(PUB) Investing 2015

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Mid-Value Funds All Over the Map Tracking Morningstar Analyst Ratings | Russel Kinnel

dialed up exposure to beaten-down basic-materials stocks in recent years, and he’s remained shy of the hot tech sector. That’s been a handicap in the short-run, but stock selection has largely overcome that challenge. Names like Hospira HSP and E*Trade Financial ETFC have been winners. The Gold-rated fund is closed to new investors. American Century Mid Cap Value ACMVX This closed fund has a stellar long-term record, but its three-year returns are right at the Morningstar Category average. That’s actually decent for a fund focused on the downside. Its caution is designed to pare losses in a bear market, and it has. It has a 10 -year upside capture ratio of 100 and a downside capture ratio of 86 . This means it keeps pace in rallies but outperforms in down markets. Fidelity Low-Priced Stock FLPSX Joel Tillinghast’s three-year returns are middling, but he’s got strong results over longer time periods. Tillinghast manages to make a giant portfolio work over the long haul. Relative to peers, he has quite a bit more in consumer cyclical names and tech stocks. He has much less than peers in utilities and real estate. Artisan Mid Cap Value ARTQX This fund is our one laggard. Its slump has been deep enough to lead us to lower its rating to Silver from Gold. Besides the slump, we’re concerned that team founder Scott Satterwhite is set to retire in October 2016 . An array of energy stocks has been brutal for the fund. McDermott International MDR , Ensco ESV , and Southwestern Energy SWN . Even stocks outside energy like Teradata TDC and Coach COH have hurt. The long-term record remains intact, though, and we believe the fund’s strategy will return to favor. K

There’s a wide dispersion among mid-value funds these days. On Page 30 , you’ll see that the one-year returns range from negative 4% to 15% . Funds that favor utilities, energy, and other commodities are hurting a bit while those favoring health-care, tech, and consumer stocks are feeling fine. Go out to three years and things look cheerier, though the range is still quite wide, going from 10% to 23% .

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.

The group is worth a look because the best stock- pickers make it their home.

Diamond Hill Small-Mid Cap DHMAX This fund has a Morningstar Analyst Rating of Gold and the best three-year returns of the group. The fund has avoided the dismal basic-materials sector while finding a wide variety of winners in health- care, consumer, and financials industries. Manage- ment takes a straightforward approach to value, but it clearly won’t be fooled by value traps. The fund has strong three- and five-year numbers, and come December it should have pretty strong 10 -year numbers, too. Vanguard Selected Value VASVX Now that the fund has three subadvisors, its sector weightings don’t really stand out from the category. Deep-value firm Pzena was added last year to join Barrow, Hanley, Mewhinney & Strauss and Donald Smith & Co. The fund is still distinctive with stock selection. Names like Hanesbrands HBI , Royal Caribbean Cruises RCL , and Micron Technology MU have proved to be big winners for the fund. The fund is up a nifty 21% for the trailing three years, and its five-year return is likewise top third. T. Rowe Price Mid-Cap Value TRMCX David Wallack has proved to be a thoughtful value investor who won’t follow the crowd. He has actually