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By Jeremy Glaser | 08-05-2011 12:42 PM

Kinnel's Plays for the Downturn

Morningstar's Russ Kinnel discusses where both defensive and opportunistic fund investors should look if they're wanting to put money to work today.

Jeremy Glaser: For Morningstar, I'm Jeremy Glaser. After the market sell-off, a lot of mutual fund investors are looking for places to place bets. I'm here today with Russ Kinnel. He is the director of mutual fund research here at Morningstar. He is also the editor of Morningstar FundInvestor. Russ, thanks for joining me.

Russell Kinnel: Good to be here.

Glaser: So, I know that there are a couple of different types of investors out there who might be looking to put some money to work after the big sell-off we've seen in the market. Let's take a look at people who might be a little bit more defensive first as they saw their portfolios decline you know a lot in value. Where might someone who is looking for a more defensive play, what kind of fund should they be looking at right now?

Kinnel: Probably something in the balanced-allocation mix where you've got some stocks and bonds and you're not going to lose nearly as much if stocks keep going down. So, on the really defensive end I would say something like Vanguard Wellesley Income that's mostly invested in bonds and on both the stocks and bonds side, it's very conservative. It has an extremely low expense ratio, so what returns you're getting are going to make it through to you. So it's always good to be low-cost as markets are going down. For a little more aggressive idea, I would throw out FPA Crescent run by Steve Romick. He's got cash, bonds, and stocks, and he is very opportunistic but in a defensive way so that he is looking for good opportunities out there but not if they're going to come with significant risks. That fund has a really outstanding long-term record, too.

Glaser: For investors who might be looking at the situation a little bit more opportunistically who see this as a maybe a chance to get into some high-quality names at a bit of a lower price and be willing to accept a bit more volatility, what are some managers that might be good for them?

Kinnel: I'll start with a really established one: that's Longleaf Partners, a fund that really looks for a big discount to value but is willing to go where there is controversial names. They like Chesapeake Energy and some other names that are controversial. But the people at Longleaf are really outstanding long-term investors, and of course this is a sort of fund in which you have to be long-term yourself. You've got to hold it 10 years or more because it's a very concentrated fund that can do well in a downturn like this.

Glaser: What about another name?

Kinnel: A couple of others I like, I'll throw in a much less well-known name: Artisan Global Value. That's run by David Samra and Dan O'Keefe. They came to Artisan from the people who run Oakmark Harris funds, and they're in that same sort of strategy looking for deep value plays. But in their case, they really emphasize balance sheets, and that served him well in the 2008-09 stretch. They're very good opportunistic investors, and they right now have a very small portfolio in global value. It's a very small fund, so I think they should really be able to take advantage of these opportunities.

A third one I'll throw out would be Sequoia Fund, another classic that's a great value investor. Of course, the fund has Berkshire Hathaway, but it also has a lot of other good companies. The managers really proven over time that they're just very good evaluators of businesses, and I think the fund is a good choice for picking up some bargains.

Glaser: Russ, thanks so much for your time today.

Kinnel: Good to be here.

Glaser: For Morningstar, I'm Jeremy Glaser.

 

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