(PUB) Investing 2015

In the short run, asset class and sector weightings

generally tell the tale for allocation funds. That’s

certainly been the case for the past three years. But

over the longer term, it’s about manager skill,

strategy, and expenses. You need a long-term view

to separate the wheat from the chaff.

Our moderate-allocation funds with Morningstar

Ratings of Gold have outperformed over the past

three years with one exception, and even that one

exception has strong five- and

-year records.

Over the past three years, an allocation fund’s stake

in U.S. equities has been crucial, as they have

trounced bonds and foreign stocks. (Moderate-allo-

cation funds are classified as funds that have

at least

10%

in bonds and between

50%

and

70%

in equities over a three-year average.)

It’s no surprise, then, that

Dodge & Cox Balanced

DODBX

has top-percentile three-year returns, as it

has

60%

of assets in U.S. stocks (compared with

47%

for its typical peer) and another

in foreign equi-

ties. Its overall equity stake exceeded

70%

at times

during that three-year period. But to get a top

-year return, you have to have great issue selection

and low costs.

Likewise, it is not a surprise that

Manning &

Napier Pro-Blend Extended Term

MNBAX

was

our one laggard. The fund’s U.S. equity weighting

46%

(it averaged

44%

over the period) was lower

than the group norm. But it was made worse by

some wayward sector calls as it favored natural

resources and other cyclical sectors at a time when

health care and technology were better places.

I’ll cut it some slack because no one gets those calls

right all the time. However, macroeconomic calls

are supposed to be a strength for the firm, so it gets

some demerits nonetheless. Its

-year record,

though, is in the top

11%

, so we don’t want to read

too much into a bad stretch.

T. Rowe Price Capital Appreciation

PRWCX

joined Dodge

Cox Balanced at the top of the peer

group rankings for three years despite a modest

56%

in U.S. equities. A chunk of foreign equities (

)

helped as foreign stocks had higher returns than

bonds. In addition, the fund has some of its bond port-

folio in lower-quality debt, which has been a star

performer the past three years.

Vanguard Wellington

VWELX

has

56%

of assets

in equities and solid top-quartile returns across the

board. Ed Bousa’s preference for health care and wari-

ness of basic materials kept the fund chugging along

nicely. This fund, along with Dodge

Cox Balanc-

ed, has a decided value tilt. The fund is open to those

investing directly through Vanguard, but you can’t

get it through outside fund supermarkets anymore.

Vanguard Balanced Index

VBIAX

has

58%

in U.S.

equities. However, the equity exposure is via the

500

, and that gives it a bias toward the largest

companies, which has been a winning play the

past three years. Of course, the long-term appeal

here is super-low costs of just

09%

FPA Crescent

’s

FPACX

three- and five-year returns

are top

30%

for the category, and that’s really

quite good given its approach. The fund’s

40%

U.S.

equity weighting is one of the lowest in the group,

and its massive

44%

cash stake certainly slows

returns in a rally. Manager Steven Romick did have