(PUB) Investing 2016

3

June 2 016

Morningstar FundInvestor

preferreds, convertibles, and investment-grade corp- orate bonds. That gives the fund significant credit risk, but manager George Cipolloni has steered the fund from trouble in his 10 -year run at the fund. T. Rowe Price Personal Strategy Income PRSIX enables you to tap a number of T. Rowe Price’s best port- folio managers for a pretty low price. The fund has more foreign exposure than most in the category as the allocation team running it adjusts among the strate- gies based on its view of which ones offer the best risk/return profiles. However, it is the underlying man- agers who win the fund a Silver rating. Allocation—50% to 70% Equity Silver-rated Mairs & Power Balanced MAPOX is in the classic 60 / 40 balanced fund mode. It has little overseas exposure as its emphasis is on U.S. blue-chip dividend-payers and high-quality bonds. Its 33% maximum drawdown tells you that you’ve moved up in equity risk from the previous category, but that’s actually a little lower than most in the category, as the fund’s equities are fairly defensive. Vanguard STAR VGSTX likewise has a 60 / 40 setup, but it has a 109% downside capture, indicating it has lost more than the benchmark in down periods. The fund invests just in Vanguard’s actively managed funds. A 20% foreign weighting is part of the reason for the high downside capture ratio. Vanguard Balanced Index VBIAX is the simplest fund profiled here. The Gold-rated fund has a set 60 / 40 asset mix that doesn’t change. The equities track a U.S. Total stock market index and the bond side the Barclays U.S. Aggregate Float Adjusted Bond Index, which gives it an investment-grade portfolio. T. Rowe Price Capital Appreciation PRWCX has been an extraordinary achiever under David Giroux. The Gold-rated fund is closed to new investors, but those in it have done well. Giroux has a fair amount of latitude with regard to asset-class exposure. He spreads investments around equities, convertibles, high yield, cash, investment-grade bonds, and bank loans. His biggest value add, though, has been in selecting quality companies.

T. Rowe Price Balanced RPBAX has a higher down- side capture and maximum drawdown than the funds we’ve looked at so far because it has a little more in equities and foreign securities. Its neutral location is 65% stocks and 35% bonds. This fund, too, spreads out assets among an array of strategies including T. Rowe Price High Yield , T. Rowe Price Overseas , and T. Rowe Price Blue Chip Growth . America Funds American Balanced ABALX is a nice low-cost straightforward balanced fund. The Silver- rated fund charges its equity managers with delivering a yield above the S & P 500 ’s. On the bond side, the sleeve is run relatively cautiously with Treasuries, mortgages, and corporates. Gold-rated Dodge & Cox Balanced DODBX is one of my favorites. It mixes a value equity portfolio with a corporate-bond-heavy fixed-income portfolio to deliver a great package at low costs. True, that value bias stung in 2008 and 2009 , when some bank stocks got crushed, but the fund’s long-term results, low costs, and strong stewardship make it a great place to invest. Silver-rated Oakmark Equity & Income OAKBX has had only middling results since Ed Studzinski retired in late 2011 , but it has a lot going for it. Clyde McGregor is an excellent investor, and he was joined by Colin Hudson and Edward Wojciechowski in 2013 . The basic strategy is to pair a focused-value equity portfolio with a low-risk government-bond portfolio. That bond sleeve is largely there for defense, and McGregor hasn’t really taken much risk at any point with it. FPA Crescent FPACX also has a low maximum drawdown (just 28% ) because of Steve Romick’s focus on playing defense. Most of the fund’s nonequity exposure is in the form of cash, as Romick likes the ballast it provides as well as the dry powder for a market downturn. Romick’s focus is on absolute returns and avoiding a permanent loss, so he looks for stocks with big margins of safety. Vanguard Wellington VWELX is the mirror image of Vanguard Wellesley Income. It’s also managed by Wellington Asset Management, but it has about two thirds in equities. With low costs and strong man- agement, it’s pretty clear why this fund is rated Gold. K