(PUB) Investing 2015

14

Fund News

Fund Manager Changes

Columbia Acorn ACRNX

Impact: Negative Date: 05-01-15

Conference Highlights Grantham’s Bearish Case

Columbia Acorn USA AUSAX Lead manager Rob Mohn plans to retire in the fourth quarter of 2015. In addition to comanager David Frank, Zach Egan and Fritz Kaegi were named comanagers of the fund to prepare for Mohn’s departure. No managers were added to Columbia Acorn USA, where William Doyle serves as Mohn’s comanager. In addition, Acorn is moving to a more traditional portfolio manager/analyst division of labor in which analysts will no longer add stocks and choose their portfolio weighting. | Our Take: Poor performance has spurred wrenching changes at the funds. We have put both funds ˆ . We lowered Columbia Acorn’s Morningstar Analyst Rating to Neutral in 2014 because of concerns about redemptions and poor performance. Columbia Acorn USA had been rated Bronze. Impact: Negative Date: 07-01-15 Richard Gao has stepped down from his roles as the lead manager on Matthews China and as a comanager on Matthews Pacific Tiger. Comanager Andrew Mattock will take over on Matthews China, and Sharat Shroff will remain lead manager on Matthews Pacific Tiger. | Our Take: We have placed both funds Ø . It looks like a much bigger blow to Matthews China. Mattock is a seasoned investor, but he only joined Matthews this year. Shroff is an established and proven skipper at Matthews Pacific Tiger, and he, like Mattock, has an excep- tional support team. Date: 04-05-15 Comanager Jeff Kautz resigned. Kevin Preloger, who was named comanager in April 2013, remains and will be joined by Justin Tugman of Perkins Small Cap Value JSCVX. | Our Take: The fund has been trying to get back on track after several years of underwhelming performance. The fact that its five- year results aren’t up to par isn’t surprising or disappointing given the fund’s relatively conservative process, but weak stock-picking is more cause for concern. The loss of a long-tenured manager is disappointing but not insurmountable. Risk-adjusted results since inception remain strong. However, the departure, coupled with the fund’s stock-picking woes, is enough to move this fund’s Morningstar Analyst Rating to ´ from Silver. Date: 06-01-15 Jeff Rottinghaus took over for Thomas Huber. Huber remains at T. Rowe Price Dividend Growth PRDGX. | Our Take: Huber has done a fine job here and at T. Rowe Price Dividend Growth, but Rottinghaus has a solid five-year record at T. Rowe Price U.S. Large-Cap Core TRULX. There, he has produced five-year returns of 17.3% annualized versus 17.04% for the S&P 500 and 16.45% for the large-blend category. However, that fund has only $116 million in assets, so Rottinghaus now has more on his plate with this $1.5 billion fund. Impact: Negative Date: 06-01-15 Veteran manager Larry Keele is stepping down and being replaced by Stuart Spangler. | Our Take: Oaktree is an excellent firm, so we remain confident in the fund, but it’s still a blow to lose Keele, who has built a great record here. We lowered our rating to ´ . Impact: Negative Date: 12-31-15 Wally Weitz is stepping down from management responsibilities here. However, he will remain manager at Weitz Partners Value WPVLX and Weitz Hickory WEHIX. Comanagers Brad Hinton and Dave Perkins will take over his responsibilities. | Our Take: Weitz’s departure from the fund is a loss, but he’s been working on the transition for years, and we feel good about Hinton and Perkins. We are maintaining our rating of • on the fund. Matthews China MCHFX and Matthews Pacific Tiger MAPTX Perkins Mid Cap Value JMCVX Impact: Negative T. Rowe Price Growth & Income PRGIX Impact: Neutral Vanguard Convertible Securities VCVSX Weitz Value WVALX

The market is creeping toward bubble-land but isn’t there quite yet, said GMO chief investment strategist Jeremy Grantham at the 2015 Morningstar Investment Conference. He warned investors to pay careful atten- tion as valuation metrics begin to approach a “ 2 sigma event,” or 2 standard deviations away from the norm. “Every 2 -sigma event is followed by an equal and offsetting 2 -sigma reversion,” he said, adding that the pattern occurred in 28 out of 28 of the major bubbles GMO has studied throughout history. “And they all went back half a year quicker than they went up,” he added. So, where’s the mean and where are we today? Grantham cited a 21 . 1 price/earnings multiple on the S & P today versus a normal P/E of 16 . 0 , while corpo- rate profit margins are currently at 7 . 3% versus a norm of 5 . 7% . But although profit margins have been abnormally high, they have been curiously slow to revert to histor- ical norms, Grantham noted. “My belief is that it has a lot to do with a regime shift to the Greenspan era and his acolytes,” he said. “The [market] P/E in the new regime has been 60% higher than it was for 100 years before.” In addition, he argued that the rise of stock options in executive compensation has played a role in making profit margins stickier--but not without a cost. “We’ve entered a world where 80% of remuneration comes from stock options combined with ... a fixation on short-term profit maximization,” which encourages CEO s to undertake stock buybacks versus capital expenditures. Kelly’s Bullish Case J.P. Morgan Asset Management chief global strategist David Kelly gave a relatively upbeat assessment of