(PUB) Investing 2015

April 2015

Morningstar FundInvestor

13

T. Rowe Price Value Ahead of the Pack Leaders & Laggards | Leo Acheson

Laggards Vanguard Capital Value VCVLX

This fund’s 4 . 8% one-year return through March 2015 landed in the large-blend category’s bottom decile. It especially struggled over the seven-month period ended January 2015 , when an overweighting in energy weighed on results. (Its energy position stood at 16 . 4% of assets in June 2014 versus about 10% for large-blend peers and the Russell 3000 Index.) Managers Peter Higgins and David Palmer, who main- tain their own portfolio sleeves, are both aggressive contrarian investors who are willing to buy companies facing operational or financial challenges. Both managers still believe in energy exploration and production companies in particular. Franklin Income FKINX Franklin Income’s aggressive style often makes it stand out in the conservative-allocation category. Because of its income focus, the fund takes on more equity and credit risk than most peers. Its 47% stock stake clocks in roughly 10 points higher than its average rival’s, and junk bonds take the lion’s share of its 42% fixed-income sleeve. Taking advantage of depressed valuations in high-yield energy bonds, management built the fund’s energy exposure up to 18% of assets ( 10% energy stocks and 8% fixed income). That positioning weighed on results in late 2014 as oil prices dropped, placing the fund in its peer group’s 88 th percentile over the past year. Lazard Emerging Markets Equity LZOEX Lazard Emerging Markets Equity retreated 5 . 9% over the past year, while its typical peer lost only 1 . 2% . An overweighting in Russia largely explains the fund’s weak results. Sberbank SBER and Gazprom OGZD were each top- 10 holdings as of June 2014 . Both stocks were slammed in the second half of the year, as were the fund’s other Russian holdings, with the rouble’s plunge adding to the pain. Portfolio manager James Donald bought more of both companies; he says that even with their substantial risks, their domi- nant market positions and deeply discounted prices make them appealing long-term holdings. Donald has succeeded over the long haul by investing where doubts are rampant, but his approach can lead to short-term bumps. œ

Leaders T. Rowe Price Value TRVLX

Ten Best-Performing Funds

Fund Name

YTD Cat Rank %

T. Rowe Price Value’s 10 . 4% return over the past year surpassed its typical large-value rival’s by nearly 2 . 5 percentage points. While lead manager Mark Finn normally seeks out firms embroiled in controversy, he prefers to tread carefully in highly cyclical sectors such as energy. The fund’s below-average energy stake contributed to peer-beating results, and an over- weighting to the health-care sector also helped. Since Finn took the reins in December 2009 , the fund has earned strong results, gaining 15 . 5% and outper- forming the category norm and the Russell 1000 Value Index by 290 and 100 basis points, respectively. Vanguard Wellesley Income VWINX This fund has benefited from falling interest rates. Its duration recently stood at 6 . 2 years, more than two years longer than the typical conservative-allocation peer’s. That positioning owes to the fact that fixed- income manager John Keogh tethers duration to the Barclays U.S. Credit A or Better Bond Index’s. The 10 -year Treasury yield fell more than 40 basis points over the past year through March 2015 , helping the fund earn a 6 . 6% gain that ranked in the conservative- allocation Morningstar Category’s best decile. A modestly above-average equity stake ( 37 . 3% versus 34 . 8% for the typical rival) also acted as a tailwind. MainStay ICAP International ICEUX This fund lost 0 . 5% over the last year, while its typical peer retreated 3 . 3% . Significant overweighting to Japan, which takes 21% of assets compared with 15% for the average competitor, boosted results as aggressive monetary stimulus from the Bank of Japan lifted equities. Strong stock selection in the financials and health-care sectors helped. It essentially avoids companies domiciled in emerging markets, so it bene- fited from not having exposure to Brazil or Russia.

Century Small Cap Select 1 Fairholme Focused Income 1 Fidelity Capital & Income 1 JOHCM International Selec 1 Oakmark International Sma 1 Vanguard Capital Value In 1 Franklin Mutual Beacon A 2 Sequoia 2 Vanguard Interm-Term Bond 2 Fidelity Independence 3

Ten Worst-Performing Funds

Fund Name FPA Capital

YTD Cat Rank %

100

AMG Yacktman Service

99 99 99

GoodHaven

Janus Overseas T

Loomis Sayles Investment 99 AMG Yacktman Focused Serv 98 Delafield Fund 98 Dodge & Cox Balanced 98 Greenspring 98 Janus Twenty T 98