(PUB) Morningstar FundInvestor

November 2013 Vol. 22 No. 3

FundInvestor Research and recommendatio s for the s riou fund investo

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Drawing the Line on Asset Bloat

Thus, investors ended up with a different fund than the one they bought. And it showed in performance, too. For the trailing 10 years, this once-strong per- former’s 8 . 4% annualized return ranks in its category’s bottom quintile. Franklin MicroCap Value FRMCX , run by the same team using a similar process, closed in at the beginning of 2001 with assets at a mere $ 110 million. Its 10 -year return by contrast was 11 . 1% annualized—nearly 300 basis points better than Franklin Balance Sheet. I wouldn’t say assets were the only difference here, but they were important. And before you accuse me of pulling a Malcolm Gladwell by stringing together a few anecdotes as though that proves something, I offer an example of a fund that was not ruined by asset growth. T. Rowe Price Small-Cap Value PRSVX closed in May 2002 with assets of $ 3 billion. It, too, had been borderline micro-cap. But it didn’t migrate to mid-cap land. It moved up slightly but has remained near the low end of small caps. And its

RusselKinnel, Director of FundResearch and Editor

Fund Reports

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Every fund investor with gray hair knows the Icarus- like story of Fidelity Magellan FMAGX . It was brilliant, but, after Peter Lynch left, it was run by mere mortals even as its asset size soared ever higher. It was the biggest fund by far, and that proved its undoing. It has been a weak performer for nearly two decades, and it has fallen back to earth. The fund surpassed $ 100 billion, but today it’s a humbled 2 -star fund with just $ 15 billion in assets. But there have been other, less famous stories such as Calamos Growth CVGRX , which was great when it was small and pedestrian when huge. There’s also Franklin Balance Sheet Investment FRBSX , which we’ve illustrated in the graph below. It became popular quickly by making money in 2000 and 2001 , then losing only a little in 2002 . The fund gained $ 500 million in new flows in 2001 and an additional $ 941 million in 2002 . It closed to new investors in 2002 , finishing the year with a total of $ 2 . 5 billion in assets under management. That was a pretty quick close, but it might have been too late. The fund tripled in size from 2000 to 2003 and grew to $ 5 billion in 2006 . Management moved the fund from borderline micro-cap (around $ 250 million average market cap) to the small/mid border just as rapidly from 2000 to 2003 as illustrated in the graph. The little dot is the first portfolio in 2000 and on up to the biggest dot in 2003 .

Artisan Small Cap Value Dodge & Cox Income Primecap Odyssey Aggresive Growth Tweedy, Browne Worldwide High Dividend Yield

Morningstar Research

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Foreign Funds Get Active

The Contrarian

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More of My Portfolio

Red Flags

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Here Comes the Tax Bill

Market Overview

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Continued on Page 2

Leaders & Laggards

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Manager Changes and News

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Franklin Balance Sheet’s Move up the Style Box

Portfolio Matters

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Deep Value

Core Value

Core

Core Growth

High Growth

A Conversation With Jack Bogle

Micro Small Mid Large Giant

Tracking Morningstar

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Analyst Ratings

Income Strategist

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FundInvestor 500

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FundInvestor 500 Spotlight

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Follow Russ on Twitter @RussKinnel

2000–2003