(PUB) Morningstar FundInvestor

Where to Invest in 2014 and Beyond Continued From Cover

2

‘Reforgotten’ Funds Since before I joined Morningstar, we’ve written arti- cles titled “Hidden Gems” or “Under the Radar Funds” to highlight talented managers who haven’t gotten much attention. However, as investors have fled ac- tively managed equities in the past few years, I think we need a new variation called “reforgotten funds.“ Many once-popular managers have seen assets ebb in recent years even as they bolstered their research staff. In a small-cap roundup a few months ago, I wrote about how there were more good small-cap funds open to new investors than you typically saw five years into a rally. This month I’ll highlight some great funds you may have forgotten about. Westport Select Cap WPSRX is a patient fund that has tried investors’ patience. Poor returns in the snapback rallies of 2009 and 2012 have spurred inves- tors to redeem the fund. Yet it fared well in the down years of 2008 and 2011 thanks to the ability of managers Andy Knuth and Ed Nicklin to find good turnaround candidates trading at modest prices. They’ve produced strong 15 -year results at this fund and had good results at previous funds, too. Longleaf Partners LLPFX and Longleaf Partners International LLINX are excellent funds run by managers who are really committed to the long term as well as to their shareholders. As I discussed in the December issue, management invests in a limited number of stocks that meet their strict valuation standards. If you believe in concentrated, long-term value investing, these two funds are worth long looks. And being out of favor means management has max- imum flexibility because of the smaller asset base. Oakmark Equity & Income OAKBX flipped from get- ting huge inflows earlier in the 2000 s to getting sizable outflows in recent years. Comanager Ed Studz- inski retired at the end of 2012 after the fund posted poor returns in three out of the past four years. So, it’s understandable that a slump and manager depar- ture would spur redemptions. But Studzinski and lead manager Clyde McGregor had built a brilliant record. With McGregor still in charge and now

The Largest and Smallest 15-Year Investor Returns

Morningstar Analyst Rating

Total Ret % Rank Cat 10 Yr

Total Ret % Rank Cat 15 Yr

Manager TenureYrs (Average)

Morningstar Category

Expense Ratio %

Name

American Funds Capital World G/I CWGIX Œ

World Stock

24

12 0.82 10.52

ASTON/Montag & Caldwell Grw MCGFX •

Large Growth

56

66 1.06 19.17

Causeway International Value CIVVX

Frgn Large Blend 25

1.24 9.31

Œ

Dodge & Cox Stock DODGX

Large Value

22

1 0.52 15.62

Œ

FPA Perennial FPPFX

Mid-Cap Growth 55

13 1.02 9.75

Œ

LKCM Equity LKEQX

Large Growth

25

14 0.81 7.27

•

Longleaf Partners LLPFX

Large Blend

80

12 0.91 23.25

•

Longleaf Partners International LLINX

Frgn Large Blend 73

9 1.29 9.46

´

Matthews Asian Grwth & Inc MACSX

Pac/ex-Asia Jpn

50

1 1.11 3.42

•

Royce Special Eqty Multi-Cap RSEMX

Large Blend

1.39 3.08

´

USAA International USIFX

Frgn Lg Growth

23

27 1.21 7.92

´

Vanguard European Stck Idx VEUSX

Europe Stock

57

71 0.12 5.42

Œ

Westport Select Cap WPSRX

Mid-Cap Growth 69

19 1.36 16.08

•

Data as of 12/31/2013

The fund has just $ 4 . 5 billion in assets, giving them more flexibility than most topnotch foreign- equity funds. USAA International USIFX is another appealing Europe-lover that might have escaped your notice. It’s run by Marcus Smith and Daniel Ling of MFS . They take a moderate-growth approach with an emphasis on high-quality stocks.Thus, the fund is a little more defensive than most growth funds. The fund has 71% of assets in Europe, featuring large weightings in the United Kingdom, France, Germany, and Switzerland. Asia, Too Asia’s biggest emerging markets, China and India, had disappointing growth in 2013 but remain compelling for the long term. Last year I picked Matthews Asia Dividend MAPIX and Matthews Asian Growth & Income MACSX as Asia plays. I still like both funds quite a lot, but Asia Dividend is closed and has lost lead manager Jesper Madsen, so Asian Growth & Income it is. The fund is an appealingly cautious play on Asia as it invests in a mix of convertible bonds, preferred stocks, and dividend-paying stocks, and therefore it provides much greater downside protec- tion than Pacific/Asia ex-Japan peers.