(PUB) Investing 2016

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Medalists Where the 10-Year Record Tells the Story Tracking Morningstar Analyst Ratings | Russel Kinnel

returned 6 . 3% annualized, to land in the top 16% of large-value category funds. They’re skilled stock- pickers who focus on competitively advantaged and attractively valued dividend-payers. Add in a low expense ratio and you get strong results. Mairs & Power Growth MPGFX Mark Henneman has helped produce a solid 7 . 1% return since he started on this fund in January 2006 . He can’t be said to own the whole record, as William Frels was lead manager until July 2013 and stayed on as comanager until the end of 2014 , but Henneman has been an integral part of the process. The strategy is to invest very patiently in a focused portfolio of stable firms with competitive advan- tages. Results have been quite consistent: Over the past 10 years, the fund has produced three-year returns that land in the top quartile of its peer group for 69% of the time. Berwyn Income BERIX George Cipolloni III has produced outstanding 10 -year returns that land in the top 1% of conservative- allocation category funds. This Silver-rated fund takes a contrarian value approach. Cipolloni and his comanagers buy dividend-paying stocks, corporate bonds (mainly high-yield), preferreds, and con- vertibles. Management tends to actively move around the bond market to scoop up the best values. BBH Core Select BBTEX Timothy Hartch took the helm at this Silver-rated fund in October 2005 and the fund’s 10 -year return is an impressive 8 . 2% annualized, which is well ahead of the S & P 500 ’s 6 . 5% return. Hartch runs a very disciplined approach that requires stocks trading at 25% or greater discounts and then an auto- matic sell once that discount drops below 10% . He wants companies with sustainable competitive ad- vantages and strong balance sheets. It’s not easy to find such companies trading at big discounts, which may be one reason he runs a concentrated portfolio. The fund lagged its peers in recent years but lost much less in January 2016 thanks to steady names like Comcast CMCSA and Berkshire Hathaway BRK .A. The fund is closed to new investors, but outflows may prompt it to reopen. K

The best time period by which to judge a fund is over the entire manager’s entire tenure. Whether that’s 29 months or 29 years, you want as much data as possible. Obviously, the longer the better, in order to assess manager skill over a variety of markets. However, we can’t provide 500 different time periods in the FundInvestor data tables, so we present the standard trailing time periods. As it happens, some of our Morningstar Medalists recently crossed the 10 -year threshold for manager tenure. That tells you that they own the Morningstar Rating, or star rating, as well as all the total returns displayed. Thus, it seems like a good time to look at five funds where the 10 -year record really is the best to go with. Diamond Hill Small-Mid Cap DHMAX Chris Welch took the reins here at the end of December 2005 and he’s had a very nice run. Welch applies a patient value approach that is very much informed by Graham and Dodd. He estimates a firm’s intrinsic value and seeks to buy at a sizable discount. He also keeps a fairly compact portfolio of between 55 and 70 names. He’s produced a 7% annualized return over the past 10 years, and that’s good for the top 11% of the mid-cap value Morningstar Category. The fund has been a very consistent performer, but that means Welch now has the challenge of running quite a bit more money than before. The fund now tops out at $1 . 3 billion, whereas it was only $100 million five years ago. The fund closed to new investors in January 2016 , so that should slow the pace of inflows. American Funds American Mutual AMRMX While no single manager at American Funds can be said to own his or her fund’s entire record, three of the fund’s six managers started on this fund (with a Morningstar Analyst Rating of Gold) in January 2006 and one more joined in 2007 . The three who began in 2006 are Joyce Gordon, James Lovelace, and James Terrille. During their tenure the fund has

What Are Morningstar Analyst Ratings?

Our ratings are chosen for long- term success. Analysts assess a fund’s competitive advantages by analyzing people, process, parent, performance, and price. They do rigorous analysis and then submit their ratings to a committee that vets their work for thoroughness and consistency.