(PUB) Investing 2016

14

Fund News

Fund Manager Changes

Fidelity Small Cap Discovery FSCRX Date: 03/14/2016 Chuck Myers will take a six-month leave of absence. Derek Jansen will fill in while he is gone. Jansen runs Fidelity Small Cap Value FCPVX, where he worked with Myers before replacing him there. Our Take: For a low-turnover fund, we don’t see much risk in Myers taking six months off. We will watch closely, though, to be sure he comes back on time. Usually managers come back after leaves of absence and pick up right where they left off, but occasionally they decide not to come back. Impact: Negative Date: 03/31/2016 Gibson Smith is leaving Janus. Comanager Darrell Waters will take over as lead manager. Our Take: We have placed the funds under review as this is a big blow to two appealing funds. Smith built up Janus’ bond effort over the past 12 years and was vital to the team. Impact: Negative Date: 09/30/2016 Lead manager Jerry Senser will retire at the end of September 2016. The firm named Tom Cole co-chief investment officer and said Matthew Swanson will step down to focus on U.S. strategies. Our Take: Senser has led ICAP since Rob Lyons’ death in 2007. We’ve lowered our rating to ˇ from ´ . Impact: Negative Date: 09/09/2015 Comanager In-Bok Song left to work as an analyst at Thornburg. This follows Richard Gao’s departure in July 2015. Our Take: Although Song was not the lead, her departure along with Gao’s led us to lower the fund’s rating to • . As the rating implies, we still think the fund is in good hands. Sharat Shroff has experience and a track record at Matthews that inspires confidence. The fund recently reopened because of outflows seen at most Asia funds. Impact: Negative Date: 12/31/2016 Wendy Trevisani gave up her comanager duties on the fund in April 2014 and left the firm in early 2015. Bill Fries will give up his comanager position on this fund at the end of 2016. Lei Wang is staying put, and he now has 10 years of experience as a comanager here as well as two decades of investment experience overall. Di Zhou, who became a comanager on this fund on Dec. 8, 2015, has spent 13 years in the investment field, including 14 months as an associate manager here. Our Take: Two thirds of the three-person team that owns this fund’s long-term record will be gone at the end of 2016, so we have lowered our Morningstar Analyst Rating to Neutral. Impact: Negative Date: 06/01/2016 Lead manager Karl Bandtel of Wellington Management will retire. Vanguard named Greg LeBlanc, also of Wellington, comanager of the fund and said he will become the lead manager when Bandtel retires. Our Take: Bandtel has a strong track record, so he will be missed. The fund is Under Review. Impact: Negative Date: 01/01/2016 Longtime lead manager James Barrow will retire. Comanagers Jeff Fahrenbruch and David Ganucheau will replace him. The two have been comanagers since 2013, and eight years ago Vanguard had said they would eventually succeed Barrow. Barrow will continue to manage Vanguard Selected Value VASVX. Our Take : We knew Barrow would retire in the relatively near future, so this is not a surprise. Still, Barrow’s outstanding record makes this a real loss. His replacements are seasoned but do not have long track records of their own. We have lowered our rating to ´ from • . Date: 02/01/2016 Jeff Cardon will step down as lead portfolio manager of this fund and CEO of Wasatch Advisors. He will remain a comanager on the fund. J.B. Taylor will take over Cardon’s role as both CEO and lead manager on the fund at that time. Our Take: This looks like a gradual evolution. We are maintaining our Œ rating but will watch closely to see how involved Cardon is. On the plus side, Taylor has a strong record, too. Impact: Neutral Janus High-Yield JAHYX and Janus Flexible Bond JAFIX MainStay ICAP International ICEUX Matthews Pacific Tiger MAPTX Thornburg International Value Vanguard Energy VGENX Vanguard Windsor II VWNFX Wasatch Small Cap Growth WAAEX Impact: Neutral

Third Avenue Bond Fund in Liquidity Crunch Third Avenue took the extraordinary step of preventing redemptions or purchases in its Focused Credit Fund. The firm said it was unable to meet growing redemp- tions because it held some illiquid low-quality energy bonds. The fund lost 30% in 2015 as its empha- sis on low-quality energy bonds hurt it badly. That figure compares with a much more modest 4% loss for the typical high-yield fund in 2015 . The news put high-yield funds under pressure, but we don’t expect that many other high-yield funds will face such a severe liquidity crunch. The Third Avenue fund had much greater issue concentration, much more in unrated bonds, and much more in very low-quality bonds than is typical for a high-yield fund. A prolonged oil-price slump will put pressure on all high-yield funds, but we don’t see any of the bigger mainstream high-yield funds as being in the same boat.

Third Avenue’s move did have some immediate fallout:

• The SEC stepped in to review the situation, and it insisted that Third Avenue continue to quote a daily net asset value on its fund. (Third Avenue had stopped quoting a NAV as part of its plan to gradually liquidate the portfolio.)

• Third Avenue parted ways with CEO David Barse, who played a key role in launching the fund.

• Morningstar downgraded Third Avenue’s Parent rating to Negative from Neutral.

• Morningstar downgraded Third Avenue Real Estate Value TAREX to Silver from Gold.

• Morningstar downgraded Fairholme Focused Fund FOCIX to Neutral from Bronze because of concerns about the concentration of the portfolio. The fund is not under any redemption pressure at the moment, however, and actually had strong returns in 2015 .