(PUB) Investing 2015

July 2015

Morningstar FundInvestor

3

The 20 Biggest Drops in Standard Deviation

& Special Minerals OPGSX , Franklin Utilities FKUTX , PIMCO Real Return PRRDX , and T. Rowe Price GNMA PRGMX saw their standard deviations rise. However, these were all results of market factors rather than changes in portfolios or strategies. So, I’ll select some from the list of highest standard deviations in the diversified U.S. equity and foreign- equity Morningstar Categories. Although their standard deviations fell, they still pack quite a punch. This is a throwback fund investing in the fastest- growing companies with little regard for valuation. It’s been in the top or bottom decile of its peer group in four of the past five years and is in the top decile so far in 2015 . Many of its fast-growers are small- to mid-cap names such as Tableau Soft- ware DATA and ServiceNow NOW , but it still has 7% of assets in both of those names. In sum, this fund is high risk, so don’t put a big piece of your portfolio in it. Fairholme FAIRX 15.96 (from 23 . 24 ) Bruce Berkowitz has shown just how much a focused portfolio can lead to a dramatically different risk/ reward profile. The fund once had a big cash stake and a more moderate equity portfolio. Today, the fund has 35% of assets in AIG AIG , 17% in Bank of America BAC , and even 9% in Sears SHLD , which has all the look of a value trap. Cash has ticked up to 13% , but it is well below past highs and certainly not enough to meaningfully damp the volatility of such a bold equity portfolio. It’s still a good fund but only if you are very patient and mindful of your weighting in it. CGM Focus CGMFX 15.71 (from 26 . 31 ) Ken Heebner has long made this a superaggressive fund. Not only is it focused, but Heebner also makes rapid sector shifts and will short stocks, too. With a 266% turnover rate, this fund is in fact a very different proposition than Fairholme. We rate it ˇ because we haven’t seen a clear succes- sion plan among other things. K Scotia Dynamic U.S. Growth DWUGX 17.15 ( from 20 . 17 )

Std Dev 3-Yr 05/2015

Beta 3-Yr 05/2015

Std Dev 3-Yr 05/2012

Beta 3-Yr 05/2012

Change Std Dev

Change in Beta

Name

Ticker

Fidelity Small Cap Stock

FSLCX

10.84

1.06

25.35 1.48 -14.51 -0.42

Fidelity Leveraged Company Stock FLVCX

9.95

1.00

24.22 1.44 -14.27 -0.43

Royce Opportunity

RYPNX 13.57

1.27

27.42 1.58 -13.84 -0.31

Ariel Fund

ARGFX

12.68

1.27

26.24 1.56 -13.56 -0.29

Third Avenue Value

TAVFX

8.91

0.74

22.02 1.01 -13.11 -0.27

Dreyfus Opportunistic Small Cap DSCVX 14.77

1.32

27.65 1.58 -12.89 -0.25

Fidelity Dividend Growth

FDGFX

8.62

1.00

21.45 1.31 -12.83 -0.31

Fidelity Overseas

FOSFX

9.98

0.88

22.78 1.10 -12.80 -0.22

Vanguard Capital Value

VCVLX

11.42

1.12

24.09 1.46 -12.68 -0.34

Columbia Acorn Select

ACTWX 10.17

0.95

22.69 1.33 -12.52 -0.39

T. Rowe Price New Era

PRNEX

12.85

1.07

25.31 1.27 -12.46 -0.20

Causeway Intl Value

CIVVX

10.48

0.92

22.76 1.10 -12.28 -0.18

Fidelity Value

FDVLX

9.25

0.99

21.51 1.30 -12.26 -0.30

Fidelity Independence

FDFFX

11.27

1.00

23.39 1.38 -12.12 -0.39

Ariel Appreciation

CAAPX 11.85

1.25

23.92 1.44 -12.08 -0.19

Fidelity Select Energy Portfolio

FSENX

15.46

1.18

27.47 1.31 -12.01 -0.14

Artisan International

ARTIX

10.00

0.83

21.83 1.04 -11.83 -0.22

Harbor International

HAINX

10.71

0.96

22.48 1.10 -11.76 -0.14

Royce Low Priced Stock

RYLPX

12.49

1.05

24.13 1.37 -11.64 -0.31

Third Avenue Real Estate Val

TAREX

7.78

0.69

19.40 1.02 -11.62 -0.32

Data as of May 31, 2015.

General Electric GE . That has brought volatility down sharply and made the fund into just what you’d expect from the name. It’s promising but still in early days. A Trend Among the Top 20 It’s interesting that seven of the 20 funds with the biggest declines in volatility hail from Fidelity. Fidelity Value FDVLX , Fidelity Overseas FOSFX , Fidelity Independence FDFFX , and Fidelity Select Energy FSENX made the list, too. The firm is trying to become more risk-aware and make the strategies fit the names better. In the past, Fidelity has given back all of its outperformance in down- turns. These changes indicate these funds may be able to hold up better in the next bear market. Risk On Most of the funds with rising standard deviation made the list simply because their asset class became more volatile. The volatility in precious metals, utilities, Treasury Inflation-Protected Securities, and GNMA s meant Oppenheimer Gold