Getting beyond these three funds' low, low 2007 rankings.
It's no secret that some of the better mutual fund managers are having a tough year thus far in 2007. Not willing to leave the task to others, Bill Nygren of Oakmark Fund
Regular readers of Morningstar know that we still have confidence in those top-level managers. But the big names aren't the only ones struggling this year. Several less-well-known managers of funds in Morningstar's large-blend category currently share space in the basement with Nygren and Miller.
In such cases there's always one caveat and two key questions. The caveat: One year, or part of a year, is too short a time period to properly evaluate any fund. The only reason we occasionally highlight such situations is because we know many shareholders, or other investors, are curious to know the answers to the two questions that arise in these situations: What accounts for the lousy showing so far, and more important, are these funds still worth owning or does their short-term struggle actually result from a deeper problem?
In all three of the following cases, we don't think you should turn against the funds because of an eight-month ranking. But that doesn't mean you should jump into all of them, either.
Prior to 2007, this fund had an outstanding record, consistently outpacing the rest of the large-blend category and the S&P 500. Remarkably, this offering, founded in 1998, had landed in the top quartile of the category every year from 1999 through 2006, except for one year when it "only" reached the 34th percentile. Its annualized return during that period was 12.2%, trouncing the category average of 4.3% and the S&P 500's 3.4%. This year, the fund finally hit the inevitable rough patch. Through August 29, the fund is 0.4% in the red, landing in the 96th percentile of its group and trailing the index by nearly 5 percentage points.
There have been various culprits. A couple of holdings have been hit hard because of association with the subprime problems: Washington Mutual
Given the fund's exceptional long-term record spanning a variety of market conditions, long-tenured management team, and solid strategy, it's easy to stick with it. True, it had a minuscule asset base during its early years, and has had to cope with growth in assets over the past few years. Still, at $2.6 billion, it's hardly at a size where bulk should hamper its style, given its preference for large and midsized companies and a restrained turnover rate. Its managers have been on board either since the fund's inception or within a few years after. It doesn't seem like anything has changed here; rather, the fund is, for one rare time, out of step. It seems likely it will return to form and remain a fine long-term investment.
Madison Mosaic Investors