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Our Large-Value Ratings From Top to Bottom

Here's a look at some of the funds we've rated so far in this category.

Russel Kinnel, 12/19/2011

One of the best things about our new Morningstar Analyst Ratings is that we fill in the gaps between a category's best and worst funds so that you can understand exactly where we think a fund falls. We started by rating our former Fund Analyst Picks and the largest funds, skewing the ratings to the recommended side, but over time more funds will land in Negative and Neutral. I have pulled together our ratings in the large-value category. I've chosen a section from each fund's analysis to illustrate key insights that drove the rating. Our confidence in managers and strategies is a big driver of the ratings. The Neutral funds feature managers who either lack a record or have a record that is mediocre.


T. Rowe Price Value TRVLX
People section written by Katie Reichart
New manager Mark Finn has access to T. Rowe's well-respected analyst team, and the fund is overseen on a high level by an investment advisory committee. Finn's experience across the capital structure, accounting background, and time as an industrials analyst should prove valuable for seeking out undervalued securities. However, he has no prior management experience, and it's still too early in his tenure to give him a complete vote of confidence.

Columbia Value & Restructuring UMBIX 
People section written by David Kathman
David Williams has been this fund's lead manager since its 1992 inception, compiling one of the best long-term records in the large-value category, but he announced in early 2011 that he will retire at the end of 2012 after 20 years with the fund. At that time he will hand over the reins to Nick Smith and Guy Pope, who were both named comanagers here in early 2009, in apparent anticipation of Williams' eventual departure ... It's possible that these new managers could excel once they take over, but at this point we can't be as confident about them as we would about Williams, whose idiosyncratic stock-picking skill has been crucial to the fund's success.

Vanguard Windsor VWNDX 
People section written by Dan Culloton
This fund has two subadvisors: one solid, the other suspect. Fortunately, the stronger subadvisor, Wellington Management Company, controls the bulk of the portfolio.

Jim Mordy, a longtime member of the eight-person team that has managed this fund since its 1958 inception, has been lead manager since 2008. Mordy has worked with three of his predecessors, including John Neff, who ran the fund from 1964 to 1995. Mordy, who had between $500,000 and $1 million invested here as of the most recent regulatory disclosure, is steeped in the fund's value style and has strong support.

The AllianceBernstein team that runs nearly 30% of this fund has been in flux in recent years as has the firm in general. Joe Paul and Greg Powell, who are currently listed as managers on this fund, are the fifth and sixth from AllianceBernstein assigned to this fund. The firm has always used a team approach, but there have been a number of changes to that team since AllianceBernstein replaced its CEO and former listed manager on this fund Lewis Sanders in 2009 (Sanders' new firm, which includes another former manager of this fund, now runs part of Vanguard Windsor II VWNFX). That's a lot of change, even though Paul and Powell have been with AllianceBernstein and analyzing stocks or managing value portfolios since 1987 and 1997, respectively.


Mutual Shares TESIX
Performance section written by Bridget B. Hughes
In the past decade, the fund has fared well versus the competition: Its 4.02% annualized return during the 10 years through Sept. 22, 2011, lands in the category's top third. During that time, the fund has generally exhibited below-average risk characteristics such as a comparatively low standard deviation. However, nearer-term performance trends raise concerns. For example, the fund fell to near the bottom third in 2008's harsh market with a 38.10% drop. Then, in 2009's recovery, it moved to the category's top quartile with a 27.84% gain. That performance pattern, overall, is out of character for a fund more normally characterized by a very low beta and favorable downside capture ratio.

Mutual Beacon TEBIX
People section written by Bridget B. Hughes
Christian Correa, one of Mutual Series' merger-arbitrage specialists since 2003, was named a comanager here in early 2007. His more-senior comanager, Michael Embler, left the firm in May 2009. Shortly after that, Mandana Hormozi was added as a comanager. Like Correa, Hormozi joined Mutual Series in 2003 and has served the firm as a sector analyst.


Fairholme FAIRX 
Summary section written by Kevin McDevitt
A departure reflects Fairholme's curtailed plans more than a change in direction. Comanager Charlie Fernandez resigned from this fund's advisor, Fairholme Capital Management, effective Oct. 17, 2011. ... It is likely that the departure is partly related to the fund's scaled-back ambitions. Manager Bruce Berkowitz said that he does not plan to do any private transactions for the foreseeable future. With the market down about 10% from its April 2011 high, Berkowitz believes that there are plentiful opportunities in the public markets. The fund's significantly smaller asset base probably played a role in that decision, too. Because of the fund's 27% year-to-date loss and massive redemptions, its asset base has fallen 55% to $8.9 billion. Berkowitz had believed that the fund's prior scale gave it access to attractive deals.

