(PUB) Investing 2016

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Looking at 11 That Failed to Make the Cut The Contrarian | Russel Kinnel

Rising Fees Fidelity Blue Chip Growth ’s FBGRX expense ratio popped from 0 . 74% in 2013 , to 0 . 80% in 2014 , to 0 . 88% in 2015 . Those are pretty big jumps, but it’s good news/bad news. Fees rose because Fidelity has a performance fee that charges more money when the fund is beating its benchmark over the trailing three- year period. As it happens, portfolio manager Sonu Kalra posted excellent results in 2013 , 2014 , and 2015 against the Russell 1000 Growth Index, thus leading to the fee hike. Now the bad news/good news. The fund is about 400 basis points behind the index so far in 2016 , so it may start to charge less before long. Fidelity International Discovery FIGRX is a similar though less dramatic story as its expense ratio rose 5 basis points to 0 . 98% , bouncing it from the cheapest quintile. It had a great 2015 , which triggered higher performance fees. LKCM Small Cap Equity LKSCX is more of a bad news/bad news story. Flagging performance led to redemptions in 2014 and 2015 , which led to higher expenses. Specifically, fees rose to 0 . 97% from 0 . 94% , which bounced the fund out of the cheapest quintile. Its Analyst Rating is still Silver, however. A small rise in fees also led Oakmark Equity & Income OAKBX , Primecap Odyssey Stock POSKX , and Selected American SLADX to get ejected, though little else changed. Finally, three funds didn’t have rising fees but were affected by other funds in their peer groups lowering fees, which moved the quintile cutoff line: Amer- ican Funds New Economy ANEFX , Invesco Equity Income ACEIX , and Mairs & Power Growth MPGFX . That’s a tough way to fall out, but if you own one of them you can rest easy that they haven’t changed and we still rate them highly. K

The test to be in the Fantastic 48 is strict, and the following funds are proof. In total, 11 funds from the 2015 Fantastic list failed to make the cut this year. How you respond to that really should come down to why the funds fell off the list and how close they are to getting back on it. In most cases, the funds just fell over the line, and I wouldn’t sell based on that. However, two had manager changes, and we down- graded them to Morningstar Analyst Ratings of Neutral. I would definitely review those two. I’ll start there and then work my way through the rest. Greg McCrickard is stepping down on Oct. 1 , 2016 , and will be replaced by Frank Alonso. This will mark the end of a great run for McCrickard and this fund’s share- holders. He has run the fund since September 1992 . Alonso, by contrast, has just a two-year track record at an offshore fund. He has worked as associate portfo- lio manager on this fund, too, since 2013 . We lowered the fund’s Analyst Rating to Neutral because Alonso’s track record is so brief. T. Rowe Price’s manager transitions are smooth affairs, but we don’t know if Alonso can add value the way McCrickard has. We downgraded Vanguard Energy ‘s VGENX Analyst Rating to Neutral from Gold when we learned that Wellington’s Karl Bandtel would retire in June 2016 . He has been succeeded by Greg LeBlanc, who has worked on Wellington’s energy team since 2000 . However, this is LeBlanc’s first time as lead manager on a mutual fund. Again, I don’t see disaster ahead, as the fund will still have low costs and the support of Wellington. Manager Changes T. Rowe Price Small Cap Stock OTCFX manager

Our Contrarian Approach I go against the grain to find overlooked funds that may be ready to rally.