(PUB) Investing 2016

11

February 2016

Morningstar FundInvestor

Outflows Dial Up Pressure on These Funds Red Flags | Greg Carlson

Value and Artisan Small Cap Value, which are both closed to new investors, saw net redemptions of $3 . 9 billion and $800 million during the past 12 months, and their asset bases now stand at $6 billion and $450 million. We lowered the Analyst Rating of Artisan Small Cap Value to Bronze last year because of concerns that large outflows could further hamper performance. (Artisan Mid Cap Value is rated Silver.) Bronze-rated Artisan Value, meanwhile, saw $380 million in redemptions and has $1 billion in assets. While this fund is concentrated, it tends to own liquid large-cap stocks. Columbia Acorn ACRNX , Columbia Acorn Interna- tional ACINX , Columbia Acorn International Select LAFAX , Columbia Acorn Select ACTWX , Columbia Acorn USA AUSAX Poor recent performance, coupled with a raft of personnel changes, has spurred outflows at these funds. Columbia Acorn International earns a Silver rating, while Columbia Acorn and Columbia Acorn International Select have Neutral ratings. The lead manager of Columbia Acorn International, Zach Egan, also took over flagship fund Columbia Acorn (which invests primarily in U.S. small-growth stocks) in mid- 2015 . The latter fund has struggled and saw a massive $8 . 3 billion pulled out over the trailing year; it’s now down to $6 . 6 billion. and the fund has $6 . 3 billion in assets. Columbia Acorn USA , which longtime skipper Rob Mohn left in October 2015 , saw $400 million in outflows and is down to $900 million in assets. Columbia Acorn Inter- national Select and Columbia Acorn Select are smaller and lost about half their assets to redemptions during the past year. Most of the funds focus on small- and mid-cap stocks, so selling to meet redemp- tions is a bigger problem that could harm perform- ance as prices might be pushed lower by selling less- liquid names. K Contact Greg Carlson at greg.carlson@morningstar.com While Columbia Acorn International had a poor 2015 , redemptions have been much smaller at $800 million,

Actively managed funds in general have seen plenty of outflows lately, but several management teams and firms stood out for hefty redemptions at multiple funds. Let’s take a closer look at some of them. AMG Yacktman YACKX , AMG Yacktman Focused YAFFX This pair of large-blend funds is mired in a slump, partly because managers Don Yacktman, Stephen Yackt- man, and Jason Subotky are more valuation-sensitive than most peers, and growth has outperformed in recent years. There have also been stock-specific issues; in 2015 , for example, top holdings Procter & Gamble PG and Twenty-First Century Fox FOXA lost 10 . 0% and 28 . 5% , respectively. Investors haven’t been patient: AMG Yacktman, which has a Morning- star Analyst Rating of Gold, saw $4 . 3 billion in net redemptions during the past year and now has $8 . 5 billion in assets. Silver-rated AMG Yacktman Focused has taken an even bigger hit: $5 . 1 billion was pulled out during the past year, and the fund has roughly the same amount remaining in its coffers. The funds have heavily emphasized mega-cap stocks in recent years, thus selling shares to meet redemptions shouldn’t be too onerous a task. Still, this trend merits watching. Artisan Mid Cap Value ARTQX , Artisan Small Cap Value ARTVX , Artisan Value ARTLX The team that runs these three funds has struggled mightily of late, tarnishing what had previously been stellar records. A couple of issues have hurt performance. First, the managers tend to favor companies with relatively healthy balance sheets and steady revenue streams; that bias has left the funds out of step with the market. Meanwhile, some of the funds’ most prominent economically sensitive holdings have been in the energy and materials sectors, which have been hammered lately. Investors have responded by pulling out in droves. Artisan Mid Cap

What is Red Flags? Red Flags is designed to alert you to funds’ hidden risks. Such risks can take many forms, including asset bloat, the departure of a solid manager, or a focus on an overhyped asset class. Not every fund featured in Red Flags is a sell, and in fact, some are good long-term holdings. But investors should be prepared for a potentially bumpier ride in the near future.