(PUB) Investing 2015

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11 Morningstar FundInvestor June 2015
When a new manager takes over a fund, it always
takes a little time to assess how he’ll implement his
process and whether he’ll be successful. While
there’s no magic time frame for when a new manager
can be deemed a success or failure, three years
is a reasonable amount of time to look back and see
how the fund has fared after the manager has had
a chance to settle in. Of course, three years is hardly
a full market cycle. Depending on a fund’s approach
and portfolio bets, there could be good reason for
it to be lagging in the short term, so three-year
performance alone shouldn’t be used to judge a fund.
Below are a few funds that are off to shaky starts
during the manager’s first three years on the job.
Third Avenue International Value TAVIX
This fund has been in rebuilding mode for the past
few years. Several analysts left the firm in 2013,
and former lead manager Amit Wadhwaney departed
in June 2014 after more than 12 years at the fund.
Current lead manager Matthew Fine joined the
management team in 2012 and had served as an
analyst on the fund since 2003, so he is well versed
in the firm’s philosophy of buying cheap, financially
sturdy companies. However, performance hasn’t
shone during his tenure, with weakness in industrials
and materials names dragging on results, and the
turnover in investment personnel at the firm is
troubling. During the trailing three years through May
2015, the fund’s 9.1% annualized gain lagged the
MSCI ACWI ex USA Index and nearly all of its foreign
small/mid-value peers.
Wasatch Ultra Growth WAMCX
John Malooly joined longtime manager Ajay Krishnan
at this fund in January 2012, working with him
for a year before Krishnan left to focus on Wasatch
Emerging Markets Select WAESX , Wasatch
Global Opportunities WAGOX, and Wasatch
Emerging India WAINX . The fund has always had
an above-average stake in non-U.S. stocks (particularly
emerging markets) relative to its small-growth
Morningstar Category, which has caused it to look
out of step with its peers. The fund’s significant
stake in India actually helped performance during the
past three years, though broader stock-picking within
the technology sector has taken a toll. During the
trailing three years through May, the fund lagged
the Russell 2000 Growth Index by more than 3
percentage points annualized and landed in the
category’s bottom third.
Fidelity Small Cap Stock FSLCX
Lionel Harris is going on his fourth year at this
Bronze-rated fund, though performance has looked
pedestrian thus far. For the trailing three years
through May, the fund lands in the small-blend cate-
gory’s 58th percentile and trails the Russell 2000
Index by 1.5 percentage points. But part of that is due
to the types of high-quality, durable companies Harris
prefers, which haven’t been in favor as much as
lower-quality fare during his tenure. It’s encouraging
that the fund has done a better job than peers
during down markets, as would be expected given
his more cautious approach. That came in handy
during 2014’s rocky environment for small caps, when
the fund outperformed 85% of its peers.
Fidelity Equity-Income FEQIX
James Morrow took over in late 2011 as part of
Fidelity’s efforts to improve its value fund lineup. The
fund has changed for the better, mostly because
it now lives up to its name and focuses on income,
which it garners through dividend-paying stocks,
convertible bonds, and preferred stocks. But while
it has done a better job of meeting investors’
expectations as Morrow has boosted the fund’s
yield, it’s not yet evident that it’s a preferred
option. It has lagged its Russell 3000 Value Index
by more than 200 basis points annualized during
the past three years through May and lands in the
large-value category’s 64th percentile. K
Contact Katie Reichart at
New Managers Who Have Yet to Make
Their Mark
Red Flags | Katie Reichart
What is Red Flags?
Red Flags is designed to alert
you to funds’ hidden risks. Such
risks can take many forms,
including asset bloat, the
departure of a solid manager, or
a focus on an overhyped asset
class. Not every fund featured
in Red Flags is a sell, and in fact,
some are good long-term
holdings. But investors should
be prepared for a potentially
bumpier ride in the near future.