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Morningstar FundInvestor
January
2016
healthcare. Personnel also has been consistent. Harry
Burn
III
and Gibbs Kane Jr. have been running the
fund since
1985
, and comanager John DeGulis was
named manager in
2003
but has been with the firm
since
1996
.
Fidelity Low-Priced Stock
FLPSX
Joel Tillinghast just keeps on producing great results.
It’s a huge wide-ranging fund, but one that has
beaten its benchmark over the long haul with less risk
than the benchmark. Tillinghast looks for modest
valuations at firms with competitive advantages. He
invests quite a bit overseas, too. The fund’s
39%
foreign equity weighting puts it a hair below our cutoff
for world stock. The fund’s energy and materials
weightings are below the benchmark and peer group,
but Tillinghast’s biggest sector bet is on consumer
cyclicals, where he has
28%
of equities.
American Century Value
TWVLX
Phil Davidson and team have a
19%
energy weighting
and a minuscule materials weighting, but I’m including
it in the lower-risk bin unlike the other value funds
with big energy and materials bets. Davidson looks for
companies with defensible franchises whose shares
are in the cheapest third of the S
&
P
500
. His fondness
for yield also leads him to some of the oil majors.
Exxon Mobil
XOM
,
Chevron
CVX
, and
Occidental
Petroleum
OXY
are among its top holdings. Because
those companies operate across the oil-supply chain,
they tend to be less vulnerable to declining oil prices.
In fact, the fund has held up reasonably well. So, it’s
not as contrarian a play as those below but remains
an appealing core value fund.
Higher-Risk Investments
Value With Energy or Materials
Feeling really contrarian? How about a good value
fund with an overweighting in energy or materials?
Artisan Value
ARTLX
This slumping fund has
12%
in materials and
13%
in
energy. Needless to say, recent returns are lousy. Still,
the team’s longer track record at other funds shows
this is a decent bet for a rebound. The team looks for
cheap stocks but wants solid business models. Unfor-
tunately, the cheap have gotten cheaper, as the likes
of
Apache
APA
,
Goldcorp
G, and
Devon Energy
DVN
have been crushed. But that also means they could
produce big gains with just a little good news. I would
note, though, that we lowered the fund to Bronze
from Silver because of Scott Satterwhite’s planned
retirement in
2016
.
Vanguard Capital Value
VCVLX
This is one of Vanguard’s boldest funds. Peter Higgins
and David Palmer of Wellington manage separate
sleeves of the fund. We know from Higgins’ time
running this and another fund solo that he is a very
aggressive value investor who likes both deep-
value names and tech stocks. Palmer was added to
moderate Higgins’ side, but it is still a pretty bold
fund. Today, it has
9%
in materials and
14%
in energy.
Higgins’ long-term record is strong, though, so it’s
not a bad bet if you keep it as a small holding.
High Yield
High-yield fund managers talk about two markets.
There’s the hard-hit energy segment, where defaults
are growing and yields are in the
12%
–
13%
range.
Then there’s the rest, where yields are in the
5%
–
8%
range and the bumps have been few. That’s why a
category that only lost
5%
in
2015
has generated the
drama and teeth-gnashing usually associated with
much greater losses.
That presents investors with opportunity and danger,
as even a modest rebound could be a tremendous
boon for high-yield funds. In fact, we are hearing
more bond managers are looking at energy issuers
now that yields are much higher. At this point,
I might dip a toe in, but I wouldn’t buy with both
fists because I’m a cautious investor.
If you want to be really cautious, there’s
Vanguard
High-Yield Corporate
VWEHX
. The fund straddles
the line between investment-grade and high-yield.
Thus, you get less downside and less upside than
most high-yield funds, but low costs ensure you do
pretty well in the end.