Vanguard Windsor II VWNFX
Process section written by Dan Culloton
Veteran manager Jim Barrow's approach still drives this fund. He looks for dividend-paying companies with strong balance sheets and business models but whose shares offer above-average yields and below-average valuations. He stays fully invested in 50 or fewer stocks and trades infrequently. For years he favored hard-to-love stocks such as tobacco companies and avoided high-growth areas like technology. But he's warmed to the tech sector in recent years as one-time tech bellwethers Microsoft MSFT and Intel INTC have initiated and raised dividends as they have matured and their share prices have languished.

Invsco Van Kampen Comstock ACSTX
Process section written by Greg Carlson
The managers of this fund like to go against the grain. They prefer companies that look cheap on a variety of valuation measures and generally aren't willing to pay up for higher-quality ones; unlike many of its large-value peers, the fund rarely strays into the blend portion of the Morningstar Style Box. That approach sometimes means buying firms that are enduring serious problems. (Indeed, its holdings' average debt/market capitalization ratio is typically above the large-value category norm, while profitability measures are subpar.)

Invesco Van Kampen Growth and Income ACGIX
Performance section written by Katie Reichart
The fund's moderate approach has delivered solid long-term returns. Its rolling three-year returns during lead manager Tom Bastian's eight-year tenure have beaten the Russell 1000 Value Index almost two thirds of the time and have stayed ahead of the large-value norm in every period. The fund tends to hold up better than do its large-value peers and the Russell 1000 Value Index in down markets while lagging slightly in up markets. Overall, the fund has established a strong track record with this strategy, with a top-quartile ranking during the trailing 10-year period.


Dodge & Cox Stock DODGX
Summary section written by Dan Culloton
The fund can still revert to its historic form. Its expense ratio and turnover remain low, reducing total ownership costs. The seasoned managers who built the fund's strong track record remain on the job and are as value-oriented and contrarian as ever. In the third quarter, the fund sold or trimmed several strong-performing stocks, including Motorola Mobility MMI, News Corp. NWS, and Sanofi SNY, as well as Diageo DEO, Royal Dutch Shell RDS.B, and video game maker Electronic Arts ERTS.

Yacktman YACKX
Summary section written by Ryan Leggio
In the past, the managers largely avoided tech stocks on valuation concerns; now Cisco CSCO and Microsoft rank among its top positions. The team recently initiated a small stake in troubled phone maker Research in Motion RIMM, too. Management likes these companies' rich free cash flow yields, which have swollen to double digits amid poor share-price performance. It's not yet clear if the team can value these less-predictable tech stocks as well as it has the fund's resilient consumer staples names, a primary driver of the exceptional long-term returns.

American Funds Washington Mutual AWSHX
Summary section written by Kevin McDevitt
American Funds Washington Mutual looks particularly well-suited to the times. After a decade of small-cap outperformance, this fund's blue-chip large-cap holdings trade at a historical discount to their small-cap counterparts, although this discount has shrunk a bit in 2011 as market sentiment has shifted.

T. Rowe Price Equity Income PRFDX
Process section written by Katie Reichart
Brian Rogers searches for companies trading cheaply relative to their historic norms. The backbone of the fund consists of blue-chip behemoths that may not be huge bargains but offer at least a modest yield. The real priority is price appreciation, which he seeks by buying out-of-favor marquee names in a variety of sectors. Although Rogers prefers companies with steady dividend histories, he won't necessarily sell or trim a position when a company reduces its payout. The fund's process tends to give it a quality bias, as it avoids some of the cheap low-quality companies that deep-value funds favor.

Russel Kinnel is Morningstar's director of mutual fund research. He is also the editor of Morningstar FundInvestor, a monthly newsletter dedicated to helping investors pick great mutual funds, build winning portfolios, and monitor their funds for greater gains. (Click here for a free issue). Mr. Kinnel would like to hear from readers, but no financial-planning questions, please. Follow Russel on Twitter: @russkinnel.

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