(PUB) Investing 2016

15

November 2016

Morningstar FundInvestor

fee, American Funds New Perspective ’s NPFFX fiscal 2015 net expense ratio was 0 . 81% , which ranked in the cheapest quintile of similarly distributed peers. New Morningstar Analyst Ratings T. Rowe Price Growth & Income PRGIX received its first-ever rating, a Bronze. Manager Jeff Rottinghaus has been on the fund since June 2015 but has successfully used the same strategy at T. Rowe Price U.S. Large-Cap Core TRULX since 2009 . Factor in low fees and strong analytical resources, and the fund is a strong large-cap competitor. Rottinghaus uses the 200 - 275 stocks in analyst-run fund T. Rowe Price Capital Opportunity PRCOX as a starting point, narrowing down the list to around 50 stocks to focus on the analysts’ best ideas. He emphasizes companies with good business models and management and con- siders industry dynamics and valuation, though he is willing to hold promising secular growers that may look pricey. Fidelity Mortgage Securities FMSFX is back under cov- erage with a Silver rating. The fund benefits from an experienced team, a thoughtful, well-resourced strategy, and low fees. Manager Bill Irving and comanager Franco Castagliuolo have distinguished themselves running pure government options, and they take a similar approach here. This mortgage-focused fund has the flexibility to invest modestly in nongovern- ment fare. At 10% to 15% of the portfolio, the latter’s mix of asset-backed and residential- and commercial- mortgage-backed securities is enough to push the fund into the intermediate-term bondMorningstar Category. The managers avoid significant interest-rate bets and instead focus on individual security selection. They’ve been willing to venture into less traveled and therefore higher-yielding corners of the market, such as float- ing-rate securities backed by reverse mortgages. Ratings Changes PIMCO High Yield PHYDX has been upgraded to Silver from Bronze. It has largely performed as expected through various market environments, and its deft navigation of the recent energy-sector troubles, along with a deep team and inexpensive price tag, support the upgrade. Since taking over in January 2010 , lead manager Andrew Jessop has made this fund a

straightforward high-yield offering. The fund uses the Bank of America Merrill Lynch U.S. High Yield BB -B Rated Constrained Index as its benchmark, which excludes bonds rated CCC or lower. The fund’s higher- quality approach should minimize volatility over a full credit cycle relative to peers that take on more credit risk, but it could lag during risk-on rallies, as it did in 2012 and 2013 when CCC bonds rallied. On the other hand, Jessop and team were early to spot troubles in the energy and commodities sectors, which put the fund in the top quintile of its category during the sell-off in 2014 and 2015 . Invesco Growth and Income ACGIX has been down- graded to Neutral, as the fund doesn’t have a clear edge following turnover on its investment team. Comanager Mary Jayne Maly’s retirement in March 2016 still leaves a hole. Maly was the longest-tenured team member with more than 20 years on board, and she had been a comanager on the fund since July 2008 . The analysts taking over her health care, materials, and technology sector responsibilities have much shorter tenures on the team. New comanager Matt Titus was comanager of American Century Large Company Value ALVIX from October 2010 until early 2016 ; while the fund’s record during that time does not belong solely to him, it trailed its benchmark. Lead manager Tom Bastian remains in place here, but this fund has lagged its benchmark during his tenure.The current team must make a case for itself. Capital Gains Distributions Ahead As the end of the year approaches, more fund companies are posting estimating capital gains distributions on their websites. Royce is one them, and Royce Premier RYPRX —which rebounded nicely after a disappointing 2015 —stands out with an estimated distribution of 14% of its net asset value. T. Rowe Price Growth & Income is projected to have a similarly large distribution. Columbia Acorn ACRNX and Columbia Acorn USA AUSAX have estimated distributions exceeding 20% following outflows and portfolio manager changes. K