(PUB) Morningstar FundInvestor

October 2013

Morningstar FundInvestor

3

T. Rowe lacks good index funds, however. Naturally Vanguard Total Stock Market Index VTSAX and Vanguard Tax-Managed International VTMGX are great ways to lower your costs and cover the whole market. T. Rowe also has a shortage of great foreign funds. I like Causeway International Value CIVVX , which is an outstanding pure developed-markets invest- ment with seasoned managers. Artisan Global Value ARTGX is a nice focused foreign fund that would appeal in a lineup of more-cautious, diffuse T. Rowe funds. I also like Dodge & Cox Global Stock DODWX as a dependable low-cost actively managed option that you can buy and hold for a long time. If you’d like an active asset allocator, Rob Arnott’s PIMCO All Asset PASDX is a real standout. It’s down this year, but the long-term record gives reason to keep the faith. A Vanguard-Heavy Portfolio Vanguard is great, but sometimes its actively man- aged funds get watered down by too many managers. The focused funds previously mentioned have natural appeal. If you have a couple of broad index funds, then focused funds don’t entail as much risk as long as you don’t make them huge positions. Sequoia SEQUX has the brilliant low costs and long-term focus you get at Vanguard, but it still has a nice small asset base and brilliant management. Akre Focus AKREX is a nice mix of caution and aggression as Chuck Akre is a brilliant growth stock investor who will let cash build when the market isn’t offering good bargains. Unfortunately, he isn’t Vanguarding when it comes to costs. Vanguard’s bond funds tend to go straight down the middle, and that’s great, but it means the taxable ones are mostly government-heavy and have interest-rate risk. PIMCO Investment Grade Corporate Bond PIGIX is a great way to escape government debt. If you want to get even bolder, PIMCO Unconstrained Bond PUBDX has greater flexibility to shelter inves- tors from interest-rate risk and makes a welcome diversifier for a portfolio with bond index funds. œ

A Fidelity-Heavy Portfolio You can build a complete portfolio at Fidelity, but it’s not quite ideal. Fidelity has some strong equity funds but it also has a lot of mediocre ones. Moreover, Fidelity’s stock funds tend to run with the pedal to the metal so that you make a robust return in rallies but often get smacked in sell-offs. Let’s consider some more-cautious funds and some focused ones, too, as Fidelity tends to run huge portfolios. FPA Crescent FPACX is the sort of fund you won’t find at Fidelity. It’s cautious, focused, and even has a smattering of short positions. Steve Romick is a long-tenured manager who figures to stick around— another welcome contrast with Fidelity. Tweedy, Browne Global Value TBGVX is not par- ticularly focused, but it is a solid value fund with a decent amount of smaller-cap stocks that should make for a nice diversifier. Fidelity still has a little work to do on its foreign-equity side. Longleaf Partners LLPFX is a cautious focused fund worth a look. Yes, it has been through a slump and had some well-publicized spats with share- holdings at Dell DELL and Chesapeake CHK , but the long-term record is strong and the culture is shareholder-friendly. Oakmark Select OAKLX is another appealing focused fund. Bill Nygren has proved adept at finding great long-term investments. Sometimes, he buys a little early, but usually he comes out ahead in the end. Fidelity has closed its best small-cap funds, so FMI Focus FMIOX is worth a look. Rick Lane and his team have built a great long-term record by looking for well-managed companies with good market positions but whose shares are trading at sizable discounts to private market values. As with most focused funds, returns can be pretty lumpy. A T. Rowe Price-Heavy Portfolio T. Rowe Price is a place I would be pretty comfortable building a complete portfolio. In fact, the two earn our top target-date ratings in part because their depth and consistency are tough to beat.