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3 Newly Reopened Medalist Funds

Wed, 2 Mar 2016

After slumping to various degrees, Royce Premier, Royce Special Equity, and Artisan Global Value have recently reopened to new investors and could be worth a look.

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Video Transcript

Christine Benz: Hi, I'm Christine Benz for Morningstar.com. A few good mutual funds have reopened to new investors in recent months. Joining me to discuss them is Russ Kinnel--he is director of manager research for Morningstar.

Russ, thank you so much for being here.

Russ Kinnel: Good to be here.

Benz: Russ, let's take a look at some of these funds. They are all funds that we like a lot. We would put them forth as funds that investors should consider if they are making some changes to their portfolios or just want to add some good actively managed funds.

Let's start with Artisan Global Value (ARTGX). This is a world-stock fund. Let's talk about why it's reopening.

Kinnel: It's reopening for the reason funds often reopen, which is that it had a bit of a performance slump. Last year, it was third quartile in its category. That led to some outflows, so they are reopening. Though, the record overall is still pretty strong.

Benz: So, it's a globally focused fund. We don't typically see funds like that close to new investors because they do have such a broad universe to invest within.

Kinnel: That's right. It is kind of rare for a global fund to do that, but there are special circumstances. One, it's a pretty concentrated portfolio and, two, it's a pretty small staff at Artisan. So, you have some reasons to maintain that integrity, and that's why they closed it in the past. We don't know when they will close it next, but it looks like a good opportunity today.

Benz: So, it's a Gold-rated fund. Let's talk about some of the key things that you and the team like about this particular fund.

Kinnel: That's right. It's run by David Samra and Dan O'Keefe who used to be analysts many years ago at Oakmark's foreign funds, and you really see that same flavor of value, awareness of debt issues, and concentration of the portfolio. So, there are a lot of similarities and, fortunately, performance has been similar in that both the Oakmark funds and their fund have been great performers. So, it's really solid. Obviously, we like the fact that they had closed before because it tells you they are really shareholder oriented and that they are really focused on providing good performance for investors.

Benz: The next fund is Royce Premier (RYPRX). This is a fund that is Bronze-rated, currently. Let's talk about this fund. It, too, has had some performance struggles, but it's one that you and the team like.

Kinnel: Right. I would call this a much more contrarian play because its slump has been much more pronounced. It's owned materials and energy and a lot of the stuff that's been hit very hard. Whitney George, who had been a comanager, is no longer with Royce--I think, in part, because of that underperformance. So, it's understandable why people would redeem this fund, but it's still got Chuck Royce at the helm. These sector biases can rotate and come back. It's still a pretty appealing fund. It's something of a "best ideas of Royce," where they take the best names from a number of their portfolios. So, it's kind of a good group of small-cap names. It still has appeal even though, obviously, the recent performance has been pretty grim.

Benz: In terms of Chuck Royce--you mentioned that he is heading up the team here--let's discuss succession planning. Chuck Royce has been involved in his firm's funds for many years and the road forward for Royce Funds and this fund in particular.

Kinnel: That's right. I think it's a good question. Anytime you've got a chief investment officer or a portfolio manager pass retirement age, you need to start thinking about who is in line to succeed, and Royce in the last few years has become a little more open about that. This fund and some others have comanagers, so it's fairly clear who will take over. And certainly, at Royce's age, you have to factor that in and consider that these other comanagers are as important as Chuck Royce because presumably they may take on a greater role in the next five or 10 years. So, I think you certainly want to look at that. If you're buying today and if you're going to own it for 10 years, you need to understand that Chuck Royce presumably will have declining influence on the fund over time.

Benz: Another Royce fund that recently reopened is Royce Special Equity (RYSEX). Chuck Royce does not manage this one. I know you've long been a fan of Charlie Dreifus and the strategy in place at this fund. Let's talk about this one.

Kinnel: Yes, I'm a big fan. This is my favorite Royce fund. I own it; it's in our 401(k). So, clearly, I'm on board. It has had a performance slump--not as dramatic as Royce Premier, fortunately--but Charlie Dreifus is a value investor who looks for clean balance sheets and low prices, and that's led him out of the more popular areas lately. So, the fund has slumped a bit. But I really like the fact that he is doing something different from what others are doing, and I think he's doing something better because of his accounting background. He really gets deep into his stocks and really has a good track record of avoiding blow-ups and avoiding any kind of accounting problems. I think it's a defensive strategy that generally is going to hold up better. So, I think there is a lot of appeal there, even though it's been in a bit of a slump.

Benz: I noticed for the year to date--and in keeping with what you were saying about it being a good defensive performer--it's actually having a pretty good go of it relative to other funds in its category.

Kinnel: That's right. Last year was a bit out of the norm in that it underperformed in a down year, but this year it's doing better. If you go back to '08, if you go back to '02, he consistently does well in bear markets. That's really the way you judge it. This is a fund you want to hold through a whole cycle, and you want to go in understanding that in a big rally this is not a fund that's going to have a big run itself.

Benz: Do you think of it as a good diversifier? If someone already has core U.S. equity large-cap exposure, would this be a nice complement to that sort of fund?

Kinnel: Definitely. He is a long way away from that area. If you, say, have a large-growth fund with a lot of the really popular names like Apple (AAPL) or Google (GOOGL), this is completely different.

Benz: Or even an S&P 500 fund?

Kinnel: Right. Even an S&P 500 fund. That corner of small value can behave fairly differently. I think, with so much competition out there, this is still a fund that really looks differentiated to me.

Benz: Russ, these are some recently reopened funds that you think investors should take a look at. Thank you so much for being here to discuss them with us.

Kinnel: You're welcome.

Benz: Thanks for watching. I'm Christine Benz for Morningstar.com.

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