(PUB) Investing 2016

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13 Morningstar FundInvestor October 2016
Leaders
Royce Pennsylvania Mutual PENNX, with a
Morningstar Analyst Rating of Neutral, has been a top
performer for the year to date, outperforming 93%
of its small-blend peers. The fund’s emphasis on firms
with higher returns on invested capital and low
debt means its exposure to biotech and real estate
investment trusts is limited. That underweighting
to biotech stocks, as well as solid stock selection else-
where in healthcare, helped results. The fund has
also benefited from solid picks in technology and
consumer cyclicals: computer hardware firms Cognex
CGNX and Coherent COHR as well as auto suppliers
Drew Industries DW and Thor Industries THO are all
up more than 50% this year.
JOHCM International Select JOHAX has outper-
formed 99% of its foreign large-growth peers thus far
in 2016. The fund’s significant overweighting to
high-flying basic-materials stocks—amounting to 22%
of assets as of June 2016 —has contributed to
results. Within basic materials, metals and mining
firms such as Newcrest Mining NCM, South32 ,
and Franco-Nevada FNV are all up more than 50%
this year. Stock selection in the consumer cyclicals
space—such as apparel firm Adidas ADS and video-
game developer CyberAgent CYAGF—also drove
results. Furthermore, the fund has no exposure to
poor-performing banks stocks, which have continued
to struggle during this near-zero interest-
rate environment.
Neutral-rated USAA Income USAIX has excelled thus
far in 2016, outpacing 97% of its intermediate-term
bond peers. The fund typically has heavier exposure to
lower-level investment-grade corporate bonds than
its peers, and those have done well this year. Further-
more, the fund’s overweighting to basic materials
and energy corporate bonds have helped it this year
as commodity prices rebounded.
Laggards
Bronze-rated Sequoia SEQUX has lagged 99% of its
large-growth peers in 2016—it is down 10. 1%,
compared with the S&P 500 benchmark’s 7.8% gain.
While the fund’s concentrated nature contributed
to its long-term success, it also brought risks that
ultimately came back to bite. Nearly all of the under-
performance this year can be explained by its huge
position in Valeant Pharmaceuticals VRX, which
plummeted about 80% in the first half of 2016 over
questions about its business strategy. The fund sold
its Valeant stake in the second quarter.
Gold-rated Causeway International Value CIVVX
has underperformed 86% of its foreign large-blend
peers for the year to date. The fund’s managers are
contrarians, often favoring firms that are in the
midst of a short-term crisis or transition. That mind-
set led to sizable exposure to several poor-performing
European banks: Barclays BARC, Lloyds Banking
Group LLOY, and UBS Group UBSG are all down more
than 30% this year. The fund’s exposure to airlines
also dented results—International Consolidated
Airlines IAG, Ryanair Holdings RYAAY, and Japan
Airlines are all down double-digits this year.
TCW Total Return TGLMX has struggled this year,
underperforming 85% of its intermediate-term
bond peers. The fund’s lack of exposure to strong-
performing investment-grade corporate bonds as
well as its below-average duration has dragged on
results. Additionally, its above-average nonagency
stake has hurt the fund. K
Contact Andrew Daniels at
10 Worst-Performing Funds
Fund Name YTD Cat Rank %
Artisan International Sma 100
Matthews China Investor 100
Matthews India Investor 100
FPA US Value 99
Sequoia 99
Litman Gregory Masters In 98
Oakmark Global I 98
Scotia Dynamic U.S. Growt 98
Touchstone Sands Capital 98
Dreyfus Opportunistic Sma 97
10 Best-Performing Funds
Fund Name YTD Cat Rank %
Artisan Value Investor 1
Champlain Mid Cap Adv 1
Longleaf Partners 1
Mairs & Power Growth Inv 1
Permanent Portfolio Perma 1
Vanguard High-Yield Tax-E 1
Champlain Small Company A 2
Fidelity New Millennium 2
Franklin Income A 2
JOHCM International Selec 2
JOHCM International Surges
Leaders & Laggards | Andrew Daniels