(PUB) Morningstar FundInvestor

15 Years of Funds and Investors Continued From Cover

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in redemptions even after it reopened. That’s a pretty good thing because 2009 was the only really good year in the past five. Like Yacktman Focused, this fund also held up much better than its peers in 2008 so that more shareholders were around for the rebound. Look for funds with a history of closing and you’ll be on the right path. Matthews Asian Growth & Income MACSX share- holders didn’t make as much as the fund’s 15 -year total returns, but because total returns were 14 . 7% annualized, they could spare a little. The fund holds promise for solid future investor returns, too, as it mod- erates the extremes of emerging-markets risk while still providing the potential for hefty returns—not that I’d be counting on 15% annualized the next 15 years. Wasatch Core Growth WGROX produced strong investor returns simply by having above-average returns with below-average risks. Well, kind of. The fund’s 15 -year returns were bettered by the typical investor’s 11 . 2% annualized returns. While modest risk is part of it, the fund also presented an unu- sual case in which it had few shareholders in each of the past two bear markets. For the 2000 – 02 bear market, it was a tiny fund that held up much better than most small-growth funds. Wasatch’s focus on actual earnings rather than clicks and hype made it one of the few growth shops to come out of that market with an enhanced reputation. Thus, in 2003 the money poured in. In fact, the fund took in more than $ 1 billion that year and really hasn’t had meaningful inflows in any year since. That same caution that helped in the bear market held it back in the rally even though it had positive returns. That led investors to bail on the fund just as the next bear market hit. This time the fund didn’t even hold up par- ticularly well on the downside but instead rebounded very strongly in the rally. Royce Special Equity RYSEX is just the sort of de- fensive fund I’d expect on this list. Charlie Dreifus is a stickler for clean balance sheets, and that makes for a defensive portfolio. The fund has a 9 . 9% 15 -year total return and 11 . 2% investor return. The fund has closed to new investors when assets have grown too

Funds that work well for investors are those with more consistent performance, consistent manage- ment, and consistent strategies. You’ll find them more often at strong fund companies where manager turnover is low and a shareholder orientation is embedded throughout the firm’s values. Often funds with more-moderate risk profiles are easier to use, too. Boring allocation funds are good bets to produce solid investor returns. Low-cost funds are able to more consistently outperform, and their managers often take on less risk because they have a lower hurdle to overcome. The Top Investor Returns You don’t see this too often. Yacktman Focused YAFFX produced a strong 8 . 85% annualized 15 -year return for the period ended June 30 , 2013 . Yet the typical investor earned a 14 . 12% return. However, the fund was tiny during both bear markets. It ended 2008 with just $ 65 million in assets. That surged to $ 666 million the next year and kept growing to $ 10 billion today. Not only did most shareholders miss those bear markets but they also missed the fund’s bottom-decile performances in 2004 and 2005 . Now that the fund is quite big, it won’t have such luck in the future. However, it has produced strong risk- adjusted performance and, despite a sluggish 2012 , it has done well even as assets have grown. I doubt it will be at the top of this list in five or 10 years, but it may well be ahead of most of its peers. Indeed, Yacktman Fund YACKX , which didn’t have as much timing fortune, still produced a strong 11 . 6% investor return. It was launched earlier, so its start date wasn’t a big help on the investor-returns front, though the flow pattern was similar. Vanguard Energy VGENX has long been a big fund, yet its shareholders have returns about 100 basis points above the fund’s already big 11 . 61% annualized total return. Key to that story is that the fund closed amid the huge rally in energy stocks from 2003 to 2007 . As a result, most of the shareholders were there for most of the huge four- to five-year run in which returns ranged between 19 . 7% and 44 . 6% each year. They couldn’t come in late. The fund has been mostly