(PUB) Morningstar FundInvestor

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Fund News

Fund Manager Changes

American Funds Europacific Growth AEPGX Date: 05-30-14 Rob Lovelace has stepped down from the fund, though he will continue on his other two funds. His replace- ment is Lawrence Kymisis, who has 19 years of investment experience and has been a comanager since 2007 on American Funds SMALLCAP World SMCWX. | Our Take: It’s a blow to lose one of the most-seasoned and best-known managers at the fund. However, with 10 listed managers plus a sleeve run directly by analysts, it’s likely that Lovelace was running less than 10% of the portfolio. Many seasoned hands remain at the fund. Date: 06-30-14 Ronald Strauss and Rick Singer are set to retire at the end of June. | Our Take: We are maintaining our Bronze rating because three comanagers remain who have been leading the way. Bill Pekin, Adam Strauss, and Josh Strauss are the managers we’ve spoken to over recent years, and we feel comfortable with them in the lead. Impact: Negative Appleseed APPLX Impact: Negative

Fund Managers Lukewarm on Almost Everything How do fund managers view the markets? “Meh.”

That’s how I’d summarize the three days of our annual Morningstar Investment Conference. Over and over, I heard managers express the view that stocks were pretty fairly valued. I heard neither gloom nor opti- mism. The consensus was that the global economy would keep chugging along for the next couple of years, so there was no urgency to get out of stocks or even cut back credit risk in bond portfolios. However, there was consensus that interest rates in the United States would likely rise significantly in the coming years, and that led many managers to move away from longer-dated debt in the U.S. GMO ’s Ben Inker and BlackRock’s Dennis Stattman said they were spreading their bets around the world in stocks and bonds. Typical was Inker’s comment on 5 – 7 year Treasuries: “It’s not a great place to be, but you’ve got to be somewhere.” Inker stood out for being particularly pessimistic on U.S. small caps, however. “We wouldn’t touch them with a 10 -foot pole,” he said. Inker does like some smaller European cyclical names. Stattman continues to be very bullish on Japanese stocks: “This is a multiyear bull market in the very early stages,” he said. Yet, neither seemed to see big dangers around the next corner. Stattman has been selling gold, and Inker has been cutting Treasury Inflation-Protected Securities exposure—a sign that neither is par- ticularly worried about inflation in the near term. PIMCO ’s Bill Gross was pretty tepid toward the bond market, too. He explained PIMCO ’s “New Neutral” thesis, which argues that real interest rates will rise from their current negative 1 . 25% to around zero, but

Calamos Market Neutral CVSIX Date: 06-26-14 Lead manager Christopher Hartman has left. Eli Pars was added to the management team in his place. | Our Take: We placed the fund Under Review while we look into how the fund will be run. Impact: Negative

FPA Perennial FPPFX Date: 06-03-14 Steve Geist is retiring from FPA. Comanagers Eric Ende and Greg Herr will divide his duties. | Our Take: Herr was named comanager in August 2013, so he’s quite new, but Ende has been on board since 1999. That reassures us that the fund is still in good hands. We have lowered our rating to Silver from Gold to reflect both the loss of Geist and our confidence in Ende and Herr. Date: 10-31-15 Brian Rogers will step down in October 2015 and be replaced by John Linehan, who ran T. Rowe Price Value TRVLX from 2003 to 2009. From 2009 to now, he’s served as head of T. Rowe’s U.S. equity team. | Our Take: Linehan has a decent record but it’s not the equal of Rogers, so we have lowered the rating to Bronze from Gold. Date: 06-30-14 Amit Wadhwaney is leaving. Matthew Fine, who has comanaged the fund since 2012 and had been an analyst on the fund since 2003, will take over as the lead manager. Wadhwaney’s exit comes in the wake of other departures from the international team. In April 2013, Jakub Rehor, who had been a long-tenured analyst and named to the fund’s portfolio-management team in January 2013, left the firm. Two other analysts also left that month, though Third Avenue has since brought them back as consultants. | Our Take: Wadhwaney and the analysts’ departures are a big blow, and we’ve downgraded the fund to Neutral. Date: 06-10-14 Robert Rewey III has replaced Ian Lapey. Rewey comes to Third Avenue from Cramer Rosenthal McGlynn. He was one of several comanagers, so he doesn’t have much of a track record. | Our Take: We have lowered the fund to Neutral from Bronze because of Rewey’s record and because there seems to be a steady exodus from the firm. Date: 03-31-14 Vanguard is adding Pzena Investment Management to the roster of firms managing the fund. Pzena will start small and gradually build up as Vanguard sends inflows the firm’s way. Barrow Hanley runs 74% of assets, and Donald Smith & Co. runs 26%. | Our Take: This will have little impact at first but may matter down the road. Pzena is a deep-value firm with a strong long-term track record, but it was hit hard in 2008. Impact: Negative T. Rowe Price Equity Income PRFDX Impact: Negative Third Avenue International Value TAVIX Impact: Negative Third Avenue Value TAVFX Impact: Negative Vanguard Selected Value VASVX Impact: Neutral