(PUB) Investing 2015

June 2015

Morningstar FundInvestor

13

Western Asset on a Roll Leaders & Laggards | Robert Goldsborough

Laggards Royce Opportunity RYPNX

While this Bronze-rated small-value fund’s long- term track record remains strong, it has lagged recently, trailing 85% of its small-value peers in the year ended May 29 , 2015 . Effectively a micro-cap fund, Royce Opportunity focuses on companies facing operating challenges. As a result, the fund courts significant volatility relative to its category. Among the holdings weighing on this fund’s performance were newspaper publisher McClatchy MNI , which has continued to suffer steep declines in all advertising revenue categories, and ITT Educational Services ESI , which has been beset by fraud charges and declining enrollments. Columbia Acorn International Select LAFAX An overweighting to energy and poor stock selection in the energy and basic-materials sectors have weighed on this concentrated small- and mid-growth fund’s returns of late. Among the biggest detractors in the past year have been energy firms like Baytex Energy BTE and Denbury Resources DNR and precious-metals firms such as Beadell Resources BDR , Tahoe Resources TAHO , and Goldcorp GG . Over the past year ended May 29 , 2015 , this fund has trailed 97% of its category peers. Loomis Sayles Global Bond LSGLX The managers of this conservatively managed world- bond fund have lagged their peers and the fund’s benchmark, the Barclays Global Aggregate Index, over the past 12 months because of outsize bets on energy firms’ debt, shorter-duration bonds, euro exposure, and emerging-markets exposure. The fund has trailed 73% of competing funds over the past 12 months ended May 29 , 2015 , and 56% of peers over the past five years. Because of this lackluster recent performance, the fund’s Morningstar Analyst Rating recently was downgraded to Bronze from Silver. K Contact Robert Goldsborough at robert.goldsborough@morningstar.com

Leaders Western Asset Core Bond WATFX

Ten Best-Performing Funds

Ten Worst-Performing Funds Fund Name YTD Cat Rank % Matthews Emerging Asia In 100 Vanguard Long-Term Invest 100 AMG Yacktman Service 99 GoodHaven 99 Greenspring 99 Janus Contrarian T 99 AMG Yacktman Focused Serv 98 FPA Perennial 98 Loomis Sayles Bond Retail 98 Loomis Sayles Investment 98 Fund Name YTD Cat Rank % Fairholme Focused Income 1 PIMCO Investment Grade Co 1 Sequoia 1 Thornburg Value A 1 Vanguard Capital Value In 1 American Funds SMALLCAP W2 Eventide Gilead N 2 Fidelity Capital & Income 2 Thornburg International V 2 Century Small Cap Select 3

Blessed with a management team rich in talent and experience, this fund, which has a Morningstar Analyst Rating of Silver, has posted outsize performance over the past year and over longer periods thanks to an array of well-timed bets. Its managers’ contrarian position in 2014 favoring longer-duration bonds paid off nicely. The fund’s 3 . 7% return for the trailing 12 months ended May 29 , 2015 , bested 95% of its peers. The fund has greater credit exposure than the Barclays U.S. Aggregate Bond Index, including a stake in emerging- markets bonds and a higher position in nonagency mortgage-backed securities. Vanguard Health Care VGHCX This Gold-rated fund continues to ride the health-care sector’s wave. For the year ended May 29 , 2015 , the fund returned 32 . 6% . Fueling the fund’s outper- formance was an overweighting to pharmaceutical companies, which have shone. Although the fund’s biotech stake is lower than its peers, its biotech holdings also outperformed those in its benchmark. This Bronze-rated fund enjoyed a boost from emerging markets’ April 2015 rally. And over the past year, this fund has topped more than 80% of its peers, in part through strong stock selection, especially financials and technology stocks. While the fund has struggled in the past—particularly in 2013 —it has strong management in lead manager Gonzalo Pangaro, and it’s attractively priced relative to its category. Although Pangaro’s copilot, Mark Edwards, will retire at the end of 2015 , that shouldn’t change this fund’s sound growth strategy. T. Rowe Price Emerging Markets Stock Fund PRMSX