(PUB) Investing 2015

3

Octob er 2015

Morningstar FundInvestor

nications LVLT , and Vail Resorts MTN . Management allowed those positions to rise perhaps because it hasn’t found much else to buy. At least this can’t be pinned on asset growth. Aston/Fairpointe Mid Cap CHTTX saw a spike from 0 . 72 to 1 . 69 in June 2015 . The fund closed to new investors in 2013 , and the bloat ratio suggests that was a good idea. The fund continued to draw sizable inflows even after closing as existing investors kept contributing more money. However, the trend reversed in 2015 , and the fund has had modest outflows as performance has been poor this year. T. Rowe Price New Horizons PRNHX saw its bloat ratio rise from 1 . 89 to 2 . 65 in March 2015 . The fund did take in $1 . 2 billion in 2013 before it closed on the last day of the year. That pushed the fund’s bloat ratio up under Henry Ellenbogen, but it might not be going higher now that the fund is in modest redemp- tions. Even so, with $16 billion total assets under management, Ellenbogen has some real limits on the stocks he can buy and the speed he can trade them. Biggest Decreases in Bloat Ratio Eventide Gilead ETGLX had a huge drop from 3 . 90 in 2013 to 0 . 06 in March 2015 . The answer is turnover. It came down from 487% in 2011 to 91% in 2013 and 17% in 2014 . Ironically, the cause may be asset growth. The fund was less than $100 million in 2011 and just $300 million in 2013 compared with $2 . 1 billion today. Although it now owns more days’ trading volume in its stock, management really changed the way it invested by paring turnover in order to handle more money. Here, the bloat ratio is capturing a change brought on by asset growth, only it’s because of a drop in the turnover ratio. (See Red Flags for more on this fund.) Janus Venture and Janus Triton are the flip side of Meade and Schaub going to Arrowpoint. The funds’ replacement, Jonathan Coleman, likes his portfolios more diffuse than they do. Thus, Janus Venture fell from 4 . 8 to 1 . 6 . Coleman has about 40 more names in his portfolios than his predecessors did. Janus finally got around to closing Triton now that it has more than $7 billion in assets.

American Century Small Cap Value ASVIX has come down sharply to 1 . 97 from 6 . 70 , though it remains in the most-bloated decile of its peer group. The fund has seen about $800 million go out the door over the past two years; that’s about one third of assets. The fund lost its lead manager in 2014 , and it has been a middling performer in recent years. It is encouraging that outflows have cut the fund’s bloat significantly. Those outflows might lead it to reopen in the coming months, but given the manager change I wouldn’t rush in. Fairholme FAIRX was an interesting story among large caps. The fund’s bloat ratio fell from 1 . 6 to 0 . 2 , largely because of outflows. Yet, I wouldn’t give the fund an all-clear on liquidity. While number-two holding Bank of America BAC is a position equal to less than one day’s trading volume and top holding American International Group AIG is four days’ trading volume, there are some huge positions in the rest of the top 10 . The St. Joe Company JOE is 56 days’ trading volume, and the fund’s Fannie Mae and Freddie Mac positions wouldn’t be easy to unload. average bloat ratios because they have above-average asset bases. But there are some diffuse small-cap funds that might be worth a look. T. Rowe Price Diver- sified Small Cap Growth PRDSX , with a Morningstar Analyst Rating of Silver, has a bloat ratio of just 0 . 05 , placing it in the least-bloated quartile of small-growth funds. Vanguard Explorer Value VEVFX spreads assets among multiple advisors, and it is still pretty small. Its 0 . 05 bloat ratio is in the bottom third of the small-blend Morningstar Category. Among mid-cap funds, Harbor Mid Cap Value HIMVX has a bloat ratio of just 0 . 01 , which places it in the least-bloated quartile of mid-value. Westport WPFRX has a bloat ratio of 0 . 01 , which also places it in the least-bloated quartile. Where to Find Bloat Ratios We will post bloat ratios for U.S. equity funds in the Morningstar 500 on mfi.morningstar.com. K The Least-Bloated Funds Most of the Morningstar 500 funds have above-