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Market Meltdown Winners and Losers

Plus, new Putnam funds, Fidelity manager changes, and more.

Morningstar Analysts, 10/06/2008

Morningstar's fund analysts cover 2,000 mutual funds. Their full analyst reports, including Stewardship Grades, are available in Morningstar Principia Mutual Funds Advanced and Morningstar Advisor Workstation Office Edition.

With the jarring nosedive the stock market has taken amid the financial crisis and the failure of the initial government bailout plan, it's no surprise that nearly all large-value funds have lost money recently, given their typically large stakes in the financials sector. Below we look at some funds that have tanked since Lehman Brothers collapsed on September 15, as well as a few that have survived fairly well.

We've long been fans of managers who invest with conviction, but Arnie Schneider's decision to stash nearly 40% of Schneider Value SCMLX in financials as of the end of June--not to mention a 9% stake in Freddie Mac FRE and Fannie Mae FNM--demonstrates the downside of a concentrated portfolio. The fund was one of the hardest-hit in the recent turmoil, down nearly 13% from Sept. 15 through Sept. 30. Schneider Value isn't the worst offender, however. Touchstone Large Cap Value TLCAX is down 22.4% in the same period and has lost nearly 54% for the year to date. That fledgling fund, which launched in 2006, seemed to own nearly every struggling stock in its June portfolio, including Fannie and Freddie, Washington Mutual WM, and insurance giant AIG AIG.

Only one large-value fund has stayed in the black this year: Forester Value FVALX delivered a 1.6% return from Sept. 15 through Sept. 30, and has gained 11.5% for the year to date. The nine-year-old fund staved losses with its low 10% stake in financials, instead loading up on profitable health-care and consumer names.

Other funds escaped the turmoil with minimal damage, relatively speaking. Yacktman YACKX, for example, has recently outperformed nearly all of its large-value peers with a -3.2% return (from Sept. 15 to Sept. 30). Although this fund is highly concentrated, it has held up better than Schneider Value by putting large stakes in consumer names and keeping only 11% in financials as of the end of June (compared with the category average of 21%). Similarly, respected manager Jean-Marie Eveillard of First Eagle U.S. Value FEVAX generally eschews financials and has kept a big stake in cash, limiting the fund's recent loss to 3.4% (Sept. 15-Sept. 30). And Fund Analyst Pick WHG LargeCap Value Instl WHGLX continues to earn its stripes. By sticking to some of the more stable financial firms, including JP Morgan JPM and Wells Fargo WFC, it's slipped just 3.4% in recent weeks.

Neuberger Berman Finds a New Owner
Two private-equity companies, Bain Capital Partners, LLC and Hellman & Friedman LLC, have agreed to purchase Neuberger Berman, the mutual fund business of bankrupt Lehman Brothers Holdings. The deal also includes the fixed-income and alternative asset-management arms of Lehman Brothers' Investment Management Division. The acquisition, expected to be completed in 2009, will lead to a stand-alone investment firm with an estimated $230 billion of assets under management (the combined value of Neuberger Berman and the Lehman division). Portfolio managers and other senior professionals will own at least 20% of the new conglomeration, and Bain Capital and Hellman & Friedman will split the remaining stake evenly.PAGEBREAK

This is not the first time Hellman & Friedman has bought out a financial firm. In 2006, it purchased European asset management firm Gartmore Investment Management in a similar fashion, with employees retaining partial ownership of the firm. It also has a stake in Artisan Partners, LPL Financial, and Arch Capital Group Ltd, among others, and generally takes a hands-off approach with these acquired firms. Bain Capital, meanwhile, has generally stayed away from acquiring financial firms until now, preferring to invest in consumer companies.

The new company will be headed by George Walker, who had been head of investment management for Lehman. Joe Amato will continue to be in charge of the Neuberger arm. Overall, we're pleased that investment personnel will have some ownership stake in the firm. Meanwhile, we expect little disruption, if any, for Neuberger Berman fundholders.

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