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In recent months we have upgraded three funds, and
we started coverage of three more at a Morningstar
Analyst Rating of Bronze. Let’s take a look at each one
to see why it makes a worthy investment.
Vanguard Long-Term Investment-Grade
VWESX
and
Vanguard High-Yield Corporate
VWEHX
We raised these funds’ ratings to Silver from Bronze.
Both are corporate-bond-focused funds run by
Wellington. It’s rare to get skilled active management
for expense ratios of just
0
.
22%
and
0
.
23%
, respec-
tively. Wellington’s deep analyst staff helps the funds
find good value in the credit world. We’ve grown
increasingly comfortable with Vanguard Long-Term
Investment-Grade lead manager Lucius Hill, who
has been on board since
2008
.
Vanguard High-Yield Corporate is led by the able
Michael Hong, who also started in
2008
. It’s worth
noting that both funds are outliers in their peer
groups. Vanguard High-Yield Corporate invests in
higher-quality debt than its peers, and Vanguard
Long-Term Investment-Grade has much longer dura-
tion than its peers. However, performance for both
looks strong from just about any angle.
USAA Tax Exempt Intermediate-Term
USATX
We’ve initiated coverage of
USAA Tax Exempt Inter-
mediate-Term
with a Bronze rating. This fund is
a tad aggressive in terms of credit quality, but it has
been well compensated for the risk. Regina Shafer
invests a sizable portion in A and
BBB
bonds. That
makes the portfolio lower quality than most in
the intermediate muni-bond category, but it isn’t an
extreme level. Its long-term returns are in the top
quartile of the peer group, though in
2007
and
2008
it was bottom quartile because of the added credit
risk. The fund charges a modest
0
.
55%
expense ratio.
Harbor Mid Cap Value
HIMVX
We’ve initiated coverage of this fund with a Bronze
rating. It’s a quantitative fund subadvised by
LSV
. The
fund ranks stocks based on valuation and momen-
tum tests, though it gives valuation greater weight.
Manager Josef Lakonishok has kept the fund on a
consistent course, producing top-half
10
-year perform-
ance and top-decile five-year returns. The fund has
a modest
$630
million under management.
Vanguard Global Minimum Volatility
Inv
VMVFX
We’ve started coverage of this fund with a Bronze
rating. It’s a great way to get global equity exposure
in a less volatile package. Investors in retirement
are probably the ones who could use it most. Foreign
stocks can produce sizable returns, but currency risk
makes them more volatile than U.S. equity funds. This
fund’s solution is to hedge currency risk and tilt the
portfolio to less-volatile equities. That’s particularly
valuable to those most sensitive to swings in the value
of their portfolios. While it is less volatile than most
world-stock funds, it isn’t hedging the equity risk the
way a market-neutral fund does, so this fund would
lose money in a bear market, though probably a little
less than the average world-stock fund.
T. Rowe Price New Horizons
PRNHX
Henry Ellenbogen has proved a worthy successor to
Jack Laporte. Ellenbogen made a big jump up in
responsibility when he moved from
T. Rowe Price
Media & Telecommunications
PRMTX
to take the
helm of this fund and its
$8
billion in assets in
2010
.
But he’s proved up to the challenge at this closed
fund, and we’ve raised our Analyst Rating to Silver from
Bronze. Ellenbogen looks for companies with durable
competitive advantages rather than just a buzz-worthy
product. That’s worked quite nicely as the fund has
run circles around the competition during his tenure.
Today it’s a
$15
billion giant, so I’m guessing it won’t
reopen in the near future.
K
Freshly Minted Medalists
The Contrarian
|
Russel Kinnel
Our Contrarian Approach
I go against the grain to
find overlooked funds that may
be ready to rally.