3
Morningstar FundInvestor
August 2
013
Other funds are right at
100%
invested in equities.
Dynamic
US
Growth,
Janus Overseas
JAOSX
, and
Columbia Acorn USA
AUSAX
are all
100%
invested.
If you really want to dial down equity exposure,
consider conservative-allocation funds such as
Fidelity Strategic Real Return
FSRRX
and
Berwyn
Income
BERIX
. Even some funds that are not in allo-
cation categories have big cash stakes that lessen
their market exposure.
GoodHaven
GOODX
is
62%
long equities, while
Weitz Hickory
WEHIX
has
68%
.
Credit Risk
This one is pretty straightforward, but it always
merits special attention because it’s one risk that, like
standard deviation, doesn’t always show up much in
volatility measures of risk. Credit risk lulls us to sleep
with anywhere from five to
10
years of great yields
with no problems before it pulls the chair out from
under us in years like
2002
and
2008
. Then, it
really bites.
Of course, a high-yield fund is going to have more
credit risk than most other bond funds, but watch out
for convertible and bank-loan funds, too.
Fidelity
Capital & Income
FAGIX
,
Janus High-Yield
JAHYX
, and
Metropolitan West High Yield Bond
MWHYX
all have B average credit ratings. You might
be surprised to know that
Greenspring
GRSPX
,
Vanguard Convertible Securities
VCVSX
, and
Franklin Income
FKINX
do, too.
Bond funds with the least credit risk would include
those with “Treasury” or “
GNMA
” in their names.
Currency Risk
If you buy a hedged foreign bond or stock fund, you
have reduced your currency risk. You forgo gains
from foreign-currency appreciation, but that’s it. An
unhedged fund exposes you to currency risk, though a
little currency diversification is a good thing.
Most foreign-equity funds are unhedged all or nearly
all of the time.
Tweedy, Browne Global Value
TBGVX
is the only foreign-equity fund that I can think
of that is fully hedged all of the time. In the bond
world, it’s a little more gray, as some funds will regu-
larly hedge some of their foreign-currency exposure.
However,
PIMCO
Foreign Bond comes in a fully
hedged version and an unhedged version if you want
to choose your exposure.
Economic Exposure
As
2008
-
09
showed, it can hurt to have high exposure
to the economy when it slams on the brakes. To get a
handle on that, I pulled diversified funds with high
cyclical supersector exposure.
CGM
Focus shows up
once again with
85%
cyclical exposure. However, this
comes with the big caveat that Ken Heebner’s rapid
trading leads to big shifts in sector exposure.
Fairholme weighs in with
75%
cyclical exposure
followed by
Ariel Appreciation
CAAPX
64%
and
Schneider Small Cap Value
SCMVX
at
61%
.
The equity fund with the lowest cyclical weighting is
Brown Capital Management Small Company, which
looks for the sort of steady growth you can’t often
find in a cyclical stock.
FPA Capital
FPPTX
has just
5%
cyclical exposure, but it does have a big energy
weighting, so take that with a grain of salt.
Primecap
Odyssey Aggressive Growth
POAGX
also has just
10%
in cyclicals for reasons similar to Brown Capital.
Conclusion
Thus concludes our whirlwind tour of risk. I wouldn’t
necessarily shun those funds on the high-risk side of
some of these lists. As the Brown Capital example—
high price risk but low economic exposure risk—
shows, you may be avoiding one risk while adding
another. Provided that the managers have a sound
strategy for getting compensated for these risks, I
would still be willing to own the fund. Then it’s a
matter of balancing risks so that the next bear market
doesn’t do any permanent damage.
œ
Currency Risk
Ticker
Morningstar
Analyst Rating
Morningstar
Category
Morningstar
Rating Overall
PIMCO Emerging Local Bond
PELBX
Œ
Emerging Mrkts Blnd
QQ
Vanguard Total Intl Stock Index
VTIAX
Œ
Foreign Large Blend
QQQ
PIMCO Foreign Bond (Unhedged)
PFBDX
•
World Bond
QQQ
Tweedy, Browne Global Value
TBGVX
•
Foreign Large Value
QQQQQ
PIMCO Foreign Bond (USD-Hedged)
PFODX
•
World Bond
QQQQ
High
Low
