(PUB) Investing 2016

13

August 2016

Morningstar FundInvestor

Manning & Napier Gets Its Groove Back Leaders & Laggards | Andrew Daniels

Laggards Bronze-rated Fidelity Leveraged Company Stock FLVCX has lagged 97% of its mid-cap-value peers thus far in 2016 . Lead manager Thomas Soviero invests primarily in firms with debt/capital ratios in excess of 50% and below-investment-grade credit ratings, which make this fund much more volatile than its typical peer. Despite having an overweighting in strong-performing basic materials, its top holding in that sector— LyondellBasell Industries LYB —is down 11 . 5% this year. Additionally, the fund’s overweighting to poor- performing airlines—such as Delta Air Lines DAL , Southwest Airlines LUV and American Airlines AAL — have dragged on results. Bronze-rated Matthews India MINDX has trailed all of its India equity peers for the year to date. This fund’s managers readily consider lesser-known and smaller-cap stocks, so it’s distinct from its typical peer. The fund has been hurt this year by subpar stock selection in the technology and financials sectors. Detractors include online media firm Just Dial JUST- DIAL , software firm MindTree MINDTREE , and banking firm IDFC Bank . The fund’s underweighting to strong-performing basic-materials stocks has also dragged on results. Neutral-rated Metropolitan West High Yield Bond MWHYX has lagged 95% of its high-yield bond peers in 2016 . The managers make big adjustments to the fund’s quality tilt depending on their view of the current stage of the credit cycle. The team believes that the economy is in the late stages of the credit cycle, so it has kept a light stake in rallying junk bonds. Additionally, the fund’s 20% -plus energy stake in late 2014 hurt as oil prices plummeted, while the team’s decision to cut that stake to roughly 6% and instead hold a 20% -plus cash stake as of March 2016 meant the fund missed out on the second quarter’s energy rally. K Contact Andrew Daniels at andrew.daniels@morningstar.com

Leaders Manning & Napier Equity EXEYX has outperformed 99% of its large-growth peers for the year to date. Although the management team’s penchant for siza- ble sector bets has backfired at times, it’s helped the fund this year. The fund has benefited from its overweighting to strong-performing basic-materials stocks: Chemical producer Ashland ASH and agricul- ture giant Monsanto MON are both up more than 10% this year. Strong stock selection in the healthcare sector also helped returns: Alere ALR rose sharply after announcing it would be acquired by Abbott Lab- oratories ABT —though the team has since sold its stake—and Intuitive Surgical ISRG is up 27% . Lazard Emerging Markets Equity LZOEX , with a Morningstar Analyst Rating of Silver, has excelled thus far in 2016 , outperforming 95% of its diversified emerging-markets peers. The fund has benefited from its overweightings to strong-performing Brazilian, Russian, and Indonesian stocks. Additionally, the fund has an underweighting in Chinese stocks, which have bounced around this year. Top individual contrib- utors to performance include banks Banco do Brasil and Sberbank of Russia SBER and auto firms Localiza Rent A Car and Imperial Holdings IPL , all of which are up more than 35% this year. Gold-rated Vanguard REIT Index VGSLX has outper- formed 99% of its real estate peers in 2016 . The fund has 100% of investments in North America; the typical real estate fund has 91% , and this year Brexit hit foreign currencies hard. Strong-performing REIT s this year include Realty Income O, EPR Properties EPR , and National Retail Properties NNN , all of which are up more than 35% .

10 Best-Performing Funds

Fund Name

YTD Cat Rank %

Artisan Value Investor Champlain Mid Cap Adv Fairholme Focused Income

1 1 1 1 1 1 1 1 1 1

GoodHaven

Jensen Quality Growth J

Longleaf Partners

Mairs & Power Growth Inv Manning & Napier Equity S PIMCO Inflation Response Permanent Portfolio Perma

10 Worst-Performing Funds

Fund Name

YTD Cat Rank %

Matthews India Investor

100

FPA US Value

99 99 99 99

Fidelity Independence

Oakmark Global I

Sequoia

Touchstone Sands Capital 99 Scotia Dynamic U.S. Growt 98 Dreyfus Opportunistic Sma 97 Fidelity Leveraged Compan 97 Litman Gregory Masters In 97