(PUB) Investing 2016

3

January 2016

Morningstar FundInvestor

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.

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.

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-