(PUB) Investing 2016

Morningstar FundInvestor

October 2016

dividend growth and buy only when a stock is under-

valued based on a range of outcomes incorporating

a variety of macroeconomic scenarios, holding

so names. Gold-rated

Oakmark Select

OAKLX

concentrated in only about

names, takes an abso-

lute value approach and comes in at

Some Growth Funds Look Like the Best Values

Large-growth funds top the list of funds with the

lowest price/fair value ratios. At the end of

2014

, only

one fund, Silver-rated

RiverPark/Wedgewood

RWGFX

, had a ratio below

. That fund remains one

of the better deals, with a ratio of

today. Today,

however, it is joined by

other large-growth funds

with ratios below

, including Gold-rated

Harbor

Capital Appreciation

HACAX

. To be sure, there

are growth funds at the other extreme, with

Clear-

Bridge Aggressive Growth

SHRAX

topping the list at

. Overall, though, funds in this category are more

likely to be good deals, as measured by Morningstar’s

price/fair value ratio.

Finding Value With Less Volatility

Dividend-oriented strategies are the traditional

territory for stock investors seeking stability. Current

valuations pose a challenge for valuation-sensitive

investors who are also wary of volatility. For example,

Morgan Stanley Institutional Growth

MSEGX

looks like a better deal than most dividend-oriented

funds today, with a price/fair value ratio of

but it was also recently downgraded to Silver from Gold

because its volatility has made it difficult for share-

holders to stay the course. It is still an excellent choice

for those who can handle the ride, but not an

alternative for investors looking for core exposure

that’s more staid.

We sorted through those funds with price/fair value

ratios of

or less—few of which were large-

value funds—seeking Morningstar Medalists with

lower volatility than Vanguard

500

Index. Two

names stood out with lower standard deviations than

the benchmark over the past five- and

-year

periods. Silver-rated

Bridgeway Blue Chip 35 Index

BRLIX

has the highest average market cap of any

U.S. equity mutual fund, holding mature industry titans

with steadier records of profitability, stronger balance

sheets, and lower volatility than their smaller-cap

brethren, and the fund’s strategy of equal-weighting

its holdings further reduces stock-specific risk.

Parnassus Core Equity also made the cut. The managers

look for companies with strong competitive advan-

tages, increasingly relevant products or services, quality

management, and temporarily depressed valuations.

They argue that their environmental, social, and gover-

nance criteria help them avoid firms prone to corporate

scandals and other risks.

That’s not to say these funds are the best deals now

or appropriate for everyone. Besides, volatile funds can

pay off nicely in the long run. A ranking by Sharpe

ratio, which allows for a comparison of risk-adjusted

performance across categories, shows that the

highly volatile Morgan Stanley Institutional Growth

has bested Vanguard

500

Index on a risk-adjusted

basis over the past decade. Investors planning to sit

tight for another

years have less to fear.

Contact Laura Lallos at

laura.lallos@morningstar.com

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