(PUB) Investing 2016

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New Additions From Fidelity and American Century Changes to the 500 | Russel Kinnel

Manager Jed Weiss focuses on companies with multi- year structural growth potential in industries with high barriers to entry. He also looks for out-of-favor cyclical plays with pricing power, or companies that can keep prices steady or even raise them in bad economic times. While his process focuses on stock- picking, he will use macroeconomic-driven market shocks to spot price dislocations that can lead to good buying opportunities, such as Japan's Fukushima earthquake in 2011 or heightening tensions in Russia. I'm also adding DFA US Small Cap Value DFSVX . The Gold-rated fund targets the cheapest 35% of the U.S. small-cap market based on price/book. The fund's 0 . 52% expense ratio makes it pricier than some passive small-cap funds, but DFA 's trading strategy has generally been able to make up that ground. To make room, I’m dropping Neutral-rated Mainstay ICAP International ICEUX . We lowered the fund to Neutral when manager Jerry Senser announced he would retire in September 2016 . I’m also dropping the Neutral-rated Thornburg Inter- national Value TGVAX . The fund is in the process of losing two thirds of its management team. Wendy Trevisani left in 2014 , and Bill Fries is set to leave at the end of 2016 . Finally, I’m dropping CGM Focus CGMFX . The Neutral-rated fund has suffered a dismal performance slump. In addition, manager Ken Heebner is 72 but does not appear to have a clear replacement. K

I am adding two foreign funds and one domestic to the Morningstar 500 .

What is Morningstar FundInvestor 500 ? The Morningstar FundInvestor 500 features the industry’s best and most notable funds. Use the list to get new in- vestment ideas and track the funds you already own. FundInvestor subscribers have access to one-page monthly reports on all 500 funds on mfi.morningstar.com. Just type in the name or ticker of the fund in the search box.

American Century International Growth TWIEX has done a fine job applying the firm’s core growth strategy overseas. Management screens for companies with accelerating earnings and then does fundamental analysis to unearth sustainable growth models. When it finds both, it invests. The combination of momentum and sustainable growth leads to fairly high turnover, in the 100% range most years. Rajesh Gandhi has comanaged the fund since February 2008 , and he was joined by James Gendelman in February 2015 . Gandhi has outperformed peers and benchmark by modest margins over his tenure. Some good pharmaceutical picks powered returns in 2012 and 2013 , but performance has been middling since. Gendelman ran some of Marsico’s foreign-equity funds before joining American Century. In nearly 14 years at Marsico, Gendelman guided Marsico International Opportunities MIOFX to performance that beat peers and benchmark. However, most of that outperformance came in the early years, and the fund was in a slump when he left. See the facing page for more details. I’m also adding Fidelity International Growth FIGFX , which we began with a Morningstar Analyst Rating of Bronze.

Summary of Changes Add

Drop

American Century International Gr

CGM Focus

Columbia Dividend Income A

Columbia Dividend Income Z

DFA US Small Cap Value

Mainstay ICAP Intl

Fidelity International Growth

Thornburg International Value

Summary of Changes Category Changes

From

To

Rating Change (Upgrade)

From

To

American Funds Income Fund of Amer Moderate Allocation

Allocation—70% to 85% Equity

Janus Triton

‰ ´ ‰ ´ ´ •

Franklin Mutual Shares

Large Value

Allocation—85%+ Equity

Janus Venture

Vanguard LifeStrategy Income

Conservative Allocation Allocation—15% to 30% Equity

Neuberger Berman International Eq

PIMCO Emerging Local Bond

Emerging Markets Bond Emerging-Mrkts Local-Currency Bnd

Rating Change (Downgrades)

From

To

Gateway

Long/Short Equity

Option Writing

Fidelity Capital Appreciation

´ ‰ • ‰

Fidelity Strategic Real Return

Conservative Allocation Allocation—15% to 30% Equity

T. Rowe Price Small-Cap Stock

Vanguard Managed Payout

Aggressive Allocation

Allocation—85%+ Equity