 28% of assets in foreign stocks, and its $23 billion average market cap is in the bottom decile of the large-growth category. That positioning weighed on results this year, as U.S. stocks outperformed foreign equities and large caps trounced small caps. Nonetheless, the managers boast a strong long- term record. Matthews China MCHFX This fund lost 4 . 4% in 2014 , underperforming its typical China-region peer by nearly 6 percentage points and marking the third-consecutive calendar year of below-average results. In 2014 and over the trailing three years, generally poor stock selection and minimal exposure to Taiwan weighed on results. Moreover, a bias toward growing companies has consistently led to an underweighting in financials and an overweighting in consumer companies, which hindered results in 2014 as the former has rallied and the latter has struggled. œ Contact Leo Acheson at leo.acheson@morningstar.com

Leaders T. Rowe Price Capital Appreciation PRWCX This fund has outperformed at least 87% of its moderate-allocation peers in each of the past six calendar years. Winners in 2014 included Allergan AGN , which nearly doubled in value during the year, PG&E PCG , and UnitedHealth Group UNH . The fixed-income portfolio, which takes about 25% of assets, also did well. Lead manager David Giroux had avoided Treasuries for years but bought some at the end of 2013 and sold that stake down in 2014 as it rallied. Meanwhile, a 9% cash allocation weighed on results. Western Asset Core Plus Bond WACPX Western Asset Core Plus Bond’s 7 . 7% return in 2014 outpaced 97% of its intermediate-term bond com- petitors’ and easily topped the Barclays U.S. Aggre- gate Bond Index’s 6% gain. A contrarian bet to increase duration exposure at the start of the year boosted results. Stakes in nonagency mortgage securities and investment-grade corporate bonds also helped returns though most of the year. The fund had a poor showing in 2008 , but the management team made a number of improvements to its invest- ment process, and the fund has outperformed its typical competitor in every calendar year since 2009 . large-growth peer group in each calendar year since 2009 . Longtime lead manager Steve Wymer favors companies in fast-growing industries with distinctive products, which has led to a heavy allocation to the health-care sector. Biotech, which currently takes 16% of assets, has played a huge role in the fund’s outperformance over the past three years. A position in Keurig Green Mountain GMCR and airline picks also propelled returns in 2014 . Fidelity Growth Company FDGRX This fund has finished in the top quartile of its

Ten Best-Performing Funds

Fund Name

YTD Cat Rank %

FPA Perennial

1

Fidelity Capital & Income 1 Meridian Small Cap Growth 1 PRIMECAP Odyssey Aggressi 1 Tweedy, Browne Global Val 1 Vanguard Capital Opportun 1 Vanguard GNMA Inv 1 Vanguard Long-Term Invest 1 Vanguard PRIMECAP Core In 1 Vanguard PRIMECAP Inv 1

Ten Worst-Performing Funds

Fund Name Fairholme GoodHaven

YTD Cat Rank %

99 99

Janus Overseas T 99 Longleaf Partners Interna 99 Baron Opportunity Retail 98 Delafield Fund 98 FPA Capital 98 Fairholme Focused Income 98 Artisan Small Cap Value I 97 CGM Focus 97