(PUB) Investing 2016

13

April 2016

Morningstar FundInvestor

Mairs & Power Growth Has a Hot Start to 2016 Leaders & Laggards | Andrew Daniels

Laggards Bronze-rated Fidelity OTC FOCPX has lagged 98% of its large-growth peers in 2016 because it tracks a benchmark that is heavy in technology and healthcare. Manager Gavin Baker invest most of the fund’s assets in Nasdaq-listed or over-the-counter stocks—more than 70% of assets are invested in the technology and healthcare sectors. Although the fund holds some stocks that have done well this year such as Groupon GRPN and Facebook FB , those bets were overshad- owed by several stocks that were hit hard. Solar- energy firm SolarCity SCTY and biotech firms Alexion Pharmaceuticals ALXN , Regeneron Pharmaceuticals REGN , and Biomarin Pharmaceuticals BMRN have all declined more than 20% this year. Gold-rated Artisan International Small Cap ARTJX has struggled in 2016 , trailing 99% of its foreign small/ mid-growth peers. The fund reduced its Chinese-stock allocation as the Chinese stock market fell sharply throughout 2015 , and it increased its exposure to Spanish and Italian stocks. So far, that bet hasn’t worked out, as new large holdings such as Cellnex Telecom CLNX , Melia Hotels MEL , and EI Towers are each down more than 10% this year. Additionally, the fund’s two largest holdings, German payment- technology firm Wirecard WDI and Taiwanese contact- lens producer Ginko International , have both fallen by approximately 25% . Gold-rated Templeton Global Bond TPINX has lagged 97% of its world-bond peers in 2016 . Comanagers Michael Hasenstab and Sonal Desai follow a contrarian approach, showing a willingness to buy what the rest of the market shuns. The fund has a bullish bet on the dollar, which has hurt this year. The managers have also avoided low-yielding sovereign bonds of many developing countries instead focusing on emerging- markets debt, which had dragged on performance. K Contact Andrew Daniels at andrew.daniels@morningstar.com

Leaders Mairs & Power Growth MPGFX has continued to post impressive returns in 2016 , outpacing 99% of its large-blend peers. Comanagers Mark Henneman and Andrew Adams buy and hold financially sound firms that deliver consistent above-average returns on equity. The fund has a large overweighting to indus- trials stocks, which have done well this year. Big con- tributors to performance include capital goods firms Graco GGG , Toro TTC , and Emerson Electric EMR — all are up more than 14% this year. Additionally, the fund has a large position in paint-producer Valspar VAL , which recently announced it would be acquired by competitor Sherwin-Williams SHW . Silver-rated FMI International FMIJX has posted exceptional results since its inception in December 2010 and has shown no signs of slowing down in 2016 , outperforming 93% of its foreign large-blend peers for the year to date. The fund has approximately 20% of assets in cash, helping it hold up well as global stocks declined. Several of the fund’s top industrials- sector positions such as Rolls-Royce Holdings RR . and Smiths Group SMIN have posted solid returns. The fund has also had an underweighting in hard- hit financials, and those it does own—such as Fairfax Financial FFH and Admiral Group ADR —have done well. Silver-rated Vanguard Long-Term Investment-Grade ’s VWESX focus on higher-quality debt makes it espe- cially sensitive to interest-rate shifts. That, along with its above-average duration, means this fund tends to post strong returns when yields decline, as has been the case this year (reflecting investors’ desire for less risk). In fact, it has outperformed 95% of its corporate- bond peers for the year to date.

Ten Best-Performing Funds

Fund Name

YTD Cat Rank %

Ten Worst-Performing Funds Fund Name YTD Cat Rank % Artisan International Sma 100 CGM Focus 100 Fairholme 100 Matthews China Investor 100 T. Rowe Price Media & Tel 100 Vanguard Precious Metals 100 Oakmark Global I 99 Oakmark Select I 99 Sequoia 99 Davis NY Venture A 98 Artisan Value Investor First Eagle Overseas A Jensen Quality Growth J Mairs & Power Balanced In Mairs & Power Growth Inv 1 Manning & Napier World Op 1 PIMCO Inflation Response 1 Permanent Portfolio Perma 1 Royce Special Equity Mult 1 ASTON/River Road Select V 1 1 1 1 1