(PUB) Investing 2016

Morningstar FundInvestor

July 2016

trying not to dwell on how much it’s down. So,

I will once again evoke the words of Jack Bogle:

“Don’t just do something, sit there!”

We have a very long road ahead of us. It’s not clear

when, how, or even if Brexit will occur. In addition,

Scotland, Northern Ireland, and Wales are talking

about leaving the United Kingdom to stay in the

. And we don’t know who will be leading the U.K.

effort to leave the

So, yes, there is uncertainty, and bad things are

happening. But making a quick emotional trade

is almost always the worst course of action. Sticking

to your plan is almost always the best one.

T. Rowe Price to Reimburse Shareholders

for Blunder

The fund world is abuzz over T. Rowe Price’s decision

to reimburse shareholders for a colossal error in

voting proxies related to a Dell buyout. It’s pretty

complicated, but the short version is that T. Rowe

Price miscommunicated with the firm voting its

proxies, and the firm voted for a Dell buyout that

T. Rowe Price opposed. Later, shareholders of

Dell won a lawsuit over the price of the buyout and

were entitled to extra compensation from Dell.

However, the court excluded T. Rowe Price share-

holders from the payout because the firm had

voted for the merger.

As a result, T. Rowe Price paid that money to the

funds out of its own pocket. It cost the firm

$194

million, and the money went in on June

. The

biggest beneficiaries were shareholders of

T. Rowe

Price Science & Technology

PRSCX

, which

received

of net asset value.

I view the episode as good news and bad news for

T. Rowe Price fund investors. The bad news is

that the firm didn’t have a better system in place for

managing proxy voting. The good news is that it

shows that T. Rowe Price is standing up to do what’s

right for shareholders. Other fund companies might

have let it slide—though they would have been sued

pretty quickly.

Managers Share Longtime Favorites

At the Morningstar Investment Conference in June, I

sat down with three diverse fund managers—Thyra

Zerhusen from Fairpointe Capital, Vincent Montemag-

giore from Fidelity, and Charles de Vaulx from Interna-

tional Value Advisers—to discuss their investing.

I asked each panelist to discuss a single stock that

each has owned for a long time and why. Zerhusen,

who takes a fundamentals-based approach to

finding mid-cap stocks with solid business models,

good long-term growth potential, and reasonable

valuations, spotlighted

Mattel

MAT

. She held the

stock for more than a decade in Silver-rated

Aston/

Fairpointe Mid Cap

CHTTX

and sold when shares

topped

$40

. Though she still liked the stock, she

thought it was overpriced by all metrics at the time

of sale. As the stock tumbled back into the

$30

range—and lower—Zerhusen became a buyer.

De Vaulx noted that

Berkshire Hathaway

BRK

was

one of the first stocks he bought when he launched

Silver-rated

IVA Worldwide

IVWAX

2008

. Since

purchasing it, Berkshire Hathaway has generated

marketlike returns with less volatility—which is emble-

matic of the fund’s strategy. In fact, the fund is

notably careful: De Vaulx won’t buy anything unless

he’s convinced the price is cheap enough to provide

substantial upside with limited possibility of serious

losses. To wit, the fund held nearly

40%

of assets in

cash at the end of

2016

’s first quarter.

Montemaggiore pointed to

Fresenius

, which Bronze-

rated

Fidelity Overseas

FOSFX

has owned since

2012

. The European healthcare firm’s injectables busi-

ness is what he calls “a gem” in the mix of this

conglomerate. Injectables are difficult to manufacture,

notes Montemaggiore; as a result, the business

has high barriers to entry. Moreover, he thinks

management is adept at allocating capital. As a result,

the stock is a core holding in the portfolio. That’s

fitting, given Montemaggiore’s emphasis on a compa-

ny’s cash flows, valuations, and business models.