(PUB) Investing 2016

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The Smallest Medalists Tracking Morningstar Analyst Ratings | Russel Kinnel

Royce Special Equity Multi-Cap RSEMX has likewise shown it knows how to protect the downside. Charlie Dreifus’ fund has a nifty 5 . 5% return, landing in the top 5% of peers for the year to date. This is mainly on the strength of the defensive qualities that share- holders have long known about in his Royce Special Equity RYSEX . This fund, with a Morningstar Analyst Rating of Bronze, has just $135 million in assets, however, because it was launched at the beginning of 2011 and hasn’t had much of a chance to show its strengths. Its five-year returns are unimpressive, but Dreifus’ conservative style is still a good bet for solid risk-adjusted returns. It may take a bear market to win more shareholders, but you don’t have to wait. Mairs & Power Small Cap MSCFX earned a Silver rating from us in June 2015 but remains at just $209 million in assets. While Royce Special Equity Multi-Cap took a time-tested strategy up in market cap, Mairs & Power went in the other direction. So far, things have gone very well for Andrew Adams, who has produced top-decile performance for the past one and three years. Adams has been with the firm since 2006 and has run the fund since 2011 . He looks for companies with strong balance sheets and sustainable advantages, as do other Mairs & Power funds. Turnover clocked in at a low 23% in 2015 , reflecting the patience of management. Perkins Global Value JGVAX is part of Janus, so you might think it could drum up some shareholders, but the fund still has just $227 million in assets. Perkins chief investment officer Greg Kolb has largely matched the returns of the benchmark and peers during his tenure, but he’s done so with less risk. The fund lost much less than peers and its benchmark in 2008 and 2011 . He looks for cheap stocks with strong cash flows and healthy balance sheets. Defensive names like Procter & Gamble PG have held up nicely for the fund in 2016 . K

You might not know much about the Morningstar Medalists I’m looking at this month—those with the smallest asset bases. There’s something of a theme, too, as each one comes from a boutique firm. Some are small even by boutique standards. Funds like these would be larger than they are with a big marketing staff to support them. Three of the funds originated from old-fashioned firms that began by running all of their clients’ money. Doing that generally means that you take a conservative approach, because clients might not be diversified across a wide array of asset classes the way they’d be at a bigger complex. That’s why some have been lagging recently. It can be tough for conservative funds to keep up in a strong rally. Yet, the fact that they are different from funds you’d find at a big fund company is part of their appeal. I’ll take them from smallest to largest. Berwyn BERWX has just $130 million in assets and a Morningstar Rating of 2 stars, so it would be easy to skip over it. But you can see its appeal in the way it held up in January and February 2016 . It lost much less than its peers and now has a modest 4% gain through April. It also produced top-quartile perform- ance in tough markets like 2011 and 2008 . The fund seeks out good values among micro-cap stocks and the small end of small caps. It also holds cash and has a fondness for basic-materials stocks, which can protect against inflation spikes. However, those materials stocks stung in 2015 when commodities got crushed. Lead managers Robert Killen and Lee Grout are seasoned veterans who have steered the fund through a variety of markets.

What Are Morningstar Analyst Ratings?

Our ratings are chosen for long- term success. Analysts assess a fund’s competitive advantages by analyzing people, process, parent, performance, and price. They do rigorous analysis and then submit their ratings to a committee that vets their work for thoroughness and consistency.