(PUB) Investing 2015

May 2015

Morningstar FundInvestor

3

uses the fund’s very broad mandate. He’s the third manager in 14 months, so let’s take our time seeing what territory he marks out. When this fund was launched in 2008 , the excitement was huge as inves- tors streamed in. They hoped the fund would be a winner whether rates rose or dropped, but instead it had pedestrian returns and stumbled a few times. We’ll see how it behaves under its new management. Why? Poor returns have spurred big redemptions, though the trailing 12 -month return is strong. That $13 billion in outflows represents more than half the fund’s asset base a year ago, and that’s a problem for an equity fund. The fund was a poor performer from 2011 – 14 . It will need to sustain the recent rally to staunch the outflows. Once they do stop, this ´ -rated fund could be a decent bet. A bias toward emerging markets and energy stocks has hurt, but the market can rotate back at any time. Why? Some of the outflows are due to some retire- ment plans’ conversion to CIT s. The rest is hard to explain given that performance has remained solid if unexceptional. I would certainly stick with Will Danoff as long as he’s at Fidelity Contrafund. His record is remarkable. To be sure, the fund’s massive asset base is a handicap, but he’s had great success with a big fund for many years. We rate it • . Why? Bill Gross was formerly the manager at this fund. It, too, had a couple of years of weak perform- ance that no doubt spurred the redemptions. Now, Scott Mather and Jerome Schneider are at the helm. Schneider heads PIMCO ’s short-term desk and so was a logical addition. We rate the fund ´ because of the talented pair heading it and because of PIMCO ’s depth in this area. It’s worth holding on, though I’d caution against using it as a money market substitute given that it dips into lower-quality debt. Thornburg International Value TGVAX Negative $13.1 Billion Fidelity Contrafund FCNTX Negative $10.2 Billion PIMCO Low Duration PLDDX Negative $10 Billion

American Funds Growth Fund of America AGTHX Negative $7.9 Billion Why? Although the trailing three-year returns are strong, the fund endured a five-year stretch of pedestrian returns from 2007 through 2011 . This is one case where redemptions are a plus. The fund needed to go on a diet, and it has. Now, this ´ -rated fund looks more appealing. It still has good management and low costs going for it. I’d stick with it. Why? Lousy recent performance has spurred an exodus. Rob Arnott thinks emerging markets have far more appeal than the United States, but the former have lagged far behind the latter in 2013 and 2014 before outperforming thus far in 2015 . Thus, the fund’s once-strong record has taken a hit particularly in recent years. However, a little market rotation can fix that. We rate the fund • , so of course I’d stay with it. PIMCO All Asset All Authority PAUDX Negative $7.0 Billion Why? Performance has slumped badly. We rate this fund x not just because of the slump but also because outflows are a much bigger problem for a fund that holds a lot of small caps, as this one does. Small caps don’t have as much liquidity as larger names, so it can get ugly when a manager is forced to sell. They can end up driving down prices on themselves, and that can spur more redemp- tions. So, when a small/mid-cap fund like this has such huge outflows, there’s a real danger that it will hurt returns. On May 1 , Columbia Acorn announced lead manager Rob Mohn plans to retire later this year. That’s another reason to stay away. K Columbia Acorn ACRNX Negative $6.7 Billion