(PUB) Investing 2016

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July 2016

Morningstar FundInvestor

Mairs & Power Small Cap Leads the Way Leaders & Laggards | Andrew Daniels

Laggards: Bronze-rated Touchstone Sands Capital Select Growth PTSGX has lagged 99% of its large-growth peers thus far in 2016 . This concentrated fund has nearly 75% of assets in technology and healthcare stocks, and that has hurt results this year. The fund’s large biotech exposure has dragged on results— Regeneron Pharmaceuticals REGN , Alexion Phar- maceuticals ALXN , and Incyte INCY are all down more than 25% this year. Additionally, tech firms Palo Alto Networks PANW and Baidu BIDU are down more than 12% . The fund also owns LendingClub LC , which has lost more than 60% in 2016 amid alleged misconduct and regulatory probes. Bronze-rated American Century International Growth TWIEX has trailed 83% of its foreign large-growth peers for the year to date. Stock selection in the indus- trials sector has been poor: The firm owns airlines International Consolidated Airlines IAG , Qantas QAN , and Ryanair Holdings , all of which are down more than 19% this year. Despite having an underweighting in poor-performing financials, the fund owns banks— such as Intesa Sanpaolo , Bank of Ireland BIR , and Barclays —that have been pummeled. Additionally, some of the fund’s tech bets, such as Wirecard WDI and Worldpay Group WPG , are down more than 12% this year. Bronze-rated PIMCO Total Return PTTRX has lagged 85% of its intermediate-term bond peers in 2016 . The fund’s managers expected the Federal Reserve to raise interest rates throughout 2016 , and as a result it had a lower duration than its typical peer. That’s proved costly as global market uncertainty caused the Fed to hold off on interest-rate hikes thus far. The fund’s bullish bet on the U.S. dollar by shorting emerging-markets currencies has also proved costly, though the Brexit-inspired flight to quality spurred a dollar rebound. K

Leaders Mairs & Power Small Cap MSCFX has posted excellent results since its inception in 2011 , and it has shown no signs of slowing down in 2016 , outper- forming 98% of its small-blend peers for the year to date. The fund, which has a Morningstar Analyst Rating of Silver, has benefited from strong stock selec- tion in the industrial machinery space— Oshkosh OSK , Donaldson DCI , and Toro TTC are all up more than 20% this year. The fund’s sizable positions in real estate investment trusts Agree Realty ADC and Physicians Realty Trust DOC have also contributed to results this year, as both are up more than 28% . Silver-rated Harding Loevner International Equity HLMNX has outperformed 96% of its foreign large- growth peers for the year to date. Thanks to its managers’ quality bias and focus on valuation and risk control, it does well during volatile times. That’s been the case this year—the fund’s 3 . 5% gain is significantly better than the 3 . 0% loss for the typical fund in the foreign large-growth Morningstar Category. The fund has benefited from an underweighting to hard-hit financials, specifically banks, and those that it does own—such as Itau Unibanco Holding ITUB and Turkiye Garanti Bankasi —have done well. Gold-rated Vanguard Wellesley Income VWINX has outperformed 90% of its peers in the allocation– 30% to 50% equity category in 2016 . This fund is more rate-sensitive than most peers, as evidenced by its above-average duration, and that has contributed to results as interest rates continued to decline this year. In addition, security selection in the investment- grade corporate-bond space has been strong. The fund has further benefited from having an under- weighting in noncorporate bonds.

10 Best-Performing Funds

Fund Name

YTD Cat Rank %

Artisan Value Investor Champlain Mid Cap Adv 1 Fairholme Focused Income 1 Jensen Quality Growth J 1 Mairs & Power Growth Inv 1 Matthews Emerging Asia In 1 PIMCO Inflation Response 1 Permanent Portfolio Perma 1 Vanguard High-Yield Tax-E 1 American Century Equity I 2 1

10 Worst-Performing Funds

Fund Name

YTD Cat Rank %

Oakmark Global I

99 99

Sequoia

Touchstone Sands Capital 99 Dreyfus Opportunistic Sma 98 FPA US Value 98 Fidelity Leveraged Compan 98 Matthews China Investor 98 Oppenheimer Global A 98 Eventide Gilead N 97 Janus Balanced T 97