2
we kept it a Gold fund. From
1999
the fund has
beaten its average category peer by
1
.
3%
annualized.
Templeton Developing Markets
TEDMX
Having shared an early success, now I’ll share an
early dud. At one time, Mark Mobius was the Bill
Gross of emerging markets. In fact, he was a bigger
star in the early
1990
s. His fund was a pick in
1999
and was thought to be not only the biggest but also
the best. Templeton has a well-deserved reputa-
tion for savvy value investing. However, we noticed
the fund was losing its edge as better competitors
entered the arena, and the fund’s performance was
flagging. In March
2002
, former Morningstar ana-
lyst Emily Hall wrote: “The fund tends to suffer when
emerging markets shine, but it hasn’t been a bad
bet over the long haul. Still, its strong long-term record
has more to do with the distinct lack of competition
in this asset class than with impressive results. Inves-
tors can do better.”
In addition, at that time we were becoming more
rigorous in our vetting process, and this fund’s
expense ratio was way too steep despite the strong
long-term results. Thus, we kicked it off the picks
list. Interestingly, we were in sync with the star rating
on this one, as it had fallen to
2
stars, though it
later rebounded to
4
.
Since then, our opinion and the fund’s performance
have continued on a downward slope. We rate it
Negative because of problems with process and poor
performance. The fund’s
10
-year return is worse
than three fourths of its peers. While we were wrong
in our initial enthusiasm for the fund, I’m pleased
that we dialed up the scrutiny and guided investors
away from the fund.
FPA Capital
FPPTX
While we try to be early and go against the grain,
here’s one where we went with the flow but things
still turned out well. We made Bob Rodriguez’
FPA
Capital an Analyst Pick in July
2002
right near
the bottom of the bear market. Some managers
think defense first. Bob Rodriguez thinks defense first,
second, and third. Thus, the fund held up much
better than most funds in
2001
and boasted one of
the best
10
-year records when we made it a pick.
However, it was only
3
stars at the time.
Rodriguez picked up some bargains in the sell-off, but
the fund still lagged in
2003
and
2004
as you’d expect
for a fund focused on capital preservation. However,
we stuck with it because it was behaving just as we
expected. In
2007
, it briefly fell to
2
stars. Yet once
again, when the bear market struck,
FPA
Capital held
up much better than its peers. It even had a brilliant
2009
as Rodriguez and comanagers Dennis Bryan and
Rikard Ekstrand scooped up bargains in the melt-
down that powered further gains.
We dropped the fund from our picks list in
2010
when Rodriguez departed for a year with the promise
to come back to
FPA
at a reduced role. Bryan and
Ekstrand are skilled managers running an excellent
strategy, but we felt the record was largely Rodri-
guez’s, and that was enough to take the fund down
a notch. Today we rate it Silver.
Primecap Odyssey Aggressive Growth
POAGX
This one was right in our wheelhouse. We knew Prime-
cap well, and we had watched
Vanguard Capital
Opportunity
VHCOX
start out as an aggressive small/
mid-growth fund and produce outstanding results
even as asset growth pushed it to large-cap land. The
firm has a great investing culture, and its funds
have low costs. The fund was launched in November
2004
, and we made it a pick in March
2006
before
it even had a star rating. When all the fundamentals
come together like that, the results can be great,
and they have been so far for this fund.
Although the fund’s first star rating was just
3
stars
and it briefly dipped to
2
, we stuck with it. Now
the star rating is
5
, and the Analyst Rating is Gold.
Calamos Convertible
CCVIX
Calamos Convertible has had less drama than most
of the above funds. We liked Calamos’ expertise
in the convertibles niche. It had a clear competitive
advantage, as few firms can match its depth in
the field. We also liked its skill at diving deep into
balance sheets to avoid the really risky stuff in
a category where credit quality is often rather low.
Our Mostly Patient Approach to Rating Funds
Continued From Cover
