(PUB) Investing 2015

February 2 015

Morningstar FundInvestor

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Franklin Utilities Posts Strong Results Leaders & Laggards | Robert Goldsborough

choppy waters. Over the past year, the fund’s 7 . 7% return is 5 . 6 percentage points better than its foreign large-growth category. The fund’s trio of seasoned portfolio managers has a quality bias, and they have used stock selection to weather recent storms with resilient stock picks, particularly in technology and consumer defensive. The fund has lost 5% over the past year, trailing almost all of its peers in the high-yield bond cate- gory. With concentrated bets and a preference for distressed bonds, this fund offers plenty of risk. Manager Bruce Berkowitz’s bets haven’t paid off of late. Berkowitz’s recent successes here, such as a big stake in a 2018 Sears SHLD bond, have been significantly overshadowed by hard-hit positions, such as its Fannie Mae and Freddie Mac preferred shares. Investors should remember that while this is a high- yield bond fund, its concentrated positions mean that it doesn’t move in sync with the high-yield market. Oakmark International OAKIX Weighing on this large, Gold-rated foreign large- blend fund in recent periods has been a significant investment in developed European markets other than the United Kingdom. The fund has been hurt by investments in firms like BNP Paribas, Royal Phillips, and Credit Suisse. The result has been a negative 2 . 5% return over the past year, which is meaningfully below its peer group. The recent performance is in stark contrast to Oakmark International’s solid track record, which has included besting more than 95% of its category rivals in four of the five previous years. LKCM Equity LKEQX This fund has lagged the large-growth category over the past year, with a 6 . 5% return that is about half its category’s average. Above-average weightings in industrials companies, as well as in Google GOOGL , were among the culprits. Over the longer term, however, this Silver-rated fund is a solid choice. Manager Luther King has navigated tough markets well, outperforming the average large- blend fund in 2011 but also during the 2007 – 09 credit crisis and the early 2000 s’ bear market. K Laggards Fairholme Focused Income FOCIX

Leaders Franklin Utilities FKUTX

Ten Best-Performing Funds

Fund Name Osterweis

YTD Cat Rank %

This fund’s nearly 30% return over the past year reflects both its managers’ straightforward strategy of focusing on regulated utilities and the market’s recent preference for stability and income. While other actively managed utilities funds often invest in nonutilities sectors like energy and telecom, Franklin Utilities favors more caution, devoting the vast majority of assets to utilities firms. The fund does have some energy exposure, but it’s below the category average and consists mostly of pipeline firms and other infrastructure firms with more predict- able revenue streams. While the pullback in interest rates has rewarded utilities investors over the past year, this fund’s strategy has allowed it to mean- ingfully outperform its category. And over the long run, managers John Kohli and Blair Schmicker have executed their strategy well, delivering lower volatility than competing utilities funds and rela- tively high yields. PIMCO Investment Grade Corporate Bond PIGIX This Silver-rated corporate-bond fund has handily bested its category, outperforming by 2 . 7 percentage points over the past 12 months. Despite PIMCO ’s recent turmoil, this fund’s process is unchanged. Manager Mark Kiesel and his team have rebounded from a near-bottom-quartile loss in 2013 caused in part by an overweighting in emerging-markets bonds. Helping to drive Kiesel’s recent performance has been a larger stake in bonds issued by cyclical indus- tries. This fund’s long-term track record remains very impressive. Over the past 10 years, it has topped more than 90% of competitors in its category. Harding Loevner International Equity HLMNX The recent environment for foreign large-growth funds has not been kind, and Harding Loevner Interna- tional Equity has managed capably through some very

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Permanent Portfolio 1 T. Rowe Price Global Tech 1 Vanguard Interm-Term Bond 1 Vanguard Long-Term Invest 1 Artisan Value Investor 2 First Eagle Overseas A 2 Harbor Real Return Instl 2 Scotia Dynamic U.S. Growt 2 Vanguard Strategic Equity 2

Ten Worst-Performing Funds

Fund Name CGM Focus

YTD Cat Rank %

100 100 100

Delafield Fund FPA Perennial

Fairholme 100 Vanguard Precious Metals 100 Dodge & Cox Balanced 99 Dreyfus Opportunistic Sma 99 FPA Capital 99 LKCM Equity Instl 99 Oakmark Global I 99