(PUB) Investing 2015

Risk Off Continued From Cover

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Meantime, bond market volatility hasn’t changed much. Vanguard Total Bond Market Index ’s VBTLX standard deviation has ticked up to 2 . 95 through May 2015 versus 2 . 85 in May 2012 . All told, 459 Morningstar 500 funds have had declines in standard deviation, and 21 funds had an increase. (The rest have less than a six-year track record.) A total of 167 funds had betas rise versus 299 that saw betas decline. This tells me that more Morningstar 500 funds have dialed down risk because bets have dropped, and many have seen their standard deviation decline by more than their benchmark. Where Has Volatility Declined? In a long-running bull market, risk usually pays off. So, I was surprised to see so many funds that have dialed down their volatility by much more than the market. Let’s look at a few. tion. The two three-year periods sync up pretty closely with the transition from Andrew Sassine to Lionel Harris in November 2011 . Harris looks for high-quality companies with stable businesses and good management. Naturally, those kinds of com- panies tend to be less volatile, and that’s reflected in the change in volatility. Sassine was a more aggressive speculative investor. You can see Harris’ impact on recent performance. The fund held up nicely in a challenging 2014 and so far in 2015 , but it lagged in 2012 and 2013 . We give it a Morningstar Analyst Rating of ´ , and you may like it if you lean to the cautious side. Fidelity Small Cap Stock FSLCX 10.84 (from 25 . 35 ) This fund had the biggest decline in standard devia- Fidelity Leveraged Company Stock FLVCX 9.95 (from 24 . 22 ) In this case, the portfolio fundamentals are telling the real story. This is a risky fund, and it hasn’t gotten less risky. The fund invests in highly leveraged companies, and the market hasn’t worried about those things as the economy has improved the past three years and mergers have heated up. Tom Soviero has done a fine job here, but the risks are dormant while the economy is strong.

Royce Opportunity RYPNX 13.57 (from 27.42) The telling part here is that standard deviation is about 70% higher than the S & P 500 ’s. So, yes, Buzz Zaino’s micro-cap strategy has become less volatile, but with big cyclical bets and a large tech weighting, it’s one of the riskier funds in our U.S. equity listings. Ariel Fund ARGFX 12.68 (from 26.24) This one intrigues me. The fund long had the profile of being a bit to the cautious side, with fairly stable but low P/E stocks. Then 2008 happened, and the fund looked like a completely different animal. Although its portfolio largely remained profitable through the worst of the recession, its names got crushed because they had higher debt levels than much of the market and the dumping of debt-heavy names was pretty indiscriminant. That set the fund up for a huge rebound in 2009 , and it seemed like the fund would remain on the volatile side. Manager John Rogers dialed up the firm’s work on balance sheets in attempt to manage that risk better. The fund’s performance has recovered, but even with this decline in volatility, standard deviation remains on the high side. Third Avenue Value TAVFX 8.91 ( from 22 . 02 ) Chip Rewey took over last year, and he has continued a process started by former manager Ian Lapey. He has pared the fund’s once massive Hong Kong real estate stock weighting and moved it into conventional U.S. equities like CBS CBS and General Motors GM . Before long, this fund might look like a traditional value fund for the first time in its existence. Selling the Hong Kong stake means the fund has much less individual stock and issue risk than it did before. Whether Rewey can match Marty Whitman’s strong long-term performance is an open question. We rate the fund ˇ while we wait to see just what the fund has become. Fidelity Dividend Growth FDGFX 8.62 (from 21 . 45 ) This fund really has dialed down its risk under Ramona Persaud. Fidelity has made a concerted effort to make its dividend-named funds act like dividend-focused funds. Former manager Larry Rakers was a good but aggressive investor in cyclical stocks. Persaud has shifted the fund into all sorts of boring blue-chip divi- dend-payers such as Johnson & Johnson JNJ and