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By Christine Benz and Shannon Zimmerman | 03-11-2013 02:00 PM

Flexible Funds for the Current Market

Although major indexes remain elevated, these funds could be good places to put money to work in the present market environment.

Christine Benz: Hi, I am Christine Benz for Morningstar.com. With the market touching new highs seemingly by the day, investors may be concerned about putting new money to work in what could be a lofty market. Joining me to share some opportunistic fund ideas for a challenging market environment is Shannon Zimmerman. He's associate director of fund analysis for Morningstar. Shannon, thank you so much for being here.

Shannon Zimmerman: Always good to be with you, Christine.

Benz: Shannon, we've seen the Dow and the S&P 500 [at or near] these new highs, retracing the way back to 2007 highs.

Zimmerman: Back to the future.

Benz: Right. So I think a lot of investors are kind of wondering what's next, and if they do have money that they still want to move into stocks, how should they go about doing it and where should they put it. You brought a few ideas of funds that do have some flexibility built into their strategies that may be able to do a good job putting money to work in this environment.

Let's start with one. I know it's a shop that you know well. This is Oakmark International run by David Herro. He is the lead manager there. Let's talk about why you think this fund is potentially well-suited to the current environment.

Zimmerman: Well, David Herro is perhaps the most opportunistic manager at a shop that is opportunistic across-the-board, almost to the point of being contrarian. David Herro, I think, a couple years back, if you look back to what he did, both in the Oakmark International portfolio and then the smaller cap fund that he runs, Oakmark International Small Cap, after the earthquake and tsunami in Japan--a tragic event, of course--but his assessment was, "The fundamentals of my companies are not affected by this. They had very limited exposure to industries that were directly affected by those events." So his assessment was the fundamentals haven't weakened; the valuations are much more attractive. And so consequently, given his contrarian stance, in both of the funds that he runs he increased his exposure; he didn't decrease his exposure. He didn't even stand pat. He increased his exposure to Japanese equities. And so that makes sense given his orientation as a contrarian value investor. If the fundamentals haven't weakened and it's cheaper, then it should be more attractive to you.

But the fund can be volatile, but also there can dry patches. So the thing that Herro has as an advantage is a long time horizon. He can wait for a while for his thesis to pan out. Folks have by and large used his funds quite well, but you have to be patient if you're going to invest with a contrarian like David Herro.

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