18
When we assign Morningstar Analyst Ratings, we are
thinking about a fund’s risk-adjusted prospects. In
short, are you getting paid for the risk you’re taking?
Or, will you be able to handle the downside in order
to get through to the upside?
If you look at the Rating and Risk breakout on our
one-page reports or the Risk Relative to Category
column in the data pages of
FundInvestor
, you see a
fund’s Morningstar Risk rating. It tells you if a fund’s
volatility is Low, Below Average, Average, Above
Average, or High for its category. We have a number
behind those words, so I decided to pull some of
the lowest of the low and highlight some Morningstar
Medalists that have been at the very low end of
volatility for their category. Keep in mind that it’s a
relative to category measure—even a very low-
risk emerging-markets fund is much more volatile
than your typical intermediate-term bond fund.
American Century Equity Income
TWEIX
has
produced nice returns, but it’s the risk-adjusted
returns that really look attractive. The fund tones
down equity risk by holding a sleeve of converti-
ble bonds in the
15%
to
25%
range. Phil Davidson
is a cautious investor who tries to tamp down vol-
atility. Thus, this fund shines in down years by losing
much less than the competition. In years like
2013
,
however, you expect it to lag on the upside.
Akre Focus
AKREX
typically has around
15%
or so
in cash and sometimes more. That helps to tone down
volatility but so does Akre’s emphasis on quality,
which gives the fund a mix of value and growth char-
acteristics. Manager Chuck Akre wants strong busi-
ness models that can produce outstanding returns on
capital, and he wants shareholder-oriented managers
to run them. This leads him to the steadier side of
growth, investing with names like
MasterCard
MA
and
Moody’s
MCO
. It’s a good thing, too, because
Akre bets big on his favorites, with nearly
10%
in MasterCard.
Aston/Montag & Caldwell Growth
MCGFX
is
another lower-risk growth fund. Manager Ron Cana-
karis and team look for stable growers trading at
a modest price. This leads them to large-cap, well-
known names like
Abbott Laboratories
ABT
,
Coca-Cola
KO
, and
Google
GOOG
. Canakaris is
69
years old, but we still feel good about the fund’s
prospects. I visited the firm in Atlanta and was
pleased to see that it is in good shape with a number
of managers and analysts behind Canakaris who
can take up the slack if he should retire. I’m also
pleased that the firm is now employee-owned and
Canakaris will sell back his shares when he retires.
Matthews Asia Dividend
MAPIX
is far less volatile
than its peers because its dividend focus takes
it to a more-dependable, less-wild corner of Asian
markets. We rate it Silver for its ability to tone
down the extremes of emerging markets and for Mat-
thews’ tremendous expertise in investing in Asia.
Like American Century Equity Income,
First Eagle
US Value
FEVAX
has been a champ in down markets
and a laggard in up markets. However, its long-term
returns are quite good, so it would seem that it’s done
a fine job rewarding shareholders. The fund plays
defense in quite a few ways. It holds a big cash stake,
but that’s only one part of the story.
True to founder Jean-Marie Eveillard’s philosophy,
Matt McLennan and Abhay Deshpande are focused
on capital preservation. They look for companies
with healthy balance sheets and profit margins but
whose shares are trading at a big discount to their
estimates of intrinsic value. They like some gold or
potash producers for their defensive characteristics.
The fund lost
1
,
391
fewer basis points than the S
&
P
500
Index did in
2008
and
358
fewer in
2011
, but
it is lagging by
1
,
006
this year. Generally, the best
time to buy a fund like this is after a couple of years
near the back of the pack, as that could mean risk
is rising. No doubt, this fund’s defenses will be
valued yet again.
œ
Great Investments With Relatively
Low Risk
Tracking Morningstar Analyst Ratings
|
Russel Kinnel
What Are Morningstar
Analyst Ratings?
Our ratings are chosen for long-
term success. Analysts assess
a fund’s competitive advantages
by analyzing people, process,
parent, performance, and price.
They do rigorous analysis and
then submit their ratings to a
committee that vets their work
for thoroughness and consistency.
