• / Free eNewsletters & Magazine
  • / My Account
Home>Research & Insights>Investment Insights>Stick With These Managers Who Are Having Subpar Years

Related Content

  1. Videos
  2. Articles
  1. Top Investment Ideas for Retirement

    Retirement Readiness Bootcamp Part 5: Morningstar strategists share their top fund, ETF, and dividend stock picks to fill your retirement portfolio.

  2. The Picks Panel: Best Ideas From Morningstar Analysts

    Whether you need to fill a hole in your retirement portfolio or want to find a world-class company at a bargain-basement stock price, a trio of Morningstar specialists share their shopping lists of topnotch candidates.

  3. Sharpen Your Portfolio Plan for 2014 and Beyond

    Roundtable Report: At the outset of 2014, Morningstar strategists dig into the market's current valuation and expected return, seek out high-quality U.S. and foreign stock opportunities, size up the role of cash today, assess the Fed's impact on the market, and reveal the best ways to fight inflation.

  4. Why Vanguard Was Hard to Beat in 2014

    It was tough for active managers to outpace Vanguard's low-cost index funds in 2014, and many of its active funds also outperformed.

Stick With These Managers Who Are Having Subpar Years

Getting beyond these three funds' low, low 2007 rankings.

Gregg Wolper, 09/04/2007

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 OAKMX and Oakmark Select OAKLX told everyone himself how lousy his funds have performed in a letter to shareholders. And the financial media has made sure that you know that Bill Miller's Legg Mason Value LMVTX is again lagging the S&P 500 Index and nearly all of its peers, just as it did in 2006.

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.

Cambiar Opportunity CAMOX
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 WM (which the fund's managers have sold) and bond-insurer MBIA. Several other stocks in the top 20 as of June 30, including Home Depot HD, have also suffered double-digit losses. Conversely, a lack of substantial weightings in industrials and materials stocks, which have held up comparatively well, has hurt the fund relative to rivals.

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 MINVX
This fund has only about $150 million in assets despite having been around for nearly three decades and having run up a nice long-term record prior to this year. The fund changed to its current all-stock format from a balanced strategy in 1996, and over the 10-year period from the start of 1997 through 2006, it beat both the S&P 500 Index and the large-blend category average, with milder-than-average volatility. The fund stood out most notably during the bear market: In each calendar year from 2000 through 2002 it beat at least 85% of its large-blend rivals.PAGEBREAK

©2017 Morningstar Advisor. All right reserved.