(PUB) Investing 2016

Vanguard Capital Opportunity

VHCOX

has a Morning-

star Analyst Rating of Gold and is closed to new

investors. It was the total-return star, with returns that

nearly doubled that of

Vanguard Growth

Index

VIGAX

Great stock selection, especially in healthcare, has made

the fund a winner.

Jensen Quality Growth

JENSX

had

the highest Sortino

ratio thanks to its emphasis on high-quality stocks.

These stocks tend to be well-known brand names with

significant barriers to entry, which makes them less

volatile and helps them hold up in recessions.

Also noteworthy are great stock-pickers at

Fidelity

Contrafund

FCNTX

American Funds AMCAP

AMCPX

, and

LKCM Equity

LKEQX

. These strategies

vary in how cautious or aggressive they are—but

it is the superior stock-picking that matters in the end.

As for the funds lagging the index fund, none are too far

off, but Neutral-rated

Marsico Focus

MFOCX

and

American Century Growth

TWCGX

are near the back.

Both have suffered from poor stock selection. Marsico

had the added problems of poor macro calls and high

fees. That’s a tough trio of problems to overcome.

Large Blend

Once again, quite a few funds beat the index funds in

an area where few expect it. Attention to valuations

and strong stock selection set the winners apart. Some

of those winners were big investors and financials,

meaning they were stalwarts in the

2000

–

bear mar-

ket but lagged in the

2008

–

bear market.

Oakmark

OAKMX

and

Oakmark Select

OAKLX

were the top

performers and had the best and third-best risk-adjusted

returns. Bill Nygren has had his ups and downs, as

you’d expect from focused portfolios, but the successes

outweigh the failures by quite a bit.

T. Rowe Price Dividend Growth

PRDGX

illustrates a

different winning strategy. Rather than a focused

portfolio, manager Tom Huber’s key to success was a

dividend appreciation strategy that was rather unusual

back in

2000

. To find companies that are likely to boost

their dividends, you need companies with low

debt and solid growth characteristics. Thus, you end up

with some great defensive names even though you

took a different path than Jensen did with its emphasis

on quality.

One fund where quality is a focus slightly lagged, how-

ever.

Dreyfus Appreciation

DGAGX

is a little behind

Vanguard Total Stock Market Index

VTSAX

because

it includes energy companies in its strategy, whereas

most of the other successful quality funds avoid

commoditylike businesses.

Large Value

For value funds, the

2000

–

bear market was a cake-

walk compared with

2008

–

, which crushed many

value funds that favored financials. Thus, you see more

great stock-pickers at the top, but this time under-

weighting financials was the key to success, though

there was an exception.

Phil Davidson had the most impressive risk-adjusted

performance at his two Silver-rated funds.

American

Century Equity

Income

TWEIX

and

American Century

Value

TWVLX

posted Sortino ratios of

and

respectively, versus

for

Vanguard Value

Index

VVIAX

. American Century Equity Income tones down

equity risk with convertibles and preferreds, which

also boost yields.

We don’t rate

Auxier Focus

AUXAX

, but it is clear to

see that holding a big cash stake has given the

fund much less volatility than its peers and benchmark.

Neutral-rated Fairholme

FAIRX

and Gold-rated

Dodge & Cox Stock

DODGX

hold down the next two

spots. The wide gulf between those funds’ ratings

reflect our view that Dodge

Cox Stock remains the

same solid value gem it was back in

2000

, but

Fairholme’s risks have risen over the years in a way

that worries us. Fairholme was much better than

Dodge

Cox Stock in

2008

, however, as Dodge got

burned by some bank stocks.

The Story of Two Bears and Two Bulls

Continued From Cover