444 / 708
10
Picking up on my cover story theme of laggards with
low fees, I will round out the discussion with seven
more Morningstar Medalists that are low-cost but
have lousy five-year returns. What’s intriguing is that
most have a pretty clear reason for lagging that
doesn’t relate to manager skill. That is, they had a
structural bias that worked against them.
Columbia Acorn International
ACINX
has low fees
and solid returns over the past
10
- and
15
-year
periods, but the past five years have been miserable.
The fund had a significant overweighting in emerging-
markets stocks for much of the five-year period and
still has a bit more exposure to such stocks than the
average foreign small/mid-growth fund. The fund
has retooled its strategy a bit, but the managers who
delivered solid long-term results are still there.
Fidelity Floating Rate High Income
FFRHX
is one of
the cheapest and most cautious funds in its category.
That caution explains why it has lagged and why it
could well outperform the next time the economy hits
a bump. With a strong economy and a big move to
buy anything with a yield, taking risks in bank loans
has been handsomely rewarded. But that won’t
always be the case, and this fund’s
0
.
70%
expense
ratio gives it an edge on the competition in good
years and bad.
FPA Capital
FPPTX
is closed to new investors, but
perhaps this will encourage those in the fund to hold
on. This is another story of caution. Management
has
27%
of assets in cash, and that has been a tail-
wind. In addition, if you are a value investor who
doesn’t focus on yield, you are probably well behind
your peers. Thus, Dennis Bryan and Arik Ahitov
are having a tough go of it. Most of their stocks are
in energy and technology. They’ve also made mistakes,
such as for-profit education stocks. Still, the fund
could well outperform when the stock market gets
sick of dividend plays or when it sells off.
Fidelity Intermediate Bond
FTHRX
is a great core
fund, partly for what it doesn’t do. It doesn’t make
bold macro calls or dip into currency or foreign-bond
bets the way some of the best-known intermediate-
bond funds do. Thus, it’s a nice predictable invest-
ment-grade bond fund. Yes, that means it has lagged
its peers lately. But the fund works well if you want
to dial down risk or if you want to invest in separate
high-yield or foreign-bond funds and seek an interme-
diate fund that won’t enter the territory of the
other two.
Matthews China
MCHFX
isn’t lagging for caution
so much as stock selection. The fund lagged on the
way down in
2016
because of some financials
bets. Thus, the rebound case isn’t quite as clean as
most of those above, but it does boast low costs
and the support of a great firm that specializes in
Asian investing.
AMG Yacktman
YACKX
has proved too cautious for
the current environment. The fund has a sizable cash
stake and many stable but boring business such
as
Procter & Gamble
PG
and
PepsiCo
PEP
. We rate
the fund Gold, though, because it has been a star
in bear markets, and its low costs work nicely in its
favor. Stephen Yacktman and Jason Subotky seek
companies with strong free cash flows, reasonable
debt, high returns on capital, and modest cyclicality.
Combined with their emphasis on valuation, the
managers’ process tends to lead them to high-quality
consumer staples and discretionary companies.
LKCM Small Cap Equity
LKSCX
has a fondness for
energy and materials stocks that has killed perfor-
mance in recent years. But Luther King, Steve Purvis,
and the rest of the team at
LKCM
have a solid record
finding small-cap firms that dominate their niche. The
fund’s
0
.
97%
expense ratio gives it a modest edge.
K
Cheap Medalists Due for a Rebound
The Contrarian
|
Russel Kinnel
Our Contrarian Approach
I go against the grain to
find overlooked funds that may
be ready to rally.