292 / 772
2
Meantime, bond market volatility hasn’t changed
much.
Vanguard Total Bond Market Index
’s
VBTLX
standard deviation has ticked up to
2
.
95
through May
2015
versus
2
.
85
in May
2012
.
All told,
459
Morningstar
500
funds have had declines
in standard deviation, and
21
funds had an increase.
(The rest have less than a six-year track record.) A
total of
167
funds had betas rise versus
299
that saw
betas decline. This tells me that more Morningstar
500
funds have dialed down risk because bets have
dropped, and many have seen their standard deviation
decline by more than their benchmark.
Where Has Volatility Declined?
In a long-running bull market, risk usually pays off.
So, I was surprised to see so many funds that have
dialed down their volatility by much more than the
market. Let’s look at a few.
Fidelity Small Cap Stock
FSLCX
10.84
(from
25
.
35
)
This fund had the biggest decline in standard devia-
tion. The two three-year periods sync up pretty
closely with the transition from Andrew Sassine to
Lionel Harris in November
2011
. Harris looks for
high-quality companies with stable businesses and
good management. Naturally, those kinds of com-
panies tend to be less volatile, and that’s reflected
in the change in volatility. Sassine was a more
aggressive speculative investor. You can see Harris’
impact on recent performance. The fund held up
nicely in a challenging
2014
and so far in
2015
, but it
lagged in
2012
and
2013
. We give it a Morningstar
Analyst Rating of
´
, and you may like it if you
lean to the cautious side.
Fidelity Leveraged Company Stock
FLVCX
9.95
(from
24
.
22
)
In this case, the portfolio fundamentals are telling
the real story. This is a risky fund, and it hasn’t
gotten less risky. The fund invests in highly leveraged
companies, and the market hasn’t worried about
those things as the economy has improved the past
three years and mergers have heated up. Tom
Soviero has done a fine job here, but the risks are
dormant while the economy is strong.
Royce Opportunity
RYPNX
13.57
(from 27.42)
The telling part here is that standard deviation is
about
70%
higher than the S
&
P
500
’s. So, yes, Buzz
Zaino’s micro-cap strategy has become less volatile,
but with big cyclical bets and a large tech weighting,
it’s one of the riskier funds in our U.S. equity listings.
Ariel Fund
ARGFX
12.68
(from 26.24)
This one intrigues me. The fund long had the profile of
being a bit to the cautious side, with fairly stable
but low P/E stocks. Then
2008
happened, and the fund
looked like a completely different animal. Although
its portfolio largely remained profitable through the
worst of the recession, its names got crushed
because they had higher debt levels than much of the
market and the dumping of debt-heavy names was
pretty indiscriminant. That set the fund up for a huge
rebound in
2009
, and it seemed like the fund would
remain on the volatile side. Manager John Rogers
dialed up the firm’s work on balance sheets in attempt
to manage that risk better. The fund’s performance
has recovered, but even with this decline in volatility,
standard deviation remains on the high side.
Third Avenue Value
TAVFX
8.91 (
from
22
.
02
)
Chip Rewey took over last year, and he has continued
a process started by former manager Ian Lapey. He
has pared the fund’s once massive Hong Kong real
estate stock weighting and moved it into conventional
U.S. equities like
CBS
CBS
and
General Motors
GM
. Before long, this fund might look like a traditional
value fund for the first time in its existence. Selling
the Hong Kong stake means the fund has much less
individual stock and issue risk than it did before.
Whether Rewey can match Marty Whitman’s strong
long-term performance is an open question. We rate
the fund
ˇ
while we wait to see just what the
fund has become.
Fidelity Dividend Growth
FDGFX
8.62
(from
21
.
45
)
This fund really has dialed down its risk under Ramona
Persaud. Fidelity has made a concerted effort to make
its dividend-named funds act like dividend-focused
funds. Former manager Larry Rakers was a good but
aggressive investor in cyclical stocks. Persaud has
shifted the fund into all sorts of boring blue-chip divi-
dend-payers such as
Johnson & Johnson
JNJ
and
Risk Off
Continued From Cover