(PUB) Morningstar FundInvestor

July 2 014

Morningstar FundInvestor

3

from Mutual Series. The pair had done a fine job at that fund, particularly in 2008 when a bearish move into cash was a lifesaver. It makes for a good lab test because Lahr and Gudefin were losing Mutual Series’ seasoned staff of analysts but gaining greater macroeconomic insights through PIMCO . Which is more important for the success of an equity fund? The results say stock analysts are more important. Lahr mentioned being warned away from Greece as an example of how PIMCO ’s macro insights were helping, but their former fund has done far better since they bolted in 2010 . In fact, Mutual Series has a record of maintaining good performance even after managers leave. I think that’s partly due to its stable of seasoned analysts and the strength of its strategy. In any case, PIMCO EqS Pathfinder has struggled and Lahr recently departed. In addition, Neel Kashkari, the architect of the equity move, has left to run for governor of California. This is not the start PIMCO wanted to make in equities.

Not only do Pitkowsky and Trauner vow to close sooner but they also say they will tread much more cautiously on financials—the sector that briefly plunged Fairholme into a brutal 32% loss in 2011 . Thus, GoodHaven’s launch in April 2011 was a double- edged sword. On the one hand, it trounced Fair- holme right away. On the other, Fairholme’s pratfall tarnished the appeal of another Fairholmesque fund. GoodHaven started strong. In 2013 and so far in 2014 , though, it has fared much worse than Fairholme. This is partly because hefty inflows on a small asset base led to big cash weightings heading into the mega stock rally in 2013 . Winner: GoodHaven may be slowing, but it still wins this bout 13 . 2% to 10 . 8% annualized since May 2011 . More recently, though, number-two holding Walter Investment Management has hurt GoodHaven’s returns. We rate Fairholme a Silver to Goodhaven’s Bronze because Berkowitz has a long and brilliant record that trumps the strong but brief run of Trauner and Pitkowsky.

Return % 05/01/11 to 05/31/14

Morningstar Analyst Rating

Prospectus Net Expense Ratio %

Winner: Mutual Global Discovery has returned 10 . 2% compared with 6 . 9% for PIMCO EqS Pathfinder.

Inception Date

Fund

Fairholme FAIRX

1.02 12/29/99 10.77

•

13.18

GoodHaven GOODX

1.10 4/8/11

´

Return % 05/01/10 to 05/31/14

Morningstar Analyst Rating

Prospectus Net Expense Ratio %

Inception Date

Final Thoughts The more-seasoned manager won most of these bouts. Even though the rest of an organization is important, it is worth it to consider following a great manager to his new job. I love it when they intro- duce more discipline with regard to closing, too, as it shows a commitment to shareholders. When they also offer a lower expense ratio, like Akre, it’s even better. In general, the strategies are similar enough to produce similar levels of risk. But the big difference in returns show how important people and asset size are. œ

Fund

11.07

Mutual Global Dsc TEDIX •

1.28 11/1/96

PIMCO EqS Path PTHDX

1.24 4/14/10 8.43

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Fairholme FAIRX vs. GoodHaven GOODX Like the IVA and Champlain managers, GoodHaven’s managers vowed to close their funds sooner than their prior fund. However, because Larry Pitkowsky and Keith Trauner were more assistant managers than lead managers, they haven’t come close to attracting enough assets to get to their targeted closing level. After all, Fairholme has always been mostly a Bruce Berkowitz production. Still, Good- Haven is an intriguing fund.