2
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.
What Does the Box Say?
Continued From Cover
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
